1. Section 77 of the Bankruptcy Act, added by Act of March 3,
1933, which provides a method whereby any railroad engaged in
interstate commerce and which is insolvent, or "unable to pay its
debts as they mature" may be reorganized through proceedings taken
on its application in the bankruptcy court, during the pendency of
which that court is given exclusive jurisdiction of such "debtor"
and its property wherever located, is, in its general scope and
aim, within the power of Congress "to establish uniform laws on the
subject of bankruptcies." Constitution, Art. I, § 8, cl. 4.
Pp.
294 U. S. 667,
294 U. S.
675.
2. The bankruptcy power is not limited to the rules on the
subject which prevailed in England and the Colonies at the time of
the adoption of the Constitution. P.
294 U. S.
668.
3. The bankruptcy power is adaptable to new conditions; its
nature and extent are to be fixed by the gradual processes of
historical and judicial inclusion and exclusion. The tendency of
interpretation has been progressively liberal. Pp.
294 U. S. 668,
294 U. S.
671.
4. The expression "unable to meet its debts as they mature,"
used in § 77 of the Bankruptcy Act as an alternative to
"insolvent," means something less than "bankruptcy" or
"insolvency," and may be construed to include a debtor who,
although unable to pay promptly, may do so if given time. P.
294 U. S.
672.
Page 294 U. S. 649
5. Section 77 is nonetheless a law on the subject of
bankruptcies although the reorganization proceeding does not
involve an adjudication of bankruptcy. P.
294 U. S.
672.
6. In a reorganization proceeding under § 77, the
bankruptcy court has jurisdiction to enjoin creditors who hold
collateral notes of the debtor railroad secured by its bonds and
bonds of its subsidiaries, from selling the collateral under power
of sale in the notes where such sale would so hinder, obstruct, and
delay the preparation and consummation of a plan of reorganization
as probably to prevent it. P.
294 U. S.
675.
7. This power is to be deduced:
(a) As a power inherent in the court of bankruptcy as a court of
equity, to protect its jurisdiction. P.
294 U. S.
675.
(b) From Jud.Code, § 262, which authorizes courts of the
United States to issue all writs necessary for the exercise of
their respective jurisdictions.
Id.
(c) From § 2(15) of the Bankruptcy Act, investing courts of
bankruptcy with authority in equity and power to make orders
necessary for the enforcement of the provisions of that Act. P.
294 U. S.
676.
8. Such an injunction does not infringe § 67(d) of the
Bankruptcy Act, since it does not impair the liens of the pledgees,
but merely suspends enforcement by sale of the collateral pending
further action. P.
294 U. S.
676.
9. Such an injunction, applied to threatened sales of collateral
under contracts made before the enactment of § 77, is not such
an impairment of contract obligations as violates the due process
clause of the Fifth Amendment. P.
294 U. S.
680.
10. Such an injunction may be granted in a summary proceeding.
P.
294 U. S.
681.
11. The contention that the note-holding creditors were not
given sufficient notice or a full opportunity to be heard in the
present case is without merit. P.
294 U. S.
682.
12. A district court having jurisdiction of a reorganization
proceeding under § 77,
supra, may issue process for
service outside of its district. P.
294 U. S.
682.
13. The power given the Reconstruction Finance Corporation, by
§ 5 of the Act creating it, to take over and liquidate
collateral accepted by it as security does not render it more
immune than other lenders to the control of the bankruptcy court
over the sale of bonds pledged by railroads in proceedings under
§ 77 of the Bankruptcy Act. P.
294 U. S.
684.
Page 294 U. S. 650
14. Reorganization proceedings under § 77 must be
diligently pursued; creditors must not be subjected to irreparable
injury by unreasonable suspension of their remedies. P.
294 U. S.
684.
72 F.2d 443 affirmed.
Certiorari, 293 U.S. 550, to review decrees affirming an
interlocutory decree of the District Court, in bankruptcy,
enjoining the sale of bonds held by five banks and the
Reconstruction Finance Corporation as security for collateral notes
of the above-named railway company. Each of the parties enjoined,
petitioners here, took two appeals to the court below -- one
allowed by that court, the other by the District Court.
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
On June 7, 1933, the Chicago, Rock Island & Pacific Railway
Co. filed a petition seeking a reorganization under
Page 294 U. S. 657
§ 77 of the Bankruptcy Act, in the Federal District Court
for the Northern District of Illinois, Eastern Division, alleging
that it was "unable to meet its debts as they mature." Nine of the
debtor's subsidiaries thereafter joined in the proceedings, as
permitted by subdivision (a) of the section. On September 26, 1933,
the debtor filed a petition for instructions which alleged that it
had outstanding collateral notes secured by mortgage bonds, part of
which were issued by it, part by corporations forming a part of the
system; that it had been unable to pay interest on its funded debt
secured by mortgage liens on various portions of its property; that
it would be obliged to default on interest about to become due on
other mortgage bonds of the system; that the value of the
collateral securing each of the outstanding notes is substantially
in excess of the loan thereby secured; that, if holders of the
notes should sell the collateral, it would cause a substantial and
irreparable loss to the trust estate, and that a forced sale of the
collateral at the present time might result in a substantial
deficiency judgment against the debtor and the depletion of the
respective interests in the trust estate of all creditors in
proportion to the rank and lien of the obligations by which their
claims or interests therein are evidenced. The petition prayed that
the court determine whether it should enjoin the holders of the
collateral notes, in the event of a default, from selling any of
the collateral.
Practically all of the collateral held by the banks and the
Reconstruction Finance Corporation consists of bonds of the debtor
and its subsidiaries. These bonds are secured by mortgages on the
property of the system, and the collateral therefore constitutes
fractional interests in the liens created thereby. The collateral
pledged to the banks consists of bonds of the Rock Island or of
bonds (guaranteed by the debtor) of one of the subsidiary
corporations, wholly owned and operated under lease by the
Page 294 U. S. 658
debtor. Six of the collateral notes, aggregating.$13,659,877.58,
are held by the Reconstruction Finance Corporation and are secured
by collateral of the face value of $41,702,465.85. [
Footnote 1] The remaining notes, aggregating
$4,125,000 in amount, and secured by collateral of the face
Page 294 U. S. 659
value of $14,409,000, [
Footnote
2] are held severally by five banks: the Chase National Bank
and the New York Trust Company, of New York City, the Continental
Illinois National Bank & Trust Company and Harris Trust
&
Page 294 U. S. 660
Savings Bank, of Chicago, and Mississippi Valley Trust Company,
of St. Louis. Each of the collateral notes contains a provision
that it shall become due in case of, among other events, (1)
nonpayment of interest, (2) insolvency of the debtor, (3)
appointment of a receiver for the debtor. Each note held by a bank
provides also that it shall become due in case of nonpayment of
interest on any of the notes held by the Reconstruction Finance
Corporation. And all the outstanding notes provide that:
"Upon default of any kind hereunder, the payee may sell in . . .
