In re Marquette Manor Bldg. Corporation, 6570.

• Decision Date: 15 July 1938
• Docket Number: No. 6570.,6570.
• Citation: 97 F.2d 733
• Parties: In re MARQUETTE MANOR BLDG. CORPORATION. NATIONAL BUILDERS BANK OF CHICAGO v. BROWN et al.
• Court: U.S. Court of Appeals — Seventh Circuit

97 F.2d 733 (1938)

In re MARQUETTE MANOR BLDG. CORPORATION.

NATIONAL BUILDERS BANK OF CHICAGO v. BROWN et al.

No. 6570.

Circuit Court of Appeals, Seventh Circuit.

June 2, 1938.

Rehearing Denied July 15, 1938.

Arthur J. Hughes, Frank Michels, and C. S. Macaulay, all of Chicago, Ill., for appellant.

Charles W. Mead, Gustav Andreen, Jr., and Harry S. Harned, all of Chicago, Ill. (Edward G. Berglund, of Chicago, Ill., of counsel), for appellees Brown and others.

Michael Gesas and Edward G. Berglund, both of Chicago, Ill., for appellees Becker and Smith.

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

MAJOR, Circuit Judge.

This is an appeal from an order entered December 6, 1937, by the court below reducing the claim of the Bondholders' Committee filed in the corporate reorganization proceedings of the debtor, from $135,900 to $74,300. The court decreed that bonds aggregating $61,600, included in the Committee's claim, be subordinated in lien, which accounts for the reduction in the allowed claim. The master to whom the matter was referred made a report recommending such reduction. Exceptions were filed to such report, which were overruled by the court and the report approved. The appeal is taken from this order.

On October 4, 1932, Terrill Bond and Mortgage Company (hereinafter referred to as Terrill), executed its collateral note in the amount of $25,000 to appellant and pledged various securities, including bonds of the debtor here in controversy. This note was renewed from time to time, with some changes in the amount and character of the collateral until March 1, 1934, when the last note, maturing March 30, 1934, was given. By the terms of the pledge, appellant was authorized to sell said collateral, without notice at public or private sale in case of non-payment of the loan at maturity. Appellant claims it had an agreement with Terrill that upon the sale of the collateral, appellant might become the purchaser thereof. The debtor, of course, was not a party to such agreement and neither was the bondholders' committee. In March of 1933, appellant was advised that the bonds pledged with it were in default and a foreclosure suit had been instituted in the State Court.

On March 31, 1933, a bondholders' committee was organized consisting of S. N. Becker, Chairman, Roy J. Smith and Myron D. Goldberg. Edward G. Berglund was designated as Counsel to the committee, and appellant as depositary. Goldberg was appellant's cashier and appears to have had the controlling voice in the affairs of the committee. As a member of the committee, he was in a position to and did become familiar with the value of, the proceeds from, and the expenses incurred in connection with the various properties, securing the collateral which appellant held for the Terrill note, and especially the property of the debtor securing the bonds in question.

At the time of the organization of the committee, appellant held, as collateral security for the Terrill note, bonds of debtor in the sum of $61,600, together with various other bonds and securities. On May 6, 1933, appellant deposited with the committee the said bonds of the debtor held by it as collateral and on June 19, 1933, a certificate of deposit was issued to Terrill, assigned to and retained by appellant.

On June 11, 1935, after numerous conferences among the officials of appellant, including Goldberg, appellant gave public notice that it would sell all of the collateral held by it as security for the note on June 14, 1935, at 10:00 in the forenoon at the Clark Street entrance of the County Building in the City of Chicago. The public notice consisted only of the posting of three notices in the City of Chicago. The attorney for the bondholders' committee was given two days' notice by telephone, but neither of the other two members of the committee, nor the bondholders, were given any notice. Goldberg, as cashier of appellant, was authorized on its behalf to bid at such sale $5,000 for such collateral security, and, if necessary, in order to purchase the same, to bid as high as $25,000. No other bidders appeared at the sale and Goldberg, on behalf of appellant, purchased the collateral for the initial bid of $5,000. The collateral thus purchased by appellant consisted of bonds of the par value of $61,600 of the debtor (those in controversy); bonds of the par value of $29,600 of Paulina Mansions; bonds of the par value of $49,800 of Marquette-Chateau Building; notes signed by various churches in the aggregate amount of approximately $125,000, and a judgment against the American Hospital in the sum of $20,020.57.

The master found that appellant received payment in full of its note from the collateral purchased at such sale, not including the subordinated bonds in question, and we think this finding is supported by substantial evidence. While we find no direct finding as to the exact amount due upon appellant's note at the time of the sale, yet the master does find that on March 30, 1934, which was the date of its maturity, there was an unpaid balance on said note of $22,662 and the amount due on June 4, 1935 is readily ascertainable by adding interest for such period to the amount found to be due and unpaid. While an officer of appellant testified that the collateral was not worth more than the amount of the bid, yet the records of appellant disclose that within fifteen days after the sale the collateral was set up on the books of appellant at a "total true value or actual worth of $92,551.62." It was also shown that shortly thereafter an agreement was...