Court Opinion

ID: 6849973
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:34:39.273061+00
Date Added: 2024-06-11T16:05:03.140441
License: Public Domain

GEIGER, District Judge
(dissenting).
Thatcher et al. v. Chicago Railways Co. et al. (D. C.) was decided March 22, 1924, the trial court holding in substance that, under the plan of reorganizing street railways—the one now before this court—“the fact that there was a largei surplus did not make the payment of such dividends mandatory, but merely gave certificate holders priority in the matter of dividends, and in the absence of bad faith or abuse of discretion the court could not substitute its judgment for that of the directors, finance committee, and stockholders.” 297 F. 466.
This court, on reviewing such decision (and it is now suggested that its determination upon review has become either res adjudicata or so persuasive -as to necessitate binding respect), significantly, so it seems to me, left open for consideration the very contention now, though perhaps for the first time, made on behalf of appellants. Nothing, in my judgment, makes this clearer than the later utterances of this court, when dealing with a petition for a mandamus to compel the trial court to permit intervention in the present law suit. For, notwithstanding all that had been said in elaborate briefs and extended judicial opinions in the litigation referred to in the majority opinion, this court, addressing itself to litigation which dealt—likewise for the first time—with the rights of all of the varied interests, after default and termination of the period for which the plan was devised, that is to say, with their rights on liquidation, said:
“These certificate holders are in decidedly unique situation. In an action wherein the question was directly involved, it was decided by the Supreme Court of Illinois that they were not stockholders, and were not entitled to the statutory and constitutional rights and privileges of Illinois corporation stockholders. Babcock v. Chicago Railways Co., 325 Ill. 16, 155 N. E. 773. But, while they are not stockholders, and there is no contractual provision for their ever becoming stockholders, they are collectively the holders of the entire ultimate beneficial interest in all of the stock, whereof the depositaries, who are not parties to the suits, hold only the bare legal title. These depositaries, during the 20 years since their creation, have elected the directors of the corporation, who likewise have no beneficial interest in the stock. Y7hile it is true this relation is contractual, duly assented to by all the certificate holders upon the exchange of their original stock holdings, these successive steps, and this distance between the beneficial owners and the directors, is such that in our judgment the usual relationship between directors of a corporation and its stockholders who choose them cannot, to the same degree, be here invoked to require the conclusion that these ultimate beneficial owners are, in fact, so directly and definitely represented by the directors as in the ease of • stockholders generally. The very relation thus suggests the advisability of permitting such an intervention as may tend to give assurance that in the litigation nothing of special interest to this peculiar class will be omitted or overlooked.” In re Babcock, 26 F.(2d) 153, 156.
This was said by the court constituted as it was when delivering the judgment in the Thatcher Case (C. C. A.) 4 F.(2d) 63, 66, supra; and it is worthwhile to recur to what was said in the latter ease respecting what “the plan said to the railways company,” viz.: “By a certificate to be issued by you under a participation agreement between you and them, secure to them [the present participation certificate holders] : (a) All your right to whatever may hereafter be received under any liquidation of the Railway Company’s assets; (b) all dividends upon your stock.”
This was said argumentatively in negation of the proposition that the plan prescribed, mandatorily and without the possibility of intervening discretion,, “dividends.” And it is of interest that the court reached its conclusion upon the question, unanimously, the dissenting opinion being directed merely to the conceived necessity of having a majority of the certificate holders join in the proceeding *951—apparently, because the agreement so provided.
The majority opinion now filed herein makes this observation upon the identical general theme.
“3. The status of the certificate holders is not exactly that of a stockholder. Babcock v. C. Ry. Co., 325 Ill. 16, 155 N. E. 773; In re Babcock (C. C. A.) 26 F.(2d) 153. In some respects they occupied the positions of cestuis que trust, and the trustees were the individuals to whom all of the stock ($100,000) was issued when the company was organized and who under the plan remained the sole stockholders during the existence of the company. These stockholders may in a sense be called trustees for the certificate holders, but with equal propriety they could be called trastees for the city of Chicago, its citizens, the users of the street ears, and also those who advanced money to the railways company.
