Document: 329 U.S. 156 67 S.Ct. 237 91 L.Ed. 162 VANSTON BONDHOLDERS PROTECTIVE COMMITTEEv.GREEN et al. SAME v. EARLY VANHORN COMMITTEE GREEN Nos. 42, 44, 43, 45. Argued Oct. 22, 1946. Decided Dec. 9, Rehearing Denied Jan. 13, 1947. See 833, 497. [Syllabus from pages 156-158 intentionally omitted] Mr.George W. Jaques, of New York City, for petitioner Vanston Bondholders Protective Committee. Mr. Robert J. Bulkley, Washington, D.C., Vanhorn Charles I. Dawson, Louisville, Ky., respondents Carl B. Early Jay Raymond Levinson, respondents, Green Committee Roger S. Foster, Philadelphia, Pa., Securities and Exchange Commission. Justice BLACK delivered the opinion Court. 1 December 2, 1930, a Kentucky District Court appointed an equity receiver Inland Gas Corporation to take complete exclusive control, possession, custody all inland's properties, enjoined Inland's officers paying its debts. At that time there was no interest unpaid on first mortgage bonds. February 1, 1931, semiannual coupons fell due these The debtor could not pay; court did direct pay. indenture trustee, acting under terms indenture, promptly declared entire principal payable despite previous assumption estate by federal court. In 1935, same approved creditor's petition reorganization § 77B Bankruptcy Act, 11 U.S.C.A. 207, at subsequent date continued as Chapter X proceeding.1 provides payment interest. is insolvent, but assets are sufficient pay bondholders in full, including Should be paid, however, subordinate creditors would receive greatly reduced share reorganized corporation. These latter concede should simple them, challenge their right paid interest2 which after took charge Inland, Court, out consideration orderly fair administration estate, directed date. It this controversy we must determine. 2 document written signed York, designated bank provided bonds attached office trustee or option bearer, Chicago, Illinois. A group investment bankers underwrote issue, sold public, received percentage proceeds additional compensation services. organized corporation laws Delaware. Its place business Kentucky, property mortgaged located state. 3 Under circumstances it allow claim if covenant valid; validity determined law because were there; valid there. Accordingly, held entitled Holding prohibited covenants interest, Circuit Appeals reversed. 6 Cir., 151 F.2d 470. We granted certiorari importance questions raised. 4 thought bankruptcy disallow according whether invalid between parties covenant. considered therefore unenforceable upon two alternative assumptions. First, assumed controlling rule required determine invalidity contract looking state where found 'made' primarily payable.3 Second, since sitting Reviewing decisions, concluded courts also apply substantive law. Arriving both hypotheses, interpreted rendering invalid. agree with conclusion permitted debtor's assets, disagree reasons given conclusion. 5 purpose so administer bring about ratable distribution among bankrupt's creditors. What claims subsisting obligations against bankrupt filed, question which, absence overruling law, reference law.4 Bryant Swofford Bros. Dry Goods Co., 214 279, 290, 291, 29 614, 618, 53 997; Security Mortgage Co. Powers, 278 149, 153, 154, 49 84, 85, 73 236. But obligations, such one here often have significant contacts many states particular state's measure obligat seldom lends itself solution. determining contact most transaction, can find solution mechanical formulae conflicts Determination requires exercise informed judgment balancing interests order best accommodate equities policies those states. Certainly part transaction touched namely, written, signed, there, may reason why govern. apparently people over nation. And Kentucky's having own govern obligation cannot minimized. For company's chiefly products widely distributed prices Kentuckians depend, least some extent, stability company affected carrying charges need decide either, states' creation subsistence involved. assuming, arguendo, other still allowance compatible policy Act. Cf. Kuehner Irving Trust 299 445, 451, 57 298, 301, 81 340. what allowable how shall distributed, does sits. Erie R. Tompkins, 304 64, 58 817, 82 1188, 114 A.L.R. 1487, has implication. That case decided district acquiring jurisdiction diversity citizenship adjudicate controversies only another Holmberg Armbrecht, 327 392, 66 582. enforce Act accordance authority Congress allowed equitable principles.5 think shown accord principles governing distributions. 7 When will debtors' estates being administered them long been Board Com'rs Jackson County United States, 308 343, 60 285, 84 313; Royal Indemnity 313 289, 61 995, 85 1361. general receivership ceases accrue beginning proceedings. Exaction power even his contractual suspended nature penalty imposed delay prompt payment—a necessitated properly preserve protect benefit Thus said: 'We name inflicted owners lien resisting disallowed. As rule, pr perty insolvent passes into hands assignee insolvency, funds. act law; necessary incident settlement estate.' Thomas Western Car 149 95, 116, 117, 13 824, 37 663. American Iron & Steel Mfg. Seaboard Air Line Ry., 233 261, 34 502, 949. Courts felt inequitable anyone gain advantage suffer loss delay. Sexton Dreyfus, 219 339, 346, 31 256, 258, 55 244. Accrual unsecured administrative inconvenience continuous recomputation causing avoided. Moreover, different whose bore diverse rates dates neither nor caused solely delay.6 8 Simple secured accruing filed denied unless security worth more than sum due. supra. To creditor less value debt recently 'Since basis securities amount claim, limitation unmortgaged ratably prior justified Ticonic National Bank Sprague, 303 406, 612, 926.' Group Institutional Investors Milwaukee, St. Paul Pacific 318 523, 573, 63 727, 753, 87 959. ample considerations invoked permit rather debtor. Coder