# Respondents Brief — In Re 620 Church St. Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386010_0059%3A07 ## Record - **Collection:** Supreme Court brief - **Document type:** Respondents Brief - **Published:** January 1, 1936 - **Citation:** 299 U.S. 24 ## Text “OCT 52 1936 RLES ELMORE CROP CLER In the Supreme Court of the United October term, A. D. 1936. No. 271 . In the matter of 620 CuHurcu Street Buitpine Corporation, a corporation, debtor under section 77B of the bank- ruptcy.act. 620 Cuurco Street Buripine Corporation, Irene K. Goop- MAN, G. Wauuer, M. Lone, A. W. Kissy, Emit Rosen- THAL AND B. K. Goopman, petitioners, | | vs. ' Warner G. Bam, trustee of debtor, Caester R. Davis, Mur- RAY WoLBACH AND JAMES R. McCauey, as members of t bondholders committee for the holders of first-mort- f gage bonds, Lovis M. Qurrman anp Epeoar N. Greene- BAUM, as trustees under first mortgage, Wiuuiam L. O’ConNELL, as receiver of Central Republic Trust Com- pany, Crara Ast, Lucinte Ast, Epwarp ScHoEN AND nN Auice G. Himss, : (, \ | omapiliiine. \ a? On writ of certiorari to the Circuit Court of Appeals for the Seventh Circuit. Brief for the respondents Louis M. Quitman and Edgar N. Greenebaum; first mortgage trustees. / Huao SONNENSCHEIN, Hersert M. LautTMann, j Isaac E. Fercuson, _all of Chicago, Illinois, _ attorneys for said respondents. Isaac E. Fercuson, - Henry L. Koun, both of Chicago, Illinois, . of counsel. bsiuestiabiai anidinetnasperne sa: noeeeenatcaeen decasataetaatioaee caeie auammaen canine aacmeimernem ema cade Cie eee, ta Giana, GH Am oe, O20 o eee, TB 4 | INDEX. a, Statement of Case: Page Order granting certiorari ...... _ Errors assigned by petitioners and findings of court to which directed D) Men he A ee ee ee es ee oe oe ee ee . i Sata ie icant Value of debtor’s property and petitioners’ claims.. 5 Noes energy _ Confirmation of plan without petitioners’ consents.. 5 Contention of respondents ...................... _ 2 PEE LOU OTF “Summary of the Argument 7-10 dei we ee ese ee a ae Oe ee Argument... 0... e000. Eee 11-21 Appendix (quoting relevant portions of section. (7B) 22 Divisions oF ARGUMENT. I..Since appeal: under section 24 (b) of bankruptey act is confined to questions of law, Circuit Court _ of Appeals properly held that ¢orrectness of valu- ‘ ation arrived at by the district judge is not re- - viewable 3a TEC ORC MEAT BRS ONLY AT ASL ITY ip TCE PONE ACE mM II. Reorganization ynder section 77B not limited to plan extending ‘participation to-all classes of creditors and stockholders, when liabilities ex- ceed unminw erie ee eae 7; 11-17: HI. Exercise of bankruptcy jurisdiction in manner that - disposes of property of debtor without foredlo-.. . Sure sale and redemption rights does not violate due process provision of fifth amendment... ..8; 17-19 _ IV. Though sale free of liens is not usually ordered | in ordinary bankruptcy liquidation proceedings if incumbrance exceeds value of property, never- theless power of bankruptcy court to order such ‘Sale under appropriate circumstances does not depend upon value of ‘property eee ey ere 9; 17-19 ‘ > — ii Index Continued. / | Page V. Power of Congress to legislate on“ subject of bankruptcies includés power to bring within bank- ruptey jurisdiction corporate reorganizations ; and such jurisdiction is not rendered unconstitu- tional because it extends to secured claims as well as unsecured claims, nor. because it provides rem- edies for ascertainment and enforcement of pre- existing lien claims other than those provided by ' state law—re substantially equiv- EU WE iad po caen cdl nnseasus hae dawn 9; 20-21 ji | Referred CASES CITED to at pages American Mines Equipment Co. v. Illinois Coal Corp. (CCA 7), 31 F. (2d) 507, 510-513; cert. den. 280 U.S. Oy OE, WU 6 nh ak dna. sce “We remind the court that the petition for leave to appeal from the decree of the district court was filed under section 24(b) of.the bankruptcy act, pursuant to which the Circuit Cqtttt“of Appeals: could exercise jurisdiction only” ‘to su- perintend and revise in matter of law.’’ No claim is made by any assignment of error that the petitioners were denied a fair and adequate hearing as to 11¢ value of debtor’s — ‘property and of petitioners’ claims. No question of law 1s raised with respect. to any incident of this hearing. © Confirmation of plan without petitioners’ consents: Thus the case narrows down! to a single point. Value or : no value, is the consent of junior claimants of various classes an indispensable prerequisite to confirmation of a plan of reorganization by a court of bankruptcy, exercis- ing jurisdiction under section 77B of the bankruptcy act, when after a fair hearing it has beén determined that such claims are valueless? Or, lacking such consents, must the court reject reorganization for the venefit of senior lienors - and abandon its jurisdiction (so that, as petitioners assume, oan \ . 6 the first mortgage bondholders will be compelled to resort to a foreclosure sale under state law, with attendant rights of redemption) ? Contentions of respondents: (1) The benefits of a reorganization plan under. section 77B need not extend to all classes of creditors and stock- holders, if the liabilities of the debtor corporation exceed its assets, but only to those equitably entitledtto participate, according to the amount, quality and priority of their re- spective claims. (2) Subsection (b) of sedion 77B*—more particularly, subparagraph (4) and subparagraph (5) (c) and (d) of subsection (b)—as applied in this case, does not deprive. petitioners-of property without due process of law. *Quoted in Appendix, p. 22. 7 SUMMARY OF ARGUMENT. 1. Since an appeal under section 24(b) of the bankruptcy _act is conned to questions of law, the Circuit Court of Ap- - peals properly held (R. 21) that—with no challenge to the fairness or adequacy of the hearing as to the value of debtor’s property and petitioners’ claims—the correttness of the valuation arrived at by the district court is not re- -. Viewable. In re Loving, 224 U. S., 183, 188-189, 56 L. ed. 725, 726-727. - Elliott v. Toeppner, 187 U.S. 327, 334, 47 L. ed. 200, 203. II. Reorganization under section 77B of the bankruptcy act is not limited—either (a) by statutory formula, or (b) by demands of equity, or (c) by constitutional mandate— to a plan extending participation to all classes of creditors . and stockholders, when the liabilities of the debtor corpo- ration exceed its assets. Section 77B of the bankruptcy act, subsection (1), (2), (4), (5), (9); also subsection (e) (¥) (11 U.S.C. section 207, subsections as above).* In re Central Funding ae (CCA 2), 75 F. (2d) 256, 259-260. | In re Mortgage Securities Corp. (CCA 2), 75 F. (2d) | 261. In re Reading Hotel wiles (D.C., E. D, Pa.), 10 F. Supp. 470. In re William Penn -sarage (D. C., ‘W. D. Pa.), Com- merce Clearing House Bankraptey Law Service, 13649. See also cases cited under Points III, IV and-V, infra. "Quoted in Appendix, pp. 22-24. — Exercise of bankruptcy jurisdiction in a manner that dis- poses of the property of the bankrupt (or “debtor” under ~ section 77B) without foreclosure sale. and attendant rights of redemption under state !aw, does not violate the due process provision of the fifth amendment. Van Huffel v. Harkelrode, 284 U. S. 225, 227-228, 76 L. ed. 256, 259 (sale in bankruptcy free and clear of liens, under Act of 1898). Ray v. Norseworthy, 23 Wall. (90 U. 8S.) 128, 23 L. ed. 116 (sale in bankruptcy free and clear of liens, under Act of 1867). Houston v. City Bank of New Orleans, 6 How. (4% U. 8.) 486, 506, 12-L. ed. 526, 534 (sale in bank-— ruptcy free and clear of liens, under Act of 1841). Dugan v. Logan, 229 Ky..5, 16 S. W. (2d) 763; cert. den. 280 U. S. 587. American Mines Equipment Co. v. Illinois Coal Corp. (CCA 7), 31 F. (2d) 507, 510-513; cert. den. 980 U. S. 572, 74 L. ed. 624 (sale by federal court without right of redemptjon, under general ered- itors’ bill filed with debtor’s consent). : . In re Novak (D.C., N.D. Ia.), 111 Fed. 978 (no right ~ of redemption from trustee’s sale in bankruptcy). Brown v. Timmons, 79 Mont. 246, 256 Pac. 176, 178-179 (bankrupt’s right of redemption from fore- closure sale by state court passed to trustee in bankruptcy). _ Inte Central Funding Corp. (CCA 2), 75 P. (2d) a 260-261. . In re New York, New Haven & Hartford Rad. Co. . C. Conn.—Sept. 15; 1936), Commerce Clearing House Bankruptcy Law Service, 4172. 9 IV. Although it is stated in-the opinion of this court in “Louisville Joint Stock Land Bank v. Radford, 295 U. 8. 555, that “by the settled practice, a sale free of liens will not be ordered by the bankruptcy court if it appears that — the amount of the incumbrance exceeds the value of the property,” this refers to ordinary bankruptcy liquidation proceedings and not to reorganization proceedings under section 77B; and moreover, does not deny the power of a bankruptcy court, under appropriate circumstances, to order such sale regardless of the value of the property. | In re Franklin Brewing Co. (CCA 2), 249 Fed. 333, 335. . : : In re Union Trust Co. (CCA 1), 122 Fed. 937, 939, . 940. | In re Roger Brown & Co. (CCA 8), 196 Fed. 758, 761. In re Throckmorton (CCA 6), 196 Fed. 656, 659. In re Hasie (D.C. Tex.), 206 Fed. 789, 792. « In re Thetberg (D.C., N.J.), 280 Fed. 408. In re Loveland (CCA 1), 155 Fed. 838, 839. In re Central Funding Corp. (CoA. 2), 75 F. (2d) 256, 260-261. _ V. It is no longer open to dispute that the power of Congress to legislate on the subject of bankruptcies includes the power to bring within the bankruptcy jurisdiction the sub- ject of corporate reorganizations. Such jurisdiction is not rendered unconstitutional because it extends to secured claims against the debtor and its property as well as un- ' secured claims; nor because it provides remedies for the ascertainment and enforcement of pre-existing lien claims other than those provided by state law—remedies affording substantially equivalent benefits. Continental Illinois National Bank & Trust Co. v. C. R. I. & P. Ry. Co., 294 U. 8. 648, 667-675, 79 , L. ed. 1110, 1123-1127. a | ‘fo \ Campbell v. Allegheny Corp. (CCA 4), 75 F. (2d) 947, 951-955 ; cert. den. 296 U. S. 581, 80 L. ed. 104: In re Londquiet (CCA 7), 70 F. (2d) 929, 933; cert. den. 293 U. S. 584, 79 L. ed. 680. . Hanover National Bank v. Moyses, 186 U.S. 181, 46 ‘ L. ed. 1113. Ex parte City Bank of New Orleans, 3 How. (44 U. 8.) 292, 316, 11 L. ed. 603, 614. Nugent, Assignee, v. Boyd, 3 How. (44 U. S.) 426, 437, 11 L. ed. 664, 669. , McRaney v. Riley, 128 Miss. 665, 91 So. 399, 400-402. In re Jersey Island Packing Co. (CCA 9), 136 Fed. 625, 627. In re New York, New Haven & Hattford Rd. Co. (D.C. Conn.), Commerce Clearing House Bank-’ - ruptey Law Service, 4172, at pp. 2161-2162. il cell ARGUMENT. The correctness of the trial judge’s valuation of debtor’s property and of petitioners’ claims is not reviewable. Petitioners, in conformity with section 24(b) of the bank- ruptey act, petitioned the Circuit Court of Appeals ‘‘that they may be allowed; in the discretion of this honorable court, to appeal in matter of law herein.’’ (R. 9.) _ The scope of such appeal, if granted, is strictly limited to questions of law (In re Loving, 224 U. S. 183, 188-189; Elliott v. Toeppner, 187 U. S. 327, 334.) - With*no challenge to the fairness of the hearing on the value of debtor’s property dnd of petitioners’ claims, no contention that incompetent evidence was received or com- petent evidence excluded, the Circuit Court of Appeals cor- - rectly concluded that it would have no right to disturb the trial judge’s finding pf value. (Memorandum denying ap- -peal, supra, p. 5.) | OL Reorganization under Section 77B need not extend partici- pation to all classes of creditors and stockholders, when liabilities of debtor corporation exceed assets. The text of the statute, quoted at pp. 22-24 infra, leaves no doubt of the intention to provide fora reorganization such as that accomplished in this case, namely: a transfer of the Carlson Annex leaseholds, held by the 620 Church’ Street Building Corporation, to khe 636 Church Street Building Corporation, holder of the adjoining Carlson Building leasehold, and issuance to the holders of Carlson Annex bonds of (a) $222,850 new first mortgage bonds out of $684,750 to be secured By the combined leaseholds, also (b) 25% of the common stock of the new owner corpora- _ tion.* A complementary plan of xeorganization of the 636 - “The new bonds allocated to the Carlson Annex bondholders “Papresents ath = face amount of their old bonds; the stock, one share per $500 old bond. 12° ? 7” fs r ti Church Street Building Corperation Ba NT med in another section 77B proceeding in the same court. (R. 7-8, -par. 9.)