“The unique practice of issuing all the stock to three individuals, who in turn issued thousands of certificates to the holders of the four different series, suggests that such certificate holders occupied an unusual position. It does not, however, as counsel for appellants argue, justify the conclusion that the framers of the plan intended to give to the certificate holders a status higher than that of the stockholders. It is to the stockholders that the certificate holders trace their title. How then may we ascribe to a certificate holder a higher position than the stockholder? As between the certificate holder and the mortgagee, such doubt, as might otherwise exist, is removed because the various instruments constituting the plan expressly provide that the lien of the certificate holders be subservient to the lien of the mortgagee (Ordinance, section 20), and the lien of the mortgage covers the earnings of the railways company.
“4. It was within the power of the railways company to provide that all earnings, after the payment of certain sums to retire bonds and to pay interest and fixed charges, might be subject to the first,lien of certificate holders.”
Such opinion, after noting that the appellants as representatives of certificate holders are “free from laches in asserting their claims to the undistributed net earnings which have accumulated since 1907,” proceeds: “Under the law of Illinois, except in instances not here involved, the lien of a mortgagee does not extend to the earnings and income of a mortgagor until legal proceedings are taken (usually by foreclosure and the appointment of a receiver), even though the mortgage covers the property and the earnings and income thereof”—citing
In re Wakey (C. C. A.) 50 F.(2d) 869; 75 A. L. R. 1521 (italics supplied) and:
“In the absence of an express provision, binding upon creditors, giving the stockholders a lien upon the net income and earnings of a corporation, such stockholders are not entitled, as a matter of right, to the distribution of net earnings through dividends. Undistributed net earnings reinvested by the company’s officers in the company’s property covered by a mortgage are subject to the lien of the mortgage.”
The opinion then proceeds to estimate the Thatcher Case as involving the question whether a certificate holder was entitled under the plan “to an annual distribution of the net earnings as a matter of absolute right,” and the conclusion is in the negative. And thereupon it is proposed to consider the question (without regard to res adjudicata or the great weight of that decision) “from the somewhat different angle of the individual counsel,” etc.
Reference is made to the “decisive” terms of the first mortgage, their consistency with the “whole plan” to rebuild to the point of metropolitan adequacy a street car system; the prevision respecting “World War” possibilities; the wise endowment of power in a finance committee and its prudent exercise. However, the opinion proceeds: “But it by no means follows [apparently, notwithstanding the ‘decisive’ terms of the mortgage] that, because the certificate holders were not entitled to a decree compelling distribution of earnings through dividends, they are not entitled to some protection (payments in cash or lien on the property) to the extent of such undistributed earnings now that the property is to be divided among the security holders.” (Italics supplied.)
Again: “In reaching this conclusion, we have accepted the legal proposition that it was within the power of the corporation to create two classes of security holders, giving one a first lien upon the property and the other a first lien upon the income. Our inquiry has necessarily been directed to an investigation of the facts to ascertain whether the corporation, which had the power to thus protect each security holder, did in fact give to the certificate holder a first lien upon all the net earnings. In reaching the conclusion here announced, we have been influenced by the fact that the certificate holders’ claims are derived through the common stock of the company; that each document expressly *952recognized the first lien of the mortgages upon the property; and it would require clear and express language (here absent) to create a lien in favor of stockholders (or of others whose rights are derived from stock) to a first or any other lien upon undistributed earnings of the corporation.”
Disregarding for the moment any and all language of the “settlement” law and ordinances, or the agreements or any documents which may be seized upon as indicative of rank or priority of rights of any parties interested, it is perfectly clear that) in 1907-08—and that is the period when the parties spoke, and as of which the court is now called upon to determine what they then said, or (in equity) intended to say or to home each other believe—the situation, in which they found themselves, undeniably, was dominated by these considerations:
(1) The franchises of the then street car companies had expired.
