[316 U.S. 502, 503] Mr. Arthur T. Vanderbilt, of Newark, N.J., for appellants.
Mr. Ward Kremer, of Asbury Park, N.J., for appellee.
Mr. Justice FRANKFURTER delivered the opinion of the Court.
A New Jersey statute, adopted in 1931, N.J.S.A. 52:27-1 et seq., authorized state control over insolvent municipalities. By a supplementary law, N.J.S.A. 52:27-34 et seq., enacted in 1933, a plan for adjustment of the claims of creditors of such an insolvent municipality could be made binding upon all creditors. The question is whether an adjustment so authorized by a state impairs righs in violation of the Constitution of the United States.
The City of Asbury Park is a seashore resort with a resident population of 15,000. It presents a familiar picture of optimistic and extravagant municipal expansion caught in the destructive grip of general economic depression: elaborate beachfront improvements, costs in excess of estimates, deficits not annually met by taxation, declining realestate values, inability to refinance a disproportionately heavy load of short- term obligations, and, inevitably, default. Accordingly, in January, 1935, availing themselves of the New Jersey Municipal Finance Act, creditors applied to the Supreme Court of New Jersey to place the state Municipal Finance Commission in control of the city's finances. [316 U.S. 502, 504] The legislation was enacted 'to meet the public emergency arising from a default in the payment of municipal obligations, and the resulting impairment of public credit', Laws of New Jersey 1931, c. 340, 405, N.J. S.A. 52:27-65. In broad terms, the legislation, through combined administrative and judicial action, adapted the underlying principles of an equity receivership to the solution of the problem of insolvent municipalities. By a supplementing act, Laws of New Jersey 1933, c. 331, N. J.S.A. 52:27-34 to 52:27-39, a 'plan of adjustment or composition of the claims of all creditors' may be submitted on their behalf to the supreme court of the state. If approved by 85 per cent in amount of the creditors and by the municipality and the Commission, such plan of adjustment may be adopted 'if the court by its justice determines (1) that the municipality is unable to pay in full according to their terms the claims proposed to be adjusted or composed, and perform its public functions and preserve the value of property subject to taxation, (2) that the adjustment or composition is substantially measured by the capacity of the municipality to pay, (3) that it is in the interest of all the creditors affected thereby, and (4) that it is not detrimental to other creditors of the municipality.' The plan cannot be authorized, however, if it involves any reduction of the principal amount of any outstanding obligation. Any creditor is entitled to appear and to be heard, but a plan which is so authorized by the court is binding upon all creditors whether or not they appear, and the substitution of new obligations for old in carrying out the plan is made effective from the day fixed by judicial order. To effectuate such a plan, the Act provides further that the court shall retain jurisdiction and 'thereafter no creditor whose claim is included in such adjustment or composition shall be authorized to bring any action or proceeding of any kind or character for the enforcement of his claim except with the permission of the supreme [316 U.S. 502, 505] court and then only to recover and enforce the rights given him by the adjustment or composition.'