Prudence Realization Corp. v. Geist - 316 U.S. 89 (1942)
U.S. Supreme Court
Prudence Realization Corp. v. Geist, 316 U.S. 89 (1942)
Prudence Realization Corp. v. Geist
Argued April 1, 1942
Decided April 27, 1942
316 U.S. 89
1. Under §§ 77B(f)(1) and 65(a) of the Bankruptcy Act, and the equitable principles governing bankruptcy proceedings, 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 the distribution of the proceeds of the mortgage, in a § 77B reorganization. P. 316 U. S. 93.
2. A rule asserted to have been established by decisions of the New York Court of Appeals, to the effect that one who guarantees payment of certificates representing undivided interests in a mortgage, which are sold to investors, thereby impliedly agrees that any claim of his own in the mortgage indebtedness shall be subordinated to those of other certificate holders, is to be taken as a rule of state law governing relative rights of claimants in a state liquidation, but is inapplicable in federal bankruptcy proceedings. P. 316 U. S. 93.
Nothing decided in Erie R. Co. v. Tompkins, 304 U. S. 64, requires a court of bankruptcy to apply such a local rule governing the liquidation of insolvent estates. The Bankruptcy Act prescribes its own criteria for distribution to creditors. P. 316 U. S. 95.
122 F.2d 503 reversed.
Certiorari, 314 U.S. 606, to review the affirmance of an order of the District Court directing that the petitioner should not share in the proceeds of the mortgage until other owners of undivided interests in the mortgage indebtedness were paid in full.