a new corporation, and that the assets have been transferred to it as if by sale and purchase.3 The national bank succeeds to the assets of the state bank by operation of law and not as a purchaser. It follows from this view of the act of Congress that when a state bank is reorganized as a national banking association, it becomes, as a national bank, the owner of all the assets of the state bank, including choses in action.5 The national bank succeeds to and is entitled to enforce all contracts and rights of action which have been made with or accrued to the state bank. stance there is no actual transfer from one body to another, but a cont nuation of the same body, under a changed jurisdiction. As between it and those who have contracted with it, it retains its identity, notwithstanding its acceptance of the privlege of organizing under the National Banking Act." City Nat. Bank of Poughkeepsie v. Phelps, 97 N. Y. 44, 49 Am. Rep. 513. In a Missouri case it was said, speaking of a change of a state bank to a national bank: "It thus passed from one jurisdiction to another; but its identity was not thereby necessarily destroyed. It remained substantially the same institution under another name. The transition did not disturb the relation of either the stockholders or officers of the corporation, nor did it enlarge or dimin ish the assets of the institution. These all remained the same under the na tional as they were under the state organization. The bank neither lost any of its assets nor escaped any of its liabilities by the change. The change was a transition, and not a new creation." Coffey v. National Bank, 46 Mo. 140, 2 Am. Rep. 488. Where a state bank converts itself into a national bank, it places itself beyond state control and ceases to exist as a state corporation, but it does not thereby escape liabilities incurred by it during its continuance as a state bank. State v. Farmers' It may maintain an Nat. Bank of Cushing, 47 Okla. 667, 150 Pac. 212. Assets belonging to the state bank which a national bank is prohibited by statute from holding nevertheless Jass to the national bank on such reorganization. Scofield v. State Nat. Bank, 9 Neb. 316, 31 Am. Rep. 412, 2 N. W. 888. 3 Western Reserve Bank v. McIntire, 40 Ohio St. 528. 4 People's Nat. Bank V. Board Com'rs Kingfisher Co. (Okla.), 103 Pac. 682, aff'd 24 Okla. 145, 104 Pac. 55. 5 Grocers' Nat. Bank v. Clark, 48 Barb. (N. Y.) 26; Western Reserve Bank v. McIntire, 40 Ohio St. 528. When a state bank, after paying to its president money falsely represented by him to have been paid to an agent to whom the bank was indebted, was reorganized into a national bank, it was held that the national bank, after a suit against it by the agent, and recovery of a judgment, could maintain an action against the president in its own name for money had and received under a statute allowing the assignee of a chose in action to sue in his own name. Atlantic Nat. Bank v. Harris, 118 Mass. 147. Michigan Ins. Bank v. Eldred, 143 U. S. 293, 36 L. Ed. 162; City Nat. Bank of Poughkeepsie v. Phelps, 97 N. Y. 44, 49 Am. Rep. 513; Grocers' Nat. Bank v. Clark, 48 Barb. (N. Y.) action on a continuing guaranty for loans, held by the state bank before the change, for loans both before and after the change. And it may maintain an action to foreclose a mortgage on real estate executed to the state bank as security for a loan made upon a note, and assigned to it by the state bank on the reorganization, or, it would seem, without any assignment, the identity of the corporation not being affected by the reorganization. On the other hand, as a national bank it is liable for all the debts contracted, on all executory contracts made, and for all torts committed by it as a state bank.10 It is liable, as a national bank, to the holders of outstanding circulation issued by it as a state bank in accordance with state laws.11 It is liable for a reward offered by it as a state bank for the apprehension and conviction of one who had robbed it.12 And it is liable in an action of trover to recover the value of a special deposit made with it as a state bank and converted, whether the conversion was before or after its reorganization as a national bank.13 But a national bank is not liable to the state in which it is organized for a bonus exacted by the state, for its franchises and privileges, from the state bank from which it was reorganized, since, as a national bank, it does not derive its franchises and privileges from the state.14 There is no such reorganization where a bank, instead of reorganizing as a national bank, proceeds, upon the closing of its business, to liquidate its indebtedness, and the facts that its assets and business are subsequently acquired by a national bank does not per se operate. to charge the latter, as its successor, under the provisions of the national banking law.15 § 4872. Liabilities of shareholders. Stockholders in the state. bank become stockholders in the reorganized national bank, and as 26; Western Reserve Bank v. Melntire, 40 Ohio St. 528. 7 City Nat. Bank of Poughkeepsie v. Phelps, 97 N. Y. 44, 49 Am. Rep. 513. 8 Scofield v. State Nat. Bank of Lincoln, 9 Neb. 316, 31 Am. Rep. 412, 2 N. W. 888. 9 See supra, this section. 