New York City, or elsewhere . . . all or any of the security held
for the payment of this note at any broker's board or at public or
private sale, without . . . notice. . . . And the payee may be the
purchaser of any or all property, rights and/or interests so sold.
. . ."
None of the noteholders was a party to the proceeding. No
noteholder was ever served with process, and only the two Chicago
banks were residents of the district. But notice of the intention
to present the petition for instructions had been sent by
registered mail to each of the noteholders, and also to the five
protective committees representing security holders of the system.
[
Footnote 3] All of these
parties were represented at the hearing. The holders of the
collateral notes appeared specially, and objected to the
jurisdiction of the court on the ground that (1) it had no
jurisdiction of the person; (2) no jurisdiction over, or possession
of, the property, the sale of which was about to
Page 294 U. S. 661
be restrained, and (3) no jurisdiction to grant in a summary
proceeding the injunction suggested; but it was stipulated that the
noteholders might present argument and file briefs on the merits
without waiving their special appearances. The Chairman of the
Protective Committee of the First and Refunding Bonds of the Debtor
set forth the facts relied upon as showing that, unless the sale of
the collateral was enjoined, it would be impossible to prepare, and
secure approval of, a plan of reorganization. All of the appellants
contend that the injunction entered, as hereinafter stated, was
without legal justification. Only the banks renew here the
challenge to the jurisdiction of the court to make the order in
this proceeding.
The Chicago, Rock Island & Pacific system comprises over
8,000 miles of line, extending into more than one-fourth of the
states of the Union, and into 20 federal judicial districts. At the
commencement of this reorganization proceeding, its capitalization
outstanding in the hands of the public was $459,059,808. Of this,
$128,909,211 was in preferred and common stocks; $312,365,720 in
bonded indebtedness, and $17,784,877 in the collateral notes here
in question. In addition to the above, there were pledged as
security for some issues of its funded debt bonds and stocks of the
system aggregating $145,749,050, and, as security for the
collateral notes, the bonds and stocks above mentioned, aggregating
$54,711,465. If, pending the reorganization, trustees for the
bondholders and these noteholders should sell the pledged
securities, the capitalization outstanding in the hands of the
public would to that extent be expanded, and the aggregate
capitalization might thereby become as much as $659,520,323.
By the Act of March 3, 1933, c. 204, 47 Stat. 1467, original
jurisdiction, in addition to that theretofore exercised in
voluntary and involuntary proceedings to adjudge persons bankrupt,
was conferred upon courts of bankruptcy
Page 294 U. S. 662
"in proceedings for the relief of debtors," as provided in
§§ 74, 75 and 77 of the act. We are here concerned only
with § 77. That section contains provisions for the
reorganization of railroads engaged in interstate commerce. It
permits any railroad corporation which is insolvent or unable to
meet its debts as they mature to effect a plan of
reorganization.
It provides for the filing of a petition by the railroad
corporation in a court designated by the act. If the petition be
approved, the court, during the pendency of the proceedings, is
given exclusive jurisdiction of the debtor and its property
wherever located. The act requires that the railroad corporation
shall be referred to in the proceedings as a "debtor," and permits
any corporation, the majority of the capital stock of which is
owned, or substantially all of whose properties are operated, by
the debtor under lease or operating agreement, also to file a
petition in the same proceeding stating that it is insolvent or
unable to meet its debts as they mature and that it desires to
effect a plan of reorganization in connection with the plan of the
original debtor.
Other provisions of the section direct that a plan of
reorganization shall include a proposal to modify or alter the
rights of creditors generally or of any class of them, secured or
unsecured, either through the issuance of new securities or
otherwise; that it shall provide adequate means for its execution;
that the term "creditor" includes "all holders of claims,
interests, or securities of whatever character against the debtor
or its property," and that, if the plan is not proposed or accepted
or confirmed within a reasonable time to be fixed by the judge, he
may dismiss the proceeding.
Before acceptance of any plan, the Interstate Commerce
Commission is directed to hold a public hearing, following which it
shall render a report recommending a plan which
"will, in its opinion be equitable, will not
Page 294 U. S. 663
discriminate unfairly in favor of any class of creditors or
stockholders, will be financially advisable . . . , and will be
compatible with the public interest."
The commission is required to state fully the reasons for its
conclusions. The plan is then to be submitted to the creditors and
stockholders of the debtor for acceptance or rejection. No plan may
be finally approved by the commission until it has been accepted in
writing by or on behalf of creditors holding two-thirds in amount
of the claims of each class affected by the plan, and by or on
behalf of stockholders holding two-thirds of the stock of each
class.
Upon approval by the commission, the judge, after hearing, shall
confirm the plan if satisfied, among other things, that the plan
affords adequate protection for the realization by creditors of the
value of their securities, liens and claims in one of the ways
pointed out by the section. Upon confirmation of the plan, it is to
be binding not only upon corporation and all stockholders and
creditors generally, but upon all secured creditors of each class
of which two-thirds in amount shall have accepted the plan. For
convenient reference, various pertinent excerpts from § 77 are
reproduced in the margin. [
Footnote
4]
Page 294 U. S. 664
On November 22, 1933, the district court, after a hearing,
entered an order reciting that each of the collateral notes
contained provisions that, in case of the insolvency
Page 294 U. S. 665
of the railway company or the appointment of a receiver or the
nonpayment of interest when due, the holder thereof might sell and
dispose of the collateral; that there was
Page 294 U. S. 666
danger that the holders would claim that one or more of the
events entitling them to sell such collateral had occurred; that a
sale of the collateral or any part thereof by the Reconstruction
Finance Corporation or by the banks would be inconsistent with the
purposes of § 77 and would hinder, impede, obstruct, delay,
and, in effect, prevent the orderly preparation and consummation of
a plan of reorganization; that the district court, under § 77,
had exclusive jurisdiction of the debtor and its property wherever
located; that, under paragraph 15 of § 2 of the Bankruptcy
Act, the court had power to make such orders, issue such process,
and enter such judgments as might be necessary for the enforcement
of the act, and that it was
Page 294 U. S. 667
necessary for the enforcement of § 77 that the holders of
the collateral be enjoined and restrained from selling or disposing
of the same pending the preparation and consummation of a
reorganization plan. Following these recitals, the Reconstruction
Finance Corporation and the banks were restrained and enjoined from
converting, selling, or otherwise disposing of the collateral or
any part thereof until further order of the court.
An appeal followed to the circuit court of appeals, where, upon
full consideration, the decree of the district court was affirmed.
72 F.2d 443. The case was brought here on certiorari.
The questions which we are called upon to determine relate to
the construction of § 77 in certain particulars, to its
constitutionality, and to the powers of the district court which
were here asserted and exercised.
First. The constitutional validity of the section in
its general scope and application is not assailed, the subject
being passed without discussion by any of the parties.
Nevertheless, grave doubt has been expressed in respect of that
question, and since the question is inherently fundamental, we deem
it necessary to consider and dispose of it
in limine --
postponing, however, for later consideration the limited contention
of the banks, in which the Reconstruction Finance Corporation seems
not to join, that the due process clause of the Constitution is
infringed by the special application made of § 77 in respect
of the injunction.
