First Nat. Bank of Chicago v. Bryn Mawr Beach Bldg. Corp.

• Decision Date: 12 February 1937
• Docket Number: No. 23538.,23538.
• Citation: 6 N.E.2d 654,365 Ill. 409
• Parties: FIRST NAT. BANK OF CHICAGO v. BRYN MAWR BEACH BLDG. CORPORATION et al.
• Court: Illinois Supreme Court

365 Ill. 409

6 N.E.2d 654

FIRST NAT. BANK OF CHICAGO

v.BRYN MAWR BEACH BLDG. CORPORATION et al.

No. 23538.

Supreme Court of Illinois.

Feb. 12, 1937.

Suit by the First National Bank of Chicago against the Bryn Mawr Beach Building Corporation and others, wherein Holman D. Pettibone and others, as a bondholders' committee, submitted a plan for reorganization, which was opposed by Bernard D. Harris and others. From an adverse decree, Bernard D. Harris and others appealed to the Appellate Court (283 Ill.App. 267), which affirmed the decree and certified the case to the Supreme Court.

Judgment of the Appellate Court affirmed.Appeal from Second Branch Appellate Court, First District, on Appeal from Superior Court, Cook County; William J. Lindsay, Judge.

Shulman, Shulman & Abrams, Ward, Curtis & Polin, Aaron Soble, and Harry Abrahams, all of Chicago (Meyer Abrams, of Chicago, of counsel), for appellants.

Miller, Gorham, Wales & Adams, of Chicago, for appellees.

Don Kenneth Jones and Vincent O'Brien, both of Chicago, for City Nat. Bank & Trust Co. and others, amici curiae.

STONE, Justice.

This cause is here to review the judgment of the Appellate Court for the First District affirming a supplemental order and decree of the superior court of Cook county which approved a sale of the involved mortgaged property and a plan for reorganization submitted by a committee representing certain bondholders. The Appellate Court has submitted the case on a certificate of importance, certifying that the question of jurisdiction of a court of equity in a case of this character is one of public importance, as to which the decisions of the Appellate Courts of the State are at variance.

The cause arises through a foreclosure proceeding brought by the trustee under a certain trust deed, against the mortgagor, the Bryn Mawr Beach Building Corporation. The trust deed was given to secure bonds aggregating $6,000,000. The property is a nineteen-story and basement apartment hotel, located at 5555 Sheridan road, Chicago, on a lot approximately 600 feet on Sheridan road by a depth of approximately 252 feet. The building contains a total of approximately 1,549 rooms, composing apartments of various sizes and rooms used for other purposes. The building contains also a 170-car garage, swimming pool, dining room, barbershop, beauty parlor, and commissary. With the exception of the lobby, restaurant, kitchen, dining rooms, a few apartments, and a few other guest and maid rooms, the entire building is unfurnished. It was completed in the autumn of 1928.

The trustee, the First National Bank of Chicago, appearing here as appellee, filed the bill for foreclosure in a representative capacity pursuant to the provisions of the trust deed. It appears that on October 1, 1931, the mortgagor defaulted on payment of $200,000 principal of the bonds, and on December 12 thereafter the trustee, pursuant to the terms of the trust deed, took possession of the property and has since operated the same for the benefit of the bondholders. On December 17, 1931, the trustee, as it was authorized by the provisions of the trust deed to do, accelerated the maturity of all outstanding bonds and brought foreclosure. The decree for foreclosure and sale was entered on February 20, 1934. By it the master in chancery was directed, in case of failure to pay the bonds within a certain time specified therein, to sell the property and, after deducting costs, fees, and expenses of the proceeding, to pay the remaining proceeds to the trustee, the latter to distribute the same pro rata among the bondholders. In December of 1934 the court directed the trustee to pay the costs and expense of the foreclosure proceedings from funds in its hands derived from operation of the mortgaged property, which was done accordingly. On January 11, 1935, the master published notice that the sale would be held on February 4 following. Notice was given accordingly. The sale took place on that date in accordance with the notice, and Harold C. Bull, acting for a committee of bondholders, bid in the property at the sum of $1,040,225. It appears that prior to the decree for foreclosure and sale a bondholders' committee of five members was formed at the instance of certain of the bondholders. This committee consisted of outstanding business men of the city of Chicago, but one of whom held any of the bonds and he but a small amount.

