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Home > Journals > Michigan Law Review > MLR > Volume 39 > Issue 5 (1941)

 

Abstract

An objecting creditor seeking to preserve his judgment lien appealed from an order adjudicating B a bankrupt. The alleged act of bankruptcy was that B, while insolvent, permitted the objecting creditor to obtain a lien on his property by judicial proceedings and failed to discharge it within thirty days. B's principal asset was his interest in a spendthrift trust fund, valued at more than a million dollars, set up in favor of B and his brother. Under the terms of the trust each beneficiary was to receive one-half the approximately $44,000 a year income until he reached the age of sixty, and was then to get one-half the principal. If either brother died before reaching sixty, his interest was to go to the survivor. B at the time of proceedings was forty-nine years of age. He refused to permit insurance on his life. B's other assets amounted to $154,000 and he had liabilities amounting to $319,000. Held, that valuation for purposes of straight bankruptcy contemplates sale for payment of debts within a reasonable period of time, and "fair value" in the Bankruptcy Act means "fair market value." Since an assignment of the income by B would not be enforceable against the trustee of his mother's estate, the trial court's finding of no value for the income was not erroneous, and in view of B's refusal to permit insurance on his life, the finding of $50,000 as the value of B's contingent remainder in the principal was also not erroneous. Under the "balance sheet test" prescribed by the Bankruptcy Act, B was therefore insolvent. Syracuse Engineering Co. v. Haight, (C. C. A. 2d, 1940) 110 F. (2d) 468.

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