phasized by the Government's appearance in behalf of petitioner in this case.14

The consequence of this legislative and administrative policy is a clear authorization to resident enemy aliens to proceed in all courts until administrative or legislative action is taken to exclude them. Were this not true, contractual promises made to them by individuals, as well as promises held out to them under our laws, would become no more than teasing illusions. The doors of our courts have not been shut to peaceable law-abiding aliens seeking to enforce rights growing out of legal occupations. Let the writ issue.

MARINE HARBOR PROPERTIES, INC. v. MANUFACTURERS TRUST CO., TRUSTEE, ET AL.

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.

No. 24. Argued October 16, 19, 1942.-Decided November 9, 1942. 1. In exercise of the federal bankruptcy power, Congress may exclude every competing or conflicting proceeding in state or federal tribunals. P. 83.

2. Although the pendency of a prior proceeding in a state or federal court does not bar the filing of a petition under Chapter X of the

14 The determination by Congress and the Executive not to interfere with the rights of resident enemy aliens to proceed in the courts marks a choice of remedies rather than a waiver of protection. The Government has an elaborate protective program. Under the Alien Enemy Act, 50 U. S. C. § 21, the President has ordered the internment of aliens, has instituted a system of identification, and has regulated travel. Under the First War Powers Act, 50 U. S. C. Supp. I, 1940 ed. Appendix, § 5 (b), and various executive orders he has controlled the funds of resident enemy aliens. Many other statutes make a composite pattern which Congress has apparently thought adequate for the control of this problem. See, e. g., the controls on alien ownership of land in the territories, 8 U. S. C. Chap. 5.

Bankruptcy Act, the bankruptcy court may not in such case approve the petition unless it appears that the interests of creditors and stockholders would not be best subserved in the prior proceeding. P. 83.

3. The party filing a petition under Ch. X while a prior proceeding is pending in a state or federal court has the burden of showing that the interests of creditors and stockholders would not be best subserved in the prior proceeding. P. 83.

4. When a prior proceeding is pending, a petitioner's showing of "need for relief" under Ch. X, which § 130 (7) requires that every petition contain, must demonstrate that at least in some substantial particular the benefits, advantages, or protection which Ch. X affords to creditors or stockholders are unavailable in the prior proceeding. P. 84.

5. That a debtor was seeking to escape the jurisdiction of a state court to which it had theretofore voluntarily submitted, is immaterial in the determination of whether its petition under Ch. X was filed in "good faith" within the meaning of § 146 (4). P. 84.

6. The issue as to the adequacy of the prior proceedings as compared with Ch. X is the same whether the petition is filed by the debtor or by creditors. P. 85.

7. Whether filed by the debtor or by others, all petitions under Ch. X must show the "need for relief" (§§ 130-131); and the bankruptcy court must be satisfied in every case that the petition has been filed in "good faith" (§§ 141-144). P. 85.

8. In this case, wherein prior proceedings were pending in a state court, and the value of the property of the debtor was less than the amount of a first mortgage indebtedness thereon, held that the debtor, petitioning under Ch. X, had not sustained the burden which was upon it of showing that the interests of creditors and stockholders would not be best subserved in the prior proceedings in the state court. P. 85.

(a) The rule of full priority of creditors over stockholders, applied in § 77B proceedings, obtains also in proceedings under Ch. X. P. 85.

(b) It did not sufficiently appear in this case that the stockholders were willing to make a fresh contribution in money or in money's worth in return for a participation reasonably equivalent to their contribution. P. 85.

(c) It did not appear that continuation of the state proceedings would deny junior creditors any benefits which Ch. X would afford

them. The full priority rule which obtains under Ch. X protects the rights of senior creditors against dilution either by junior creditors or by equity interests. P. 86.

(d) It did not sufficiently appear in this case that a state foreclosure proceeding, instituted for and on behalf of first mortgage creditors exclusively, was inadequate, measured by Ch. X standards, to protect their interests. P. 87.

125 F. 2d 296, affirmed.

CERTIORARI, 315 U. S. 794, to review the reversal of an order of the District Court, 41 F. Supp. 814, approving a petition under Chapter X of the Bankruptcy Act filed by a debtor corporation.

Mr. Arthur E. Friedland for petitioner.

