Mr. William N. Haddad, with whom Mr. Walter T. Fisher was on the brief, for respondents.

MR. JUSTICE DOUGLAS delivered the opinion of the Court.

The question here is the same as that in Guggenheim v. Rasquin, ante, p. 254. Consequently the decision of the Circuit Court of Appeals holding that cash-surrender value on the dates of the gifts was the proper method of valuing single-premium life insurance policies for gift-tax purposes (114 F. 2d 150) must be reversed, unless the elapse of time between the issuance of the policies and the making of the gifts calls for a different result. The single-premium policies here involved were taken out by the insured in 1928 and 1929. They were assigned as gifts in December, 1934, when the insured was 79 years old. The cost of the policies was less than their cashsurrender value at the dates of the gifts. But the cost of replacing the policies at the then age of the insured would have been in excess of their cash-surrender value. We think that such cost of replacement, as held by the District Court, is the best available criterion of the value of the policies for the purposes of the gift tax. The elapse of time between issuance and assignment of the policies does not justify the substitution of cash-surrender value for replacement cost as the criterion of value. We cannot assume with respondents that at the dates of the gifts the policies presumably had no insurance, as distinguished from investment, value to the donor. Here, as in the case where the issuance of the policies and their assignment as gifts are simultaneous, cash-surrender value reflects only a part of the value of the contracts. The cost of duplicating the policies at the dates of the gifts is, in absence of more cogent evidence, the one criterion which reflects both their insurance and investment value to the owner at that time. Cf. Vance on

Insurance (2d ed.) pp. 332-333; Speer v. Phoenix Mutual Life Ins. Co., 36 Hun 322. The fact that the then condition of an insured's health might make him uninsurable emphasizes the conclusion that the use of that criterion will result in placing a minimum value upon such a gift. Reversed.

WOODS, COURT TRUSTEE, v. CITY NATIONAL BANK AND TRUST CO. OF CHICAGO ET AL.

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT.

Nos. 281 and 282. Argued January 13, 1941-Decided
February 3, 1941.

1. Under Chapter X of the Bankruptcy Act, the bankruptcy court has plenary power to review all fees and expenses in connection with the reorganization from whatever source they may be payable. Reasonable compensation for services rendered may be allowed. The claimant has the burden of proving their worth. P. 267.

2. "Reasonable compensation for services rendered" necessarily implies loyal and disinterested service in the interest of those for whom the claimant purported to act. P. 268.

3. No compensation should be allowed for services rendered in connection with a reorganization by a claimant who represented not only members of the investing public but also other and conflicting interests; and this although no fraud or unfairness is shown to have resulted from the conflict. P. 268.

4. In corporate reorganizations, protective committees, as well as indenture trustees, are fiduciaries. P. 268.

5. Expenditures incurred in connection with the administration of the estate are not "proper," within the meaning of § 242 of the Act, and should not be allowed, where the claimant can not show that they were made in furtherance of a project exclusively devoted to the interests of those whom the claimant purported to represent. On the other hand, those expenditures normally should be allowed which have clearly benefited the estate. P. 269.

111 F. 2d 834, reversed.

CERTIORARI, 311 U. S. 629, to review the reversal of an order, in a proceeding under Chapter X of the Bankruptcy Act, which disallowed the claims of an indenture trustee, a bondholders' committee, and their counsel, for services and expenses, and which allowed in part a counter-claim made by the trustee in bankruptcy. The latter took two appeals, one by petition to the District Court, the other by petition to the Circuit Court of Appeals-prior to the ruling in Reconstruction Finance Corp. v. Prudence Securities Advisory Group, 311 U. S. 579.

Mr. Weightstill Woods for petitioner.

Mr. Vincent O'Brien, with whom Mr. Tracy Wilson Buckingham was on the brief, for respondents.

MR. JUSTICE DOUGLAS delivered the opinion of the Court.

