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IN RE NEW ERA HOUS. CORP.

February 7, 1940

In re NEW ERA HOUSING CORPORATION


The opinion of the court was delivered by: FORMAN

At the time of the approval of the petition for reorganization February 19, 1937 of the above debtor, New Era Housing Corporation, there existed as material to the problem involved herein twenty mortgages on separate parcels of its realty in favor of the Ninth Federal Savings and Loan Association, hereinafter referred to as the "Association", which had been executed by the subsidiaries of the debtor, River View Lawns, Inc. or Saddle River Homesteads, Inc. New Era Housing Corporation conducted a realty development for residential purposes, and these mortgages covered parcels on which houses were in process of construction.

June 14, 1937 debtor filed its plan of reorganization which provided for the organization of a new company to which the debtor corporation and its two subsidiaries should convey their assets "* * * free and clear of all liens and encumbrances of every nature and description, with the exception of bona fide mortgages on the premises and such taxes as are due to the various municipalities and such liens as are placed or may be placed upon said properties by this plan of reorganization." Part II, § 1.

 With reference to the creditors of the debtor the plan provided as follows: "The claims of said creditors shall be paid by the new company giving to each of said creditors a bond of the new company, payable five years from the date of the confirmation of said plan of reorganization, without interest. The bonds given to the creditors shall be secured by a mortgage in the principal amount of $100,000.00 covering all of the vacant real estate transferred by River View Lawns, Inc. to the new company, and by a mortgage in the principal amount of $25,000.00 covering all of the vacant real estate transferred by Saddle River Homesteads, Inc. to the new company." Part III, § 2.

 Provision is made for release clauses to be contained in the mortgages, that is, releases of various lots shall be executed upon payment of specified sums of money. Following these provisions the plan provides:

 "C. The said mortgages shall be executed and delivered to Trustees to be elected by the creditors and approved by the Court." Part III.

 "D. The proceeds of said mortgages shall be used by said Trustees; first, to the payment of administration expenses as hereinafter provided; second, to the satisfaction of the bonds issued against said mortgages; and third, to the expense of the administration of said trust mortgages." Part III.

 Part VII of the plan entitled "Allowances" reads as follows: "1. The administration expenses and allowances shall be a first lien on all of the property of the new corporation, prior to any mortgages given by the new corporation, but subject, however, to any bona fide mortgage now on the property of the New Era Housing Corporation, and its two subsidiaries, River View Lawns, Inc., and Saddle River Homesteads, Inc., and no payment shall be made to General Creditors until the administration expenses and allowances shall have been first paid in full; it being understood that administration expenses and allowances for services rendered in the 77B proceedings shall be paid upon receipt of and out of the first moneys received from releases on account of the two mortgages above mentioned, provided, however, in the event the new corporation shall be in a position so to do the said payments shall be made sooner."

 An amendment to the plan of reorganization was filed July 26, 1937. It provided in part as follows: "The debtor further undertakes to obtain a recasting of all the mortgages on houses held by the Ninth Federal Savings & Loan Association of New York City, which are at present the property of the said debtor or its subsidiaries and unsold, with a view to putting all the mortgages in good standing." Part VIII, § 2(g).

 The plan was amended was confirmed by order of court dated August 9, 1937. The order contains a paragraph for allowances for services rendered by counsel and others which reads in part as follows: "* * * and the said allowances when made shall be a first lien upon all of the assets of the debtor corporation and of the new corporation to be paid as set forth in the order of the court."

 The order granting the allowances was dated and filed August 23, 1937. Among other allowances fees of $4,000 each were granted to Morris M. Ravin, Esq., attorney for the trustees of the debtor, and L. Stanley Ford, Esq. attorney of the debtor, and the order contains the following, further, pertinent provisions:

 "7. That the said allowances be a lien upon all the assets of the debtor corporation and its subsidiaries and of the new corporation formed to take over the assets of the debtor and its subsidiaries, and the said lien shall be subject only to bona fide mortgages existing on the assets of the debtor corporation and its subsidiaries at the time of the filing of the petition under Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, in these proceedings, and that no disbursements whatsoever are to be made by the debtor corporation or the new corporation, with the exception of the payment of the disbursements and expenses permitted by the order of August 9, 1937, until the allowances above made are paid.

 "8. That the said allowances shall constitute a debt of the new corporation as moneys are received by it from any source whatsoever, and it shall at all times be a priority debt of the said corporation, provided, however, that the new corporation may retain up to 50% of such moneys received by it (exclusive of moneys received under the release clauses in the trust mortgages mentioned in Part III of the plan of reorganization) for the payment of its legitimate running expenses, the balance to be distributed pro rata among those to whom allowances are made herein.

 "9. That the said sums available for allowances shall be paid to Morris M. Ravin and by him distributed pro rata among those to whom allowances are made herein under paragraph 6 above, including himself, and the said Morris M. Ravin is hereby authorized, directed and empowered to execute such releases as may be necessary upon receipt of the said moneys for distribution, the said Morris M. Ravin being under no duty to determine the propriety of the expenditures made by the new corporation or the sufficiency of the amounts given to him for distribution, and he shall be held in no way responsible for the execution of any releases by him or any acts ...


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