#### COPPELL V. HOLLINS et al.

(Supreme Court, General Term, First Department.

December 18, 1895.)

1. Committee op Second Mortgagees—Purchase under First Mortgage— Accounting.

Pending foreclosure of first and second mortgages on a railroad, defendants, holders of the second mortgage bonds, made an agreement appointing plaintiffs a committee with authority to purchase the mortgaged property; the committee to use the bonds of defendants, so far as necessary, for purposes of making the purchase, with authority to create a new corporation in the event of their purchasing the property; the committee to distribute the securities of the new corporation, and the expenses and liabilities incurred by the committee to be a charge on defendant’s second mortgage bonds, and the proceeds thereof, or of any sale of the mortgaged premises. *Held,*that plaintiffs having been obliged, in order to make a loan with which to complete the purchase under the first mortgage, to pledge all the second mortgage bonds, and guaranty the lender against loss, and having been obliged to make advances necessary for organization of a new corporation, and having been unable to dispose of the securities of the new corporation issued to them, and there having, for purposes of paying off the loan, been a sale of all the pledged second mortgage bonds, and the securities issued by the new corporation to plaintiffs, and these having all been purchased by plaintiffs, who, as against defendants, claim only a lien thereon, it is not necessary that plaintiffs, before bringing an action for an accounting, deliver to defendants the new securities.

3. Same—Proceedings by Part of the Committee.

That two of the three members of a committee appointed by second mortgage bondholders to buy the mortgaged railroad and form a new corporation acted without notice to the third member cannot be complained of by the bondholders, who, after the appointing of the committee, agreed that this might be done.

3. Agreement—Construction.

An agreement by second mortgage bondholders appointing a committee to purchase the mortgaged property and form a new corporation, the committee to use the bonds, so far as necessary, for purposes of "the purchase; the bondholders to “deposit the bonds * * * with the Holland Trust Company, * * * to be delivered to the committee on request,”—does not restrict the committee to such trust company as the source of a loan.

Appeal from special term, New York county.

Action by George Coppell and David Dunham Withers against Frank C. Hollins and others for an accounting. Plaintiff Withers died pending the action, and it was continued in the name of plaintiff Coppell as survivor. From a judgment entered on confirmation of the referee’s report in favor of plaintiff, and from an order confirming said report and overruling exceptions taken thereto, defendants appeal.

Affirmed.

Argued before VAN BRUNT, P. J., and FOLLETT and PARKER, JJ.

James W. Hawes, for appellants.

W. G. Choate, for respondent.

PARKER, J.

The plaintiffs, who, together with Frank 0. Hollins, were constituted members of a committee of the first mortgage consolidated bondholders of the St. Louis & Chicago Railway Company, by virtue of an agreement executed by the bondholders, in*501stituted this suit for the purpose of obtaining a judicial settlement of their accounts as members of such committee; the sale of the securities in their hands, or subject to their control, as such committee; and the application of the proceeds—First, to the reimbursement of the plaintiffs; and, secondly, to the distribution of the surplus among the parties entitled thereto. The bondholders’ agreement, under which the plaintiffs and Hollins were appointed a reorganization committee, was executed by the holders of the bonds of the first consolidated mortgage on the property of the St. Louis & Chicago Railway Company. Upon the properties of the company there were two prior mortgages, under the first of which there were outstanding $500,000 of bonds, and under the second it was claimed there were outstanding bonds' of a like amount. Of the first mortgage consolidated gold bonds, the company authorized the issue of $4,500,000. The first bonds, numbering from 1 to 1,000, inclusive, and of the face value of $1,000,000, were reserved to take up the outstanding bonds under the first and second mortgages. The holders of the second mortgage bonds surrendered their bonds and accepted in exchange therefor the bonds issued under the first consolidated mortgage. Default having been made in the payment of interest of both the first mortgage bonds and the first consolidated mortgage bonds, suits were brought by the trustees under each of said mortgages for their foreclosure. While the affairs of the company were in this situation, steps were taken by certain of the holders of the bonds of the first consolidated mortgage, looking to the protection of their interests; but before any agreement was- reached, a decree of foreclosure and sale was entered in the suit brought to foreclose the first mortgage, and the property advertised thereunder to be sold on the 4th day of September, 1889. Prior to the day of sale, however, and about the 21st of August, 1889, an agreement in writing was entered into by certain holders of the consolidated bonds, of which $1,1.00,000 were outstanding, by which the plaintiffs and Hollins were appointed a committee to carry out the plan provided for in the agreement. Under the second clause, the committee were authorized to purchase the mortgaged premises at any sale under the provisions referred to in the agreement. The price which they were authorized to pay was limited to a sum not exceeding the amount due upon the mortgage bonds and coupons secured by the first and first consolidated mortgages, respectively, and interest unpaid, together with all liens, receiver’s indebtedness, taxes, or claims which shall be determined by the court to be prior in interest to said bonds and coupons, and interest upon such sum, and the costs and expenses of the foreclosures, including the expenses of the committee. To enable them to make this purchase, it was agreed that the bonds of the subscribers to the agreement should be placed at the disposal of the committee, who were authorized to use the same, so far as necessary, for the purpose of purchasing the property. The third clause authorized the creation of a new corporation in the event of a purchase of the property by the committee; the fourth clause provided for the distribution of the securities of such new corporation; and the fifth clause, referring to the matter of ex*502penses incurred and to be incurred by the committee, provided “that such expenses and liabilities shall be a charge upon the bonds and coupons to be deposited as hereinbefore provided, and upon the proceeds thereof, or of any sale of the mortgaged premises.” The committee at once procured a postponement of the sale for the purpose of obtaining the time necessary to provide for the payment for the property in the event of its purchase by the committee. Shortly thereafter, Hollins informed his associates that he had made such arrangements as would enable them to purchase the property; that his firm would take $200,000 of the new securities, the Holland Trust Company, $200,000, and Mr. Selligman, $50,000. Acting upon this understanding, the committee bid in the property on the sale under the first mortgage for the price of $570,000, and paid thereon 10 per cent, of the purchase price, which sum was obtained through the Holland Trust Company. There was an extension of the rail- - road property, however, which was not covered by the first mortgage, but was by the first consolidated mortgage; and, in order to secure title to that piece of property, judgment was taken in the action to foreclose the first consolidated mortgage, and the property sold thereunder for the sum of $50,000. The deed was given to George Coppell, the chairman of the committee.