Article I, § 8, cl. 4, of the Federal Constitution vests
Congress with the power "to establish . . . uniform Laws on the
subject of Bankruptcies throughout the United States," and the
simple question is: does § 77 constitute a law on the subject
of bankruptcies? While attempts have been made to formulate a
distinction between bankruptcy and insolvency, it long has been
settled that,
Page 294 U. S. 668
within the meaning of the constitutional provision, the terms
are convertible. As early as 1833, Mr. Justice Story said that,
whatever might have been the rule of the English law on the
subject, Congress might pass an act authorizing a commission of
bankruptcy at the petition of the debtor, and that no distinction,
practically or even theoretically, could be made between
bankruptcies and insolvencies. 2 Story on the Constitution, 4th
ed., § 1111. From the beginning, the tendency of legislation
and of judicial interpretation has been uniformly in the direction
of progressive liberalization in respect of the operation of the
bankruptcy power.
The English law of bankruptcy, as it existed at the time of the
adoption of the Constitution, was conceived wholly in the interest
of the creditor, and proceeded upon the assumption that the debtor
was necessarily to be dealt with as an offender. Anything in the
nature of voluntary bankruptcy was unknown to that system. The
persons who were permitted to fall within the term "bankrupt" were
limited to traders. But the notion that the framers of the
Constitution, by the bankruptcy clause, intended to limit the power
of Congress to the then existing English law and practice upon the
subject long since has been dispelled.
In
Waring v.
Clarke, 5 How. 441, this Court held that the grant
extending the judicial power to all cases of admiralty and maritime
jurisdiction was not limited to, and was not to be interpreted by,
what were cases of admiralty jurisdiction in England when the
Constitution was adopted. Nor is the implied power of Congress over
the subject arising from that jurisdictional clause and the general
coefficient clause (Art. I, § 8, cl. 18) of the Constitution
to be thus confined.
Detroit Trust Co. v. The Barlum,
293 U. S. 21,
293 U. S. 42-43;
Panama R. Co. v. Johnson, 264 U.
S. 375,
264 U. S.
385-387.
Page 294 U. S. 669
The same, it was said in the
Waring case, is true in
respect of other grants of power, and the bankruptcy clause was
cited, p.
46 U. S. 458,
as an example.
In the Matter of Edward
Klein, decided by Mr. Justice Catron sitting on
circuit, it was definitely decided that the extent of the power of
Congress was not limited to the principle upon which the English
bankruptcy system was founded, and that decision was cited with
approval by this Court in
Hanover National Bank v. Moyses,
186 U. S. 181,
186 U. S. 186.
Whether a clause in the Constitution is to be restricted by the
rules of the English law as they existed when the Constitution was
adopted depends upon the terms or the nature of the particular
clause in question. Certainly these rules have no such restrictive
effect in respect of any constitutional grant of governmental power
(
Waring v. Clarke, supra), though they do, at least in
some instances, operate restrictively in respect of clauses of the
Constitution which guarantee and safeguard the fundamental rights
and liberties of the individual, the best examples of which,
perhaps, are the Sixth and Seventh Amendments, which guarantee the
right of trial by jury. That guaranty has always been construed to
mean a trial in the mode and according to the settled rules of the
common law, including all the essential elements recognized in this
country and England when the Constitution was adopted.
Patton
v. United States, 281 U. S. 276,
281 U. S. 288,
and cases cited.
See also Callan v. Wilson, 127 U.
S. 540,
127 U. S. 549;
Dimick v. Schiedt, 293 U. S. 474,
293 U. S. 476,
293 U. S. 487;
West v. Gammon, 98 F. 426.
But, while it is true that the power of Congress under the
bankruptcy clause is not to be limited by the English or Colonial
law in force when the Constitution was adopted, it does not follow
that the power has no limitations. Those limitations have never
been explicitly defined, and any attempt to do so now would result
in little
Page 294 U. S. 670
more than a paraphrase of the language of the Constitution
without advancing far toward its full meaning. Judge Cowen, in
Kunzler v. Kohaus, 5 Hill 317, 321, a decision which was
approved by this Court in
Hanover National Bank v. Moyses,
supra, said that the power was the same as though Congress had
been authorized "to establish uniform laws on the subject of any
person's general inability to pay his debts. . . ." Probably the
most satisfactory approach to the problem of interpretation here
involved is to examine it in the light of the acts, and the history
of the acts, of Congress which have from time to time been passed
on the subject; for, like many other provisions of the
Constitution, the nature of this power and the extent of it can
best be fixed by the gradual process of historical and judicial
"inclusion and exclusion."
Compare Davidson v. New
Orleans, 96 U. S. 97,
96 U. S. 104;
Federal Trade Comm'n v. Raladam Co., 283 U.
S. 643,
283 U. S.
648.
The first act, that of 1800, so far ignored the English law,
which was confined to traders, as to include bankers, brokers, and
underwriters as well. The act of 1841 added merchants, and other
additions have been made by later acts until, now, practically all
classes of persons and corporations are included.
See Friday v.
Hall & Kaul Co., 216 U. S. 449,
216 U. S. 454.
The act of 1800 was one exclusively in the interest of the
creditor. But the act of 1841 took what then must have been
regarded as a radical step forward by conferring upon the debtor
the right by voluntary petition to surrender his property, with
some exceptions, and relieve himself of all future liability in
respect of past debts. The act of 1800, like the English law, was
conceived in the view that the bankrupt was dishonest, while the
act of 1841 and the later acts proceeded upon the assumption that
he might be honest but unfortunate. One of the primary purposes of
these acts was to
"relieve the honest debtor from the weight of oppressive
indebtedness, and permit him to start afresh free from the
obligations
Page 294 U. S. 671
and responsibilities consequent upon business misfortunes,"
and to give him "a new opportunity in life and a clear filed for
future effort, unhampered by the pressure and discouragement of
preexisting debt."
Local Loan Co. v. Hunt, 292 U.
S. 234,
292 U. S.
244.
By the Act March 2, 1867, p. 567, § 43, as amended by the
Act of 1874, c. 390, § 17, 18 Stat. 178, 182, the debtor for
the first time was permitted, either before or after an
adjudication in bankruptcy, to propose terms of composition to his
creditors to become binding upon their acceptance by a designated
majority and confirmation by the judge.
The fundamental and radically progressive nature of these
extensions becomes apparent upon their mere statement, but all have
been judicially approved or accepted as falling within the power
conferred by the bankruptcy clause of the Constitution. Taken
altogether, they demonstrate in a very striking way the capacity of
the bankruptcy clause to meet new conditions as they have been
disclosed as a result of the tremendous growth of business and
development of human activities from 1800 to the present day. And
these acts, far-reaching though they be, have not gone beyond the
limit of congressional power, but rather have constituted
extensions into a field whose boundaries may not yet be fully
revealed.
