In re Diversey Bldg. Corporation, 5853

• Decision Date: 01 December 1936
• Docket Number: 5881.,No. 5853,5853
• Citation: In re Diversey Bldg. Corporation, 86 F.2d 456 (7th Cir. 1936)
• Parties: In re DIVERSEY BLDG. CORPORATION. WEBER et al. v. DIVERSEY BLDG. CORPORATION.
• Court: U.S. Court of Appeals — Seventh Circuit

86 F.2d 456 (1936)

In re DIVERSEY BLDG. CORPORATION WEBER et al. v.DIVERSEY BLDG. CORPORATION.^*

Nos. 5853, 5881.

Circuit Court of Appeals, Seventh Circuit.

November 6, 1936.

Rehearing Denied December 1, 1936.

Arthur O. Kiesgen and James M. Gillespie, both of Chicago, Ill., for appellants.

Arthur Abraham, of Chicago, Ill., for appellee.

Before SPARKS, Circuit Judge, and LINDLEY and BRIGGLE, District Judges.

SPARKS, Circuit Judge.

This is an appeal from an order of the District Court perpetually restraining and enjoining appellants, creditors of the debtor, from instituting or further prosecuting any proceedings at law or in equity against the debtor, or against Fred Becklenberg, on account of any of the bonds secured by the debtor's trust deed of May 22, 1924, and guaranteed by Becklenberg.

The debtor by its trust deed had conveyed its property to a trustee to secure its first mortgage, six and one-half per cent bond issue of $1,250,000, and Becklenberg, on the same day, had unconditionally guaranteed the payment of the principal and interest when due.Subsequently, foreclosure proceedings were instituted by the trustee because of defaults in payment of certain of the bonds and interest.

On March 1, 1933, appellant Weber sued Becklenberg on his guarantee of the bonds in the Municipal Court of Chicago, to recover principal and interest then in default, and on April 11, 1935, he recovered a judgment therefor in the sum of $1,193.30 and costs.No appeal was taken from that judgment and it never has been vacated, set aside or satisfied.Weber also has pending in the Superior Court of Cook County, a creditor's bill based upon that judgment.

On July 20, 1934, the debtor filed a petition for reorganization under section 77B of the Bankruptcy Act(11 U.S.C.A. § 207).A plan, accepted by two-thirds in amount of the allowed and affected claims in each class of creditors, was approved, and a decree consummating the reorganization was entered June 28, 1935.The plan contemplated, among other things, the release of Becklenberg from his original guarantee, and a new bond issue with reduced interest which was to be guaranteed by Becklenberg.The appellants did not accept the plan, and from the decree of June 28, 1935, there was no appeal.That decree provided that the original trust deed and its lien be satisfied, released, discharged, canceled and extinguished, and that the creditors of the debtor, whether or not their claims had been filed, be restrained and enjoined from instituting or prosecuting any suits at law or in equity, or otherwise against the debtor or its assets.

On October 16, 1935, the debtor filed its petition for a restraining order in the District Court, in which it was alleged among other things that suits at law had been begun in the courts at Chicago, and other such suits were threatened against the debtor and Becklenberg, the guarantor of the original issue; and that the effect of those suits would be injurious, expensive and harassing, in that the solvency of Becklenberg, which was of substantial advantage to the debtor and its bondholders, would be impaired.Appellant Weber by answer denied that he should be restrained from thus proceeding against Becklenberg, and averred that he was not a creditor of appellee debtor in the suit sought to be restrained, but that he considered himself a creditor of Becklenberg, individually

The matter was referred to a master who, on November 8, 1935, recommended that the restraining order issue.Upon leave of court, Weber amended his answer by the insertion of a denial of the court's jurisdiction to restrain him from proceeding against Becklenberg.Appellants' objections to the master's report were overruled and it was confirmed.That order of confirmation perpetually restrained and enjoined Weber and the other creditors of the debtor, and all holders of bonds secured by the original trust deed from further prosecuting any suits at law or in equity against either the debtor or Becklenberg on account of any of the bonds of the original issue.

The question here presented is whether the District Court had the power to release Becklenberg from his guaranty of the old bond issue in consideration of his guaranty of the new bond issue, pursuant to the reorganization plan which had been approved by the court after its acceptance by two-thirds in amount of the allowed and affected claims of each class of creditors, but which had not been accepted by appellants, who were bondholders of the original issue.

This question must be answered in the...