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In re Tracy John Hancock Mut. Life Ins. Co.

November 14, 1935


Appeal from the District Court of the United States for the Southern District of Illinois, Northern Division.

Author: Sparks

Before EVANS, SPARKS, and ALSCHULER, Circuit Judges.

SPARKS, Circuit Judge.

This appeal involves petitions filed by appellee in the District Court under which he sought relief under section 75 of the Bankruptcy Act, as amended, 11 U.S.C.A. § 203. The court approved the debtor's petitions and issued an order against all persons and particularly appellant, restraining them from forfeiting a certain contract theretofore entered into by the parties, and from any further proceedings with respect to such forfeiture, or any attempt to dispossess appellee or his tenants from the real estate involved in the contract. Appellant moved to dissolve the restraining order and to dismiss the petitions on the grounds that the restraining order violated the provisions of the Clayton Act (38 Stat. 730); that the pleaded pertinent facts did not entitle the debtor to the relief demanded against appellant; and that section 75 of the Bankruptcy Act contravened certain provisions of the Federal Constitution. Appellant's motions were overruled and from that ruling this appeal is prosecuted.

Prior to the enactment of section 75 of the Act, the debtor was the owner of a large tract of land in Stark County, Illinois, on which appellant held mortgages for approximately the 1933 value of the land. In the fall of 1931 all of these mortgages were in default. There were also junior liens upon the land. Foreclosure proceedings were instituted in the state court upon all the mortgages and they culminated in decrees of foreclosure and sale. In each case, the properties were bid in by the mortgagee, and the master's certificates of purchase were issued to the respective purchasers. In May, 1933, the year for redemption having expired, and there having been no redemption, the certificates of purchase were surrendered and deeds were issued and delivered to appellant, which were duly recorded.

On September 21, 1933, appellant and appellee entered into a written contract whereby appellant agreed to sell and convey to appellee all the premises in question for $69,000 of which $12,000 was to be paid in various installments, and$57,000 was to be evidenced by a mortgage to be dated and executed March 1, 1939, at which time the deed was to be executed and delivered by appellant to appellee, provided the installments previously due had been paid. The contract further provided that upon the failure of appellee to make any of the payments or any part thereof, or to perform any of the convenants required of him, the contract at the option of appellant should be forfeited and determined, and that appellee should forfeit all payments made by him on the contract, and such payments should be retained by appellant in full satisfaction and liquidation of all damages by it sustained, and that appellant should have the right to re-enter and take possession of the premises. It was further mutually agreed that time should be of essence of the contract. Thereafter, appellee went into possession of the premises under the contract.

According to the terms of the contract the following amounts were to be paid on principal on the following dates: September 21, 1933, $1000; on or before January 1, 1934, $6000; March 1, 1934,$250; September 1, 1934, $250; March 1, 1935, $500, and $500 each six months thereafter until and including March 1, 1939, at which time, if the above required payments had been made, appellant was to deed the property to appellee who, in turn, was then to execute his note for $57,000 secured by a mortgage on the real estate. The total purchase price was to bear five per cent. interest per annum. Appellee made the first two payments of principal when due, amounting to $7000, but on March 1, 1934, he failed to pay the installment of $250 then due, and interest then due of $1100, and taxes for the first half of 1933 in the approximate sum of $308, which appellee had agreed to pay, were then due and unpaid. No further payments of either principal of interest were made by appellee.

On September 10, 1934, appellant served upon appellee a written notice of non-performance by him, and a demand for immediate possession of all the premises. That notice contained the following:

"* * * (appellant) does hereby and herein demand of you immediate possession of the following described real estate situated in the County of Stark and State of Illinois, known and described as follows, to-wit:

"You are further notified by (appellant) that upon your failure to surrender immediate possession of the above and foregoing described real estate that* * * (appellant) will after the expiration of 30 days of the date upon which this demand and notice is served upon you institute an action of forcible entry and detainer in accordance with the statute in such case made and provided.

"You are further notified that this demand and notice is being served upon you by virtue of the fact that you were the purchaser under a certain contract entered into on the 21st day of September, A.D., 1933, whereby and wherein (appellant) covenanted and agreed to make, execute and deliver to you a special warranty deed to the premises hereinabove described upon your compliance with the convenants and conditions to be performed by you and which you have failed to perform."

On October 5, 1934, appellee filed his petition for relief under section 75. The restraining order was thereupon issued without notice or bond and served upon appellant. Before the court denied appellant's motion and continued the restraining order, appellee filed his amended and supplemental petition. The facts stated above, however, contain the material allegations of both petitions and are sufficiently set forth to present the questions raised.

The parties agree, and rightly so, that this is a "controversy" as distinguished from a "proceeding in bankruptcy." It is therefore appealable from the District Court as a matter of right under section 24a of the Bankruptcy Act, as amended by Act May 27, 1926, 11 U.S.C.A. § 47(a), and permission from this court need not be obtained.

We shall first discuss appellant's contention that the admitted facts did not entitle the debtor to the relief demanded against appellant, and that the court erred in ...

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