Section 77 advances another step in the direction of
liberalizing the law on the subject of bankruptcies. Railway
corporations had been definitely excluded from the operation of the
law in 1910 (c. 412, § 4, 36 Stat. 838, 839), probably because
such corporations could not be liquidated in the ordinary way or by
a distribution of assets. A railway is a unit; it cannot be divided
up and disposed of piecemeal like a stock of goods. It must be
sold, if sold at all, as a unit and as a going concern. Its
activities cannot be halted, because its continuous uninterrupted
operation is necessary in the public interest, and, for the
preservation of that interest, as well as for the protection
Page 294 U. S. 672
of the various private interests involved, reorganization was
evidently regarded as the most feasible solution whenever the
corporation had become "insolvent or unable to meet its debts as
they mature."
Equity receiverships, resorted to for that purpose, have never
been satisfactory, for many reasons. Partly, no doubt, in
recognition of that situation, Congress, by § 77, added
railroad corporations to the category of those who might have
relief by legislation passed in virtue of the bankruptcy clause of
the Constitution, and determined, after consideration, that such
relief to be effectual should take the form of a reorganization,
and should extend to cases where the corporation is "unable to meet
its debts as they mature." The last phrase, since it is used as an
alternative for the word "insolvent," obviously means something
less than a condition of "bankruptcy" or "insolvency" as those
words are employed in the law.
See Bankruptcy Act, §
1(15), which defines an "insolvent" as one whose assets, at a fair
valuation, are not sufficient to pay his debts. It may be construed
to include a debtor who, although unable to pay promptly, may be
able to pay if time to do so be sufficiently extended. Obviously,
§ 77 does no more than follow the line of historical and
progressive development projected by previous acts.
As outlined by that section, a plan of reorganization, when
confirmed, cannot be distinguished in principle from the
composition with creditors authorized by the act of 1867, as
amended by the act of 1874. It is not necessary to the validity of
either that the proceeding should result in an adjudication of
bankruptcy. The constitutionality of the old provision for a
composition is not open to doubt.
In re Reiman, 20
Fed.Cas. pages 490, 496, 497, cited with approval in
Hanover
National Bank v. Moyses, supra. That provision was there
sustained upon the broad ground that the "subject of bankruptcies"
was
Page 294 U. S. 673
nothing less than "the subject of the relations between an
insolvent or nonpaying or fraudulent debtor, and his creditors,
extending to his and their relief." That it was not necessary for
the proceedings to be carried through in bankruptcy was held not to
warrant the objection that the provision did not constitute a law
on the subject of bankruptcies. The same view sustains the validity
of § 77. Both contemplate an adjustment of a failing debtor's
obligations, and although actual bankruptcy may not supervene in
either, they are nonetheless laws on the subject of bankruptcies.
With due regard for consistency, the constitutional validity of the
one cannot well be sustained and that of the other denied, as this
Court quite evidently recognized in
Canada Southern Ry. Co. v.
Gebhard, 109 U. S. 527.
That case involved an act of the Canadian Parliament by which
railway companies unable to meet their engagements might unite with
their creditors in the preparation of "schemes of arrangement" to
be filed in the court of chancery. A scheme was deemed agreed to by
the holders of mortgages, bonds, stocks, rent charges, and
preferred shares when assented to in writing by a designated
majority of the holders of each class of security. The scheme, when
confirmed by the court, became binding upon the nonassenting
minority, and this Court held it to be thus binding upon
bondholders who were citizens of the United States and who sued in
courts of the United States to recover on their bonds. The "scheme"
of the Canadian law was not unlike the "plan" of § 77. The
significant part of the court's opinion, so far as the question now
under discussion is concerned, is the following, which appears at
p.
109 U. S.
536:
"The confirmation and legalization of 'a scheme of arrangement'
under such circumstances is no more than is done in bankruptcy when
a 'composition' agreement with the bankrupt debtor, if assented to
by the required majority
Page 294 U. S. 674
of creditors, is made binding on the nonassenting minority. In
no just sense do such governmental regulations deprive a person of
his property without due process of law. They simply require each
individual to so conduct himself for the general good as not
unnecessarily to injure another. Bankrupt laws have been in force
in England for more than three centuries, and they had their origin
in the Roman law. The Constitution expressly empowers the congress
of the United States to establish such laws. Every member of a
political community must necessarily part with some of the rights
which, as an individual, not affected by his relation to others, he
might have retained. Such concessions make up the consideration he
gives for the obligation of the body politic to protect him in
life, liberty, and property. Bankrupt laws, whatever may be the
form they assume, are of that character."
After pointing out that the Canadian law was in accordance with
the policy of the English and Canadian governments in dealing with
embarrassed and insolvent railway companies, that it took the place
in England and Canada of foreclosure sales in the United States
"which in general accomplish substantially the same result with
more expense and greater delay," the Court added (p.
109 U. S.
539):
". . . It is in entire harmony with the spirit of bankrupt laws,
the binding force of which, upon those who are subject to the
jurisdiction, is recognized by all civilized nations. It is not in
conflict with the Constitution of the United States, which,
although prohibiting states from passing laws impairing the
obligation of contracts, allows congress 'to establish . . .
uniform laws on the subject of bankruptcy throughout the United
States.' Unless all parties in interest, wherever they reside, can
be bound by the arrangement which it is sought to have legalized,
the scheme may fail. "
Page 294 U. S. 675
It is unnecessary to consider the criticism, sometimes made,
that these excerpts are dicta merely, since we are of opinion that
they are sound in principle.
It follows, from what has now been said that § 77, in its
general scope and aim, is within the power conferred by the
bankruptcy clause of the Constitution, and we so hold.
Second. Under § 77, does the bankruptcy court have
authority to enjoin the sale of the collateral here in question if
a sale would so hinder, obstruct, and delay the preparation and
consummation of a plan of reorganization as probably to prevent it?
By § 2 of the Bankruptcy Act (U.S.C. Title 11), courts of
bankruptcy are invested "with such jurisdiction at law and in
equity as will enable them to exercise original jurisdiction in
bankruptcy proceedings." They are essentially courts of equity, and
their proceedings inherently proceedings in equity, the words "at
law" probably having been inserted only with regard to clause (4)
of § 2, which confers authority to arraign, try, and punish
bankrupts and others for violations of the act.
Local Loan Co.
v. Hunt, 292 U. S. 234,
292 U. S. 240.
Their adjudications and orders constitute in all essential
particulars decrees in equity.
Idem, 292 U. S. 241.
The power to issue an injunction when necessary to prevent the
defeat or impairment of its jurisdiction is therefore inherent in a
court of bankruptcy, as it is in a duly established court of
equity. Section 262 of the Judicial Code, which authorizes the
United States courts "to issue all writs not specifically provided
for by statute, which may be necessary for the exercise of their
respective jurisdictions," recognizes and declares the principle.
