of second and third mortgagees, released their liens upon these properties to the Jeffy Holding Co., Inc., and the mortgages given by Twin-Boro Holdings Co., Inc. were cancelled.
The original mortgages of the Saddle River Homesteads, Inc., and River View Lawns, Inc., had never been cancelled although no reason for their existence is apparent after the execution and filing of the "recast" mortgages. Between March and November 1938 the Jeffy Holding Co., Inc., completed the construction of these houses and sold fifteen of the twenty properties to individual customers. The "Association" cancelled the original mortgages executed by Saddle River Homestead, Inc., and River View Lawns, Inc., and Jeffy Holding Co., Inc. took from each of its fifteen customers a purchase money mortgage. The amounts of these mortgages included therein as much of the amount as remained due on the original mortgages (principal and accrued interest) plus whatever had been paid for taxes, improvements and other expenses on the properties, to as great an extent as was permitted by the terms of the sale. Every mortgage but one was in an amount larger than the principal sum of the original mortgage, but in lesser amount than the principal, accrued interest, taxes and expense of completion of construction, etc. The remaining five properties were conveyed on or about December 31, 1938 from Jeffy Holding Co., Inc., to the "Association" "to comply with an order of the Federal Government that all federal savings and loan associations carry real estate upon which they hold mortgages in their own names instead of in the names of subsidiary corporations".
Petitioners, Morris M. Ravin, Esq., attorney for the trustees of the debtor, and L. Stanley Ford, Esq., attorney for the debtor, in behalf of themselves and others similarly situated who might join with them, allege that their allowances are secured by a lien upon the assets of the debtor which lien is subordinate only to liens against the debtor existing at the time of the filing of the petition for reorganization, and that the mortgages now held by the "Association" were not in existence at that time. Hence, they demand priority over the security held by the "Association".
Pursuant to this petition this court has issued an order to show cause in the following terms: "The Ninth Federal Savings and Loan Association of New York City show cause before this court why a writ of sequestration should not issue herein to sequester the mortgages held by the said Ninth Federal Savings and Loan Association of New York City on any real estate formerly belonging to the debtor corporation or its subsidiaries or the Twin-Boro Holdings, Inc., why a sequestrator or receiver should not be appointed to take possession of the said mortgages and collect the interest and principal payments being made thereon by the mortgagors and hold the same for the satisfaction of the liens due to the said L. Stanley Ford and Morris M. Ravin and others similarly situated, why a writ of execution should not be issued to the Marshal of this district directing him to sell the buildings and land upon which they are situated as more particularly described in the schedules annexed to the petition filed herein, and why such other and further relief as this court would deem just and proper, should not be granted."
From a practical standpoint when Twin-Boro Holdings Co., Inc., on March 19, 1938 agreed to give title to Jeffy Holding Co., Inc., the reorganization had come to a complete collapse, and when consideration is given to junior encumbrancers mentioned in the agreement to sell, taxes, interest, and the uncompleted character of the buildings, the inevitable conclusion must be that there was no equity left in the twenty properties in the Twin-Boro Holdings Co., Inc., at the time it made these conveyances. Furthermore, it is apparent that the plan looked to property of the reorganized corporation other than these twenty parcels to produce income to free the claims made on this application. The court is likewise led to the belief that all equities in such other property as the reorganized corporation held have been exhausted by mortgagees existing at the time of reorganization.
Under the plan of reorganization these claimants were to be paid out of funds which would come into the hands of the Twin-Boro Holdings Co., Inc., as a result of its reorganized condition. It anticipated a reconstructed entity that would sell parcels of land owned by it. Upon these funds the plan contemplated that there would be impressed a lien of such a nature that the costs, expenses and allowances of the administration of the reorganized proceedings would be paid. The plan never materialized to such a point that a single sale was made resulting in income to the reorganized corporation that would permit of the attachment of the lien. The plan collapsed and with it the hope for payment for the services of these claimants and others who were allowed fees or reimbursement collapsed as well, because it now appears that no funds became available upon which these allowances could fasten themselves.
The "Association" stood by during the pendency of the reorganization proceedings in this court content with the lien of its twenty mortgages. It cooperated in the recasting of the twenty mortgages in an effort to make the plan of reorganization effective. I am convinced that all of the interested parties to this reorganization plan, principals, attorneys, agents, etc., were fully aware by March 19, 1938 that the plan of reorganization was unworkable and at least knew that Twin-Boro Holdings Company, Inc., was conveying the twenty properties to the "Association" or its dummy, Jeffy Holding Co., Inc.
It will be observed that Mr. Kaufman, president of the debtor and a trustee under a voting trust devised in the plan of reorganization, executed the deed of March 19, 1938 to Jeffy Holding Co., Inc., as president of Twin-Boro Holdings Co., Inc. Mr. Ford, attorney of the debtor, although denying his presence at this transfer, knew that it was being made. Mr. Ravin was continued in association with the reorganized company as one of the trustees to administer other securities under the plan and to collect and distribute the fees and allowances authorized by the order. He must have known of the collapse and surrender by Twin-Boro Holdings Co., Inc., to Jeffy Holding Co., Inc., that the deed of March 19, 1938 implied. No murmur of complaint being made by the petitioners for months after this event had occurred, I am of the opinion that the "Association" had the right to assume that liens or equities in favor of petitioners, if any, had been abandoned and that it would not be looked to for administration expenses, the payment of which had been provided for in accordance with specific directions contained in the order of this court. Indeed, the most that can be charged against the "Association" is that it did not institute formal foreclosure proceedings to eradicate even the color of such liens, but I am convinced that the giving of the deed and subsequent long silence upon the part of the petitioners gave the "Association" the right to assume that it was not expected to do more than it did.
The petition is dismissed and the order to show cause is discharged.
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