Mr. Chester T. Lane, with whom Solicitor General Fahy and Messrs. Richard S. Salant, John F. Davis, Homer Kripke, Morton E. Yohalem, George Zolotar, and Mortimer Weinbach were on the brief, for the Securities and Exchange Commission; and Mr. Charles E. Hughes, Jr., with whom Mr. Curtiss E. Frank was on the brief, for the Manufacturers Trust Co., Trustee, respondents.

By special leave of Court, Mr. Benjamin Heffner, Assistant Attorney General of New York, with whom Messrs. John J. Bennett, Jr., Attorney General, Henry Epstein, Solicitor General, John F. X. McGohey, Assistant Attorney General, and Mr. Edward F. Keenan were on the brief, for the State of New York, as amicus curiae, urging affirmance.

Messrs. Martin A. Schenck, Samuel Kramer, Carl J. Austrian, Clarence F. Corner, and George J. Gillespie filed a brief on behalf of certain charitable institutions, as amici curiae, urging affirmance.

MR. JUSTICE DOUGLAS delivered the opinion of the Court.

The question in this case is whether the Circuit Court of Appeals was in error in holding that a debtor's petition filed by petitioner under Ch. X of the Bankruptcy Act (52 Stat. 883, 11 U. S. C. § 501) was not filed in "good faith."

The debtor's sole asset is an apartment building in New York City which is subject to a first mortgage of $370,000. This mortgage is held by the respondent, Manufacturers Trust Co. (successor to The Mortgage Corporation of New York), as trustee for certificate holders. There are also junior mortgages and other claims, including an unspecified amount of unsecured indebtedness. Concededly the property of the debtor is worth less than the amount of the first mortgage debt. The first mortgage was originally created in 1931 and was held by Title Guarantee and Trust Co., which issued and sold to the public certificates of participation, guaranteed as to principal and interest by Bond and Mortgage Guarantee Co. The latter company became involved in financial difficulties in 1933 and was taken over by the Superintendent of Insurance of New York for rehabilitation.1 Pursuant to provisions of the Schackno Act (N. Y. Laws 1933, c. 745), the Superintendent of Insurance promulgated, in 1934, a plan for the readjustment of the rights of the certificate holders in the mortgage, by which the mortgage was extended to December 1, 1937 and the interest reduced. Over two-thirds of the certificate holders consented to the plan, and the debtor joined in the extension agreement. The New York court approved it. In 1935 the New York Mortgage Commission succeeded the Superintendent of Insurance as administrator of certificated bonds and mortgages.

1 See generally, Report of Commissioner George W. Alger to the Governor of the State of New York, Oct. 5, 1934.

503873-43-13

Opinion of the Court.

317 U.S.

N. Y. Laws 1935, c. 19, c. 290. That Commission,2 in 1938, proposed the designation of the Mortgage Corporation of New York as trustee of the bond and mortgage in the instant case, under a declaration of trust granting the trustee broad and comprehensive powers. This proposal was consented to by over two-thirds of the certificate holders and approved by the New York court. The order of the court provided "that this Court, having assumed jurisdiction of this proceeding, shall retain jurisdiction hereof until the complete liquidation of the Trust Estate and the termination of the trust; and the Trustee, or any other interested party herein, may apply at the foot of this Final Order upon such notice as the Court may direct for such other and further relief as to the Court may seem just and proper."

The principal of the first mortgage was not paid at its extended maturity in 1937. But until April 1, 1941, the debtor made all other payments due under the 1934 extension agreement. At that time the debtor defaulted in payment of interest and taxes. Both before and after that default the debtor and the trustee negotiated for an agreement of further extension and modification. But no agreement between them could be reached and no further proposal for a modification or extension of the mortgage was presented to the state court or to the certificate holders. On May 1, 1941, the trustee instituted foreclosure proceedings in the state court. A receiver was appointed, who took possession. In September 1941 the debtor filed its voluntary petition under Ch. X of the Bankruptcy Act. An ex parte order approving the petition and appointing trustees was obtained. Shortly thereafter the mortgage trustee moved to vacate that order and to dismiss the debtor's petition on the ground that it was not filed in

2 On the activities of the Commission, see Annual Report 1939, N. Y. Leg. Doc., No. 94.