An example of its application is found in
Kline v. Burke
Constr. Co., 260 U. S. 226,
260 U. S. 229,
where we held that a federal court, having first acquired
jurisdiction of the subject matter, could enjoin the parties from
proceeding in a state court of concurrent jurisdiction "where the
effect of the
Page 294 U. S. 676
action would be to defeat or impair the jurisdiction of the
federal court." An injunction may be issued in such circumstances
for the purpose of protecting and preserving the jurisdiction of
the court "until the object of the suit is accomplished and
complete justice done between the parties."
Looney v. Eastern
Texas R. Co., 247 U. S. 214,
247 U. S. 221.
Moreover, by § 2(15) of the Bankruptcy Act (U.S.C. Title
11), courts of bankruptcy are invested with such authority in
equity as will enable them to exercise original jurisdiction in
bankruptcy proceedings, including the power to
"make such orders, issue such process, and enter such judgments
in addition to those specifically provided for as may be necessary
for the enforcement of the provisions of this act."
It may be that, in an ordinary bankruptcy proceeding, the issue
of an injunction in the circumstances here presented would not be
sustained. As to that, it is not necessary to express an opinion.
But a proceeding under § 77 is not an ordinary proceeding in
bankruptcy. It is a special proceeding which seeks only to bring
about a reorganization if a satisfactory plan to that end can be
devised. And to prevent the attainment of that object is to defeat
the very end the accomplishment of which was the sole aim of the
section, and thereby to render its provisions futile.
The bankruptcy court, in granting the injunction, was well
within its power, either as a virtual court of equity or under the
broad provisions of § 2(15) of the Bankruptcy Act or of §
262 of the Judicial Code.
The injunction does not infringe § 67(d), U.S.C. Title 11,
§ 107(d). The substance of that provision is that
bona
fide liens shall not be affected by anything contained in the
Bankruptcy Act. The injunction here in no way impairs the lien, or
disturbs the preferred rank of the pledgees. It does no more than
suspend the enforcement of the lien by a sale of the collateral
pending
Page 294 U. S. 677
further action. It may be, as suggested, that, during the period
of restraint, the collateral will decline in value; but the same
may be said in respect of an injunction against the sale of real
estate upon foreclosure of a mortgage, and such an injunction may
issue in an ordinary proceeding in bankruptcy.
Straton v.
New, 283 U. S. 318,
283 U. S.
321,, and cases cited. A claim that injurious
consequences will result to the pledgee or the mortgagee may not,
of course, be disregarded by the district court, but it presents a
question addressed not to the power of the court, but to its
discretion -- a matter not subject to the interference of an
appellate court unless such discretion be improvidently exercised.
So far as constitutional power is concerned, there is no difference
between an injunction restraining the enforcement of a real estate
mortgage and one restraining the enforcement of a pledge by the
sale of collateral security. Such differences as exist affect not
the power, but the propriety, of its exercise -- that is to say,
the discretion of the court. Such an injunction, as just indicated,
is within the contemplation of § 77, and we need not inquire
whether it would be admissible under the act in force prior to the
adoption of that section.
Compare Straton v. New, supra.
Nor does § 57(h), 11 U.S.C. § 93(h), also invoked by
petitioners, have any pertinent application to the question under
discussion in the light of the provisions, purpose, and aim of
§ 77.
Petitioners urge that the injunction is precluded by a
consideration of subdivision (1) of § 77, which confers
authority upon the court to enjoin or stay the commencement or
continuance of any judicial proceeding to enforce any lien upon the
estate until after final decree. The point made is that the
granting of this express power to enjoin judicial proceedings
brought to enforce liens negatives the authority to stay the
enforcement of liens by
nonjudicial proceedings, in
accordance with the maxim, "
expressio unius est exclusio
alterius." But clause (15) of
Page 294 U. S. 678
§ 2 is still in the act, and it would be an unwarranted use
of the maxim, which is only an aid to construction, to apply it in
such a way as to work a destruction,
pro tanto not only of
that clause, but of § 262, Judicial Code, and of the general
principle upon which both are based.
Third. It is evident that the effect here wrought by
the menace of impending sales of the collateral would seriously
embarrass and probably prevent the formulation and consummation of
a plan of reorganization. Both courts below so found. The findings
of the district court are in the form of recitals in the order, but
are nevertheless in substance and in effect findings of fact. The
circuit court of appeals approved these findings, and added that,
without some control over the disposition of the collateral, "the
presentation of a satisfactory plan of reorganization might as well
be abandoned." These concurrent findings of the two courts, as this
Court has often held, should be accepted as conclusive unless
clearly erroneous.
United States v. Commercial Credit Co.,
286 U. S. 63,
286 U. S. 67;
Stuart v. Hayden, 169 U. S. 1,
169 U. S. 14;
Dun v. Lumbermen's Credit Assn., 209 U. S.
20,
209 U. S.
23-24.
We are not impressed with the attempt of petitioners to show
that the record entirely fails to justify the conclusion of the
courts below in that regard. I t must be borne in mind that, in
addition to the collateral aggregating more than $54,000,000, held
by petitioners, there was outstanding additional collateral pledged
as security in the sum of over $145,000,000, bringing the total up
to approximately $200,000,000, a sum equal to nearly half of the
capital then issued and in the hands of the public. At the time the
injunction was applied for, there was danger that the noteholders
would claim that the right of sale under the terms of the
collateral notes had been brought into existence, and, with the
pendency of the reorganization proceedings and the suspension of
the payment of interest, it well cannot be doubted that there also
was danger that the noteholders would proceed to exercise
Page 294 U. S. 679
their rights of sale under the collateral notes. Such action on
the part of these noteholders might well precipitate similar action
by other holders of pledged collateral.
It is necessary, under § 77, first to prepare a plan and
then to submit it, perhaps with other suggested plans, to the
Interstate Commerce Commission for consideration and
recommendation. The plan having been assented to by two-thirds of
each class of the stockholders and creditors and approved by the
commission, must then, and only then, be submitted for approval to
the district court. In the reorganization of a great railroad
system like that here concerned, these various steps call for a
degree of consideration and an extent of detailed work almost
beyond the power of appreciation. The sale of the collateral
securities from time to time during the progress of this
consideration and work well might require such changes of detail in
the plan, entailing new and perhaps difficult reconcilements of
views among many and conflicting interests, as to force an
abandonment of the proceeding.
It must be apparent, if we consider only the impressive facts
set forth in the forepart of this opinion in respect of the
extensive operations of the railway company and its subsidiaries,
the extent, multiplicity, and variety of their obligations, the
complicated nature of their capital structure, the great volume of
their securities held as collateral by many and widely separated
creditors, and other circumstances, that, without the maintenance
of the
status quo for a reasonable length of time, no
satisfactory plan could be worked out. The preparation of any plan
the important details of which could survive the changes in, and
the consequent fluctuation and disturbance of, the financial
structure brought about by recurring sales of collateral would seem
to be a practical impossibility. Under all the circumstances, we
are of opinion that the district court properly exercised its
discretion in favor of respondents.
