1. The record in this case lacks the findings of fact which §
83(e)of the Bankruptcy Act and No. 37 of the General Orders in
Bankruptcy require, and which are necessary to enable this Court to
determine whether the plan under Chapter IX of the Bankruptcy Act
for composition of the debts of a Florida drainage district
discriminates unfairly in favor of a particular class of creditors.
P. 319 U. S.
Page 319 U. S. 416
2. That only a very small minority of creditors have objected to
the plan does not relieve the courts of the duty of appraising its
fairness, and of making the findings necessary to support such an
3. The nature and degree of exactness of the findings required
in proceedings under Ch. IX depends on the circumstances of the
4. Where future tax revenues of a drainage district are the only
source to which creditors can look for payment of their claims,
considered estimates of those revenues constitute the only
available basis for appraising the respective interests of
different classes of creditors. P. 319 U.S. 419
5. In order that a court may determine the fairness of the total
amount of cash or securities offered to creditors by the plan, the
court must have before it data which will permit a reasonable, and
hence an informed, estimate of the probable future revenues
available for the satisfaction of creditors. P. 319 U. S.
6. Where different classes of creditors assert prior claims to
different sources of revenue, there must be a determination of the
extent to which each class is entitled to share in a particular
source, and of the fairness of the allotment to each class in the
light of the probable revenues to be anticipated from each source.
P. 319 U. S.
To support such a determination, there must be findings, in such
detail and exactness as the nature of the case permit, of
subsidiary facts on which the ultimate conclusion of fairness can
rationally be predicated.
7. In a Ch. IX proceeding, it is not the function of this Court
to analyze the evidence in order to supply findings which the trial
court failed to make; there must be findings, stated either in the
trial court's opinion or separately, which are sufficient to
indicate the factual basis for its ultimate conclusion. P.
319 U. S.
132 F.2d 742 vacated.
Petition for writ of certiorari to review the affirmance of a
decree confirming a plan under Chapter IX of the Bankruptcy Act for
the composition of indebtedness of the drainage district. The writ
was granted, and the judgment below was vacated.
Page 319 U. S. 417
In this case, we are asked to review a plan for composition of
the debts of respondent, a drainage district organized under the
laws of Florida. The courts below have confirmed the plan under §
83(e) of the Bankruptcy Act, 50 Stat. 653, 658, as amended, 11
U.S.C. § 403(e), upon the finding of the District Court,
prerequisite to the adoption of the plan, that it is "fair,
equitable, and for the best interests of the creditors, and does
not discriminate unfairly in favor of any creditor or class of
creditors." 132 F.2d 742.
Petitioners are holders of interest coupons, detached from bonds
issued by respondent, on which they have recovered judgments.
According to recitals in the plan of composition, the debtor's
bonds and the interest coupons, designated by the plan as Class I
indebtedness, "constitute a first charge against taxes levied . . .
against lands in the District, and have preference over Class II
Indebtedness;" the Class II indebtedness, consisting of various
miscellaneous claims against the District,
"is payable from an ad valorem
tax of one mill . . . ,
does not constitute a first charge against any fixed revenues of
the District, and is not secured by any lien or pledge."
Under the plan, the bondholders are to receive 56.918 cents in
cash for each dollar of principal amount; holders of detached
interest coupons, including coupons on which judgments have been
recovered, are to receive 36.77 cents, and holders of Class II
indebtedness 26.14 cents. The plan is to be financed by a loan from
the Reconstruction Finance Corporation, evidenced and secured by
the issuance to it of new 4% bonds of the District.
Petitioners contend here, as they did in both courts below, that
the plan discriminates unfairly in favor of the Class II creditors.
But we are unable to reach that
Page 319 U. S. 418
question, since we agree with petitioners that the record lacks
the findings of fact which the statute and the General Orders in
Bankruptcy require, and which are necessary to the determination of
Section 83(e), of the Act requires that, "[a]t the conclusion of
the hearing, the judge shall make written findings of fact and his
conclusions of law thereon." And Rule 52(a) of the Federal Rules of
Civil Procedure, made applicable to bankruptcy cases by General
Order in Bankruptcy No. 37, requires the court to "find the facts
specially." In Consolidated Rock Products Co. v. DuBois,
312 U. S. 510
312 U. S.
-525, this Court held that, in the absence of
findings as to the value of the assets subject to the payment of
the respective claims of each class of bondholders, the courts were
in no position to exercise the "informed, independent judgment"
necessary to the discharge of their statutory duty to determine the
fairness of a plan of corporate reorganization under the old § 77B
of the Bankruptcy Act. In Ecker v. Western Pacific R.
