American United Mutual Insurance Co. v. City of Avon Park
In American United Mutual Insurance Co. v. City of Avon Park, 311 U.S. 138, 61 S.Ct. 157, 85 L.Ed. 91 (1940), the Supreme Court interpreted a condition on the confirmation of a bankruptcy plan under former Chapter IX, that "the offer of the plan and its acceptance are in good faith." 11 U.S.C. 403(e)(5) (repealed in 1976).
Although the Court did not formulate a precise definition, it focused on "(e) quity and good conscience" in finding that the acceptance had not been made in good faith.
The primary explanation for this focus was:
As this Court stated in Securities and Exchange Commission v. United States Realty & Improvement Co., 310 U.S. 434, 455 (60 S.Ct. 1044, 1053, 84 L.Ed. 1293): "A bankruptcy court is a court of equity, 2, 11 U.S.C. 11, and is guided by equitable doctrines and principles except in so far as they are inconsistent with the Act.... A court of equity may in its discretion in the exercise of the jurisdiction committed to it grant or deny relief upon performance of a condition which will safeguard the public interest." And see Pepper v. Litton, 308 U.S. 295, 304, (60 S.Ct. 238, 244, 84 L.Ed. 281) et seq. These principles are a part of the control which the court has over the whole process of formulation and approval of plans of composition or reorganization, and the obtaining of assents thereto. (Id. at 145, 61 S.Ct. at 161.)