Page 294 U. S. 680
Fourth. We find no substance in the contention of the
petitioning banks that § 77, as applied by the court below to
permit an injunction restraining the sale of the collateral,
violates the Fifth Amendment. The basis of the contention is that
since, by the terms of the pledge, the pledgees are empowered on
default to sell the collateral at such times as they may select,
§ 77, as thus applied, deprives them of their property -- that
is to say, impairs or destroys their contractual rights -- without
due process of law.
The Constitution, as it many times has been pointed out, does
not in terms prohibit Congress from impairing the obligation of
contracts as it does the states. But, as far back as
Calder v. Bull,
3 Dall. 386,
3 U. S. 388, it
was said that among other acts which Congress could not pass
without exceeding its authority was "a law that destroys or impairs
the lawful private contracts of citizens." The broad reach of that
statement has been restricted (
Legal Tender
Cases, 12 Wall. 457,
79 U. S.
549-550); but the principle which it includes has never
been repudiated, although the extent to which it may be carried has
not been definitely fixed. Speaking generally, it may be said that
Congress, while without power to impair the obligation of contracts
by laws acting directly and independently to that end, undeniably,
has authority to pass legislation pertinent to any of the powers
conferred by the Constitution, however it may operate collaterally
or incidentally to impair or destroy the obligation of private
contracts.
Legal Tender Cases, supra; Louisville &
Nashville R. v. Mottley, 219 U. S. 467,
219 U. S.
480-482,
219 U. S. 484;
Highland v. Russell Car & Snowplow Co., 279 U.
S. 253,
279 U. S. 261.
And, under the express power to pass uniform laws on the subject of
bankruptcies, the legislation is valid though drawn with the direct
aim and effect of relieving insolvent persons in whole or in part
from the payment of their debts.
See Hanover National Bank v.
Moyses, supra, at p.
186 U. S. 188.
So much necessarily results
Page 294 U. S. 681
from the nature of the power, and this must have been within the
contemplation of the framers of the Constitution when the power was
granted.
The injunction here goes no further than to delay the
enforcement of the contract. It affects only the remedy. As already
appears, this Court has upheld the power of a court of bankruptcy
to stay the enforcement of the remedy under a real estate mortgage,
and the remedy under a pledge, so far as constitutional power is
here concerned, presents a situation strictly analogous in
character.
Fifth. It is next contended that the court was without
power to issue the injunction in a summary proceeding. Obviously,
an application for an injunction against the immediate enforcement
of a remedy is not the assertion of an adverse claim. The bonds
deposited as collateral were not in the hands of purchasers, but in
the hands of creditors as security. That the equity which the
debtor retained was a property interest was not and could not be
disputed by the creditors; nor was the claim of the creditors in
respect of their rights in the collateral security or the rank of
their liens questioned by the debtor. In short, no adverse claim
was brought forward by either of the parties to the controversy.
The only question was in respect of the creditors' remedy, and the
sole point is as to the authority of the bankruptcy court to delay
for a reasonable time an interference with the reorganization
proceeding which would result from an immediate sale of the
collateral. The court below dealt adequately with the situation,
and its conclusions find ample support in the decisions.
See,
for example, In re Purkett, Douglas & Co., 50 F.2d 435,
438;
John Matthews, Inc. v. Knickerbocker Trust Co., 192
F. 557;
Allebach v. Thomas, 16 F.2d 853.
The Reconstruction Finance Corporation raised the question in
the district court by a demurrer, asserting that the allegations of
the debtor's petition were insufficient.
Page 294 U. S. 682
But, in a summary proceeding, as the term itself implies, the
merits of the controversy are determined without the formality in
respect of pleadings which is required in actions at law or suits
in equity. In such a proceeding, we see no reason why the
allegations of the petition may not be helped out by timely
affidavits. Doubt has been expressed by lower federal courts as to
the propriety of a demurrer in such a proceeding.
In re
Snelling, 202 F. 258, Judge Morton aptly said:
"Summary procedure implies, I think, a single hearing . . . at
which the merits of the controversy are investigated and decided,
without much regard to the formal pleadings."
See also In re Rockford Produce & Sales Co., 275 F.
811, 813. In any event, we think, as against demurrer, conceding
its propriety, the petition is sufficient. Pertinent allegations
are epitomized in the early part of this opinion.
The contention of the petitioners that they were not given
sufficient notice or a full opportunity to be heard is quite
evidently without merit. They had ten days' previous notice by
registered mail of the application for the injunction. All appeared
specially and participated in the hearings, for which ample time
was allowed. Briefs were filed on both sides, and additional
memoranda were presented to the court by the Reconstruction Finance
Corporation and one of the banks.
Sixth. The territorial jurisdiction of the district
court is assailed by three of the banks on the ground that they
were located outside the Northern District of Illinois. The
contention is that the district court was without power to issue
its process for service outside the district. Section 77(a)
provides that, after the petition of the railroad company is
approved,
"the court in which such order approving the petition is entered
shall, during the pendency of the proceedings under this section
and for the purposes thereof, have exclusive jurisdiction of
the
Page 294 U. S. 683
debtor and its property wherever located."
Congress may authorize the civil process of a federal district
court to be served upon persons in any other district.
Toland v.
Sprague, 12 Pet. 300,
37 U. S. 328;
United States v. Congress Construction Co., 222 U.
S. 199,
222 U. S.
203-204;
First Natl. Bank v. Williams,
252 U. S. 504,
252 U. S. 510.
There are other cases to the same effect, but it is unnecessary to
cite them. Section 77 deals with railway corporations whose lines
and activities are not confined to a single district or a single
state, but in numerous instances reach into many districts and many
states. The lines of the Rock Island system extend into twenty
districts and fourteen states. Jurisdiction over reorganization
proceedings, however extensive the railway lines may be, is
conferred upon a single district court. The usefulness of the
section would be greatly minimized and in some instances destroyed
if that court were powerless to send its process into any state
when necessary to effectuate the purposes of the law. As has
already been shown, the equity in the collateral remaining in the
railroad company is property, and over this property, wherever
located, the federal district court is given exclusive jurisdiction
by the precise language of § 77, just quoted. As a necessary
consequence of that jurisdiction, the court must have the power to
preserve and safeguard the property for the benefit of the trust
estate so far as that is compatible with the rights of the
pledgees. Jurisdiction over the property wherever located carries
with it jurisdiction to enjoin, in a proper case, interferences
with the property, and that includes, by necessary inference, the
power to send process to that end for service upon the persons to
be enjoined wherever they may be found within the United
States.
It is said that the words "wherever located" mean wherever
located
within the district. But, considering the nature
of the property involved, the number of districts and states over
which it is distributed, and the
Page 294 U. S. 684
manifest policy of avoiding ancillary administration as far as
possible, a construction so narrow must be rejected as at war with
the whole spirit and purpose of the law.