In the meantime a corporation had been organized, called the St. Louis & .Illinois Central Railroad Company, to take the property purchased. Articles were filed in October and November, 1889, but nothing further was done to complete this organization, as some difficulty had in the meantime arisen between Hollins and his associates on the committee, due in part, possibly, to the fact that the articles last filed contained the names of directors suggested by Mr. Hollins, and whom it was presumed he could control. However that may be, it appears that, at the meeting of the committee held on the 21st of November, Hollins declined to state, when requested by the chairman, how he was getting on with his financial plan, and refused to deposit with the committee his correspondence with Mr. Selligman relating to his alleged agreement to take $50,000 of the bonds. A little later, Hollins' stated that he was prepared to take only $100,000 of the new bonds, instead of $200,000, and for these he proposed to give old first mortgage bonds. The efforts of the committee to induce the Holland Trust Company to advance the amount which Hollins reported that the company would advance proved ineffectual. While affairs were in this condition, and on the 6th of December, a meeting of the bondholders was held, at which it was made to appear to the bondholders that it would be impossible for the plaintiff and the defendant Hollins to act together any further; and it resulted in a proposition by a special committee of the bondholders, which was thereafter acted upon. And it was to this effect: That, while the defendant Hollins should not resign from the reorganization committee, he should not attend any further meetings, and should abide by whatever the counsel for the committee should approve.