(2) The companies, treating the situation as a traction entity, from either a capital or creditor standpoint were grossly insolvent.
(3) The physical properties were wholly deficient in upkeep and physical adequacy; and large amounts of capital were required for rehabilitation and extension purposes.
(4) New franchises had to be obtained.
(5) Municipal acquisition and ownership had to be provided for.
(6) The parties to the old situation had to be satisfied—in some way.
And with respect to the last three considerations, this court in the Thatcher Case, supra, observed: “Under the compelling lash of the city’s refusal to grant any ordinance until all interests were satisfied, a plan accompanied by an agreement (called contract) was submitted and accepted, an ordinance expiring February 1, 1927, was granted, and a reorganization effected.”
No reference need be made to the legislation or to the agreements and documents to establish that in any reorganization some sort of a corporation was assumed to be the necessary, and, in a practical way, the only, functionary to be selected for holding and operating these street ear properties. But the plan adopted, in its every aspect, impressively exhibits a purpose to effectively proscribe the liberty of such corporation, if it may be so termed, in holding and operating the properties, in its financial structure, and, most of all, in dealing with the avails of operation. That is to say:
(1) A comprehensive and detailed plan for translating old liens against specific property into liens against the property in the-new company’s hands; and to acquire and give security for capital to carry out contemplated and necessary rehabilitation and extensions.
(2) A comprehensive and detailed plan, for the application of gross earnings to operating expenses, upkeep, sinking funds, interest, and thereby defined any remnant as-net earnings; and apparently to limit the-application of both gross and net earnings.
If the solicitude manifested by this court in awarding mandamus to enable appellants to present their case is still to be felt, so that “nothing of special interest to this peculiar class will be omitted or overlooked” [In re Babcock, 26 F.(2d) 153, 156], there arises at the very threshold of the ease the query,. What, in a broad way, was the intent of the-various parties in respect of a plan to satisfy the demands then probably made by them respectively? In attempting to answer, the order of consideration should not, preliminarily, involve picking out of documents the-verb “shall” giving it mandatory foree, only to be offset by disclosing the presence of the verb “may” in some other document, thereby to establish discretion, -and thus assert the-subordination of both “certificate” holders- and “stockholders.” That course, pursued byappellees, and in the majority opinion, in my judgment reflects obedience merely to an established and quite convenient circle. Therefore, if we start with the six considerations (and there probably are additional ones)as dominating the situation in 1907, and, for-the present, consider the two outstanding features above noted, we discern not only that in the latter (the provisions for liens, and the-provision for earnings) are found, conclusively, the dominant intent, but more importantly, that, in order to effectuate such inherent intent, in some way, the general liberty off an ordinary corporation with respect to earnings of necessity had to be, and clearly was intended to be, curtailed. Stating it somewhat negatively, what was the intent in carefully and comprehensively setting out and allotting all earnings if it was not to make them, available and thereby to bring their promise to fruition ? I -am not concerned now whether language of any document, in form guaranteed dividends, or whether the language-granted an absolute right or imposed an absolute duty of annual or other stated declaration! and payment; nor whether, as the majority' *953opinion seems to conceive, as the test, a “first lien” or like conventional incumbrance was aroused by clear or express or in fact any language in documents constituting a part of the plan; nor whether the plan, though perfectly clear in its general intent and purpose respecting earnings, yet lodged a discretion exercisable consistently with the general intent, and, without impairment, as between parties of the agreed status and applicability of such earnings. But, as indicated, in equity the basic concern is the initial intent and purpose; and it is confidently asserted: That such intent is shown by the particular provisions expressly segregating earnings as a whole, then separating and allocating and giving them rank or priority, as between all parties. And here it is necessary to bear in mind the oft-repeated assertion found in the litigation which has persisted, including the present majority view, that appellant certificate holders are not stockholders, but that they have a purely contractual status. And surely, in order to meet the contention now made on the latter’s behalf, the court cannot ignore or disparage the like concession heretofore so freely made that the plan, in truth, comprehended not only the concurrence of all parties, but that it consists largely of inducive .offers by adversary interests to each other, which, when concurred in, were expected and intended to be binding. If, in pursuing this thought, we paraphrase the observation found in the Thatcher Case, i. e., what “the plan said to the company” to the query “What did the plan say to the certificate holders?” an apt response, in substance, is offered by appellants, viz. that it did not intend to say, and did not say, “You will be entitled to and will get these earnings, if you get them.” And obviously, if appellants and the other security holders in the reorganization situation be regarded as having dealt severally and at arm’s length with a corporation which, both in form and substance, is to be regarded merely as an ordinary corporation with full liberty or option in the future to function, freed from any real or even apparent obligation of the plan, a premise has been selected which dictates the conclusion. In that event language found in one of the documents, quoted in the majority opinion: “Among other things, said Consolidated Mortgage embodies provisions limiting the application of the net earnings of the Railways Company toi dividends on its stock and thereby the distribution of such dividends to and among the holders of Participation Certificates issued hereunder,” may be ignored promptly on the ground that the intent thereby reflected respecting disposition of earnings (not whether it is an agreement to declare dividends) was not shared by any one except those who took the certificates. Likewise, the express language [quoted with italic emphasis in the Thatcher Case (C. C. A.) 4 F.(2d) 63, 64, 65] respecting the allocation of earnings, may all be brushed aside, even though in that case it is dealt with as reflecting the purpose of the plan in this very particular. In other words, in attempting to discern the intent of the plan with respect to the status of these certificate holders, at this time, either the Thatcher Case has no bearing whatever on the present question or, on elementary principles, this court could not have awarded mandamus to let them into this lawsuit. If this court had accepted then, as is now urged, the clear countervailing effect of a provision respecting priority of mortgages, or had ascribed to a finance committee the power, not to diseretionally determine time of application of earnings, but their status, on liquidation, mandamus could never have been awarded.
Without attempt at further elaboration, the conclusion is again stated that the parties to the plan clearly disclosed an intent that the earnings coming to the corporation be made the subject of definite allocation; that that intent to be effectuated was and is in clear derogation of the ordinary discretion which corporate managers of an ordinary corporation have over earnings; and, proceeding from this point, it may well be conceded that the plan evidencing such intent may not be, or have been, “self-executing”; or that it did not give rights or remedies for its enforcement which were absolute, assertable at fixed or other periods, whenever it could be demonstrated merely that earnings had come into existence, and that the certificate holders would like to get them.
If therefore we recognize the general intent and purpose thus to deal with earnings, and that, presumptively at least, the parties must have mutually intended that at some time, in some way, the intent was to be effectuated or carried out, then that in this lawsuit for the first time affords opportunity to effectuate such intent. The majority opinion in my judgment falls very far short of meeting the tendered issue by proceeding to inquire respecting the presence of “clear language” compelling declaration of dividends; or language exhibiting a “first lien” 'or the like against these earnings; and, though apparently fully cognizant of the almost conclusive evidence of the intent we have been discussing, it attempts to avoid the conclusion *954•which, is strongly impelled by setting up what seem to be real incongruities if not paradoxes.
It unreservedly adopts the view that these certificate holders “were not stockholders”; and it probably intends to recognize their “decidedly unique” situation. Yet, when called to answer the question: “If not stockholders, what are they?” notwithstanding the clear declarations of prior adjudications that they have a contractual status—and that should mean contractual relationship to these earnings,—the opinion rather mildly ventures merely that “In some respects they,” these certificate holders, “occupied the positions of eestuis que trust,” that their “unusual” position arose merely out of “the unique practice of issuing all the stock to three individuals, who in turn issued thousands of certificates to the holders of the four different series.” Plainly, the “beneficial interest” of these holders was not in mere certificate» of stock whose .“bare legal title” was held by others; nor should they be regarded as eestuis of a trust which comprehended no more than stock certificates ; or that their contractual status was and is limited to an agreement to deposit ordinary stock unrelated to the antecedent and concurring acts, representations, and stipulations made, which show the comprehensiveness of a real trust, a trust much larger and dominant than an ordinary, impersonal corporation not bound to respect what the parties had agreed to—a plan.
