In re Sacramento Real Estate Corp.
| Decision Date | 08 October 1996 |
| Docket Number | 96 B 3992,Bankruptcy No. 96 A 00394,96 B 4120 and 96 B 4121. |
| Parties | In re SACRAMENTO REAL ESTATE CORPORATION, Sacramento Crushing Corporation, Sacramento Corporation, Debtors. SACRAMENTO REAL ESTATE CORPORATION, Sacramento Crushing Corporation, and Sacramento Corporation, Plaintiffs, v. FIRST CHICAGO BANK, RAVENSWOOD, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
COPYRIGHT MATERIAL OMITTED
Harold L. Moskowitz, Chicago, IL, for Plaintiffs/Debtors.
William L. Kabaker, Donald F. Engel, Schwartz & Freeman, Chicago, IL, for Defendant First National Bank of Chicago/Ravenswood.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This Adversary proceeding1 relates to bankruptcy proceedings filed by Sacramento Corporation ("Sacramento") and its subsidiaries, Sacramento Crushing and Sacramento Real Estate Corporation ("Debtors" or the "Sacramento entities") under Chapter 11 of the Bankruptcy Code (the "Code"), 11 U.S.C. § 101 et seq. The three bankruptcy proceedings have been substantively consolidated.
Sacramento Corporation holds all issued corporate stock of both Sacramento Crushing and Sacramento Real Estate. At the time of trial, Sacramento Crushing was in the business of recycling of construction waste. Sacramento Real Estate is in the business of owning and leasing the real estate upon which Sacramento Crushing operates. The defendant, First National Bank of Chicago as successor to First Chicago Bank/Ravenswood ("FNB" or the "Bank") is Sacramento's primary lender, secured by the real property and improvements where the operations take place.
Debtors have filed this Adversary Complaint seeking declaration that a refund received from Cook County following tax litigation relating to real estate owned by Sacramento Real Estate (the "Refund") belongs to Debtors, not the Bank. Trial was held, and the Court now makes and enters Findings of Fact and Conclusions of Law, pursuant to which judgment will separately enter for the Plaintiff-Debtors.
1. Sacramento Crushing Corporation ("Crushing"), an affiliate of Sacramento Real Estate Corporation ("Real Estate"), was at the time of trial in the business of operating a facility to recycle construction waste. Real Estate is in the business of owning and leasing of the real estate upon which Crushing operates. Real Estate is the sole beneficiary of National Boulevard Bank of Chicago Trust No. 8368, dated October 23, 1986 (the "Trust"). The Trust owns a certain parcel of real estate commonly known as 445 North Sacramento Avenue, Chicago, Illinois, which real estate consists of approximately 11 acres (the "Property").
2. On February 16, 1996, Real Estate filed its voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code.
3. On February 20, 1996, Crushing filed a voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code.
4. Debtors remain in control of their assets as debtors-in-possession pursuant to §§ 1107 and 1108 of the Bankruptcy Code. No trustee has been appointed.
5. First National Bank of Chicago ("FNB"), an Illinois banking corporation, is the successor corporation to the First Chicago Bank of Ravenswood f/k/a Bank of Ravenswood, an Illinois banking association.
6. On or about October 24, 1986, the Debtors and their parent company, Sacramento Corporation ("Sacramento"), purchased all assets of Schreiber Material & Cartage Co., an Illinois corporation then in bankruptcy (the "Purchase"), from FNB pursuant to an Asset Purchase Agreement of that same date.
7. In order to fund the purchase, the Debtors, Sacramento, and John Gotta ("Gotta"), Sacramento's majority shareholder and President, executed and delivered the following promissory notes (the "Notes") to FNB:
a. A promissory note dated October 24, 1986, in the original principal amount of $1,418,000;
b. A promissory note dated October 24, 1986, in the original principal amount of $801,000;
c. A promissory note dated October 24, 1986, in the original principal amount of $721,000 (the "Advance Note"); and
d. A promissory note dated October 24, 1986, in the original principal amount of $250,000 (the "L of C Note").
8. To secure the obligations of Debtors to FNB (which as of October 24, 1986, totaled $3,190,000), Debtors executed and delivered a Security Agreement (the "Security Agreement"), dated October 24, 1986, in favor of FNB. In addition, Real Estate executed and delivered a mortgage on its major asset, which was the real estate commonly known as 445 North Sacramento Boulevard, Chicago, Illinois (the "Mortgage").