Seventh. The Reconstruction Finance Corporation
contends that §§ 77 and 2(15) of the Bankruptcy Act must
be limited by the provisions of § 5 of the Reconstruction
Finance Corporation Act (c. 8, 47 Stat. 5), which empowers the
corporation to take over and liquidate collateral accepted by it as
security. The Reconstruction Finance Corporation Act creates a
corporation and vests it with designated powers. Its entire stock
is subscribed by the government, but it is nonetheless a
corporation, limited by its charter and by the general law. The act
does not give it greater rights as to the enforcement of its
outstanding credits than are enjoyed by other persons or
corporations in the event of proceedings under the Bankruptcy Act.
The provisions and principles of enforcement of the Bankruptcy Act,
including § 77, are binding upon the Reconstruction Finance
Corporation, in the absence of some pertinent statutory exception,
as they are upon other corporations. We are unable to find such an
exception in the authority to liquidate collateral held as security
-- an authority enjoyed in common with any other lender of money
who has taken the trouble to provide for it in his contract with
the borrower. What is given to the lender in either event is a
remedy which, when subject to the control of the bankruptcy court
under given circumstances in the one case, is equally so in the
other.
Finally. Petitioners insist, with much force, that the
injunction, granted in November, 1933, and still operative, is
likely, if continued, to result in irreparable injury. We do not
interpret the order, as suggested by the Reconstruction Finance
Corporation, as continuing the injunction in force until a plan of
reorganization is effected or the proceeding under § 77
dismissed. On the contrary,
Page 294 U. S. 685
we understand that the injunction may at any time be dissolved
upon application and proper notice and showing. It contemplates, as
we have already suggested, only reasonable delay.
It is true that no plan has yet been consummated, and, so far as
the record shows, none has been prepared or is in the course of
preparation. If this long delay were without adequate excuse, the
retention of the injunction for the long period which has
intervened since it was granted could not be justified. But the
delay is obviously due to the many doubts and uncertainties arising
from the present litigation. Until they are finally resolved, the
consummation, or even the preparation, of any definite plan is
plainly impracticable. With those doubts and uncertainties now
removed, the proceeding should go forward to completion without
further delay, or be dismissed.
The delay and expense incident to railroad receiverships and
foreclosure sales constituted, probably, the chief reasons which
induced the passage of § 77, and to permit the perpetuation of
either of these evils under this new legislation would be
subversive of the spirit in which it was conceived and adopted. Not
only are those who institute the proceeding and those who carry it
forward bound to exercise the highest degree of diligence, but it
is the duty of the court and of the Interstate Commerce Commission
to see that they do. Proceedings of this character, involving
public and private interests of such magnitude, should, so far as
practicable, be given the right of way both by the court and by the
commission, to the end that they may be speedily determined.
Decree affirmed.
MR. JUSTICE BRANDEIS took no part in the decision of this
case.
* Together with Nos. 481 and 482,
Chase National Bank v.
Chicago, R.I. & P. Ry. Co.; Nos. 483 and 484,
Mississippi Valley Trust Co. v. Chicago, R.I.. & P. Ry.
Co.; Nos. 485 and 486,
Harris Trust & Savings Bank v.
Chicago, R.I. & P. Ry. Co.; Nos. 487 and 488,
New York
Trust Co. v. Chicago, R.I. & P. Ry. Co., and Nos. 489 and
490,
Reconstruction Finance Corp. v. Chicago, R.I. & P. Ry.
Co., all on certiorari to the Circuit Court of Appeals for the
Seventh Circuit.
[
Footnote 1]
The collateral pledged with the notes held by the Reconstruction
Finance Corporation consists of the following securities:
Listed Collateral:
The Chicago, Rock Island and Pacific Railway
Company First and Refunding 4% Gold Bonds . . $7,575,000.00
St. Paul and Kansas City Short Line Railroad
Company First Mortgage 4 1/2% Gold Bonds. . . 9,374,500.00
Rock Island, Arkansas and Louisiana Railroad
Company First Mortgage 4 1/2% Gold Bonds. . . 3,862,000.00
--------------
Total . . . . . . . . . . . . . . . . . . . $20,811,500.00
Unlisted Collateral:
The Chicago, Rock Island and Gulf Railway
Company Extension First Mortgage 5% Bonds . . $6,927,000.00
The Chicago, Rock Island and Gulf Railway
Company Carrollton Branch 6% Bonds. . . . . . 331,000.00
Kankakee & Senaca Railroad Company 4 1/2%
Bonds . . . . . . . . . . . . . . . . . . . . 352,000.00
Rock Island and Dardanelle Railway Company
First Mortgage 5% Bonds . . . . . . . . . . . 100,000.00
Rock Island Memphis Terminal Depot First
Mortgage 5% Bonds . . . . . . . . . . . . . . 900,000.00
Rock Island Memphis Terminal First Mortgage
5% Bonds. . . . . . . . . . . . . . . . . . . 400,000.00
Rock Island Omaha Terminal First Mortgage
5% Bonds. . . . . . . . . . . . . . . . . . . 906,000.00
Rock Island Improvement Company:
Blue Island Shops Bonds . . . . . . . . . . . 199,000.00
Cedar Rapids Terminal Bonds . . . . . . . . . 369,732.00
Little Rock Mortgage Bonds. . . . . . . . . . 278,492.49
Peoria Terminal Mortgage Bonds. . . . . . . . 290,247.86
First and Collateral 5% Bonds . . . . . . . . $3,310,000.00
Trinity & Brazos Valley Receiver's Certificates
747,492.51
Trinity & Brazos Valley First Mortgage Bonds
(now pledged under Colorado & Southern
Mortgage; C.R. I & P. had agreed to pledge
them with Reconstruction Finance Corporation
upon release from that Mortgage May 1, 1935) 4,380,000.00
--------------
Total. . . . . . . . . . . . . . . . . . . $19,490,965.85
Assignment of Chicago, Rock Island and Pacific
Railway Company's distributive share in as-
sets of Railroad Credit Corporation, approx-
imately. . . . . . . . . . . . . . . . . . . 1,400,000.00
[
Footnote 2]
The notes held by the five banks and the collateral securing the
same are as follows:
-------------------------------------------------------------------------------
Collateral
-------------------------
St. Paul &
Amount Kansas City
of loan C.R.I. & P. Short Line
Refunding 4 1/4% Gold
4% Bonds Bonds
-------------------------------------------------------------------------------
Chase National Bank . . . . . . . . . . . . $2,000,000
$3,253,000 $3,956,000
Continental Illinois Bank and Trust Co. . . 1,250,000 1,307,000
2,758,000
New York Trust Co. . . . . . . . . . . . . 500,000 800,000
1,010,000
Harris Trust & Savings Bank. . . . . . . . 250,000 405,000
490,000
Mississippi Valley Trust Company. . . . . . 125,000 190,000
240,000
---------- ---------- ----------
$4,125,000 $5,955,000 $8,454,000
-------------------------------------------------------------------------------
The $4,125,000 was reduced to $3,866,923.34 by application of
debtors' deposits in the Continental and Mississippi Valley
banks.
