Document: 331 U.S. 28 67 S.Ct. 1041 91 L.Ed. 1320 UNITED STATES NAT. BANK IN JOHNSTOWN et al.v.CHASE OF NEW YORK CITY al. No. 371. Argued Feb. 7, 1947. Decided April 14, Mr. Robert I. Rudolph, of Washington, D.C., for petitioners. [Argument Counsel from page 29 intentionally omitted] William Dean Embree, New York City, respondents. Justice MURPHY delivered the opinion Court. 1 A problem arising under Bankruptcy Act, 11 U.S.C.A. § seq., is presented by unique facts this case. 2 On June 10, 1926, Harvey C. Stineman was adjudicated a bankrupt upon voluntary petition and case referred to referee. The principal asset estate an undivided one-sixth interest in large acreage valuable coal lands, portion which operated lessees producing substantial royalties. value alleged have been appraised at $90,000. 3 More than four months prior date when filed adjudication made, United States National Bank Johnstown, Pa., First South Fork, had procured judgments against Stineman. These two constituted first second liens, respectively, on Stineman's lands. This no other encumbrances it. 4 January 8, 1927, Johnstown bank its secured claim bankruptcy proceedings amount $10,000, reciting as security lien allowed Subsequently, 1932, amended $13,685, accruing after having added original claim. formed basis bank's participation dividends general fund, mentioned hereinafter. court order 1944 reduced $10,000. 5 Fork bank, 29, with referee $11,290, security, along unsecured claims $7,173.45. Dividends fund were subsequently paid full all claims, $18,463.45. 6 Numerous general, creditors, approximating $225,000 amount. Included among these Chase City York, $55,231.98. 7 held meeting creditors December 31, 1929, more three half years adjudication. motive appears fact that banks, judgment pressing payment their claims. attended bankrupt, trustee representatives certain creditors. Apparently not appeared meeting. consensus those present real excess liens but 'if foreclosed little, if anything, would be left creditors.' 8 One attorneys present, P. J. Little, then made suggestion. Little time serving counsel trustee, several His suggestion 'that law should divided into items; one item showing funds wholly does include any leases or leases; u royalties, rentals, stocks bonds. go creditor, pro rata parties apparently agreed proposal. Although supporting record, administration proceeded entered. assented course events it asserted understood remain intact until underlying full. 9 Thereafter, declared distributed while seven fund. received least $1,364.76 fund; nothing Both banks shared distributions receiving $2,435.06 $3,285.35. No exceptions ever taken various orders distributions. In addition, carefully during each five year period, making party proceedings. 10 October, 1942, petitions decree effect waived sharing compelled return referee, however, both entitled maintain positions same participate District Court reversed referee's decision, feeling contrary accepted practice. re Stineman, 56 F.Supp. 190. rehearing, changed mind; became convinced recommended arrangement, acquiesced execution now estopped objecting. 61 151. Third Circuit Appeals reversed, holding completely disregarded pertinent provisions Act share only 155 F.2d 755. Sections 65, sub. a, 57, h are ones Section provides: 'Dividends equal per centum shall except such priority secured.' U.S.C. 105, a. 'The securities determined converting money according terms agreement pursuant agreement, arbitration, compromise litigation, may direct, credited dividend unpaid balance. Such determination supervision control court.' 93, h, h. 12 Under provisions, there avenues action open creditor bankrupt. See Collier (14th Ed.) pp. 149—157, 255—259. (1) He disregard proceeding, decline file rely sole his properly solely possession. Cherokee Public Service Co., Cir., 94 536; Ward v. Nat. Ironton, Ohio, 202 F. 609. (2) must cla m, within jurisdiction he wishes retain status, inasmuch has exclusive over liquidation security. Isaacs Hobbs Tie & Timber 282 734, 51 270, 75 645. (3) surrender waive prove entire one. Medina Quarry 179 929; Morrison Rieman, 249 97. (4) avail himself assets Merrill Jacksonville, 173 131, 19 360, 43 640; Ex parte Orleans, How. 292, 315, 603. 13 codification fourth possibility. It permits receive balance remaining deducted rule, commonly known designed preclude unwarranted advantage creditor. Grounded statutory principle equality ratable distribution, prohibits reaping whole benefit simultaneously taking rule differs equity, allows claim, crediting reserving deficiency. supra. And see p. 153; Hanson, Secured Creditor's Share Insolvent's Estate,' 34 Mich.L.Rev. 309; Ford.L.Rev. 77. 14 argued plan adopted cannot sanctioned foregoing principles. allegedly called use something similar equity distribution. fully they But said plainly outlaw rule; wished could extent exceeded liens. Since did follow conclusion reached considered 15 At point noted incomplete record before us fails reveal lands attached. fixed $90,000, valuation record. That might less $90,000 indicated statement combined $21,290, 'there setting case, we believe immaterial whether greater either event, concerns itself validity Has conduct constitute waiver liens? question answer negative. 16 scheme necessarily mean thereby Nothing language section makes receipt necessary equivalent waiver. generally true indicates election treated O'Gara Coal 426, 46 A.L.R. 916. invariable result flowing application rigid rule. depends, rather, circumstances surrounding dividends. exceptional cases, demonstrate continued vitality well indicate inequitable declare forfeited. Wuerpel Commercial Germania Trust Savings Bank, 238 269; Maxwell McDaniels, 195 426; Hartford Accident Indemnity Co. Coggin, 78 471; Standard Oil Kentucky Hawkins, 74 395, 33 L.R.A. 739. 17 rare where reasonable doubt occurred, careful examination therefore determine conditions light recognized principles equity. long established 'courts essentially courts inherently equity.' Local Loan Hunt, 292 234, 240, 54 695, 697, 1230, 93 195; Pepper Litton, 308 295, 304, 60 238, 244, 84 281. determining place, accordingly look equities involved intention parties. unfair creditor; caused permanent injury creditors; mistake approval; objecting questioning equitable considerations decisive forfeiture particular 18 once evident good faith without intent Representatives believed intact, being liquidated part satisfy Their thought maintaining undiminished royalties rentals rapidly satisfied. To end proposed refrain immediate included proposal, willing postpone realization so distinct understanding forfeited took pains renew every succeeding keep alive. There thus absent element intentional inconsistent desire Cf. Thomas Taggart, 209 385, 519, 52 845; Kaplan Myers, 241 459. Nor do perceive reason why gave formal approval went forward given, authorization given distribution numerous plan. Certainly implied, express, blessing court. Hence accused participated unknown to, disapproved by, responsible proper penalize unfairly who joined apparent harming others securing undue themselves. 20 further significant attorney represented proposal accepted. place between 1935 come attention sooner later; yet none them raised objection period time. suggests permitted past demand because Especially Bank. As noted, 152, knowledge agreement; subsequent distributions, demur. late stage, equitably raising operation proposed. Merchants' Sexton, 228 634, 725, 57 998; Corporation, 68 859; American S.S. Nav. 106. 21 Moreover, resulted idea benefited say purpose failed achievement. Having plan, heard complain resulting injury, especially 22 We conclude valid existence despite failure never objected estopped. view unduly prolonged years, take steps wind up accordance Act. Those bring about speedy bankrupt's assets, type definitely occurred 23 remanded consistent opinion. 24 Reversed. 25 FRANKFURTER restored ground entered objectionable whereby petitioners saved. 26 JACKSON concurs result. 27 DOUGLAS dissents.

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