Overreach by FGIC? Equitable Interests in Property: A Forgotten Body of Law

Quoting a live tweet from the opening arguments by the attorney for Financial Guaranty Insurance Corporation (FGIC) at the trial on confirmation of Detroit's plan of adjustment:

Any restrictions placed on DIA [Detroit Institute of Art] could be "easily dealt with" in bankruptcy because they're "contractual obligations," FGIC attorney says.

In other words, the restrictions on the sale or use of the artwork can be eliminated under section 365 of the Bankruptcy Code. This assertion is correct to the extent the restrictions are contractual. If those restrictions are in the nature of property, however, they survive the city's bankruptcy.

While I haven't followed the issues swirling around ownership of the artwork housed at the DIA, FGIC's attorney may be overlooking an important point: equitable interests in property are just as much "property" as legal interests. Bankruptcy courts and even Circuit Courts of Appeal often forget (or never learned) this important point. (No one who's attended law school since the early 1960s knows about equitable interests in property because it's no longer taught.)

If you want to learn about equitable interests in property and their place in the universe of bankruptcy, read my article Third Time's the Charm: The Coming Impacts of the Restatement (Third), Restitution and Unjust Enrichment in Bankruptcy (download here).