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U.S. Supreme Court

Manufacturers Trust Co. v. Becker, 338 U.S. 304 (1949)

Manufacturers Trust Co. v. Becker

No. 55

Argued October 20, 1949

Decided November 21, 1949

338 U.S. 304


In an arrangement proceeding instituted by a corporate debtor under Chapter XI of the Bankruptcy Act, an indenture trustee objected to the allowance of claims equal to the principal amount of debentures acquired at a discount, while the debtor was insolvent, by respondents, who were close relatives and an office associate of the debtor's directors. The referee found, in effect, that there was no bad faith or unfair dealing, and that, during the period of the purchases, respondents' conduct with reference to the affairs of the debtor was to its material benefit. The referee dismissed the objections, and both the District Court and the Court of Appeals affirmed.

Held: on the record in this case, equitable considerations do not require that respondents' claims be limited to the cost of the debentures plus interest. Pp. 338 U. S. 305-315.

(a) The two respondents, who were close relatives of the director purchased all their debentures while the debtor was a going concern (though technically insolvent), and, even if their claims be viewed as claims of directors, the probability that an actual conflict of interests arose from their purchases is not great enough to justify the exercise of equity jurisdiction to limit their claims to the cost of the debentures plus interest. Pp. 338 U. S. 309-313.

(b) The third respondent did purchase a small portion of his debentures after the debtor ceased to be a going concern, but he was merely an office associate and friend of the directors, he had begun to buy debentures some months before their election, there was nothing to indicate that his purchases after they became directors were influenced by advice from them, they had no interest in his holdings, and consideration of his claim as that of a director is precluded. Pp. 338 U. S. 314-315.

173 F.2d 944 affirmed.

In a proceeding under Chapter XI of the Bankruptcy Act, the referee's dismissal of objections to the allowance of certain claims was affirmed by the District Court (80

Page 338 U. S. 305

F.Supp. 822) and the Court of Appeals (173 F.2d 944). This Court granted certiorari. 337 U.S. 923. Affirmed, p. 338 U. S. 315.

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