10 Metropolitan Nat. Bank v. Claggett, 141 U. S. 520, 35 L. Ed. 841; Coffey v. National Bank of Missouri, 46 Mo. 140, 2 Am. Rep. 488; Kelsey v. National Bank of Crawford County, 69 Pa. St. 426; Thorp v. Wegefarth, 56 Pa. St. 82, 93 Am. Dec. 789. 11 Metropolitan Nat. Bank v. Claggett, 141 U. S. 520, 35 L. Ed. 841. 12 Kelsey v. National Bank of Crawford County, 69 Pa. St. 426. 13 Coffey v. National Bank, 46 Mo. 140, 2 Am. Rep. 488. 14 State v. National Bank of Baltimore, 33 Md. 75. 15 Austin v. Tecumseh Nat. Bank, 49 Neb. 412, 418, 35 L. R. A. 444, 59 Ani. St. Rep. 543, 68 N. W. 628. such subject to the liabilities imposed by the federal statutes on such stockholders; 16 and this is so although no new certificates of stock are issued to the shareholders.17 Furthermore, where a state bank is reorganized as a national bank, a stockholder who has accepted dividends after the reorganization is estopped to deny his liability as a stockholder of the national bank on the ground that he did not expressly assent to the reorganization of the bank,18 III. THE REORGANIZATION AGREEMENT § 4873. Contents in general. The reorganization agreement is geuerally of considerable length and sets out the plan of reorganization, the powers and duties of the committee, etc., with considerable detail. The agreement may provide for the assumption of all, or a certain part, of the indebtedness of the old company by the new company. 19 It may, and often does, regulate voting by the holders of the common and preferred stock and also by bondholders.20 There is no question as to the right of bondholders to confer upon a reorganization committee substantially unlimited powers with unlimited discretion in the exercise of them; 21 and bondholders may agree in advance that their bonds shall be subjected to any plan of reorganization which the committee may adopt.22 "Generally," it has been said, "the objection to a plan of reorganization should involve a definite principle, and not require a long complicated investigation of values, properties, etc." 23 Where the bonds of first mortgage bondholders of a branch line were assumed by the principal company on the purchase of the line, a reorganization agreement should recognize the dual rights of such bondholders both as mortgagees of the branch line and as general creditors of the purchasing company.24 § 4874. Validity of agreement-In general. Generally speaking, reorganization agreements, where not in violation of any statute, are 16 Casey v. Galli, 94 U. S. 673, 676, 24 L. Ed. 168. 17 Keyser v. Hitz, 2 Mackey (D. C.) 473. 18 Aldrich v. Bingham, 131 Fed. 363. 19 Klein v. East River Elec. Light Co., 90 N. Y. App. Div. 92, 86 N. Y. Supp. 164. 20 That agreement may so provide is expressly stated in the New York statute (Stock Corp. Law, § 10). 21 Ginty v. Ocean Shore R. Co., 172 Cal. 31, 155 Pac. 77, and see § 4913. 22 Colonial Trust Co. v. Wallace, 183 Fed. 897; Ginty v. Ocean Shore R. Co., 172 Cal. 31, 155 Pac. 77. 23 Guaranty Trust Co. of New York v. Missouri Pac. Ry. Co., 238 Fed. 812, 818. 24 Guaranty Trust Co. of New York v. Missouri Pac. Ry. Co., 238 Fed. 812, 819. valid, especially where the purpose is to take over the corporate property sold or to be sold at a judicial or execution sale, and such reorganizations are encouraged, and approved by the courts.25 Of course the reorganization plan or agreement must not be inconsistent with nor violate the laws of the state.2 26 An illegal attempt at reorganization is not binding on a stockholder.27 § 4875. Where there is fraud. A reorganization agreement is invalid where it contemplates the commission of a fraud upon stockholders, bondholders or other creditors of the corporation. This is true, for example, of an agreement under which the stockholders of a corporation, whose property is about to be sold under a mortgage, are to share in the proceeds of the sale, the agreement being made for the purpose of preventing them from resisting a foreclosure, since such an agreement is a fraud upon the general creditors of the corporation.28 A creditor of one company cannot complain that a transfer of its assets to another company was made to delay creditors, where the transfer was planned by the creditors of the old company and was made solely for the equal benefit of every creditor and merely to pay the debts of the old company, and where nothing was reserved for the benefit of the stockholders or officers of the old company.29 § 4876. Coercion of bondholders or stockholders. The agreement, in order to be valid, must, it seems, impose no heavier burdens on nonassenting stockholders than on assenting stockholders, since the agreement cannot in effect coerce stockholders of the old company to become stockholders in the new company.3 30 Thus, an agreement which provides for excessive calls on dissenting stockholders, which would produce a sum in excess of the amount necessary to pay the debts of the old company, has been held invalid where the excess was to be paid over to the new company.31 25 See § 4840, supra. 26 The New York statute (Stock Corp. Law, § 10) expressly so provides. 27 Bank of China, Japan & The Straits v. Morse, 168 N. Y. 458, 56 L. R. A. 139, 85 Am. St. Rep. 676, 61 N. E. 774. 28 Chicago, R. I. & P. R. Co. v. Howard, 7 Wall. (U. S.) 392, 19 L. Ed. 117. See also § 4985, infra. 29 Wheeler V. Acme Mach. Co., 175 Ill. App. 69. 20 Bank of China, Japan & The Straits v. