RESOLUTION OF THE ASSOCIATION OF COMMERCIAL DISCOUNT COMPANIES, INC (OF NEW YORk), Adopted ON DECEMBER 11, 1947 Whereas it has been brought to the attention of this association that identical bills, respectively introduced by Senator Homer Ferguson, of Michigan, and Representative Chauncey W. Reed, of Illinois (respectively known as S. 826 and H. R. 2412) to amend section 60a of the Bankruptcy Act are pending in Congress and have been referred to the respective Subcommittees on Bankruptcy of the Judiciary Committees in both Houses; and Whereas it is the sense of this association that in the interests of the industrial, commercial and banking community, such bills embody a very much needed amendment to section 60a of the Bankruptcy Act, and a clarification of the present confused state of the law, be it Resolved, That this association endorse said bills, both in principle and in terms, and respectfully urge their enactment by Congress at its present session. RESOLUTION OF THE HOUSE OF DELEGATES OF THE AMERICAN BAR ASSOCIATION Adopted at its annual convention at Atlantic City on October 30, 1946. Resolved, That the American Bar Association recommends to the Congress of the United States that section 60a of the Bankruptcy Act may be amended so that said section read as follows: (There then follows, without change of substance, and virtually textually, the language of S. 826 and H. R. 2412.) RESOLUTION OF THE CHICAGO BAR ASSOCIATION Hon. HOMER FERGUSON, FEBRUARY 7, 1948. United States Senate, Senate Office Building, Washington, D. C. DEAR SENATOR FERGUSON: The following resolution prepared by our Committee on Federal Practice in Reorganizations and Bankruptcies has been approved by our board of managers: Resolved by the Chicago Bar Association, That the amendment of section 60a of the National Bankruptcy Act, as proposed by the bill (S. 826 and H. R. 2412) pending in Congress, be and the same is approved, both as to substance and form; and also Resolved, That, whereas relief from the stringency and rigors of the present provisions of said section 60a has long been needed for the best interests of business concerns, the Chicago Bar Association respectfully urges and recommends to the Judiciary Committees and the Members of both Houses of the Congress the early enactment of said bill, and that such action be not delayed pending consideration of any other proposals to amend other provisions of the Bankruptcy Act. This resolution by reason of the foregoing action becomes the official action of this association. We have no doubt that you will give the resolution careful consideration in connection with your study of the proposed legislation. Yours very truly, C. P. DENNING, Executive Secretary. (Identical letter sent to Representative Chauncey W. Reed) RESOLUTION OF THE COMMITTEE ON BANKRUPTCY OF THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK, ADOPTED ON DECEMBER 3, 1946 Resolved, That the committee approve and recommend the adoption of section 60a of the Bankruptcy Act in accordance with the proposed amendment, as recommended by the American Bar Association on October 31, 1946, and by the National Bankruptcy Conference subject to the next succeeding resolution; and further Resolved, That the committee feels at this time that it is preferable to eliminate the word "fair" in the expression "new and present fair consideration" at the beginning of paragraph 3 of the proposed amendment; and further Resolved, That the amending of section 60a along the lines referred to above is of such importance to the business world that it should be presented by way of a separate bill rather than be included with other amendments which might cause delay. (The change in phraseology suggested in the second paragraph of the foregoing resolution has since been made, and was incorporated in S. 826 and H. R. 2412 before their introduction.) ENDORSEMENT OF FREDERICK T. KELSEY, FORMER CHAIRMAN OF THE COM- Hon. CHAUNCEY W. REED, Room 321, House Office Building, Washington, D. C. APRIL 7, 1948. MY DEAR MR REED: I understand that there was introduced in the House of Representatives by you and is now before the Subcommittee on Bankruptcy of the House Judiciary Committee, of which you are chairman, a bill to amend section 60a of the Bankruptcy Act, this bill being H. R. 2412. For some years I was chairman of the Committee on Uniform State Laws of the Bar Association of the city of New York. In that capacity we had occasion to make an exhaustive study of the laws of the several States in connection with financing by financial institutions, against assignments of accounts receivable, of smaller companies whose working capital was inadequate. While our committee prepared and did considerable work in connection with a uniform State law on the subject, we reached the conclusion