Court Opinion

ID: 9636298
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:23:26.858393+00
Date Added: 2024-06-11T18:09:43.949914
License: Public Domain

BRIGGLE, District Judge
(dissenting).
I think the order of the District Court should be affirmed. The property here involved was owned by an individual who instituted proceedings on May 2, 1934, for an extension or composition under section 74 of the Bankruptcy Act. Encountering difficulties which she was unable to overcome by reason of the provisions of this section, a corporation was formed at her instance on September 3, 1935, for the purpose of receiving title to the property and filing a proceeding for reorganization under section 77B, as amended (11 U.S.C. A. § 207). By a quitclaim deed bearing date August 3, 1935, but recorded on September 4, 1935, the debtor convdyed the property to the corporation and it in turn filed its petition on September 9, 1935, under section 77B, scheduling the first, second, and third mortgage indebtedness of the individual as its obligations and asserting its inability to pay the same. The corporation had no assets éxcept the real estate so conveyed which was encumbered by the three separate mortgage liens, long in default and which had resulted in a decree of foreclosure in the state court. It is not disputed that the corporation was thus born into bankruptcy. It came into being overwhelmed with the debts of an individual which it neither expected nor had the ability to pay. Indeed, the record is devoid of proof of whether it even obligated itself to pay such indebtedness. Its admitted purpose for existence was reorganization upon which it embarked at the tender age of six days. It was not the creature of the creditors, whose bonds were in default, but was given life by the individual debtor aided by her husband.
Such facts strongly support the findings of the master and the District Court that good faith did not exist. That a plan of reorganization, later submitted and which has not yet been before the court for consideration, may have received the approval of two-thirds of the creditors should not be permitted to override such findings. Neither do I think it should be assumed that the delay since the institution of the foreclosure proceedings is chargeable to the creditors, but on the other hand, it seems fair to conclude that the delay since May 2, 1934, at least, was due to the filing of the original debtor’s petition under section 74.
The District Court properly distinguished the North Kenmore and the Knickerbocker Cases (cited in the opinion of this court) and properly applied the North Kenmore Case to the facts of the instant case. The fact basis of the Knickerbocker Case was so wholly different from that of the instant case as to clearly distinguish It. The debt there under consideration was at all pertinent times a corporate debt and the property involved was corporate propert3r. No individual was ever obligated for the debt and no individual ever had more than a naked legal title to the property which was held in trust for the bondholders. The facts of the North Kenmore Case are very similar to the facts of the present *465case except that in the North Kenmore Case the plan had not gained approval of any substantial number of bondholders.
I know of no reported case which lends support to a finding of good faith on facts comparable to the instant case. The following decisions support a contrary view: Sherman v. Collins (C.C.A.) 75 F.(2d) 62; Shapiro v. Wilgus, 287 U.S. 348, 53 S.Ct. 142, 77 L.Ed. 355, 85 A.L.R. 128; In re Fullagar (D.C.) 8 F.Supp. 602; In re Francfair (D.C.) 13 F.Supp. 513; In re Philadelphia Rapid Transit Co. (D.C.) 8 F.Supp. 51; Wilson v. Philadelphia Rapid Transit Co., 73 F.(2d) 1022 (C.C.A.3d).