Brooklyn Bankrupt

Last week Percy Gilkcs, longtime Chief Clerk of Brooklyn's Federal Court, whistled softly as he scanned a petition in bankruptcy. Against $100 in assets he saw arrayed $44,462,913 in liabilities. In all his 25 years of service Clerk Gilkes could not recall such enormous liabilities in a bankruptcy case. He looked at the signature of the petitioner--Jeremiah K. Donovan--and scratched his head in perplexity.

Jeremiah K. Donovan is a smallish man who brushes up his hair into an impressive pompadour and who wears ice-cream suits and gay bow ties in the summertime. He works as a clerk in a tiny office in Lawyers Title & Guaranty Co., goes home every night to a furnished room in Brooklyn. When newshawks swooped down on him last week they found him unperturbed by his bankruptcy, and quite sane. It was a real bankruptcy, and his assets were only $100, and his liabilities were over $44,000,000--and yet his creditors would lose considerably less than $100,000 in actual cash. Explanation:

Mr. Donovan used to bolster his slender income by playing dummy in big real estate deals. For a modest fee, he would sign the mortgage bonds on a property and then deed the property to the real buyer. Thus, if the mortgage were foreclosed and if the amount realized by the foreclosure sale were not enough to cover the mortgage, Mr. Donovan alone would be liable for the difference. It is a shrewd method which big real estate operators can only use to limit their legal liability on obligations they assume. So long as Mr. Donovan signed only first mortgage bonds, his career ran along smoothly enough. But of late he has been dabbling in second mortgages as well, and disaster has overtaken him. The holders of one of his second mortgages are suing him for some $85,000 due them on a foreclosure sale, thus throwing him into bankruptcy. They will probably not get their money, Mr. Donovan's assets being what they are, but none of the other hundreds of Donovan creditors will lose anything. Mr. Donovan takes it all quite calmly. He has gone away on his two-week vacation.

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