Nothing is gained,'in answering the question propounded by the certificate holders, by asserting that they derived their title from, or must trace it “to the stockholders”; for the whole inquiry is whether the whole plan was not of necessity unusual or unique. No one has thus far claimed that the reorganization plan was of a conventional type, or that the certificate holders had a unique position merely because they did not become holders of conventional engraved stock certificates.
If a court of equity can say “these certificate holders are not stockholders but we will measure their rights and liabilities solely with a stockholding yardstick,” it is pursuing an evasive course, and in an arbitrary manner avoids the conclusion impelled, justly, by the premise that the rights rest in a contract manifesting an intent which, as heretofore suggested, was expected to be realized. Surely it is rather late to urge that the Supreme’ Court of Illinois and this court, in the eases, intended to say that these certificate holders were cestuis of stock in trust, that therefore they were stockholders in substance but not in form, wherefore no remedy was available, and that their contractual status did not create any rights other than such unenforceable rights as stockholders may ordinarily have—mere expectancies, realization of which may come quite fortuitously. I can find neither justification for, nor aid to support or to refute any contention in this ease, in first reiterating a denial of a stockholding status, and then in effect saying that the certificate holders are m substance stockholders or their eestuis, nor by introducing the suggestion that there could have been no intent that such certificate holders have a status “higher” than ordinary stockholders. Characterizing the scale of the certificate holders as higher, lower than, or equal .to, “stockholders,” is of no avail in answering the question whether the plan, which in detail deals with earnings, allots them, and declares their “applicability” to be thus limited, reflects an intention that that should be done. The majority opinion, until it seems to answer that question by invoking the terms of the mortgage and the power of the finance committee, as hereinafter noted, apparently is unwilling to answer the question in the negative, but, cautiously observes that “it by no means follows” “that because the certificate holders were not entitled to a deeree compelling distribution of earnings through dividends, they are not entitled to some protection (payments in cash or lien on the property) to the extent of such undistributed earnings, now that the property is to be '¿Divided' among the security holders.” So the opinion, first declaring that certificate holders are not stockholders, next suggests that, in a sense, they may be eestuis, but not to have ascribed to them a “higher” status than stockholders, yet may be entitled to some protection—now that the hour of liquidation has arrived. I am impressed with the purpose of the majority to concede that apparently these certificate holders have a relationship to these undistributed earnings, and it must arise out of the plan, regardless of their being legal or equitable, or any sort of stockholders. In other words, the plan exhibits such contemplated relationship as is a disclosure of rights, yet, so the opinion now intimates, the unique or nondescript character of these certificates does not lead to the conclusion that their rights are not susceptible of recognition and enforcement, or, as it is stated, “are not entitled to some protection.” But merely denying a stockholding status to the certificate holders, or ascribing to them a position as eestuis, or even characterizing them as equitable stockholders, is far from defining their rights in either capacity, or, above all, eliminating the plan, as the intend*955ed measure of their rights. Nothing is gained by asserting their “title” traceable to stockholders or that' they are in a derivative relation. That merely renews the inquiries: What if any rights was it intended to give them? Were they or were they not stockholders? Were there to be any reed stockholders? Were there to be any real dividends in the sense of earnings which in character, amount, time of distribution, were within the discretionary range of an ordinary corporation or its officers, freed wholly from the dictates or behest of the agreed plan ? In other words, was there a real corporation? Or was the whole machinery for holding, managing, and dealing with the avails of operation of these street ear properties a device to carry out the adopted plan, and subservient to its stipulations? No answer, save that offered by appellant certificate holders, has been suggested to this question, which reasonably accounts for the adoption of the plan. No one has as yet suggested that the plan, in defining gross and net earnings, in allotting them to operating expenses, to interest, to sinking fund, to the city, was not, and was not intended to be, mandatory. And no one, nor the majority opinion, has ventured to say that the provisions “limiting a balance of net earnings to making payments” were or were intended-to be merely advisory or precatory. True, these provisions in limiting the applications of earnings specify “dividends” on its, the corporation’s, “stock,” but that limitation most forcefully shows the purpose to limit power otherwise exercisable over earnings; and, so it seems to me, inescapably deals with the whole corporate machinery as a device for assuring these earnings to the certificate holders. And these questions significantly arise long before we get to a consideration of the verbs “shall” or “may,” or to general, and, as the majority opinion demonstrates, ineffectual, terms of mortgages covering physical properties.
