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U.S. Supreme Court

Continental Illinois Nat. Bank v. Chicago, R.I. & P. Ry. Co., 294 U.S. 648 (1935)

Continental Illinois National Bank v.

Chicago, Rock Island & Pacific Ry. Co.

Nos. 479 and 480

Argued February 12, 13, 1935

Decided April 1, 1935*

294 U.S. 648


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. chanroblesvirtualawlibrary

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. chanroblesvirtualawlibrary

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.

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