unanimously that the greatest assistance in solving some of the acute problems which have arisen in connection with this type of financing under the provisions of section 60a as it now reads could be had, with great advantage to the business community and disadvantage to no one, by an appropriate amendment to that section. In conjunction with various interested parties, discussions were had concerning the type of amendment required to accomplish this result. Since retiring as chairman of the Bar Association committee 2 years ago, I have maintained an active interest in connection with the proposals to amend section 60a. The bill before your committee has had study by and the approval of some of the leading experts on bankruptcy administration in the country, and I sincerely hope, in the interests of equitable and fair administration of that act in which all lawyers are intersted. your committee may see its way clear to report the bill favorably and do everything possible to promote its passage. Sincerely yours, FREDERICK T. KELSEY, [Night letter] ENDORSEMENT OF NEW YORK COUNTY LAWYERS ASSOCIATION, AS CONTAINED IN MARCH 30, 1948. I am appearing here as chairman and on behalf Bankruptcy Committee New York County Lawyers' Association. This is largest local bar association in United States with membership 6,900. Our committee met to consider Senate 826 (H. R. 2412) and voted to approve and urge prompt enactment this bill. It will improve uniform administration bankruptcy law throughout United States. The 21 members of the bankruptcy committee which is a standing committee are appointed by the president of the New York County Lawyers' Association of which Hon. Joseph M. Proskauer is president and Terence J. McManus, Esq., is secretary. The board of directors of the association on May 14, 1947 authorized me to advise you of adoption following resolution by the bankruptcy committee: "Resolved that the chairman of the Bankruptcy Committee of the New York County Lawyers' Association advise the Honorable Chauncey W. Reed, Member of the House of Representatives from the State of Illinois and the Honorable Homer Ferguson, United States Senator from the State of Michigan, that in the opinion of the committee early hearings in respect of H. R. 2412 and S. 826 are urgently needed so that the amendments to the Bankruptcy Act of 1898 contained therein may be enacted into law at the earliest possible date." I believe I may fairly state that bankruptcy committee membership is fairly representative of practitioners smallest to largest cases and specialists in field. My purpose in making this statement is to indicate wide-spread support for bill. I have nothing to add to the statements of the supporters of the legislation whose 6 years of effort in reconciling divergent points of view warrants acceptance their recommendations. GEORGE KENNAN HOURWICH, Chairman Bankruptcy Committee, RESOLUTION OF THE BRONX COUNTY BAR ASSOCIATION JANUARY 20, 1947. Mr. Benjamin Weintraub, the chairman of the Federal Courts and Bankruptcy Committee, has forwarded to me the report of that committee on the amendments to section 60 (a) of the Bankruptcy Act as proposed by the house of delegates of the American Bar Association. The committee of the Bronx County Bar Association has taken the following action on these proposed amendments: "Our committee has approved the proposed amendment with one exception. It is our recommendation that the word "fair" be deleted in subdivision 3, as it would raise a number of problems which would result in confusing the intent of the section. This is particularly true because of the use of the word "fair" in section 67 of the Bankruptcy Act where it is given a definite meaning. Incidentally, the New York County Lawyers' Association approved the resolution with the same deletion." Under the bylaws of the Bronx County Bar Association it is necessary that the president give his approval to all committee reports. I have reviewed the matter very carefully and I do, as president of the Bronx County Bar Association on behalf of the association, approve of the action taken by our committee. Very truly yours, SYLVESTER RYAN, President. ENDORSEMENT BY GEORGE B. McGowAN, AUTHOR OF TRUST RECEIPTS SENATOR HOMER FERGUSON, MARCH 24, 1948. The Senate, Washington, D. C. DEAR SENATOR FERGUSON: I am writing this letter to you not with the subjective viewpoint of a bank officer who desires more protection for his loans, but with an objective viewpoint based upon a definite interest (backed by years of research) in the means by which small businessmen obtain financial assistance from banks and finance companies. My recent book "Trust receipts-the variations in their legal status" (Ronald Press Co.) has as its background the philosophy that the law should not favor the banker any more than