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creditors who did not own stock and might reject the plan but be outvoted by those who also owned stock.107
There was weighty authority under the Act that such factors should justify separate classification of claims of equal rank, even if they received equal treatment under the plan. Chapter IX as originally enacted, like chapter X, required classification of claims "according to the nature of their respective claims," but went on specifically to require that all claims "which are payable without preference out of funds derived from the same source or sources shall be of one class."108 Nonetheless, even despite that statutory mandate the Supreme Court suggested and the Fifth Circuit held that separate classification would be appropriate where some such creditors also held other interests.109 Interestingly, under the Act the argument for flexible and possibly separate classification was made by objectors to the plan, whereas today's argument for separate classification is asserted by plan proponents.
Chapter X of the Act required claims to be classified "according to their nature."110 The "nature" of a claim was not defined in the Act, but a treatise writer provided the gloss that this term meant that claims of equal "rank" should be classified together and claims of different rank or secured by different collateral should be classified separately.111 The Seventh Circuit in Palisades112 noted that this may be a general rule but it must be construed in the light of the circumstances of each individual situation, yet within a relatively few years that caveat seems to have been forgotten and Gerdes' general rule adopted as the governing
107
Collier, supra, at 1604; First National Bank of Herkimer v. Poland Union, 109 F.2d 54 (2d Cir.), cert. denied, 309 U.S. 682 (1940)(§ 77B case).
108
Act § 83; 5 COLLIER ON BANKRUPTCY ¦ 81.15, at 1579 (14th ed. 1978).
109
American United Mutual Life Ins. Co. v. City of Avon Park, 311 U.S. 138, 146, 61 S. Ct. 157, 162 (1940)("Neglect of that duty [of the court to ensure the plan embodies a fair and equitable bargain] is apparent here by inclusion of the vote of claims held by [the debtor's fiscal agent] in computing the requisite statutory assents"); Kaufman County Levee Improvement Dist. No. 4 v. Mitchell, 116 F.2d 959, 961 (5th Cir. 1941)("there should have been separate classification, whereby those creditors owning no lands [in the improvement district] could have voted and been recorded as such," distinct from the bondholders who did own land in the district). See also 6 COLLIER, supra, at 1605-06.
110
"For purposes of the plan and its acceptance, the judge shall fix the division of creditors and stockholders into classes according to the nature of their respective claims and stock." Act § 197. The second sentence of that provision contained the counterpart to Code § 506(a), providing for an unsecured claim for the amount of a secured claim that exceeds the collateral value. The classification "according to the nature" of the claim was also the rule in the predecessor § 77B.
111
Gerdes, 2 CORPORATE REORGANIZATION § 1046, at 682 (1936).
112
In re Palisades-On-The-Desplaines, 89 F.2d 214, 217 (7th Cir. 1937).
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