°. . ; e | No question is raised as to the regularity of the proceed- ings in this case up to the point of entry of the decree con- firming the plan of reorganization. At this stage of the proceedings—in a case ‘where the fair market value of - the debtor property is but 40% of the first mortgage in-« debtedness—challenge comes only from claimants whose interest in the debtor’s property are indisputably inferior to the interest of the first mortgage bondholders. _ Manifestly, if under the circumstances of this case a re- organization under section 77B could not apportion all of the debtor’s property to the senior claimants, in accordance with elementary precepts of equity, the statute would be of no avail in this case and many similar cases. Instead, — the ‘‘nuisance values’? and ‘‘maneuvering values”? by means of which unjust toll was commonly exacted as part of the price of eorporate reorganization through equity receivership proceedings, or kindred proceedings, would — continue to thrive. _ , As stated by Circuit Court of Appeals for the ‘Second Circuit, in upholding a reorganization under ‘section 77B for the benefit of first mortgage bondholders only, where . _ essentially all that was accomplished was to defer liquida- tion of the collateral securing the first mortgage bonds (In re Central Funding Corp., 75 F. (2d) 256): ‘‘The most flagrant occasion for a reorganization ~~ is where only creditors’ rights are to be adjusted, and liquidation is to be slow enough to take advantage of market conditions obtaining over a long period. Sec- tion 77B expressly provides for such situations as we .. "The Carlson Building is a 9-story office and store building at the southeast corner of Orrington avenue and Church street, Evanston, Illinois. The Carlson Annex is a part 7-story and part 2-story office and store building adjoining the corner building to the east of Church street. The Annex has no inde- - pehdent heating plant, elevators, or entrance lobby, but avails itself (under operating contract) of these facilities of thé corner building. , 13 have here, and they are proper subjects of bankruptcy legislation. To restrict the Act to réorganizations where the debtor has an equity would be to deprive the section of much, if not most, of its usefulness.’’ (p. 261.) | a “° ‘‘We cannot, however, doubt that it is within the general meaning of the term ‘reorganization’. In com- mon parlance that term is not limited to cases where the rights of all persons interested in a corporation,,. whether lienors, general creditors or stockholders, are made to survive under some new corporate arrange- — ment. Not infrequently the rights of some of these classes have become so worthless that they deserve and receive no recognition in the reorganization.’ (p. 259.) ; Under paragraph (4) of subsection (b) of section"77B, if the judge determines that the debtor is insolvent, no pro- vision need be made in the plan of reorganizatior for stock- holders. Under paragraph (5) of subsection (b), if two- thirds of any class of creditors do not accept the plan, the ° plan must provide ‘‘adequate protection’’ for the realiza- tion of the value of the interest, claim, or lien of such class in debtor’s property, through (a) continued subjection of the property to such interest or lien, or (b) sale free of such interest or lien at fair upset price, or (c) appraisal of such interest. or lien and payment of appraised value ing eash, or.{d) by.such method as, in the opinion of the judge, under the circumstances of the particular case, will equi- tably provide such ‘‘adequate protection.’”* The court’s finding of insolvency obviated any. need to make provision, under the plan confirmed in this ease, to protect the interest of stockholders. ‘‘ Adequate protec- tion’’ of the interests, claims and liens of the second and third mortgage noteholders was afforded’ under the plan by providing for appraisal of the value of these claims, such value to be paid in cash. r= *Text of statute, infra, p. 22. Naturally, with first mortgage indebtedness two and one- half times the value of debtor?s property, it was undoubt- edly anticipated by the proponents of the plan that ap- praisal would yield no cash to the junior créditors. But i ie e ‘adequate protection® afforded by the plan yielded ing to the aed and third mort gage noteholders, this result was caused not by the plan, nor by the court’s decree, nor by the enactment of section 77B, but by misjudgmeht in the original investment represented by these