Court Opinion

ID: 8152665
Source: CourtListenerOpinion
Date Created: 2022-09-09 20:35:45.605124+00
Date Added: 2024-06-11T16:39:35.934199
License: Public Domain

Mr. Justice Cardozo,
dissenting.
I am unable to concur in the opinion of the Court.
1. Respondent, though dissolved, was still a corporation in such a sense and to such a degree as to have capacity to maintain a proceeding in bankruptcy for the liquidation of its assets.
By Bankruptcy Act § 4, 11 U. S. C. § 22 (a), any corporation, with exceptions not now material, may become a voluntary bankrupt.
By Bankruptcy Act § 1 (6), 11 U. S. C. § 1 (6), “ ‘corporations’ shall mean all bodies having any of the powers and privileges of private corporations not possessed by individuals or partnerships. . . .”
Respondent, when it filed its petition in the bankruptcy court, was still in possession of some of the privileges and powers of private corporations not possessed by individuals or partnerships. True, a decree of dissolution had been entered by a court of Illinois, the place of its domicile. True, two years had gone by since the making of that decree. None the less, the corporation still had the power, if suits were then pending either in its favor or against it, to litigate in its corporate name and through its corporate officials. Life Assn. of America v. Fassett, 102 Ill. 315; Singer & Talcott Stone Co. v. Hutchinson, 176 Ill. 48; 51 N. E. 622. Commercial Loan & Trust Co. v. Mallers, 242 Ill. 50; 89 N. E. 661; Graham & Morion Transp. Co. v. Owens, 165 Ill. App. 100; Griggsville State Bank v. Newman, 275 Ill. App. 11. With the license of Illinois, respondent was actively defending suits for the foreclosure of mortgages on its property when it went into the federal court. A fragment of corporate power was *131thus untouched by dissolution. Within the definition of the Bankruptcy Act, the body that retained this power, and indeed exercised it too, was still a corporation. There are suggestions in the books that even in the absence of a statute preserving corporate capacities after a decree of dissolution, the bankruptcy power to distribute the assets of an insolvent debtor is not subject to destruction by a withdrawal, possibly a precipitate one, of corporate existence. See, e. g., Hammond v. Lyon Realty Co., 59 F. (2d) 592, 594, 595. Cf. In re Thomas, 78 F. (2d) 602; In re American & British Mfg. Corp., 300 Fed. 839, 847; Cresson & Clearfield Coal Co. v. Stauffer, 148 Fed. 981. The case at hand does not charge us with a duty to decide whether that is so. Here the State has elected to keep the corporation in existence, maimed but still alive. In choosing to create or continue an artificial entity, though with limited and narrow powers, the state subjects its creature to the bankruptcy power of the Congress in so far as that power is directed at juristic beings of that order. Congress has said to Illinois: “If an association with any corporate capacities exists under your laws, bankruptcy — either voluntary or involuntary — is a proper form of liquidation.” To this the state responds, or is figured as responding: “An association with corporate capacities does exist under our laws, but it may not go into a court of bankruptcy because we will not give it the capacity to go there. Winding up proceedings for one in its position are in the state tribunals only.” The response, even if taken to be authentic, must be held of no avail. It is not within the competence of Illinois by any form of words to preserve the artificial entity for a purpose of her own and destroy it for the purpose of withdrawal from the supremacy of federal law.
2. If respondent has capacity to maintain a bankruptcy proceeding to liquidate its business through the medium of a sale for cash, it has capacity also to maintain a bankruptcy proceeding under § 77B.
*132A proceeding under § 77B is styled one to give effect to a corporate reorganization. Whatever its form or label, it derives its origin and vitality from the bankruptcy power. Continental Illinois National Bank Co. v. Chicago, R. I. & P. Ry. Co., 294 U. S. 648; Campbell v. Alleghany Corporation, 75 F. (2d) 947; In re New Rochelle Coal & Lumber Co., 77 F. (2d) 881. Only because the remedy is traceable to that power is it constitutional and valid. The notion is baseless .that reorganization, even when initiated on the petition of the debtor, is solely or chiefly for the benefit of shareholders. It is even more distinctively and commonly for the benefit of creditors. Cf. In re Central Funding Corporation, 75 F. (2d) 256, 261. The old form of bankruptcy had in view a liquidation of the assets for cash and nothing else, a method of disposing of them that might result in needless sacrifice. The new form of bankruptcy is more flexible and often more efficient, permitting as it does, a disposition of the assets upon credit as well as for cash, and in consideration of shares of stock or bonds to be issued by the buyer. Whoever, being a corporation, may resort to the old form, is at liberty, acting in good faith, to resort to the new. This is so by the express mandate of the statute, which tells us, § 77B; 11 U. S. C. § 207 (a), that “any corporation which could become a bankrupt under § 4 (11 U. S. C. § 22) of this Act” may petition in the new proceeding. By that test a dissolved corporation with capacity requisite to apply to a court of bankruptcy for a liquidation of its assets has the capacity requisite to apply for a reorganization of its business. As to this, the lower federal courts are in general accord. Old Fort Improvement Co. v. Lea, 89 F. (2d) 286; In re 4136 Wilcox Bldg. Corp., 86 F. (2d) 667; Capital Endowment Co. v. Kroeger, 86 F. (2d) 976; In re 211 East Delaware Place Bldg. Corp., 76 F. (2d) 834, 836. Their opinions vindicating that conclusion are instructive and convincing.
*133This is not to say that every method of reorganization appropriate or permissible for a corporation whose life is unimpaired is appropriate or permissible for one already doomed. The plan of reorganization will be unlawful if it attempts to authorize the debtor, following a decree of dissolution, to do business thereafter in defiance of state law. In general there will be little difficulty in so adapting a decree to the necessities of the particular case as to attain the needed harmony. The opinions already cited suggest appropriate expedients. Old Fort Improvement Co. v. Lea, supra, p. 290; Capital Endowment Co. v. Kroeger, supra, p. 979. Instead of continuing the business through the petitioning debtor or its agents, the decree may permit the formation of another corporation which will take over the assets, issuing shares of stock or bonds to creditors or others. There may be new capital, new shareholders, new directors and officers. Neither in the-record nor in the precedents does one find a basis for a holding that the formation of such a corporation will be in conflict with any public policy of the State of Illinois. The old corporation was dissolved for failure to pay franchise taxes and file an annual report. The new one, if created, may promote the welfare of the state both financially and otherwise. Be that as it may, the state will be amply competent to vindicate her own dignity if there is a fraud upon her laws. No plan of reorganization is before us at this time. So far as appears, none has been prepared. Whether the plan to be submitted later will be worthy of confirmation is a question for the future.
Cases may indeed arise where a court will be satisfied upon the filing of the petition that reorganization is not feasible. In that event the proceeding may be dismissed as not brought in good faith. Tennessee Pub. Co. v. American Bank, 299 U. S. 18, 22. At times a decree of dissolution may be a circumstance along with others point*134ing to that conclusion. Here the good faith of the debtor has been found by the courts below after inquiry by a Master to whom the cause had been referred. The single question presented to us by the petition for certiorari is one of jurisdiction. Did a court of bankruptcy have power to entertain the proceeding at the instance of such a suitor? I hold that power did not fail.
Me. Justice Stone and MR. Justice Black join in this opinion.