The Salt Lake tribune. [volume] (Salt Lake City, Utah) 1890-current, 1913-04-29
DEBTS MUST De PAID
AFTER REORGAN|Z|NC
Supreme Court Hands Down
Far-reaching Decision Re-
garding Corporations.

WASHINGTON. April 2S.-Iu q dcci
sion of momentous Importance. especial.
! Is as To railroads, the supreme court 10.
day laid down the general principle the
creditor OF corporation, not party &c
its reorganization. may hold It's success
sor for its debt.
| In this specific case the court In de-
cision which Justice Lurton. who dis
| sentcd. declared was alarming" held
tho Northern Pacific Railway company
responsible for sI25.oOo Judgment against
the Northern Pacific Railroad company.
which Il succeeded, despite the fact that
the court expressly stated that no moral
wrongdoinS was TO be found In the reor-
ganiEa ton.
Corporation lawyers who heard the de-
cision declared II was a direct blow at
the practice OF reorgan!zing corporations
to get RID Of onerous contracts or escape
payment 20 unsecured creditors.
It's effect. they thought. would be far
reaching.
The principle as laid down by Justice
Lamar was stated IN this language:
Corporations lnsolvent or financially en-
barrassed often find IL necessary to scale
their debts and rendiust stock issues with
an agreement 10 conduct the same busl-
ness with the same property under re-
organization. This may be done In pur-
suance 10 private contract. but not bond
holders and stockholders. and though the
corporation property is thereby trans
,erred 10 new company having the
same shareholders, the transaction would
be binding between the parties.
But. OF course. such n transfer by
stockholders from themselves to them
selves cannot defeat the claim Of a non
asserting creditor. As against him. the
sale IL void In equity. regardless OF the
motive with which IL was made. For,
II such contract reorganization was con-
summated in good faith and In ignorance
OF the existence OF the creditor, yet when
he appeared and established his debt. the
subordinate interest OF the old stockhold-
srs would stiil be subject 10 his claim In
the hands OF the reorganized company.
There Is no difference In principle If the
reorganization. instead OF being efrectu-
ated by private sale, is consummated by
a masters deed and under a consent de-
cree.
The vote stood five TO four. with JUS
ticc White concurring with Justice Bur
tons dissent. The decision Il Is said,
Will affect In some degree many railroad
reorganlza tlons.
s125,0 600 against the Couer d'Alene Rail
way & Navigation company and brought
suit against the Northern Pacific Rail-
road company after Il bought the Couer
Judgment against the railroad company
declared a lien upon property Of its sue
cessor, the Northern Pacific,
when Boyd found the property In the
same hands after the reorga nizatIon as
before. he had n right TO get the prop
erty for the payment OF the debt, even
though there had been a judicial sale"
declared Justice lamar. He held that
although there had been no moral fraud
yet the decree sale OF the property from
the railroad company TO the railway com
creditor. He added this was true, al
though the reorganization occurred years
ago.
Justice Lurton. In dissenting held that
h. afza tIryr,
fer OF the property OF the Northern Pa
cific railroad stockholders 70 themselves
as stockholders Of the Northern Pacific
railway. but was an effort OF the stock
holders 10 save the property in n situa-
ton where the property had gone Into
the hands Of a receiver and where con-
iltions were steadily growing worse.
Therefore. he added. the sale should
stand as valid against any one who years
after the sale came forward 10 attack the
act 10 save the property