The question presented is whether under the circumstances of this case reorganization of the respondent railroad under § 77 of the Bankruptcy Act
The court's final decree provided for transfer of the old railroad's properties to the newly organized company free from the city's liens.
(1) We reject the city's contention that it was not a creditor within the meaning of § 77 of the Bankruptcy Act. Section 77(b) defines "creditors" as ". . . all holders of claims of whatever character against the debtor or its property . . ." and specifically defines "liens" as "claims."
(2) Section 77 (c) (8) of the Act states that "The judge shall cause reasonable notice of the period in which claims may be filed, . . .by publication or otherwise." 11 U. S. C. § 205 (c) (8). We hold that publication of the bar order in newspapers cannot be considered "reasonable notice" to New York under the circumstances of this case.
Notice by publication is a poor and sometimes a hopeless substitute for actual service of notice. Its justification is difficult at best. See Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306. But when the names, interests and addresses of persons are unknown, plain necessity may cause a resort to publication. See, e. g., Standard Oil Co. v. New Jersey, 341 U.S. 428. The case here is different. No such excuse existed to justify subjecting New York's claims to the hazard of forfeiture arising from "constructive notice" by newspaper. In the first place subdivision (c) (4) of § 77 is designed to enable the court to serve personal notices on creditors. It provides that "The judge shall require . . ." proper persons to file in the court a list of all known creditors, the amount and character of their claims and their last known post-office addresses. This was not done here. Had the judge complied with the statute's mandate, it is likely that notice would have been mailed to New York City. Moreover, the railroad and the bankruptcy trustees knew about New York's asserted liens. And there was at least as much reason to serve a mail notice on New York City as on representatives of the railroad's mortgagees. Their liens were subordinate to New York's. There was even more reason to mail notice to the non-appearing known creditor New York City than to the creditors who had actually filed appearances as claimants.
The statutory command for notice embodies a basic principle of justice—that a reasonable opportunity to be heard must precede judicial denial of a party's claimed rights. New York City has not been accorded that kind of notice.
MR. JUSTICE FRANKFURTER and MR. JUSTICE JACKSON doubt that a city whose only claim is in rem and which has no standing to participate in the general estate is a creditor in the sense of § 77 (b). But whether New York is or is not such a creditor, they agree with the opinion that the notice in this case is not adequate support for an order destroying the liens.
"The term `claims' includes debts, whether liquidated or unliquidated, securities (other than stock and option warrants to subscribe to stock), liens, or other interests of whatever character." 11 U. S. C. § 205 (b).