Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; Philip L. Sullivan, Judge.
Before EVANS, SPARKS, and MAJOR, Circuit Judges.
Kedzie Block Corporation was reorganized under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. On consummation of the adopted plan a final decree was entered by the District Judge on October 10, 1940, which discharged the trustee, made certain injunctive provisions, and closed the estate. 11 U.S.C.A. § 628.
On May 14, 1942, by leave of that court, Benjamin B. Morris filed his petition for an order amending the final decree by striking therefrom paragraph 14 and parts of paragraph 12, which with other related events, will be set forth in chronological order. By order of court, Vera Carroso answered the petition, and no other answer was filed. The issues raised were referred to a special master who, after a hearing, recommended a denial of the petition. The court confirmed the master's report, dismissed the petition, and assessed the costs of reference to Morris. From that decree this appeal is prosecuted.
The facts out of which this controversy arose are as follows: During the years 1927 and 1928 Vera Carroso and her husband George, now deceased, owned and held title to the real estate here involved, upon which they constructed an apartment building. In constructing this building they expended $100,000, and on November 12, 1927, borrowed an additional $100,000 to complete it. On the same date, in order to secure the $100,000 which they borrowed, they gave a trust deed for this property to Heitman Trust Company, as trustee. That instrument was recorded on November 21, 1927. This loan of $100,000 was evidenced by bonds signed by Vera and George Carroso, bearing 6% interest per annum, payable semi-annually on May 12 and November 12 of each year. Appellant became the owner of a number of them.
During the years 1930 and 1931, and subsequent years, rents in the building became greatly depreciated, and it was necessary to apply the rents to the payment of interest on the bonds, and in addition thereto Mr. and Mrs. Carroso borrowed from their personal friends large sums of money to meet the payments of interest.
On February 20, 1935, Morris obtained a judgment in the Municipal Court of Chicago, on the bonds which he owned, against Vera and George Carroso, for $4,283 and costs, and execution thereon was issued on February 25, 1935.Thereafter in 1939, the real estate including the apartment building, known as the Kedzie Block, was conveyed by the Carrosos to a corporation, known as "Kedzie Block Corporation," organized by those of their personal friends from whom they had borrowed money, as referred to above, and on March 16, 1939, a proceeding for the reorganization of that corporation was filed in the District Court under Chapter X of the Federal Bankruptcy Act, by the Heitman Trust Company as the indenture trustee.
Prior to this time, however, that trustee had filed a proceeding in the Superior Court of Cook County, Illinois, for the foreclosure of the trust deed which had formerly been executed as security for the bonds therein described. That proceeding was referred to a master who reported, and a decree of foreclosure and sale was entered in conformity with the master's report.
In the reorganization proceeding, the District Court appointed Arthur P. Murphy as trustee for the debtor corporation, and on December 15, 1939, he presented to the court a plan of reorganization for the approval of the creditors and stockholders. On February 2, 1940, at a meeting of the creditors and stockholders, the trustee's plan for reorganization was approved. Whether appellant favored or objected to such approval the record is silent.
On September 9, 1940, the bankruptcy trustee and the indenture trustee, by their attorneys, served notice upon all the attorneys of record that they would appear before the District Court on September 10, 1940, for the entry of an order directing the distribution of the securities and providing for the consummation of the plan of reorganization. That decree was entered, and it further provided that the hearing should be continued to October 10, 1940, for the entry of the final decree, or for a report of progress. No further notice was served upon the parties or their attorneys of record as to the entry of the final decree. After the entry of the other of September 10, 1940, a copy of it was sent to every attorney of record, including appellant.
The plan, among other things, provided that a new corporation should be authorized to issue 10,500 shares of common stock of the par value of $10 per share. It provided for the distribution of this common stock in the following manner:
"(a) First Mortgage Bondholders to receive one share of stock for each Ten Dollars of principal amount of bonds and accrued interest thereon, or the aggregate amount of 9,945 shares.
"There is now due to the holders of first mortgage bonds the sum of $76,500.00 in principal amount, together with accrued interest thereon, and for said mortgage bonds, together with all accrued interest, there ...