The basic question involved in this case concerns the power of the District Court in proceedings under Ch. X of the Chandler Act1 (52 Stat. 840) to disallow claims for compensation and reimbursement on the grounds that the claimants were serving dual or conflicting interests. The claimants, respondents here, are an indenture trustee, a bondholders' committee, and the committee's counsel.

'This reorganization started with foreclosure proceedings in the Illinois state court and later was transferred to the United States District Court upon the filing of petitions under § 77B of the Bankruptcy Act. Pursuant to § 276 (c) (2) of the Chandler Act, the bankruptcy court made that chapter applicable to the allowance of these claims. The claims under review cover not only the proceedings under § 77B but also the earlier state court proceedings. Though some of the allowances here in issue apparently had been fixed by the state court prior to the transfer of the proceedings to bankruptcy, respondents agreed to submit the claims de novo to the District Court.

Counsel to the committee was also counsel to the indenture trustee; and its services in the latter capacity were included in the claim of the indenture trustee. The bankruptcy trustee appeared in opposition to the allowance of these claims, and counterclaimed against the indenture trustee seeking to surcharge it for various alleged acts of misconduct and negligence. The indenture trustee answered. There was a hearing on the claims and on the counterclaim. The District Court disallowed the claims "for want of equity"; and allowed the counterclaim only as a recoupment to extinguish any claims of respondents. On appeal the Circuit Court of Appeals reversed. 111 F. 2d 834. It held that there was no conspiracy to defraud, nor substantial evidence of mismanagement or negligence on the part of respondent-trustee. It thereupon remanded the cause to the District Court, indicating that the out-of-pocket expenses should be allowed in full and that the reasonable and customary charge for services so rendered should govern the claims for compensation. We granted the petition for writs of certiorari in view of the importance in reorganization proceedings of the power of the District Court over such allowances.

2

We are not inclined to question the conclusion of the Circuit Court of Appeals on the issue of fraud. We agree with it that on this record recovery on the counterclaim would not be warranted. But we do not believe it was justified in disregarding the evidence and findings of fact as respects respondents' dual or conflicting interests in this reorganization.

2

The two cases raise the same question. One represents an appeal to the Circuit Court of Appeals as of right; the other an appeal with leave. They were taken prior to our decision in Dickinson Industrial Site v. Cowan, 309 U. S. 382. And see Reconstruction Finance Corp. v. Prudence Securities Advisory Group, 311 U. S. 579.

3

The property here involved is an apartment hotelGranada Apartments, Inc. A committee was formed by the respondent-trustee to represent the first mortgage bonds in the reorganization. It was composed of five members. Two of these were officers or employees of one of the principal underwriters of the bonds. This underwriter was heavily interested in the equity. So far as appears, that fact was not disclosed when the committee solicited the bondholders. In any event, the equity owner is peculiarly ill-suited to represent the mortgagee in these situations because of their historic clash of interests. See Case v. Los Angeles Lumber Products Co., 308 U. S. 106. Furthermore, a rather serious question was raised early in this reorganization concerning alleged misrepresentations by the underwriters on the sale of the bonds that the furnishings of the hotel were covered by the mortgage. It turned out that they were not; and bondholders' money was used to satisfy the lien outstanding against them." Objective scrutiny and full en

Not then the trustee under the indenture.

A third member was also a distributor of the bonds when they were publicly offered.

"This underwriter-Cody Trust Co.-went into receivership in December, 1933, the Granada bondholders' committee having been formed in April, 1933. The District Court found that nominees of Cody Trust Co. operated the property until January, 1934.

The reorganization began with a foreclosure proceeding in the state court. The indenture trustee, predecessor of respondent trustee, later took possession and employed a so-called agent at $50 per month "to keep Cody Trust Company informed as to the status from time to time."

Certain phases of the litigation involving this question are revealed in Thuma v. Granada Hotel Corp., 269 Ill. App. 484; Wenstrand v. Pick & Co., 38 F. 2d 25; In re Granada Apartments, Inc., 104 F.2d 528.

So far as appears no effort was made in this reorganization to assert any claim against the underwriters.