On January 28, 1935, one of the appellants, Charles Shapiro, on leave of court filed an intervening petition praying that the trustee be directed to bid at the sale, that the court determine the fair market value of the property, and that the trustee be directed to bid that value. He appeared on behalf of himself and other bondholders. David H. Brill was appointedby the court as attorney for nondepositing bondholders and appeared on behalf of such bondholders throughout the proceedings. The bondholders' committee on February 9, five days following the sale, asked leave to file an intervening petition, setting forth that it represented at that time $5,183,400 of the principal amount of the outstanding bonds; that it had caused Bull to bid at the master's sale as its nominee; that on December 18, 1934, it had promulgated a plan for the reorganization of the property, to be considered in connection with its bid at the foreclosure sale; and prayed that the court consider and approve such plan. The petition sets out that the committee had on December 18, 1934, sent to all the known depositing and nondepositing bondholders an explanatory letter and copy of the plan, urging them to deposit their bonds with the committee for reorganization purposes. This petition also prayed that the court supervise the consummation of the plan of reorganization if it be approved, and accord to all bondholders who had not previously deposited their bonds an opportunity so to do and thus to participate in the plan of reorganization. Leave was granted to file this petition, and process was issued to certain depositing bondholders as representing all those who deposited their bonds with the committee and certain nondepositing bondholders as representatives of all those who had not so deposited their bonds.

The Shapiro and committee's petitions and the master's report of sale were set for hearing on March 20, 1935. The master was directed to notify all depositing and nondepositing bondholders of the time and place of the hearing, and that any bondholder might present objections to the confirmation of the sale or plan of reorganization. This was done accordingly. Answers to the committee's petition were filed by various parties who are bondholders and have become appellants here. Certain bondholders filed their consent to the proceedings. At the time of the hearing 86 per cent. of the bondholders had joined with the committee.

The hearing was had on March 20 and 21, 1935. Evidence was offered by the bondholders' committee and appellants. At the conclusion of the hearing the chancellor continued the matter until April 3 for study of the evidence and for further opportunity to objections to make investigation. On that day Bernard D. Harris, also an appellant, filed a petition asking that the foreclosure proceedings be consolidated with a suit for the liquidation of the Bryn Mawr Corporation, mortgagor. The court permitted the filing of this petition but denied the prayer on the ground that the latter suit was not at issue. On that day Harris also filed a petition seeking to have the court adopt an alternative plan providing for the appointment of a receiver with power to dispose of the property and divide the proceeds. This plan was disapproved. On April 3 the court approved the report of sale, and, with certain modifications, the plan of reorganization submitted by the bondholders' committee. The order of approval provided that all bondholders who had not therefore deposited their bonds with the depositary of the committee might have ninety days from the entry of the order in which to do so. The trustee was directed to, within forty-five days, prepare and file a true and accurate account of its operation from December 13, 1931, to February 28, 1935, and that within thirty days thereafter and person in interest might file objections to such account. By this supplemental order the court also found that on February 28, 1935, the trustee, as shown by its tentative report, had in its possession the sum of $292,059.40 derived from the operation of the premises and on that date was indebted in the sum of $21,704 for costs and expenses incurred in such operation, and ordered that it forthwith distribute the sum of $250,000 pro rata among all bondholders. From the supplemental order and decree appellants appealed to the Appellate Court, where it was affirmed, as hereinbefore stated.

Appellants raise three primary propositions: (1) The superior court, as a court of equity, was without jurisdiction of the subject-matter of the intervening petition; (2) the plan offered by the committee was unfair and inequitable; (3) that the property was sold for a grossly inadequate sum and as the result of a plan or fraudulent device which deprived the nondepositing bondholders of their property without due process of law. They also contend that the trustee was authorized to, and should have been directed by the court to, bid at the sale, and that the plan submitted by appellant Harris for the appointment of a receiver and disposition of the property of the mortgagor corporation was a fair and equitable plan.

The theory of appellees is that a court of equity has jurisdiction to consider a plan of reorganization in connection with a hearing on the approval of a foreclosure sale as here presented; that the plan offered by the committee was fair and tended to bring the greatest amount obtainable for all bondholders who would participate; and that the price bid for the property by the representative of the depositing...