Court Opinion

ID: 3607452
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:52:33.667457+00
Date Added: 2024-06-11T12:05:09.036963
License: Public Domain

I cannot vote for the reversal of the judgment. I think it was both proper and just. It is difficult to imagine an agreement for the reorganization of an insolvent corporation in the interest of its bondholders, which would more completely surrender all individual rights of control and confer wider powers of management upon the bondholders' committee, than does the one in question. Not only did the defendants acquire the whole title to the bonds deposited under the agreement; but they were authorized to construe it and their construction was to be final. They might supply any defect, or omission, deemed necessary to enable them to carry out the general purposes of the agreement. They were empowered to take such steps as they might deem advisable for the formation of a new corporation and for transferring to it all of the assets of the railway company. They were authorized "to use the deposited bonds for the purpose of paying for any assets or franchises purchased." Without going over, again, the extensive discretionary powers vested by the agreement in the defendants, suffice it to say that there was, apparently, nothing they might not do, in the direction of a reorganization of the insolvent concern and they were without responsibility to their constituents for what they did; except, of course, in the case of some fraud practiced, or of "willful misconduct." There is no charge of either. They chose to enter into such an agreement and if the defendants, as representing them in the effort to protect their interests, have not defrauded them of their just share of the fruits of the joint action, it is not easy to perceive how they have injured them. This action is for a breach of the agreement by the defendants and the pertinent questions, in my opinion, are two-fold. In the first place, is the plaintiff *Page 234 
in a position to bring the action and, in the second place, has it been injured by the failure of the defendants to prepare, and to file, a plan for a reorganization before the sale of the property under the pending decree of foreclosure?
Answering the first question, I am of the opinion that the plaintiff could not maintain an action at law; inasmuch as it had not withdrawn its bonds, as the agreement provided for a bondholder doing, if he dissented from the plan, when filed and notice thereof given. There was no express provision that a plan should be filed before the sale was had in the foreclosure action and the plaintiff's bonds remained with the trust company, subject to surrender upon return of the trust certificates and, still, so remain. The fourth article of the agreement provides, with respect to the preparation of the plan of reorganization, that notice "shall be given to the holders of the trust certificates issued and such plan shall become binding upon allthe holders, who do not withdraw herefrom." The fifth article provides for a withdrawal of the bonds deposited by a holder, "within thirty days after the mailing to him of notice of the plan," and "as to every certificate holder who does not withdrawthe bonds represented by his certificate or certificates, hisassent and ratification of the said plan shall be conclusivelyand finally assumed, conferred and given." There is no dispute about the facts that the advertisement of a sale of the road, pursuant to the decree in the pending foreclosure proceeding, was duly published and that it was known to plaintiff; that the sale was publicly had and that a notice of the filing of the plan of reorganization, which was, in fact, adopted subsequently to the sale, was received by plaintiff, through its representative. The failure, or delay, to file the plan did not terminate the agreement, nor annul the authority of the committee, and it was incumbent upon the plaintiff, if disapproving of it, to withdraw its bonds within the time provided and thus to evidence its withdrawal from the plan as inoperative and no longer binding upon it.
But, if we shall assume that there was implied on the part of the defendants an agreement that they would prepare, file *Page 235 
and give notice of a plan for reorganization before a sale was had by the master under the foreclosure judgment, and if we, further, shall assume that the plaintiff, notwithstanding its failure to signify its dissent in the way agreed upon, is not precluded from bringing this action to recover damages for the alleged breach of agreement, then I find myself unable to perceive how it has been injured by the defendants' acts. Every bondholder received an aliquot, or proportionate, share of an ownership in the property, upon which he formerly had a lien. There is no pretense of unfairness in the proceedings for, or upon, the sale. It was advertised and publicly held. The property was offered to the highest bidder; but it was bought in by the committee at the lowest price, which had been fixed by the court's decree, and, then, was held in trust for the bondholders for the purpose, expressly, authorized by the reorganization agreement and eventually executed; namely, for the formation of a new corporation, to which should be transferred all of the assets of the old corporation. There was an express provision of the agreement for making "use of the corporate bonds for the purpose of paying for any assets or franchises purchased." (Article 6 of the agreement.) The agents for the bondholders, acting in perfect good faith and, obviously, solely, in behalf of their principals, the bondholders, protected their interests by acquiring the mortgaged property at the sale and by substituting for the insolvent corporation a new one, released from its embarrassments, which should be, again, a going concern, managed for its former creditors. As it appears, so successful were the results that the valueless bonds of the insolvent company, by the combination of their holders and by their prompt, concerted, action, were transmuted into securities of a new corporation, which have come to have a value, considerably greater than what the property sold for represented. From possessors of a lien upon the insolvent corporation properties, the bondholders became proprietors in a new corporation and what gave value to their holdings was the reorganization, which had been effected. *Page 236 
Is it conceivable that the plaintiff can, justly, claim to have been substantially damaged? If there was a breach of an implied promise to file a plan before a certain time, to wit: the judicial sale of the road, was it injured? Did it act upon it by withdrawing its bonds? Was it treated otherwise than were treated all others similarly situated and have not its committee, the defendants, delivered over to it its proportionate share in an ownership of the property of its insolvent debtor, as duly admeasured as it was possible in the situation of all interests? Were the plaintiff able to recover as for a conversion by the defendants of its bonds, the usual rule for the measurement of damages applicable would be the amount which the property had brought upon the foreclosure sale; for that would represent its value at the time of the theoretical conversion. Under that rule it would have recovered no more than it did. Is it to be permitted, upon the theory of the breach of an implied promise by the defendants to preliminarily file a plan for reorganization, now, to recover of them larger damages, upon opinion evidence of what such a railroad property, situated as it is, is, or should be worth? The evidence, upon which the opinion of Judge VANN presents so pleasing a picture of possibilities, in a fertile country to be developed, in profitable mineral resources to be worked and in terminals to be reached, is conjectural, if not speculative; but if it represents facts entering into an estimate of present, or prospective, value, has not the plaintiff been placed in a position to enjoy the benefit of them? But the value of the railroad property is not the measure of the value of the bonds; for the mortgage had been foreclosed and a sale made of the property. To allow evidence to be given of the value of the reorganized railroad properties, as a measure of the value of the bonds of the insolvent concern, would be, in my judgment, as grossly unfair, as illegal. The defendants should not be punished, for the plaintiff's benefit, by being compelled to pay a value for its bonds, which is estimated upon results due to events, occurring subsequent to the sale.
In my opinion, it is evident that the plaintiff has not been *Page 237 
injured by the omission of duty, which it charges against the defendants, and the allegation of damage rests upon no substantial foundation. They acted in good faith and for the common interest of all whom they represented. The object of the agreement has been attained and the bondholders, who subscribed it, collectively, own the property, upon which they had a lien, with all of the benefits accruing from its operation through an organization, representing their interests.
For these reasons, as for those given below, I think that the judgment should be affirmed.
CULLEN, Ch. J., BARTLETT, HAIGHT and WERNER, JJ., concur with VANN, J.; O'BRIEN, J., concurs with GRAY, J.
Judgment reversed.