Corp., 318 U. S. 448
in Group of Institutional Investors v. Chicago, M., St. P.
& P. R. Co., 318 U. S. 523
held the requirement of adequate findings applicable to railroad
reorganizations under § 77 of the Bankruptcy Act.
It applies with no less force to cases of municipal bankruptcy.
And, as stated in the Consolidated Rock Products
the fact that only a very small minority of
creditors have objected to the plan does not relieve the courts of
the duty of appraising its fairness, and of making the findings
necessary to support such an appraisal. As we said in the
Chicago, Milwaukee, St. Paul & Pacific case,
318 U. S. 571
minorities under the various reorganization sections of the
Bankruptcy Act "cannot be deprived of the benefits of the statute
by reason of a waiver, acquiescence, or approval by the other
members of the class." The applicability of that rule to
proceedings under Ch. IX is plain. We stated in American
United Mutual Life Ins. Co. v. Avon Park,
Page 319 U. S. 419
U.S. 138, 311 U. S.
"the fact that the vast majority of security holders may have
approved a plan is not the test of whether that plan satisfies the
statutory standard. The former is not a substitute for the latter.
They are independent."
The nature and degree of exactness of the findings required
depends on the circumstances of the particular case. In the
and Chicago, Milwaukee, St. Paul &
cases, we pointed out that, in cases of railroad
reorganization, the duty of making basic evidentiary findings does
not require a determination in terms of dollars and cents, of the
value of the assets subject to the respective liens. We held that
it was sufficient if the Commission's report set forth its
conclusion as to the prospective earning power of the reorganized
road, with findings supporting its apportionment of future earnings
among creditors and stockholders so as to preserve their relative
priorities, together with reasons for its conclusions and essential
supporting data. Once the priority of liens has been determined,
considered estimates of future earning power afford a substantial
basis for appraising the interests of the respective lienors. As
such estimates involve an element of prophecy, the reorganization
of properties which cannot readily be liquidated requires resort to
"practical adjustments, rather than a rigid formula,"
Consolidated Rock Products Corp. v. DuBois, supra,
312 U. S. 529
Hence, we concluded that findings of the future earnings of the
reorganized railroad distributable to each class of security
holders and creditors were an adequate substitute for findings of
asset value in terms of dollars and cents, which we held could be
dispensed with as affording no more than a delusive appearance of a
certainty which the subject matter did not warrant.
Delusive exactness of findings is likewise not demanded in cases
of municipal bankruptcy. But where future
Page 319 U. S. 420
tax revenues are the only source to which creditors can look for
payment of their claims, considered estimates of those revenues
constitute the only available basis for appraising the respective
interests of different classes of creditors. In order that a court
may determine the fairness of the total amount of cash or
securities offered to creditors by the plan, the court must have
before it data which will permit a reasonable, and hence an
informed, estimate of the probable future revenues available for
the satisfaction of creditors.
And where, as here, different classes of creditors assert prior
claims to different sources of revenue, there must be a
determination of the extent to which each class is entitled to
share in a particular source, and of the fairness of the allotment
to each class in the light of the probable revenues to be
anticipated from each source. To support such determinations, there
must be findings, in such detail and exactness as the nature of the
case permits, of subsidiary facts on which the ultimate conclusion
of fairness can rationally be predicated.
The findings in the present case fall short of that requirement.
facts which might have been
Page 319 U. S. 421
considered, but which are nowhere referred to in the opinions or
findings below, are the revenues which have in the past been
received from each source of taxation, the present assessed value
of property subject to each tax, the tax rates currently
prescribed, the probable effect on future revenues of a revision in
the tax structure adopted in 1941, the extent of past tax
delinquencies, and any general economic conditions of the District
which may reasonably be expected to affect the percentage of future
delinquencies. It may be that adequate evidence as to these matters
is in the present record. On that we do not pass, for it is not the
function of this court to search the record and analyze the
evidence in order to supply
Page 319 U. S. 422
findings which the trial court failed to make. Nor do we
intimate that findings must be made on all of the enumerated
matters or need be made on no others; the nature of the evidentiary
findings sufficient and appropriate to support the court's decision
as to fairness or unfairness is for the trial court to determine in
the first instance in the light of the circumstances of the
particular case. We hold only that there must be findings, stated
either in the court's opinion or separately, which are sufficient
to indicate the factual basis for the ultimate conclusion.
