The recent Chicago, Rock Island case raised an interesting problem under Section 77 of the Bankruptcy Act. The Chicago, Rock Island as parent railroad of a system extending into one-fourth of the states, had pledged large blocks of its own mortgage bonds and those of its subsidiaries, as security for loans made to it by the Reconstruction Finance Corporation and some Chicago, New York, and St. Louis banks, under an agreement whereby the pledgees were given a power of private sale, without notice, upon set contingencies. In addition to the above it had previously pledged with trustees as security for some issues of its funded debt bonds and stocks of the system aggregating over 145 million dollars and also subject to a power of sale. More than four months after giving the security to the Reconstruction Finance Corporation and the banks, it filed a petition for reorganization under Section 77 in the District Court for the Northern District of Illinois. Subsequent to the approval of the petition, it petitioned further that the pledgees be temporarily restrained from foreclosing, even though the contingencies had arisen, on the ground that the sale would hinder the preparation of an acceptable plan of reorganization. The District Court summarily enjoined sale of the collateral. The power and discretion of the court were contested, but both were sustained by the Circuit Court of Appeals and finally by the Supreme Court.
CORPORATE REORGANIZATION-SECTION 77 OF THE BANKRUPTCY ACT--POWER OF COURT TO ENJOIN SALE OF BONDS PLEDGED AS COLLATERAL,
Mich. L. Rev.
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