The St. Paul & Kansas City Short Line 4 1/2% Gold Bonds are
mortgage bonds of a corporation whose capital stock is owned by the
debtor, and they are guaranteed principal and interest by it.
[
Footnote 3]
Protective Committee for the Chicago, Rock Island & Pacific
Railway General Mortgage 4% Bonds; Protective Committee for the
Chicago, Rock Island & Pacific Railway First and Refunding 4%
Gold Bonds and Secured 4 1/2% Gold Bonds Series A; Protective
Committee for the St. Paul & Kansas City Short Line 4 1/2% Gold
Bonds and Rock Island, Arkansas & Louisiana 4 1/2% Gold Bonds;
Protective Committee of the Burlington, Cedar Rapids & Northern
Consolidated 5% Gold Bonds; Protective Committee for the Chicago,
Rock Island & Pacific Railway, 30-year 4 1/2% Convertible
Bonds.
[
Footnote 4]
"(a) Any railroad corporation may file a petition stating that
the railroad corporation is insolvent or unable to meet its debts
as they mature and that it desires to effect a plan of
reorganization. The petition shall be filed with the court in whose
territorial jurisdiction the railroad corporation, during the
preceding six months or the greater portion thereof, has had its
principal executive or operating office, and a copy of the petition
shall at the same time be filed with the Interstate Commerce
Commission, hereinafter called the commission: . . . If the
petition is so approved, the court in which such order approving
the petition is entered shall, during the pendency of the
proceedings under this § and for the purposes thereof, have
exclusive jurisdiction of the debtor and its property wherever
located. The railroad corporation shall be referred to in the
proceedings as a 'debtor.' Any corporation, the majority of the
capital stock of which having power to vote for the election of
directors is owned, either directly or indirectly through an
intervening medium, by any railroad corporation filing a petition
as a debtor under this section, or substantially all of whose
properties are operated by such a debtor under lease or operating
agreement may file, with the court in which such other debtor had
filed such a petition, and in the proceeding upon such petition
under this section, a petition stating that it is insolvent or
unable to meet its debts as they mature and that it desires to
effect a plan of reorganization in connection with, or as a part
of, the plan of reorganization of such other debtor, and thereupon
such court shall have the same jurisdiction with respect to it, its
property, and its creditors and stockholders as the court has with
respect to such other debtor. . . ."
"(b) A plan of reorganization within the meaning of this section
(1) shall include a proposal to modify or alter the rights of
creditors generally, or of any class of them, secured or unsecured,
either through the issuance of new securities of any character or
otherwise; . . .(3) shall provide adequate means for the execution
of the plan, which may, so far as may be consistent with the
provisions of §§ 1 and 5 of the Interstate Commerce Act
as amended, include the transfer or conveyance of all or any part
of the property of the debtor to another corporation or to other
corporations or the consolidation of the properties of the debtor
with those of another railroad corporation, or the merger of the
debtor with any other railroad corporation and the issuance of
securities of either the debtor or any such corporation or
corporations, for cash, or in exchange for existing securities, or
in satisfaction of claims or rights, or for other appropriate
purposes. . . . The term 'creditors' shall, except as otherwise
specifically provided in this section, include, for all purposes of
this section and of the reorganization plan, its acceptance and
confirmation, all holders of claims, interests, or securities of
whatever character against the debtor or its property. . . ."
"(c) Upon approving the petition as properly filed the judge . .
. , (7) if a plan of reorganization is not proposed or accepted,
or, if proposed and accepted, is not confirmed, within such
reasonable time as the judge may, upon cause shown and after
considering any recommendation which has been filed by the
commission, allow, may dismiss the proceeding. . . ."
"(d) Before creditors and stockholders of the debtor are asked
finally to accept any plan of reorganization, the Interstate
Commerce Commission shall after due notice hold a public hearing at
which the debtor shall present its plan of reorganization and at
which, also, such a plan may be presented by the trustee or
trustees, or by or on behalf of creditors of the debtor, being not
less than 10 percentum in amount of any class of creditors.
Following such hearing, the commission shall render a report in
which it shall recommend a plan of reorganization (which may be
different from any which has been proposed) that will, in its
opinion be equitable, will not discriminate unfairly in favor of
any class of creditors or stockholders, will be financially
advisable, will meet with the requirements of subdivision (g) of
this section, and will be compatible with the public interest. In
such report, the commission shall state fully the reasons for its
conclusions. . . . Thereafter, the plan of reorganization
recommended by the commission shall be submitted in such manner as
the commission may direct to the creditors and stockholders of the
debtor for acceptance or rejection, together with the report or
reports of the commission thereon. . . ."
"(e) A plan of reorganization shall not be finally approved by
the commission until it has been accepted in writing and such
acceptance has been filed in the proceeding by or on behalf of
creditors holding two-thirds in amount of the claims of each class
whose claims or interests would be affected by the plan, and by or
on behalf of stockholders of the debtor holding two-thirds of the
stock of each class:
Provided, however, That if adequate
provision is made in the plan for the protection of the interests,
claims, and liens of any class of creditors or stockholders in the
manner provided in clauses (5) and (6) of subdivision (g), of this
section, then the acceptance of the plan by such class of creditor
or stockholders shall not be requisite to the approval of the plan.
. . ."
"(g) Upon such approval by the commission, and after hearing
such objections as may be made to the approved plan, the judge
shall confirm the plan if satisfied that . . . (6) the plan
provides with respect to any class of creditors the acceptance of
which is requisite to the confirmation of the plan, and who would
not become bound by the plan under the provisions of subdivision
(h) of this section, adequate protection for the realization by
them of the value of their securities, liens, and claims, either
(a) by the sale of such property subject to their liens, if any, or
(b) by the sale free of such liens at not less than a fair upset
price, and the transfer of such liens to the proceeds of such sale,
or (c) by appraisal and payment in cash of either the value of such
liens and claims or at the objecting creditors' election, the value
of the securities allotted to such liens and claims under the plan.
Section 57, clause (h), of this Act shall be applicable to the
appraisal of securities under this section, and the value of the
unpaid balance shall be appraised as an unsecured claim. . . ."
"(h) Upon such confirmation the provisions of the plan shall be
binding upon . . . (7) all secured creditors of each class of which
two-thirds in amount shall have accepted the plan. . . ."
"(i) In addition to the provisions of § 11 of this Act for
the staying of pending suits against the debtor, such suits shall
be further stayed until after final decree [and] the judge may,
upon notice and for cause shown, enjoin or stay the commencement or
continuance of any judicial proceeding to enforce any lien upon the
estate until after final decree."
"
* * * *"
"(n) In proceedings under this section and consistent with the
provisions thereof, the jurisdiction and powers of the court, the
duties of the debtor and the rights and liabilities of creditors,
and of all persons with respect to the debtor and his property,
shall be the same as if a voluntary petition for adjudication had
been filed and a decree of adjudication had been entered on the day
when the debtor's petition was filed. . . ."