My interpretation of the majority view leads me to reduce it to these terms: These certificate holders are not stockholders; they may in a sense be cestui que trust stockholders; the plan allots earnings to them; but stockholders are not entitled to compel declarations of dividends; these earnings would first have to be converted into dividends; therefore the certificate holders have no rights so long as such conversion has not taken place. The result is that the plan fails, even on liquidation, if it appears that the “stockholders” who were set up without interest failed to get dividends, and, so the reasoning is, they failed to get them because they were not entitled to them; and they were not entitled to them because the corporation, not the plan, failed to agree to give them. Hence, as previously intimated, the plan, though clear, not only never became effective, but the accomplishment of its objectives must have come about, not only fortuitously, but in the manner in which they would normally be accomplished without any plan. The majority being unable to reach a conclusion negativing the participating certificate holders’ rights solely on the ground that they were not stockholders but in a sense cestuis, nor on the ground that in the plan there was no intent that they should participate, proceeds to find a ground for overriding such intent, by the terms of mortgages. But therein, it is believed a most palpable incongruity is introduced, thus: First, reference is made to the provision, an ordinary provision in mortgages, declaring its rank or priority; secondly, to a provision including “earnings” as mortgaged subject-matter. Thereupon the opinion proceeds to demonstrate, successfully, the futility of such a provision to create a lien. If it be so agreed, and it is, then plainly the right of a mortgagee to such earnings; after default and upon seizure (by foreclossure of the mortgaged subject matter), is cognizable, not as absolute, but, in equity, as an incident to possession of property; quite regardless of printed terms of a mortgage or anything else except the power to determine where, equitably, they should go. Thereupon the opinion, arbitrarily so it seems, adopts the view that such provision evidences an intent that the moifgagee should get the past earnings, whereas it is wholly ineffective to establish right — therefore it likewise evidences an intent that the certificate holders should not get them. Now, if it is the purpose to establish — taking a most favorable view for the mortgagee — that the ease, on liquidation, as to these undistributed earnings discloses two conflicting intents, the one that these earnings were to go as the plan allotted them, the other that they go to the mortgagee, by virtue-of the intent to be'imputed to the clause of the mortgage, it is believed slight analysis will avoid and not sustain the majority conclusion. First of all the query arises, in view of the futility of such mortgage clause over undistributed past earnings, what intent can be ascribed to it or imputed, by virtue of it to the parties f Plainly,, no intent whatsoever except that to be found in its legal effectiveness, whieh, as demonstrated, is limited to earnings accruing upon seizure. But, when the'larger and dominat*956ing intent is now not only discerned but made effective against a clear conflicting intent, the conclusion is really that these earnings were always mortgaged, even those mandatorily dealt with in the plan for sinking fund, interest, and the like; and that this elaborate and detailed plan was legally ineffective except through the grace of the mortgagee; and the majority view in substance is that these earnings, though not effectually subject to the mortgage clause, prior to default, should now be regarded mortgaged in intent, and dominatingly so, notwithstanding the plan. Thereby the clause is given the very effect first denied to it. In my judgment, this is purely arbitrary, and ignores every element of the situation demanding endeavor to give effect to the intent so clearly manifested on behalf of the certificate holders in their relation to these earnings.