junior claims, or if the original investment was sound to subse- quent retrogression due to the turn of economic events. If! in the apportionment of assets consistent with equitable _ priorities, a court of bankruptcy turns away. some claim- ants empty-handed, this is not a deprivation of property without due process of law. Rather, it is of the essence of bankruptcy process, of which‘one df the main objectives _—formerly the sole objective—is the distribution of the debtor’s assets to its creditdrs in measure with the casei and quantity of their. claims. We quote from the opinion of the Circuit Court of Ap- peals for the Fourth Circuit in Campbell v. — Corporation, 75 F. (2d) 947, at Pp. 953-954 : _ “Little need be said as to the question which arises under the fifth amendment. There is no question, of course, but that the exercise of the bankruptcy power by Congress, as is the case with other delegated pow- ers, is subject to the requirement of due process con- tained in that amendment., Monogahela Nav. Co.-v. U. S., 148 U. S. 312, 336, 13 S. Ct. 622, 37 L. Ed. 463; Hanover Nat. Bank v. Moyses, supra, 186 U. §S.; 181, 192, 22 St. Ct: 857, 862, 46 L. Ed. 1113. But as any ex- ercise, of the bankruptcy . power impairs the obliga- tion of contracts, such impairment is not to- be taken as in itself a denial of due process. For the provisions of the act to violate the amendment, they must be so” grossly arbitrary and unreasonable as to be incom- patible with fundamental law. Hanover Nat. Bank v.. Moyses, supra. We do not think that the requirement / 15 / that secured creditors scale their debts in accordance with a plan which two-thirds of them are willing to. accept and which has been approved by the court as reasonable and fair, and accept in lieu of payment in money such securities as are specified in the plan, can be said to be such an arbitrary and unreasonable ex- ercise of the bankruptcy power as to amount to a de- nial of due process. . The fact that secured debts are affected by the act does not, of course, raise any grave constitutional ques- tion, and can be dismissed with brief comment. ‘“A secured debt or lien is, so far as the Constitution of the United States is concerned, a no more sacred kind ‘of property than an unsecured debt. * * * And the Constitution expressly permits and grants to Congress the exercise of the power to affect such property, whether it be an unsecured debt or whether it be a lien, by laws relating to ‘subject of bankruptcies.’ ’’ _ In re Burgh (D. C.), 7 F. Supp. 184,185. * a As a matter of fact, no property in any real sense is taken from the dissenting creditor when he is com- . pelled under section 77B to scale his claim and accept securities in lieu thereof. The securities held by him have already shrunk in yalue before the proceeding under the act is instituted; and all that % required of him is that he face reality and accept his pro rata in- terest in the debtor’s property in a form which will not. jeopardize the rights of other creditor similarly situ- ated. If he were allowed to insist on r+ be-wesne M of the lien.in which he is interested in common with-others, ‘he would bring serious injury to them without benefit to himself. Under the act, he is merely*required. to ac- cept what two-thirds of those similarly situated are willing to accept, and what the court bas found to be fair and reasonable under the circumstances ; and, when the situation is viewed realistically, it is readily seen that he is ‘not required to surrender any part of the value either of his securities or of the property avail- able fer-the payment of his ciaim. What he in fact gives up is merely the arbitrary power to frustrate the wishes of the great majority of those who have a com- mon interest in the property of the debtor, or, in other words, the power to demand from other creditors an . mr V..