9. Pursuant to the terms of the Security Agreement, Sacramento granted FNB a continuing lien and security interest in the following personal property:
10. Debtors did not pay real estate taxes due and owing on the Property to the Cook County Collector for certain years. This resulted in the Cook County Collector's Office listing those real estate taxes for sale at its scheduled tax sale.
11. On March 20, 1992, the Cook County Collector sold the Property's 1987, 1989, and 1990 real estate taxes to Cambridge Investment Group ("Cambridge") and State Title, Inc. ("STI"), at the penalty rate of 18% every six months, the highest penalty rate permitted by law. (The tax parcels sold to STI were subsequently redeemed without contest and are not involved in the present dispute.)
On or about December 28, 1992, Crushing entered into an agreement with Cambridge pursuant to which Cambridge agreed to extend the time in which redemption of the tax liens sold to it could be made to December 1, 1993 (the "Redemption Agreement"). Neither the Debtors, JDG, Inc., nor John Gotta redeemed the real estate taxes pursuant to the Redemption Agreement with Cambridge.
12. Sacramento hired Robert Dempsey to represent it in redeeming the taxes and for all other related matters, including Cambridge's petition for tax deed. All of Dempsey's bills were sent to and paid by Sacramento.
13. Sacramento sought new monies from FNB to fund the redemption of taxes. At that point, FNB could have advanced such monies under its original mortgage. The Mortgage (wherein Boulevard National Bank, as Trustee, is identified as the "First Party"), provided in Paragraph 4 that the First Party "shall pay before any penalty attaches" all real estate taxes applicable to the Property. Paragraph 14 of the Mortgage also provided that the Mortgagee may, but was not required to, pay any tax lien affecting the Property. Paragraph 14 of the Mortgage further provided that any monies paid by the Mortgagee for the purposes authorized by Paragraph 14 and all expenses paid or incurred in connection therewith, including attorneys' fees and other monies advanced by the Mortgagee to protect the Property and the Mortgagee's lien would constitute so much additional indebtedness secured by the Mortgagee.
14. However, FNB elected not to proceed by new advancement under the old Mortgage. On or about November 13, 1993, FNB granted Sacramento a new line of credit which was evidenced by the execution and delivery of a promissory note to FNB in the original principal amount of $625,000, the proceeds of which were to be used by Sacramento to redeem the unpaid real estate taxes. This line of credit was a new note and not an advance under any other or prior FNB/Sacramento loan document.
15. On or about November 30, 1993, the new loan amount was then credited to Sacramento's checking account, and cashier's checks totaling $662,539.66 on Sacramento's behalf were issued out of that account in favor of David Orr, the Cook County Clerk. On those checks, the listed remitter was Sacramento.
16. The total amount due to redeem all the real estate taxes that had been sold was found to be in excess of the new line of credit established in November of 1993, and additional authorization was needed to approve additional advance to Sacramento.
17. In order to pay the amounts needed to redeem from tax sales to STI and Cambridge, Sacramento was granted a larger line of credit by FNB, which was evidenced by the execution and delivery of a Demand Promissory Note dated February 11, 1994, in the original principal amount of $750,000, which loan amount was increased to the amount of $840,000 on or about March 15, 1994, pursuant to the terms of a new promissory note (the "New Note").
18. Terms of the New Note that covered the final total of the new loans provided that interest accrued and was to be payable monthly at 1% over prime, and the Note was fully due in 90 days. Some interest was actually paid to FNB by Sacramento under the Redemption Note.
19. The New Note was renewed on June 15, 1994, and every 90 days thereafter until December 15, 1995.
20. All loan proceeds of the new loan were deposited into Sacramento's checking account. Cashier's checks were then issued out of that account payable to the Cook County Clerk, and the Debtors' checking account was then debited by the check amounts. These are the funds that were used to redeem from tax sales to STI ( No. 11) and Cambridge ( No. 17).
21. From the foregoing new loans, on or about February 2, 1994, some of the tax parcels sold to Cambridge were redeemed under protest by payment of $406,851.98 to the Cook County Collector, and on March 18, 1994, the remaining tax...
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