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In re Todd BLDG

January 18, 1949


Author: Kerner

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

KERNER, Circuit Judge.

This appeal is from an order entered March 25, 1948, authorizing Heller, receiver for the Todd Building Corporation, to join Heller, trustee in bankruptcy of the Clark Supply Company, in the execution and delivery of a deed for the sale of certain premises to which we shall refer as the Clybourn property, to the Northland Greyhound Lines, Inc. The order further authorized and directed the receiver to execute such further instruments as might be necessary and expedient to carry out the terms of the order of sale and the order of confirmation; directed that the proceeds of the sale be held pending determination of an appeal as to the jurisdiction of the court over the property involved, and that the lien of any valid lien should attach to the proceeds of the sale. The order also overruled the special appearance of J. Schneider and the Mercantile Discount Corporation, filed for the purpose of objecting to the summary jurisdiction of the court over them and the property.

The appeal involved in this case is a companion to and was consolidated for hearing before this court with the appeal in No. 9537. In the Matter of Clark Supply Co., 7 Cir., 172 F.2d 248. We have this day decided that under the circumstances there disclosed, the court did have authority over the property of the Todd Building Corporation which was not a separate entity nor an adverse claimant but was in fact part and parcel of the Clark Supply Company, Inc., the bankrupt in that proceeding. We therefore ruled that the court rightly exercised such authority to order Todd to turn over all property in its possession to Heller, trustee of Clark.

It now appears that pending determination of the issues in the Clark case, the trustee, on August 13, 1947, filed his petition in bankruptcy as a creditor of Todd, and subsequently, on March 8, 1948, filed the verified petition which ultimately resulted in the order from which the appeal here involved was taken. By this latter petition, he asked for a rule to show cause, directed to all known creditors of Todd and all parties claiming a lien on any property of Todd, why the receiver should not be directed to join in the execution of the deed to the Clybourn property consummating a sale to Greyhound, and why a reference to determine the extent and validity of all liens should not be ordered. After the hearing on the rule to show cause, the court rendered findings of fact on which it based the March 25 order.

The findings of the court were based on the proceedings involving both the Clark Company and the Todd Corporation, both before and after the order of October 16, 1947, in the Clark case - from which the appeal in No. 9537 was taken. We omit those findings to which reference has been made in our opinion relating to that appeal.

The court found that on August 13, 1947, Heller, trustee for Clark, filed an involuntary petition for the adjudication in bankruptcy of Todd, and that on September 24 he was appointed receiver of the alleged bankrupt, Todd. Pursuant to the order of the referee of September 12, confirmed by the order of the court of October 16, schedules were filed in the Clark case by the officers of Todd disclosing ownership of the Clybourn property, subject to various liens including an alleged liability to Mercantile Discount Company for $40,000 to secure payment of which a deed had been executed and delivered to J. Schneider who took this deed as security for the liability of Todd to Mercantile; that Schneider had no personal interest in the security; that Mercantile was a Delaware corporation not licensed to do business in Wisconsin; and that there had been no transfer of possession to either Schneider or Mercantile.

Pursuant to the order of September 12, Heller, trustee, took possession of the Clybourn property, advertised it for sale, conducted an auction sale on September 30, subject to the approval of the referee, free and clear of all encumbrances, and reported such sale to the referee on October 6, 1947, pursuant to notice to lien claimants of Todd. This notice provided that, "In the event such sale is confirmed, your Trustee will move that all lien claimants * * * be obliged to file their verified claims against the proceeds of said sale within a time to be designated."

Upon hearing, the trustee reported the sale of the property for $169,500, free and clear of all encumbrances, subject to delivery of a title guaranty policy by March 31, 1948. No one appeared in opposition to the confirmation, and the sale was duly confirmed by order of the referee on October 13, and he therein directed that all lien claimants file their verified claims against the proceeds of the sale by October 27. The notice mailed by the referee to all such claimants, including Schneider and Mercantile, after reciting the facts as to the sale, provided:

"It Is Ordered, that the lien of any valid lien shall attach to the proceeds of said sale.

"It Is Further Ordered, that any person claiming any lien on said funds or interest therein shall file their verified claim * * * or be forever barred from any interest in said funds."

Every known alleged creditor claiming a lien on the Todd premises except Schneider and Mercantile filed claim in the bankruptcy as a creditor of Todd. No answer was ever made by Todd to the involuntary petition in bankruptcy against it. Motions to dismiss that petition were made by it on the ground that the trustee could not be a petitioning creditor in view of the order of the referee of September 12 - then pending before this court on appeal. Both motions were denied without prejudice to renewal in the event the order of September 12, confirmed on October 16 by the court, should ultimately be affirmed by this court.

The court found that the price for which the premises were sold was far in excess of what would be realized from the sale if Greyhound should withdraw from its offer to purchase; that Greyhound had gone into possession upon confirmation of the sale, and that in order to make the premises useful for its needs it would have to expend large sums of money which it was unwilling to do until its title was assured.

The court also found that Todd was insolvent within the meaning of the Bankruptcy Act, 11 U.S.C.A. ยง 1 et seq.; that the court had jurisdiction over the property and that that property was in the possession of the court; that Todd had not provided any supersedeas bond, and irreparable damage might ensue to creditors if the sale were not consummated; that litigation in both cases would prolong the determination of the ultimate ownership of the property involved and that it was therefore his duty to prevent waste, depreciation in value and general harm, and to the interest of creditors that the property be converted into cash as speedily as possible, irrespective of the ultimate disposition of the relative merits of the several controversies described therein; that Schneider and Mercantile were not adverse claimants within the meaning of the Act and had never been in possession of the premises at any time, and that their interests were only those of an alleged mortgagee or lien encumbrancer; that the sale of the premises on the terms described was provident and beneficial to the ...

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