- p Bhe power of Congress to legislate on the subject of bank- ruptcies may properly extend to secured claims against the debtor’s property as well as unsecured claims; and ‘may provide remedies for the ascertainment and en- forcement of pre-existing lien claims other than those . provided by state law, provided such remedies afford ‘ substantially equivalent benefits, Petitioners do not question the géneral validity Locdian 7B as a code of procedure far the reorganization of finan-/ cially embarrassed or ingolvent corporations; nor that such reorganization may deal with claims secured by liéns on the . . debtor’s property as well as unsecured claims. The peti- .. tioner corporation itself initiated this proceeding for reor- ganization; the petitioners who hold second or third mort- | gage notes of the debtor corporation came into the pro- ) ceeding to prove their claims—and, if possible, to persuade ) - ° the first mortgage bondholders voluntarily to yield to them - some share in the reorganization, despite the great-dispar- ity between the first mortgage indebtedness and the value of the debtor property. {R. 7—pars. 7 and 8.) Because their claims were worthless ab initio, or have been retidered worthless by the course of events, the pro- cedure provided by section 77B has brought petitioners no cash or‘ substituted securities. Not by legislative or judi- ’ giql fiat that they shal] take less than their due, but by orderly and fair ascertainment of what is justly recover- . ble on their general distribution ef the insol- — \—-vent-debtor’s ts. Petitioners protest that, as the mat- .* \. ter has turned out, they might’ be better off if the first mort- gage bondholders were denied the facilities and: economies ef reorganization procedure under section 77B and re- _ mitted to foreclosure under state law. If so, it is not be- cause of any showing that prolongation of the litigation for another year or more would increase the value of debtor’s . property from $245,025 to something over $600,000, the ap- _ - proximate first mortgage indebtedness at this time with- 4. 4 “ff 21 ; e out reckoning accrued: and future costs of litigation. Re- duced to its ultimate essence, the true complaint of peti- -. tioners is that section 77B, as applied in this case, hag de- prived them of such maneuvering advantages as they might have had under the inefficient and unduly costly modes of procedure for corporate reorganization which section 77B was designed to supplant. It would be anomalous, indeed, ‘if equity or the constitutional requirement of due process could reasonably be found tp support a contention so flag- rantly at odds with justice and good conscience. .. Not to elaborate upon what this court has said about the nature and scope of the bankruptcy power (cases cited at pp. 9-10, supra), we submit that this great and beneficént oe power conferred on Congress by the federal constitution has not been unconstitutionally exercised in the enactment of section 77B of the bankruptcy act, or any of the subdivi- sions thereof herein involved ; that in the application of Bec- tion 77B in this case no inequity has resul ayto the peti-— -tioners, or any of them; that the first mortgage bondhold- - __ere, through the reorganization confirmed by the court, will receive no mare than their equitable due as the holders of obligations secured by superior lien on the debtor’s prop- erty. Wherefore, these. respondents urge that the Circuit - - Court of Appeals did not err. in denying to petitioners leave to appeal, and that said order of the Circuit Court of Ap- peals and the decree of the District Court sheild be affirmed. . Respectfully submitted, Hvuco SonNENSCHEIN, Heasert M. Laurmann, Isaac E. Ferauson, 2 all of Chicago, Illinois, : Attorneys for the respon- Henry L. Koun, dents Louis M. Quitman and Issac E. Fencusox, = = ===» Edgar N. Greenebaum, first Math Seg Mino, ergage rats ae oe Section 77B of Bankruptcy Act, 11 U. 8. 0: Section 207. - | Subsection (b): “‘A plan of reorganization within the meaning of this _ section (1) shall include: provisions modifying or alter- ing the rights of creditors generally, or of any class of them, secured or unsecured, either through the is- _- suance of new securities of any character or otherwise; (2) may include provisions modifying or altering the rights of stockholders‘ generally, or of any class of - - them, either through the issuance of new securities of any character or otherwise; * *.* (4) shall provide _.- in respect of each class of stockholders; of which less - a than a majority shall accept such plan (unless the judge shall determine either that the debtor is insol- vent, or that the interest of such class of stockholders — will not be affected adversely by the plan), adequate | .