The time for the payment of the balance of the purchase price under the foreclosure of the first mortgage had in the meantime been *503extended to January 6, 1890; but, the counsel for the trustees having refused to grant any further extension, the plaintiffs renewed their efforts to obtain the money necessary to complete the purchase. There is some dispute as to the character of their negotiations with the Holland Trust Company, but the trial court has found the fact to be that the Holland Trust Company refused to advance any sum of money until the bonds of the new company should be ready for delivery. It is said that the agreement of the Holland Trust Company was such that a further advance could have been enforced, but this was not a practical question, as there was then remaining but little over a week within which to procure the money necessary to complete the purchase and obtain title to the property. A resort to legal proceedings was therefore impracticable, could it be assumed that they would result favorably to the committee. In view of this situation, it was suggested that an arrangement might be made with some other trust company, to which the Holland Trust Company assented, and subsequently an arrangement was made with the Central Trust Company. But, in order to procure the loan from the Central Trust Company, the plaintiffs were obliged to pledge all of the bonds which had been deposited with them, advance all moneys in excess of $500,000 which might be needed for reorganization purposes, and personally guaranty the trust company against loss on their advance of $500,000. With the funds thus obtained from the Central Trust Company, supplemented by the moneys of these plaintiffs, they were enabled to pay the sum which the Holland Trust Company had advanced, together with the balance of the purchase nymey, and such expenses as were incurred in the work of reorganization. After this sale under the decree foreclosing the first consolidated mortgage, a new corporation, called the North & South Railroad Company of Illinois, was organized, through the action of the plaintiffs, and the property which had been purchased under the several foreclosures was conveyed to the new corporation, at which time these securities which were provided for by the reorganization agreement were created, and issued by such company to the plaintiffs. The plaintiffs found it impossible to dispose of the new securities, and at different times they sent out circulars to the bondholders, notifying them to participate in the plans which were suggested for relieving the situation, which the plaintiffs found quite embarrassing. But nothing resulted from these efforts. When November came, the Central Trust Company informed the plaintiffs that repayment of their advances must be made on or before the 1st of December. Of this fact, notice was given to the bondholders on the 15th of November, and a plan was suggested by the plaintiffs for the taking of the new securities by the bondholders on such terms as would accomplish the result. An answer was requested by the 25th of November, but none was received. Thereupon the trust company gave formal notice to the plaintiffs of the sale of the securities on the 10th of December. Notices of sale were at once mailed to each of the bondholders by the chairman of the committee, but no action was taken thereon by the bondholders, and on the day appointed for the sale all of the securities which had been pledged, including the first con*504solidated mortgage bonds which had been deposited, and the new securities which had been issued to the committee, were bought in by the plaintiff Withers and the firm of Maitland, Phelps & Co., of which the plaintiff Coppell was a member. At the time of the commencement of this action, all of such securities were in the possession, or subject to the control, of the plaintiffs. They make no other claim to these securities than that they are subject to a lien for the moneys advanced by them, or upon their credit, on behalf of the bondholders. And such claim is not unreasonable, provided, of course, the plaintiffs acted in good faith, and used such reasonable and ordinary care and caution as prudent men usually observe in the conduct of affairs of such character. It was apparently feared by some one connected with the reorganization agreement that a situation might grow out of it in which it would be claimed that a mistake had been made by the committee; that some other action would" have been wiser, or that the securities could have been disposed of on better terms if the committee had proceeded along different lines. The re: suit was a provision in the agreement that the members of the committee should not be personally liable for any mistake of law or fact. This provision will not be further adverted to, for, as we view it, the plaintiffs are not called upon to invoke its aid in support of the judgment which has been rendered.

The charge preferred against these plaintiffs of acting in bad faith seems to have very trifling support. It consists mainly in the fact that there were dissensions between the plaintiffs and Hollins, but for which it is suggested that the plan of financiering which had already been adopted would have proved successful. For these dissensions the defendants, among whom are Frank C. Hollins, would hold the plaintiffs responsible. It is assumed that the proper inference of fact to be drawn from the whole transaction is that the plaintiffs refused to act further with Hollins, because Hollins had so planned it that the articles of incorporation should contain only the names of directors friendly to him, and presumably under his control. If such an inference of fact should be drawn, it would not, when considered in connection with the other facts, support a finding of bad faith. It is quite evident that the plaintiffs were justified in asking to be relieved from the trust if Hollins was longer to continue actively with them. Down to that time, he had accomplished but little in the direction of substantial benefit to the committee; but he had accomplished, much towards the scheme which he apparently had in mind, of controlling the management of the corporation after the committee had done its work. At the very outset, he seemed to have cultivated the appearance of being the active and forceful member of the committee, so far as financiering the reorganization was concerned. And this cultivation of appearances was, in a measure, temporarily successful, because it enabled him to have named in the articles of association the persons whom he desired as directors. But it was only a partial success, for this act indicated to his associates on the committee that he had schemes in view other than those embraced within the agreement; that while working with his associates, nominally,o he was attempting to secure some permanent or *505supposed advantage, without their knowledge. The very fact of this outside intrigue, in which he did not give his associates his confidence, was sufficient to justify them in hesitating to further act with him. But had it been the fact that the conduct of Hollins was not such as to justify the refusal of these plaintiffs to have further personal dealings with him, it would not materially help out the charge of bad faith. There is nothing in that fact, standing-alone, which would justify an inference that the dissension was occasioned by a desire on the part of the plaintiffs to wrong the bondholders whom they represented, or that such dissension was due to a desbe on their part to profit in any way out of the enterprise, while, on the other hand, every act of these plaintiffs, so far as we can see, indicated a desire on their part to faithfully perform the trust committed to them. Nor does it appear, we think, that the dissensions between the plaintiffs and Hollins have been the cause of the failure to work out the scheme of reorganization which the parties to the agreement contemplated. When the time came for action, Hollins was not prepared to take the number of bonds which he said in the first place he would take, nor was Selligman willing to take his bonds; and the Holland Trust Company did not take the bonds which Hollins said it would take. How much of real foundation there was to Hollins’ early boast that he had provided for $450,000 of the purchase price under the first mortgage, it is difficult to say. Its results, whatever the cause, were trifling. The failure to negotiate enough of the securities with which to pay the purchase price was not encouraging, but nevertheless the committee, by pledging their own credit, as well as the bonds intrusted to them, together with the securities of the new corporation, obtained the necessary money to complete the purchase. And when this had been accomplished they had done everything which they were called upon to do under the agreement, except the negotiation of such of the securities a.s were necessary to pay for the property and defray the expenses of the committee, and the distribution of the rest of the stock among the bondholders who were parties to the agreement. The failure to sell the securities does not seem to have been the fault of the plaintiffs. There was no market for them. No one could be found who would invest in them. Not even the bondholders, who are defendants here, were willing to take them, if such taking involved the payment of the purchase price of the property and the expenses of the committee. The trial_ judge found at special term that the plaintiffs were not guilty of fraud, and that they acted throughout in good faith, and in that finding we concur.

