The Birmingham age-herald., 1913-04-29
NORTHERN PACIFIC.
IS RESPONSIBLE FOR.
PREDECESSOR DEBT.
Supreme Court Hands Down
MOmentOus Decision as to
Reorganization of the
Corporation

Washington. April 2s.-In a decision OF
momentous Importance. especially as to
railroads, the United States supreme
court laid down the general principle that
to its reorganization may hold its sue
cessor for his debt.
In this specific case the court five to
four in a decision which Justice Lurton,
who dissented, declared was alarming" :"
held the Northern Pacific Railroad COM
gsn' rssncsisilile for a $l2,S00,Oo0 judg
ment against the Northern Pacific Rail-
road company, which it succeeded, de-
spite the fact that the court expressly
stated that no moral wrongdoing was to
be found in the reorganization.
Corporation lawyers who heard the
decision declared it was a direct blow
at the practice of reorganization of COR
porations, to get rid of onerous con-
tracts or escape payment to unsecured
creditors.
Its effect, they thought, would be far
reaching.
The decision was announced by Justice
Lamar In suit brought by Joseph II.
Boyd.
Principle Laid Down
The principle as laid down through JUS
tice Lamar was outlined in this Ian
guage:
Corporations insolvent or financially
embarrassed often find it necessary to
scale their debts and readjust stock is
sues with an agreement to conduct the
same business with the same property
under a reorganization. They may be
done in pursuance to private contract
between bondhoders and stockholders,
and though the corporation property is
thereby transferred to a new company
having the same shareholders, the trans
actions would be binding between the
parties But, of course. such transfer
bv stockholders from themselves to them
selves cannot defeat the claims of a nom
asserting creditor. AS against him, the
sale is void in equity, regardless of the
motive with which 1t was made.
For, if such contract reorganization
was consummated in good faith. and in
Ignorance of the existence of the credi-
tor vet when he appeared and established
bis debt the subordinate interest of the
old stockholders would still be subject
to his claim in the hands of the reor-
in principle If the reorganization instead
of being effectuated by private sale is
consurnmated by a masters deed under
a consent decree
A Mere Transfer
Justice Lurton in dissenting held that
the REORGANIZATION was not a mere trans
fer of the property of the Northern Pa
cifc Railroad company stockholders to
themselves as stockholders of the North
ern Pacific railway, but was an effort
of the stockholders to save the property
in situation where the property had
gone into the HANDS of receiver and
where conditions were steadily growing
worse. He added the sale should stand
as valid against anyone who years after
the sale came forward to attack the act
to save the property. A man named
BOYD originally had a judgment for s125,-
100000 against the Coeur DAleue Rail-
road and Navigation company and
brought a suit against the Northern Pa
cifc Railroad company after it bought
the Couer D'Alene company. He sought
to have his judgment against the rail
road company declared a lien upon the
property of its successor. the Northern
Pacific Railway company
when Boyd found the property in the
same hands he had a right to get pay
ment for the debt, even though there had
been a judicial sale" declared Justice
Lamar. He held that although there
had been no pronounced fraud. yet the
decree of sale was void as to non-co
senting creditors
He added this was true. although re-
organization occurred years ago.