— protection for the realization by them of the value of i ‘their equity, if any,.in the property of the debtor dealt with by the plan, either, as provided in the plan, (a) by a sale of the property at not less than a fair upset price, or (b) by appraisal and payment in cash of the, - value either of their stock, or at the objecting stock- ‘ * holders’ election, of the securities allotted to such stockholders ander the plan, if any shall be so allottd,. or: (c) by such methods as will.do substantial justice to'such stockholders under and consistent with {the cir- is - Gumstances of the particular case; (5) shall provide in Tat « S pias Ue oe £7 * “Ss eS aie ea aS AS SOSA Re es Bi rs Meat Bsle ¢ thei. pation igure ‘and in support. ” C2 ir ae +: : fos te i, p Tea SE ed Fae CS a fe a4 mt ‘fia tae Bg ee ee ae "he * Pe es SO Peers a re ~ Ds a a “ << _ This case deals with the right of a District Court to con- firm a plan of reorganization without the consent cf junior lienors which deprives them of their liens, their right to a public. gale, their right to bid and their right of redemp- . tion under the Illinois Statutes, all without compensation. tie 620 Church Street Building Corporation (herein re- © ferred to as Debtor) filed its voluntary petition for reor- - ganization under Section 77B of the Bankruptcy Act. Its principal property, consisting of a building constructed on - leased ground, is subject to three trust deeds executed prior - to the enactment of Section 77B and securing: a. First mortgage bonds we 445,500 b.. Second mortgage notes --- 40,250 ey Third mortgage notes 27,000 ‘The plan. epproved. by the District, Court provides that the property of the Debtor shall be conveyed to the 636 . Church Street Building Corporation, a separate and inde- pendent corporation, in consideration of stocks and bonds -- to be divided solely among fhe "plders of the first mortgage bonds of the Debtor. ol ea ale a ee eee nee . appeal: from the order Stig. to Jerenalg coepraed EE a cate Const rendered ite opinion on November 9th, 1996, to the ; ee ee eT: in deatcing 0 Ree ALARA: “fou oo & that that all the rights of the petitioners are of no value. This Court held that © petitioners, being beund by the finding of the District Court, could not raise the constitutional — arte no-value to, protect. ’ The fact is that the District Court did not titties all the rights of petitioners and made absolutely no. p fining as to the most important of them. sae The District Court found that petitioners’ claims én their. notes are of no value but made no finding as to the value . Of the substantive property rights of petitioners under their mortgages and the Statutes. of Illinois, particularly their right to redeem the property of the Debtor. *‘Had the District Court fully considered petitioners’ rights under their mortgages and under the Illinois Stat- utes, it would not have entered the order of confirmation _in this case which, unless set Aside by this Court, will have & disastrous effect on the security of all real estate mort- gages and introduce a new, and dangerous doctrine in the - lay. of mortgages—a doctrine which will upset long estab- | sone pa om caniahias ate gage many generations—a will net appeaciahly facilitate: proceedings tinder: Sections TTB AEE HPA seperts Shnk-a mantener; ty Mg « gui g Big es ig? Res Ly. 4 tion.im bankraptey,'may change the terms of a mortgage Petitioners earnestly beg this Court to consider the grave mes 6f its decision not only out of regard for the ‘ rights of petitioners but in view of its effect on the law of _ mortgages. Men egostad aus iMeidis TR LAF 235i ESS aL To demonstrate that the: District Court did not make the. finding of fact which this Court ‘assumed and on the binding ‘effect of which this Court based its opinion, . petitioners desire to clearly point out the errors made by the District Court, namely: &-“The District Court erred in viewing the rights e of the petitioners as being limited solely to a claim on the ‘notes held by them. It‘ overlooked their vested substantive rights in specific property arising out of - ¢ and existing by virtue of ‘the trast deeds securing the motes, and the statutes of the State of Ilinois. , . B. Granting that the District Court did not ovet-— |“ «Jookthe property rights of petitioners under. their rtgages: and the Illinois Statutes, then it ‘erred in See Se See rs Ree hese NS: LES oy 3 . The District Court placed the notes of ‘the petitioners ‘ in clasots ¥ and (B. 13), using the following fanguage: “Class 3: ‘Those claims allowed in these proceed- . ings-against 620 Church Street Building Corporation ote eats, with respect to the notes secured by _ trust deed dated July 13, 1928, from Carlson Annex : "Building ‘Corporation to B. F K. Goodman, aé trustee.” “Claas 4: : ,Those, claims allowed in these proceed- ings against. 