We come now to the other questions presented by the appellants. The first is that the action was prematurely brought; the ground being that, as the delivery of the new securities to the old bondholders has not yet taken place, the trust is not terminated. If this position be a sound one, then the present indications are that such an action can never be brought. The securities cannot be delivered to the old bondholders until the committee shall have been paid for the property which they transferred to the new corporation, and upon the faith of which its securities were issued. And the action of the *506bondholders in the past certainly affords no assurance of a movement in that direction in the future. This statement indicates what the fact is,-—that the trust was practically terminated. All that the committee could possibly do, until after payment of the indebtedness, had been done. Every plan which they could think of had been suggested to the bondholders, in order to obtain the money necessary for the release of the securities from pledge, and their distribution among the bondholders. But all such suggestions were without results. There was nothing, therefore, to do, to relieve the situation, but bring this suit.

Appellants next say that the plaintiffs should not be repaid the money advanced by them to buy the property for the new corporation out of the securities in their hands or under their control, because, in nearly every one of the steps taken to bring about that result, two of the members acted without notice to the third. That they did act without the third is unquestioned, but these defendants are not in a position to make the objection that the office and duties of a trustee cannot be delegated by one trustee to another, for the bondholders knew, in advance of any action being taken by two members of the committee in the absence of the third, that there was no other way by which the agreement could be carried out. And for that reason the bondholders, at a meeting on the 6th day of December, 1889, at which the defendant Hollins had avowed his inability to provide the means necessary to complete the purchase of the mortgaged premises, appointed a special committee for the purpose of arranging a basis on which these plaintiffs might proceed alone, without the intervention of Hollins. The plan approved was that while Hollins should not participate personally in the action of the committee, he should abide by the action of Mr. A. H. Joline, who had been selected by him as the counsel for the committee. This proposition was accepted by the plaintiffs, and thereafter their action was taken accordingly; and certainly these defendants are not in a position to complain because the plaintiffs subsequently carried out such ai’rangement.

- The objection taken to the substitution of the Central Trust Company for the Holland Trust Company is without force. There is nothing in the agreement expressly or impliedly forbidding it. The only provision relating to it is contained in the second clause, and provides that the bondholders shall “deposit the bonds and coupons held by us, respectively, with the Holland Trust Company, at its office, No. 7 Wall St., New York City, "to be delivered to the-committee upon request, taking therefor its negotiable receipts; and at the same time we deposit, to the order of the committee, five dollars for each bond so deposited.” While the Holland Trust Company was made the depository of the bonds, and the five dollars required to be deposited with each bond, it was required to make delivery thereof to the committee, on request. The plan upon which the committee were to proceed was marked out in the agreement, but in no wise were they restricted as to the source from which to obtain such moneys as they should be called upon to borrow or raise in order to carry out the plan. No opportunity exists to charge that the *507change was capriciously made, or that the bondholders have suffered thereby. Whatever differences exist between the committee and their counsel and the officers of the Holland Trust Company as to the precise nature of the conversations between them, there is no pretense that the Holland Trust Company was willing to take the bonds that it is claimed to have promised to take. Nor is it the fact that it was willing to advance the money necessary to pay the balance of the purchase money. And, at the time of the change from the Holland to the Central Trust, there remained only about a week of time within which to complete the purchase, and assume the first step in the plan of the bondholders and the committee. The change was therefore a matter of necessity.

There are several other technical objections, but they seem to us not to merit discussion. As we view the situation presented by this record, the plaintiffs, in good faith, did everything within their power to effectuate the plan of the committee. They did far more than they were called upon to do by the agreement, to protect the bondholders, by advancing their own moneys and pledging their personal credit to secure moneys for the purposes of the agreement, which they could not procure upon the faith of the securities which the bondholders intrusted to them. And the judgment awards to them no greater protection than is their due.

The judgment should be affirmed, with costs. All concur.