Prudence Realization Corporation v. Geist, No. 757

CourtUnited States Supreme Court
Writing for the CourtSTONE
Citation62 S.Ct. 978,86 L.Ed. 1293,316 U.S. 89
Docket NumberNo. 757
Decision Date27 April 1942
PartiesPRUDENCE REALIZATION CORPORATION v. GEIST

316 U.S. 89
62 S.Ct. 978
86 L.Ed. 1293
PRUDENCE REALIZATION CORPORATION

v.

GEIST.

No. 757.
Argued April 1, 1942.
Decided April 27, 1942.

Page 90

Mr. Irving L. Schanzer, of New York City, for petitioner.

Mr. Morris A. Marks, of New York City, for respondent.

Mr. Chief Justice STONE delivered the opinion of the Court.

The question for our decision is whether an insolvent defaulting guarantor of certificates of participation in a mortgage, who is also the owner of a part of the mortgage indebtedness, is entitled to share pro rata in a distribution of the proceeds of the mortgage in a § 77B bankruptcy reorganization, 11 U.S.C.A. § 207.

Prudence Company, petitioner's predecessor, and a wholly owned subsidiary of New York Investors, Inc., loaned to Zo-Gale Realty Company $480,000 on its bond secured by a first mortgage on real estate. In 1925 Prudence Company put into execution a plan for selling participation certificates in the mortgage. It assigned the bond and mortgage without consideration to Prudence Bonds Corporation, also a wholly owned subsidiary of New York Investors, Inc. Prudence Bonds in turn lodged the bond and mortgage with a trust company depositary. Prudence Company then executed a guaranty of payment of the bond and mortgage, whereupon Prudence Bonds issued certificates of participation authenticated by the trust company, and totaling $382,800. It delivered them, without payment of any consideration, to the Prudence Company which then sold them to investors. The guaranty of Prudence Company, which was referred to in the participation certificates, was of payment of the bond interest when due and of the principal when due or within eighteen months thereafter.

Each certificate declares that the purchaser is entitled to an undivided share in the mortgage of a specified amount equal to the sum paid for it by the original pur-

Page 91

chaser. Each provides that the share in the bond and mortgage represented by it is not subordinate to any other shares or subject to any prior interest, and each reserves to Prudence Bonds the right 'to be the holder or pledgee of similar shares' in the bond and mortgage. The mortgage indebtedness was later reduced to.$390,000, leaving an undivided share of $7,200 of which Prudence Company was the equitable owner, for which no participation certificate had been issued.

In 1938 an order of the bankruptcy court, in which Prudence Company and Prudence Bonds were then being reorganized, directed a transfer to Prudence Company of the $7,200 interest, as part of a settlement and adjustment of mutual claims between the two companies, and Prudence Company has continued to be the owner of this share of the mortgage indebtedness. It has also acquired by purchase from certificate holders $816.67 in certificates of participation in the mortgage.

On foreclosure of a second mortgage on the Zo-Gale property, Amalgamated Properties, Inc., a wholly owned subsidiary of Prudence Company, acquired title to the property from the mortgagor, and later went into a bankruptcy reorganization. Upon approval by the court of a plan of reorganization of the Zo-Gale certificate issue, the title to the mortgaged property was transferred to respondent Geist as trustee for the benefit of the certificate holders. In confirming the plan for reorganization of Amalgamated, the court reserved for future decision the question whether the Prudence Company was entitled to payment of its two claims in the mortgage pro rata with the other certificate holders.

As provided by the reorganization plan of Prudence Company, petitioner Prudence Realization Corporation was organized to take over the assets from the trustees of Prudence Company and to liquidate them for the benefit of creditors under the direction of the bankruptcy

Page 92

court. Petitioner has thus acquired certificates issued in the Amalgamated reorganization proceeding, representing the interest of Prudence Company in the Zo-Gale bond and mortgage. The claims against Prudence Company recognized by its plan of reorganization amounted to $133,723,000, including its guaranties of mortgages amounting to $12,523,000; guaranties of bonds issued by Prudence Bonds for $58,833,000; and guaranties of mortgage participation certificates issued by Prudence Bonds (including the Zo-Gale mortgage certificates) for $50,858,000.

The present proceeding was begun by respondent's petition in the consolidated reorganization of Prudence Company and Amalgamated Properties in the Eastern District of New York for an order directing that petitioner was not entitled to any distribution on account of the Prudence Company's interest in the Zo-Gale mortgage until the other certificate holders were paid in full. The district court granted the order, which the Circuit Court of Appeals for the Second Circuit affirmed. 122 F.2d 503. Both courts applied the rule of the New York Court of Appeals, see Matter of Title & Mortgage Guaranty Co., 275 N.Y. 347, 9 N.E.2d 957, 115 A.L.R. 35; Pink v. Thomas, 282 N.Y. 10, 24 N.E.2d 724; Matter of People (Union Guarantee & Mortgage Co.), 285 N.Y. 337, 34 N.E.2d 345, that a guarantor of mortgage certificates, who also has an interest in the mortgage, cannot share in the proceeds of its collection until the certificate holders are paid, unless there is a clear reservation in the certificate of the right of the guarantor to share on a parity with other certificate holders. The Circuit Court of Appeals by a divided court held that it was bound to apply the rule announced in the New York cases cited, which it deemed to be a rule of construction of the guaranty of the certificates. We granted certiorari, 315 U.S. 606, 62 S.Ct. 479, 86 L.Ed. —-, because of the importance in bankruptcy administration of the questions raised.