620 Charch Street. Building Corporation : or ite property, with. respeet, to the. note secured by trust deed dated June 3, 1931, from.620 Church Street —- Building Corporation to W. ‘Kahn, as trustee.” The express language used refers to’ claims on the notes. “The. , ee nti ote Be by \. te ae Partha ot i ocd of stride (R: 15) covers "the so-called appraisal.of'the above'claims. ° Eis intgutgs aot priestess. si-conaip remap ras Qodl wi abo above-mentioned etme tad a, svn "Wie Withee sf the‘ Carlaw Bolte hig ‘denis, tho Const Dein euprelped’ anit dows herekss sunrenne SK Sateen Sewer ie Cideoes 3 and 4 te) be of no value * * * Here, too, the reference io @fpitaly to the claims on; the notes. ia i, Reestiacsestiiniaent don cation nk: ba, ihe, Sipsak. td when notes are issued and secured by a mortgage on real various’ rights come into existence. Whe notes evi- | a personal obligation of the maker to pay the prin- _ Gipalsand interest at the time and in the manner specified in the notes. These obligations constitute claims of the holders of the notes to receive money from the maker, and may be discharged in bankruptcy. At the same‘time there come -into being, property rights by virtue of the execution of the mortgage securing the notes and by virtue of the statutes of the state wherein the property described in the mortgage is Iggated. These constitute substantive rights in specific property and are protested by the Fifth Amendment. In law, the claims on the notes and the prop- erty rights under the mortgage and statutes are entirely separate and distinct. These separations exist not only in law, they are frequent in fact. Whenever the mortgagor conveys its property and the grantee des not assume the payment of the debt, a separation occurs. The debt re- mains the obligation of the mortgagor. The rights in the ‘ property created by the mortgage and statutes follow the If the District Court intended to find the valine only of the notes, from the standpoint of their immediate col- lectibility, its finding of .no value based on the market valine of the property of the Debtor and the amount of the e 7 r - sched wisived Wy ‘jumlon‘tign ‘ny ‘ceilily Bs valads. by finding the value of the property and déducting therefrom ” the amount due onthe notes secured by the prior lien. When, however, the District Judge confirmed the ‘desk . on the basis that the noted of petitioners were of no value, — he overlooked entirely the rights of petitioners uadér their Ss acne yee ae Let us look at setbiniiie, just as the Bank in the Radford case, pds- ‘sess certain rights by virtue of the aed mortgages and the Illinois statutes, namely : 1. The right to retain their lien on the property de- scribed in the wenn, mle lien is paid or until * the lien is terminated, ed by law, by a public | sale of the property. - | pai 2. The right to bid at such sale. 3. The right to redeem from such sale within one year from the date of the sale by paying to the purchaser the amount bid. . Let us consider for @ momént the most important and most: valuable right of petitioners, namely, the right of redemption. Under the laws of Illinois this. right of re- demption continues for twelve to fifteen months after the sale of the property. It constitutes an option to acquire the- property during this period at the price ‘hid at the sale with interest. . What gives great value to this right is the fact that the redemption price is not the. market value of the property, not the.amount of the pricr liens, but: the amount bid'st the sale which frequently is much less. This right i the exact. equivalent .o? the rigit to receive all the inc in tke value of the property over. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386010_0059%3A07. Public record. Not legal advice.