Arts, 213 223, 245, 436, 772, 16 Ann.Cas. 1008; Johnson Norris, 190 F. 459.7 9 manifest touchstone each decision bankruptcy, balance supra, page proceeding before us moved through wake statutory change make inapplicable. just much chancery antecedents. Consolidated Rock Products Du Bois, 312 510, 527, 675, 685, 982.8 10 left unpaid, do imposition 'an application principles.' Dayton Stanard, 241 588, 590, 36 695, 696, 1190.9 Prior receivership, never owed until had breached promptly—on Before began failure they might existing obligation. This breach covenant, duty failed pay.10 when intervened, interrelated drastically changed. suspended. fact, ordered were, face, supposed paid. contingency created present interest—i.e., free promptly—was occurring issued good cause, assume: pending began. extra deemed added or, likely, something like induce either event, enriched suffered corresponding loss, entered joint debtor, creditors, public. Such result consistent principles. legal suspension adequate enforced Affirmed. 12 REED case. FRANKFURTER, whom JACKSON joins, concurring; BURTON concurred joins opinion. 14 1928 Corporation, chartered Delaware, floated bond issue covering business. executed made holder, Chicago agent. By explicit clause agreed defaulted rate applied themselves maturity. public States. 15 r became Reorganization proceedings 77 begun Eastern Kentucky. Subsequently applicable. based coupons. York. Sixth court, deeming ultimately controlled local turn, looked ruled disallowed void On hand, commission, party (§ 208 U.S.C. 608, 608), urges would, apart upheld any State 'having substantial relationship transaction'. Commission supports finds States related uphold covenant: incorporation, site property. Finally view suggests matter fashioned light general, undefined notions administration. Of course, rights Constitution, treaties statutes owe origin State, granting withholding remedy function upshot Commissioners 313. factors legally decisive problem opposite our There case, beyond create made, although, came being, become recognize sought utilized instruments enforcement. 17 Conflict-of-law problems beguiling tendency complicated are. Therefore, often, now, fitting occasions observing classic admonition begin beginning. debts satisfied deal fairly various existence alleged creditor-debtor relation independent precedes it. Parties duties already established, except insofar subsequently arise during course conduct. Obligations thus arise, all, tort applicable fixes consequences transactions several Except very limited Congress, e.g., 582, brought exist force though legislation force, come 1878 1898 fact comes relevance rules concerning affix overriding policy. so, proper adjustment desire rehabilitate authorize refuse proven. instance, recognition undermine supported obligation, sitting. threshold exists. clarity analysis justifies repetition wholly government, implies If reject. 18 analysis, however phrased, indispensable now us. Putting wrong likely beget answers One way putting ask executing assets. frame avoid crucial preliminary inquiry exists recognized. nothing congressional acts constituting occur, consequence Benedict Ratner, 268 353, 45 566, 69 991; Where entirety occurs clearly determines born, becomes relevant mere agreement citizens second performance third affecting individuals forty-eight principle inherent scheme, debt, exists, raise ensues. superimposed Compare Marshall People 254 380, 41 143, 65 315. reach rights, 19 brings immediate situation. damages claimed, form detention monies situation matters judicial determination. asserted agreement. dominant circumstances, words says did. Williston, ontracts 1792. outlawed Delaware reside give effect being. John Hancock Mut. Life Ins. Yates, 178, 129, 106. ultimate voice Appeals, speaking Judge Cardozo, stated settled 'a promise * *'. Newburger-Morris Talcott, N.Y. 505, N.E. 846, 847. great weight Mack's authority. Brake Shoe Foundry Interborough Rapid Transit F.Supp. 418, 419, 420. see 26 954, contra. However, ascertain independently nullity claim. issue. investigation undertaking void. accept finding conclude provable bankruptcy. called enforceable arose 20 argued subjects fate whim told implied measures protection investors contravenes requirement 'uniform Laws subject Bankruptcies.' Art. I, 8, Cl. 4. misconceives understanding Constitution. Constitutional uniformity geographic uniformity. treated alike throughout country regardless Hanover Moyses, 186 181, 190, 22 857, 861, 46 1113. establish uniform mean wiping differences commercial transactions. Constitution intend passed familiar results system codes scheme day wiped transmuted after. Section enacted June 7, 1934, 48 Stat. 912. while receivership. superseded X, 52 883, 501 seq., seq. 276 676, authorized continuance X. Youn Higbee 324 204, 205, n. 594, 595, 89 890. $500,000. following cases: Cromwell Sac, 96 51, 24 681; Scudder Union Bank, 412, 23 245; Liverpool G. Steam Phenix 129 397, 453, 469, 476, 32 788. None cases cited here, Seeman Philadelphia Warehouse 274 403, 47 626, 71 1123, involve meet said accrued possession estate. instances foreign country. Heiser Woodruff, 726, 853; Surety Sampsell, 269, 272, 571, 573; Pepper Litton, 295, 303—306, 238, 243—245, 281. 63, sub. a(1) 103, a(1), a(1); cf. 1898, 30 562 1867, 525. discussion Collier Bankruptcy, 14th Ed., 281, 1835. Analogous liquidation national banks. White Knox, 111 784, 786, 787, 686, 687, 28 603, relied 244; 413, 615, 926. 115 515, authorizes 'all powers, inconsistent provisions chapter, *.' Former 912 77, a, (Railroad Reorganization) contain similar provisions. Petitioner non-bankruptcy award support reorganization. Town Genoa 92 586; Edwards Bates County, 163 967, 155. Diversity courts. presented special uniformity, fairness grow context Had occurred suit

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