In re Marine Harbor Properties

• Citation: 41 F. Supp. 814
• Parties: In re MARINE HARBOR PROPERTIES, Inc.
• Decision Date: 30 September 1941
• Court: U.S. District Court — Southern District of New York

41 F. Supp. 814

In re MARINE HARBOR PROPERTIES, Inc.

District Court, S. D. New York.

September 30, 1941.

Hughes, Hubbard & Ewing, of New York City (Curtiss Ely Frank and Orville H. Schell, Jr., both of New York City, of counsel), for Mortgage Corporation of New York.

Friedland & Friedland, of New York City (Arthur E. Friedland, of New York City, of counsel), for debtor.

George Rosling, of Brooklyn, N. Y., for Mortimer Rubenstein, as receiver.

Samuel Silverman and Maurice Rubinger, both of New York City, trustees, in person.

BRIGHT, District Judge.

This is an application by the Mortgage Corporation of New York as trustee, to vacate an order made herein on September 17, 1941, approving the petition of the above named debtor, filed for reorganization under Chapter X of the Bankruptcy Act, Title 11 U.S.C.A. §§ 501-676, under which trustees have been appointed and qualified, and to dismiss such petition. The ground of attack mainly is that the petition for reorganization was not made in good faith.

It appears without dispute that the secured indebtedness of the debtor consists of a first mortgage held by the Mortgage Corporation, amounting, with defaults as of October 1, 1941, to $399,814, of a second mortgage of $25,000, of a third and fourth mortgage upon each of which there is due not more than $2,000, and conditional sales contracts aggregating about $3,000, a total of $431,814; and there is unsecured indebtedness, the amount of which is not disclosed. The value of the real estate concededly does not exceed $350,000, it being assessed at $380,000.

The first mortgage was originally given to the Title Guarantee & Trust Company, and certificates were issued under it to about ninety holders, which certificates were guaranteed by the Bond & Mortgage Guaranty Company. The latter company becoming insolvent, its affairs were taken over by the New York Superintendent of Insurance, and the mortgage in question was reorganized under the New York Schackno Act, McK. Unconsol. Laws, § 1796 et seq., the plan being approved by the New York Supreme Court in Kings County, on November 24, 1934, and declared final on December 6, 1934, after approval by two-thirds in amount of the certificate holders. Under that plan, the mortgage was extended for three years to December 1, 1937, with interest at 6% to December 1, 1934, and thereafter at 5% to maturity.

Subsequently, the Mortgage Corporation was appointed, and is now acting as trustee pursuant to an order of the State Court, made December 6, 1938, which order further provided that the court should retain jurisdiction of the proceeding until the complete liquidation of the trust estate.

The first mortgage was not paid at its maturity, and on April 1, 1941, the debtor defaulted in the payment of interest and taxes; on May 1, 1941, foreclosure proceedings were begun in the State Court, and are now pending, in which action a receiver was appointed, who took possession of the property, and has since been collecting the rents therefrom and operating the same.

Negotiations for a further modification of the mortgage attempted on two occasions by the debtor, in which further extension of payment and reduction in interest were sought, were unsuccessful, the Mortgage Corporation declining each after submitting the same only to its Trust Committee. No submission of the proposed modification was made either to the court or to the certificate holders. The receiver estimates that the property is capable of earning approximately 6 2/3 % upon the first mortgage, and upon the argument, it was stated by his attorney that there was but one vacancy in the premises.

In opposition to the application, it is shown that the market in New York City for certificates issued under the first mortgage in question is, at present, 50% of par; and it is contended that the reorganization in the State Court can only affect the certificate holders under the first mortgage, and cannot take into consideration the subsequent liens, as well as the unsecured creditors.

The decline in the value of the real property, the fact that the value of the certificates in the market is so much less than par, and the power of this court in any attempt to reorganize to consider the rights of all lienors and creditors, as seems to be the purpose of the Chapter X of the Bankruptcy Act, convince me that the application now made should be denied, and to require a finding that the original petition was filed in good faith. Certainly, the object of the Chapter is to make a fair and equitable application of the assets of the debtor, which cannot meet its obligations by payment in full as they mature, to an adjustment of its debts. Such an object cannot be attained in the State Court proceeding. It may be here. What plan may be presented cannot now be definitely ascertained. The Chapter contemplates an opportunity on the part of the trustees in reorganization to present one, and certainly does not contemplate a reorganization for the sole benefit of any particular creditor, secured or otherwise. It does not...