is absolutely necessary. In the spirit of that philosophy, I respectfully offer the following for your consideration. Early passage of S. 826 (which was introduced by your good self) to amend section 60 a of the Bankruptcy Act is needed for the following reasons: 1. As a result of the United States Supreme Court's decision in Corn Exchange National Bank & Trust Co. v. Klauder, 318 U. S. 434 (1943), banks and finance companies are doubtful as to the effectiveness of the means by which they attempt to protect themselves against the insolvency of a borrower by the use of chattel mortgages, factors liens, trust receipts, and pledges incomplete without delivery of possession for 10 days as provided for in the Uniform Trust Receipts Act. 2. This doubt has the effect of preventing the small businessman from obtaining financial assistance to the extent to which such financial assistance would be available if such a doubt did not exist; or else burdening the transaction with the expense of a legal opinion which increases the cost of this financing. 3. The small businessman's inability to obtain financial assistance (or having to pay more for his money than he would if such a doubt did not exist) prevents him from obtaining goods to sell in competition with others, which in turn enables people who are free of the competition he would give them, to demand higher prices for the goods they sell. 76863-48- 3 The Klauder case had the effect for many lenders of shattering their confidence in the security devices by which the honest businessman is enabled to borrow money against property, the possession of which he needs to retain for the purpose of carrying on his business; and whereas an honest businessman who had security to offer was practically always able to borrow under conditions where his honesty commanded a premium in that the lender was willing to let him retain possession of the security, sell it and repay the loan out of the proceeds of the sale, he may now be faced with the refusal to lend money, on the theory that the lender is doubtful as to the effectiveness of the chattel mortgage, etc., in terms of section 60-A. In other words, the Klauder decision suggests for lenders a standard of security based upon what a dishonest man could do as against the previous standard of what an honest man might be expected to do. Such a standard is undesirable. Although most of such doubts as to the status under section 60-A of the chattel mortgage, trust receipt, etc., are not well founded, the fact that they do exist cannot but have an effect upon the ability of small businessmen to obtain the credit they need and could obtain if such doubts did not exist. Competition by dealers and merchants is one means of keeping prices down. The more people who can obtain goods to sell in competition with others, the less chance there is of prices moving upward. Congress should not delay amendment of section 60-A so as to resolve all doubt as to the effectiveness of the security devices by which honest men with limited resources obtain credit from lenders who are satisfied as to the borrowers honesty but only desire to be protected against other creditors in the event that bankruptcy or insolvency occurs. I am enclosing a copy of an article which was only written because of the doubts which exist as to the status of the trust receipt and which would not have had to be written if the meaning of section 60-A were clarified. I believe S. B. 826 will have the effect of clarifying the situation. Faithfully yours, GEORGE B. McGowAN. (Similar letter sent to Representative Chauncey W. Reed.) ENDORSEMENT OF HON. WILLIAM B. HENDERSON REVISER OF STATUTES OF THE STATE OF MINNESOTA Hon. EDWARD J. DEVITT, STATE OF MINNESOTA, Congressman, House of Representatives Office Building, Washington, D. C. MY DEAR CONGRESSMAN: As a member of the subcommittee now conducting research in regard to H. R. 2412, the Ireton bill, you are in a position to know immeasurably more about the subject than I do, and I am not writing this letter to influence your vote in any way but to give you a little information as to how a Minnesota citizen looks at the situation. While we all know that if the present spiral continues we must sometime reach a recession or possibly a collapse, of course no bell will ring 24 hours before it happens. But the shelves of the world are almost empty, and if money is available and proper adjustments made, we can reasonably expect to enjoy a prolonged period of good business. During the war a tremendous number of small business enterprises sprang up. Risk money was reasonably available, and the market was open, and the Federal Government was very liberal with assistance when needed. Now that the war is over and bank loans are tightening up. these small-business men need protection and