Court Opinion

ID: 8887289
Source: CourtListenerOpinion
Date Created: 2022-11-26 22:13:39.102023+00
Date Added: 2024-06-11T17:06:59.713144
License: Public Domain

FIELD, Circuit Judge,
dissenting:
Even if we assume the feasibility of the plan confirmed by the District Court and countenanced 'by the majority, it falls short of being fair and equitable as required by Sections 216 and 221 of the Bankruptcy Act, 11 U.S.C.A. §§ 616 and 621. It has long been recognized that the words “fair and equitable” are words of art, and in my opinion any plan that in effect compromises the rights of a senior creditor to accommodate junior creditors does not comport with the statutory standards. United States v. Key, 397 U.S. 322, 90 S.Ct. 1049, 25 L.Ed.2d 340 (1969); Case v. Los Angeles Lumber Products Co., 308 U.S. 106, 60 S.Ct. 1, 84 L.Ed. 110 (1939).
It runs counter to my judicial grain to see Mr. Silverman, the sole stockholder of Cabana, with an investment of only $400.00 equity capital in the debtor corporation, enlist the services of the court in a Chapter X proceeding to rewrite the entire series of financing agreements to which the debtor was a party, and force Wachovia into the posture of a long-term lender which plainly was not *846contemplated by the parties and from which, understandably, Wachovia desires to extricate itself.
It is manifestly clear that the debtor was well aware of the fact that Wachov-ia was to provide only an interim construction loan and that the long-term financing was to come from Aetna and was contingent upon the debtor’s fulfillment of the various conditions incident to the Aetna loan. The Consent to Corporate Action by the debtor corporation demonstrates that Mr. Silverman and his wife, as sole directors of the debtor, fully understood this arrangement. The Buy-and-Sell Agreement was clearly a tripartite agreement between Wachovia, Aetna and the debtor corporation, and it is inconceivable to me that Silverman, who executed this agreement on behalf of the debtor did not fully appreciate the financing arrangements set forth therein. As a matter of fact, in his testimony before the Referee, Silverman acknowledged that he was well aware of Aetna's posture in the financing pattern. The first condition specified in the Buy-and-Sell Agreement required that the debtor would complete the apartment project on or before February 15, 1967 “ * * * free of mechanics’ or materi-almen’s liens or claims * * It is undisputed that the debtor failed to meet this requirement and that construction claims in the aggregate of $52,000.00 were outstanding and unpaid on the operative date of the agreement and were still in default at the time the debtor’s petition was filed in the District Court.
The majority repeatedly emphasizes that Wachovia in effect should be penalized for its failure to make a formal tender of the loan to Aetna since under the Buy-and-Sell Agreement Aetna had the option to purchase the loan even though less than all of the conditions had been met by the borrower. To seize upon this as the premise for such punitive treatment of Wachovia is utterly unrealistic. In its course of business with Aetna over a long period of years, Wachovia was well aware of the fact that Aetna would not accept the loan with the claims of the materialmen and construction lien holders outstanding and unpaid. Under these circumstances a formal tender of the loan by Wachovia to Aetna would have been a useless act. Certainly it is obvious that if there was any way possible to close the Aetna transaction, Wachovia would have done so and thereby obtained repayment of its construction loan. The ultimate inequity in the plan is the inclusion of the $6400.00 Aetna standby fee as a receivable from Wachovia. This amount was paid by Cabana to Aetna as earnest money on the loan commitment and was, of course, retained by Aetna when the permanent loan arrangement aborted as the result of the debtor’s default in meeting the agreed conditions. In my opinion there is no justifiable basis in law or in fact to summarily tax this item to Wachovia as an incident to the plan.
Mr. Silverman was no naive babe-in-the-woods in his dealings with Wachovia and Aetna. From his own testimony before the Referee it would appear that he had engaged in several disastrous ventures of this type in Florida before coming to North Carolina and left a considerable number of disenchanted and frustrated creditors in his wake. The plight of the debtor corporation in the present case was the direct result of its failure to live up to the plain terms of its agreements with Wachovia and Aetna. The plan approved in this case may not be fair and equitable to Wachovia but it is assuredly a judicial windfall for Mr. Silverman.
I would reverse.