If, by way of test and further elaboration—we put the query—how, judging from the language used, was it intended that the plan should 'work, in its lifetime in respect of distribution of earnings? As has already been queried, during such lifetime, did the managers of the corporation conceive that they had the ordinary, quite untrammeled discretion to deal with earnings, or that they conceived themselves under the mandates of the plan? I am mindful of provisos lodging power to withhold or suspend the intended application of earnings on the score of “exigency,” or “financial heeds,” but nothing could more forcefully reflect the basie intent normally to be effectuated respecting the limitations for use and distribution. There has been no complaint here that, in the operation of the plan, mortgaged earnings were diverted, to the prejudice of the mortgagee; or that, except as these certificate holders now appeal, there has been anything but obedience, not to the graeiousness of the mortgagee, but to what is acknowledged to be the plan. The declared intended status and the specifically limited applicability of these earnings (except as now denied to the certificate holders) in all other respects has always been recognized and obeyed, not, as just indicated, upon accidental discretion, but by virtue of the plan.
It is my feeling that before these earnings can he denied to the appellants there should be a rational and fair answer to the questions, asked as of 1907-08, Why adopt any plan which, on its face, and if it is to be obeyed, so severely curtails the liberty of an ordinary corporation? Why adopt any such plan, if it created no' rights of which a court of equity could take cognizance and bring within its power of enforcement? As has been indicated, an answer is not to be found in a search for liens or incumbrances upon or against these earnings, but rather in purpose and intent respecting their status, whereupon, in equity, the matter of right is determinable. It is but repetition to point out that, unless the situation, initially, be discerned to embody a plan to deal with the status of earnings, which in view of the limitations of the Illinois law alone could never have been made the subject of lawful and true “dividends,” or unless the plan, regardless of the convertibility of “earnings” into “dividends,” be respected as the means agreed upon to satisfy the parties mutually, and with the expectation that its terms created rights cognizable at some time when earnings were susceptible of distribution according to the agreed limitations, particularly on liquidation, or untes because of limitations of the plan upon corporation and its powers, the whole plan was in truth a device resorted to, then the question propounded by these certificate holders respecting any excuse for the plan must remain unanswered, particularly in the light of any purpose to provide a plan “just and fair.” To now say that the mortgage, and the additional element next to be alluded to, upon arm’s length bargaining, placed everything in subordination to its terms, seems a rather chilly response to an appeal in equity.
The majority finally suggests that the creation of a finance committee, endowing it with certain powers, is supportive of what has already been characterized, as the “decisive” effect of the mortgages in denial of the certificate holders’ claim to these earnings. The plain answer to this is: Certainly this committee was a functionary, if at all, bound to respect the plan; it was not at liberty either to define, allocate, or distribute earnings, gross or net, in derogation of such plan; by this is meant that such were not its general powers; and no one has claimed, on its behalf, that it had or was intended to have the power to supersede or override the plan in its purpose to declare the status and applicability of earnings, if and when they came into existence. Consistently with the Thatcher Case, such committee was not charged with obligation for absolute or stated distribution. But that again recognizes the declared basic status and applicability of the earnings, at some time, agreeably to the plan. To award to the committee, or other officers, unlimited discretion respecting time or circumstance of distribution, is far short of lodging power to *957deny, either by net or failure to act, the declared status. And in my judgment the matter is not at all relevant to the question now before the court, viz., Where should these undistributed earnings now go ? In other words, the court should not say, they should go to the mortgagee, because that is where the mortgage intended they should go and because the finance committee did not act.
It is my view that, when the parties initially expressed an intent dominating these earnings, then by conferring limited power upon a committee, or even the corporation, to defer or suspend their intended application, they did not contemplate that an exercise or failure to exercise such power must bring denial of intended applicability of such earnings, for all time. I feel that the judgment in this ease should he reversed to the end-that these certificate holders may receive equitable cognizance of their rights. Whether that shall he in a form of a decree for money, or, in whole or in part, ratably or preferentially through bonds redeemed by the use of earnings, is not open for discussion so long as the conclusion of the majority stands.