financial aid, and Minnesota has been putting on a program for the assistance of the small business enterprises. Five laws have been passed not for the purpose of accommodating the bankers but to make risk money available to small business enterprises. The laws I refer to are (1) laws 1943, chapter 433, generally known as the Uniform Trust Receipts Act; (2) laws 1945, chapter 503, known as the Model Assignment of Accounts Receivable Act; (3) laws 1947, chapter 590, known as the Factors Lien Law; (4) laws 1947, chapter 282, prohibiting corporations from interposing the defense of usury; and (5) laws 1947, chapter 587, creating a department of business research and development to be operated under a commissioner. James W. Clark is now acting as commissioner, and his department is organized in four divisions, each division under a director. There is still one considerable risk that might deter bankers or factors from a liberal use of the factors act, and that is the holding of the Supreme Court in the Klauder case, Erie Railroad v. Tompkins, and the Vardaman case. Now under the present section 60a of the Bankruptcy Act (U. S. C. A., sec. 96 (a)), in controversy between a trustee in bankruptcy and a creditor claiming a lien, the court might hold that the trustee had the rights of a bona fide purchaser when many believe the trustee should only have the rights of a general creditor. The Ireton bill, H. F. 2412, is designed to liberalize the act from the standpint of risk money. The act has been approved by the American Bar Association, the Minnesota State Bar Association, and I personally think it should be given favorable consideration. When the factors lien law was before the Minnesota Legislature by request I prepared a sponsor's memorandum, copy of which I enclose. I have no personal interest in the matter whatsoever and only write this letter in the hope that it might be helpful. Yours very cordially, BILL, Reviser of Statutes. SUPPLEMENTAL STATEMENT IN OPPOSITION TO H. R. 5834, OF JOHN HANNA, J. FRANCIS IRETON, MILTON P. KUPFER, AND HOMER J. LIVINGSTON I Our committee's statement, which is being filed simultaneously herewith, relates solely to H. R. 2412 (Representative Reed), to amend section 60a of the Bankruptcy Act, which we favor. The present statement relates to H. R. 5834 (Representative Hobbs), which would couple the section 60a amendment with a new section 70i. This proposed new section would prescribe the compulsory national recordation of the assignment of accounts receivable, which the undersigned, constituting four of the five members of the committee, oppose. Both matters were not included in a single statement because the first was prepared both for the House committee and the corresponding Senate committee, and the Senate ommittee has before it only S. 826 (Senator Ferguson), which is identical with H. R. 2412. The Senate does not have before it any bill corresponding to H. R. 5834. H. R. 2412 and S. 826 were introduced respectively on March 6, 1947, and March 7, 1947: H. R. 5834 was introduced a year later, on March 15, 1948. II The proposal to require the recording of notice of the assignment of accounts receivable is not new, and has been considered by our committee for a long time. As the testimony at the hearing will demonstrate, it is, to say the least, highly controversial, and, since there is a basic and urgent necessity for the amendment of section 60a in accordance with H. R. 2412, the five members of our committee are unanimous for the prompt passage of H. R. 2412, whether or not a Federal recording or filing statute is to be ultimately enacted. III The balance of this statement deals with H. R. 5834 and represents the joint individual views of the undersigned four of the five members of our committee in opposition to it. In the first place, the national recording requirement of H. R. 5834 is, at most, only collaterally related to section 60a and the provisions of H. R. 2412. In principle, the reasons why as an independent matter, we regard compulsory national recordation as inadvisable, are fully set forth in a memorandum on the subject, dated December 19, 1947, and on pages 6 to 9 of our committee report dated September 17, 1947, copies of which are hereto annexed. In order to avoid repetition, and to conserve the time of your committee, we shall not set forth in detail the reasons contained therein, but, in this statement, shall confine ourselves to the following brief summary of them: 1. Passing all constitutional doubts, a proper regard for States' rights requires that the acquisition of title to property, tangible or intangible, including the formal requirements thereof, should be-as it always has been-governed by State law. This principle embodies the consistent general tradition and policy of the Bankruptcy Act. |