Since the state of the record is such that a proper
determination of the questions of law raised by petitioners'
contentions as to the treatment of class II creditors cannot be
made in the absence of suitable findings, the petition for writ of
certiorari is granted, the judgment is vacated, and the cause
remanded to the District Court for appropriate action in conformity
with this opinion.
* The master, whose findings were adopted pro forma
the district court, approved the classification of debts proposed
in the plan, and made findings as to the amount of indebtedness of
each class. He substantially paraphrased the recitals of the plan
as to the sources to which each class of creditors could look for
payment, and found that the acreage tax, out of which Class I debts
were payable, was "the main source of revenue of the District." He
"Some of the objecting creditors have taken the position that
the Plan of Composition, as amended, provides for the use of
acreage tax funds for purposes other than the payment of bonds and
interest coupons, and one might get that impression from simply
reading isolated parts of the Plan, but, taking it as a whole, it
does not so provide."
And, in answer to the contention that the plan violated the
so-called "rule of absolute priority" (see Case v. Los Angeles
Lumber Products Co., 308 U. S. 106
"A superficial reading of the Plan might so indicate, but a
careful analysis of the entire Plan, the provisions of the loan,
the conditions of payment of two classes of debts, and a practical
application of the Plan to the District debts, resolves that
question against such theory."
These were the only two findings made by the master relative to
the rights of the two classes of creditors inter se
the amount of revenues likely to be available for service of the
debt. Without further findings on these vital matters, the master
"The Proposed Plan of Composition, as amended, is fair,
equitable, and for the best interests of the creditors, and does
not discriminate unfairly in favor of any creditor or class of
The circuit court of appeals clarified the master's findings as
to the respective rights of each class of creditors by expressly
stating that the class II indebtedness was a first charge on the
receipts from the ad valorem
tax. It pointed out that, in
order that the District might exercise its maximum borrowing power,
it must extinguish all existing claims against the acreage and
taxes, and that, in 1941, the tax structure had
been revised so as to make all possible taxing resources available
for payment of the new bonds issued to the Reconstruction Finance
Corporation. From this it concluded without further discussion
"Provision for payment of 26.14� on the dollar to discharge
Class II debts was fully authorized by the facts, and was not
inequitable, unfair, or discriminatory."
Beyond this, none of the findings or opinions below present any
discussion of facts relating to the fairness of the respective
treatment accorded the two classes of creditors by the plan.
MR. JUSTICE BLACK, dissenting.
I cannot agree that this case should be summarily remanded. In
June, 1941, the District filed an application for composition of
its debts. The petitioners here filed a motion to dismiss which was
overruled. They appealed to the Circuit Court of Appeals, making
contentions which that Court found to be "technical in the
extreme." Kelley v. Everglades Drainage District,
808, 809. When the case came back before the Circuit Court of
Appeals in the instant proceedings, that court found from the
entire record that these petitioners had, by "unfounded and
extremely technical contentions . . . , sought to obstruct the
plan." 132 F.2d 742, 744, 745.
Reversal for more findings means still further delay in bringing
about what is undoubtedly a much needed financial reorganization.
While I am certain that the
Page 319 U. S. 423
courts below could couch their findings in different and more
words, I am by no means sure they could set out with greater
clarity their conclusion that the evidence shows both groups of
bondholders to have been accorded fair and equitable treatment. The
decision of the Circuit Court of Appeals was made with full
appreciation, and after full consideration of, the issues, the
evidence, and the District Court's findings. Under these
circumstances, I should prefer to deny certiorari, but, since the
Court has determined to grant review, I think we should not dispose
of the case without first giving the parties an opportunity to
argue the issues. On the record as I now see it, the findings were
abundantly adequate, and the conclusion of the Circuit Court of
Appeals was correct.