Page 93

The court below recognized the implication of the requirement that a plan of reorganization under former § 77B, sub. f(1) of the Bankruptcy Act, see 11 U.S.C. § 621(2), 11 U.S.C.A. § 621(2), be one which (122 F.2d 505) 'is fair and equitable and does not discriminate unfairly in favor of any class of creditors', see Southern Pacific Co. v. Bogert, 250 U.S. 483,...

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107 practice notes
  • National Fruit Product Co. v. Dwinell-Wright Co., Civil Action No. 1445.
    • United States
    • United States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts
    • October 16, 1942
    ...Ins. Co., 315 U.S. 447, 455, 456, 463, 464, 465-475, 62 S.Ct. 676, 86 L.Ed. 956), the Bankruptcy Act (Prudence Realization Corp. v. Geist, 316 U. S. 89, 95, 62 S.Ct. 978, 86 L.Ed. 1293), the National Bank Act (Deitrick, Receiver, v. Greaney, 309 U.S. 190, 200, 201, 60 S.Ct. 480, 84 L.Ed. 69......
  • Maternally Yours v. Your Maternity Shop, No. 196
    • United States
    • United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
    • June 6, 1956
    ...172, 87 L.Ed. 165; Pope & Talbot v. Hawn, 1953, 346 U.S. 406, 74 S.Ct. 202, 98 L.Ed. 143; cf. Prudence Realization Corp. v. Geist, 1942, 316 U.S. 89, 95, 62 S.Ct. 978, 86 L.Ed. 1293. Therefore, this court's holding in the Spiegel case, supra, when viewed in conjunction with Artype, Incorpor......
  • Philco Corporation v. Phillips Mfg. Co., No. 7997.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • January 19, 1943
    ...Duhme & Co. v. Federal Deposit Insurance Corporation, 315 U.S. 447, 459, 461, 62 S.Ct. 676, 86 L. Ed. 956; Prudence Corporation v. Geist, 316 U.S. 89, 95, 62 S.Ct. 978, 86 L.Ed. 1293; Sola Electric Co. v. Jefferson Electric Co., December 7, 1942, 63 S.Ct. 172, 87 L.Ed. ___. The policy of th......
  • Nichols v. Alker, No. 39
    • United States
    • U.S. Court of Appeals — Second Circuit
    • February 14, 1956
    ...Sola Electric Co. v. Jefferson Electric Co., 1942, 317 U.S. 173, 176, 63 S.Ct. 172, 87 L.Ed. 165; cf. Prudence Realization Corp. v. Geist, 316 U.S. 89, 95, 62 S.Ct. 978, 86 L.Ed. 1293. Since the initial issue here is the scope and effect of a reorganization decree rendered pursuant to a fed......
  • Request a trial to view additional results
107 cases
  • National Fruit Product Co. v. Dwinell-Wright Co., Civil Action No. 1445.
    • United States
    • United States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts
    • October 16, 1942
    ...Ins. Co., 315 U.S. 447, 455, 456, 463, 464, 465-475, 62 S.Ct. 676, 86 L.Ed. 956), the Bankruptcy Act (Prudence Realization Corp. v. Geist, 316 U. S. 89, 95, 62 S.Ct. 978, 86 L.Ed. 1293), the National Bank Act (Deitrick, Receiver, v. Greaney, 309 U.S. 190, 200, 201, 60 S.Ct. 480, 84 L.Ed. 69......
  • Maternally Yours v. Your Maternity Shop, No. 196
    • United States
    • United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
    • June 6, 1956
    ...172, 87 L.Ed. 165; Pope & Talbot v. Hawn, 1953, 346 U.S. 406, 74 S.Ct. 202, 98 L.Ed. 143; cf. Prudence Realization Corp. v. Geist, 1942, 316 U.S. 89, 95, 62 S.Ct. 978, 86 L.Ed. 1293. Therefore, this court's holding in the Spiegel case, supra, when viewed in conjunction with Artype, Incorpor......
  • Philco Corporation v. Phillips Mfg. Co., No. 7997.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • January 19, 1943
    ...Duhme & Co. v. Federal Deposit Insurance Corporation, 315 U.S. 447, 459, 461, 62 S.Ct. 676, 86 L. Ed. 956; Prudence Corporation v. Geist, 316 U.S. 89, 95, 62 S.Ct. 978, 86 L.Ed. 1293; Sola Electric Co. v. Jefferson Electric Co., December 7, 1942, 63 S.Ct. 172, 87 L.Ed. ___. The policy of th......
  • Nichols v. Alker, No. 39
    • United States
    • U.S. Court of Appeals — Second Circuit
    • February 14, 1956
    ...Sola Electric Co. v. Jefferson Electric Co., 1942, 317 U.S. 173, 176, 63 S.Ct. 172, 87 L.Ed. 165; cf. Prudence Realization Corp. v. Geist, 316 U.S. 89, 95, 62 S.Ct. 978, 86 L.Ed. 1293. Since the initial issue here is the scope and effect of a reorganization decree rendered pursuant to a fed......
  • Request a trial to view additional results

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