United States v. Bekins
304 U.S. 27 (1938)

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U.S. Supreme Court

United States v. Bekins, 304 U.S. 27 (1938)

United States v. Bekins

Nos. 757 and 772

Argued April 7, 1938

Decided April 25, 1938

304 U.S. 27

Syllabus

1. Proceedings for voluntary composition of debts without adjudication of bankruptcy are within the scope of the bankruptcy power. P. 304 U. S. 47.

2. California Law, 1934, Extra Sess., gave the State's consent to the application to state "taxing districts," of the Bankruptcy Act and amendments, including Chapter X, added to that Act Aug. 16, 1937. P. 304 U. S. 47.

3. The omission from c. X of the Bankruptcy Act of a provision specifically requiring that the petition of a state taxing district under that chapter be approved by a governmental agency of the State held unimportant in determining the validity of the legislation where the State has actually consented. P. 304 U. S. 49.

4. In conditioning the confirmation of a plan of composition upon proof that the petitioning taxing district is "authorized by law" to take all action necessary to carry out the plan, c. X of the Bankruptcy Act refers to the law of the State. P. 304 U. S. 49.

5. Chapter X of the Bankruptcy Act, adopted Aug. 16 1937, empowers the courts of bankruptcy to entertain and pass upon petitions by state taxing agencies or instrumentalities, including irrigation districts, for the composition of their indebtedness payable out of assessments or taxes levied against and constituting liens upon property in their districts or out of income derived therefrom or from sale or water, etc. The plan of composition must be approved by creditors owning not less than 51% of the securities affected by the plan, and cannot be confirmed unless accepted by creditors holding 66 2/3% of the aggregate indebtedness of the district. There must be consent by the State, and the judge must be satisfied that the district is authorized by local law to carry out the plan. The statute aims to relieve serious distress existing in many such improvement districts where, because of economic conditions, property owners cannot pay assessments, and taxation is useless, so that the districts cannot meet

Page 304 U. S. 28

their obligations and creditors are helpless. A remedy through composition of the debts of the district could not be afforded by state law unaided, because of the contract clause of the Federal Constitution. Held that the statute is a valid exercise of the bankruptcy power. Ashton v. Cameron County District,298 U. S. 513, distinguished. P. 304 U. S. 49.

6. The ability to contract and to give consents bearing upon the exertion of governmental power is of the essence of sovereignty. P. 304 U. S. 51.

7. The reservation to the States by the Tenth Amendment, did not destroy, but protected, their right to make contracts and give consents where that action would not contravene the provisions of the Federal Constitution. P. 304 U. S. 52.

8. Cooperation between Nation and State through the exercise of the powers of each, to the advantage of the people who are citizens of both, is consistent with an indestructible Union of indestructible States. P. 304 U. S. 53.

9. Chapter X of the Bankruptcy Act held not violative of the Fifth Amendment, as applied to creditors of a state irrigation district, which sought a composition of its debts under that chapter. P. 304 U. S. 54.

21 F.Supp. 129 reversed.

Appeals from a decree of the District Court dismissing a petition for confirmation of a plan of composition presented by the above-named Irrigation District under c. X of the Bankruptcy Act. The District and the United States, which had been notified and had intervened, took separate appeals.

Page 304 U. S. 45

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