Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; John P. Barnes, Judge.
Before EVANS, TREANOR, and KERNER, Circuit Judges.
Through this appeal appellant challenges the legal capacity of appellees to institute proceedings in bankruptcy under Chapter X, § 101 et seq., of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. The District Court approved the petition as proper and filed in good faith.
The debtor's estate consists of a building located at 5800 West Lake Street, Chicago, with 27 apartments, and a substantial amount of furniture and furnishings.
In July, 1927, the owners, Pinc and wife, floated an $87,500 bond issue. One F was named trustee in this mortgage. The outstanding bonds on the property now total $72,500. The trustee F was succeeded by one Grant and later by appellant Tudor, who was appointed January 17, 1935.
The mortgage was foreclosed and a decree was entered July 5, 1934. Subsequent to the entry of this decree, more than two-thirds of the bondholders signified a desire to remove Tudor; and Bradtke, one of the appellees, was nominated in his stated as a successor indenture trustee. This was on November 28, 1938. Tudor, here challenges the legality of this appointment or nomination on the ground that the provisions of this trust indenture were not effective after the entry of the foreclosure decree. No sale of the property pursuant to this decree was had. Tudor was appointed tax receiver and manager for the County Collector, of the property in question under an Illinois act known as the Skarda Act, Smith-Hurd Stats. Ill. c. 120, § 238a et seq.
Bradtke executed a trust agreement on October, 4, 1938, dated December 1, 1934, wherein he expressly acknowledged that he held title to the equity for the benefit of the bondholders.
On December 1, 1934, while Grant was the trustee, a contract was entered into between him and the equity owners whereby the equity and certain personal property were to be quitclaimed to the appellee Bradtke on the payment by the indenture trustee, in installments, of $1700 and the release of the grantors from liability for deficiency judgments. The purpose of this arrangement for the separation of mortgage and equity interests, was apparently to prevent a merger of interests which might make intervening liens superior to the mortgage lien.
Bradtke instituted the instant proceedings in his capacity as a trustee under this last aforedescribed agreement. He alleged the value of the property to be $75,000 and liabilities in excess of $100,000 (the bonded indebtedness on which no interest had been paid since July 28, 1931, was $83,955; the unpaid taxes to 1937 exceeded $20,000). Tudor's account in the state court for the period from January 17, 1935, to November 30, 1937, showed $34,080 income, and disbursements $31,902, including 5% commission to himself.
A consolidated bondholders' committee formed December 4, 1934, was granted leave by the court to intervene in these proceedings, and they asked the court to approve Bradtke's petition as filed in good faith and to have Tudor removed. They also asked that a receiver be appointed. Tudor answered. He also questioned the court's jurisdiction. On November 30, 1938 (two days after recordation of his appointment as successor indenture trustee), Bradtke filed an intervening petition as successor indenture trustee and urged all matters set forth in his original petition.
Tudor's title to the position from which the bondholders have sought to remove him, is based on his appointment by the court. He also argues that the trust deed was merged in the decree of sale, and Article 12 of the deed of trust, having to do with the power of two-thirds of the bondholders to remove the indenture trustee, became ineffective and inoperative. Article 12 reads:
"Any such trustee or successor in trust may also be removed by an instrument in writing signed by the holders of not less than two-thrids in amount of the bonds hereby secured and then outstanding, and recorded in the office of the Register of Deeds of the County in which the premises are situated."
The District Court, on December 13, 1938, approved Bradtke's two petitions and the consolidated committee's petition as having been filed in good faith and appointed Martin, trustee in bankruptcy, directed the substitution of Bradtke as successor trustee to Tudor and ordered ...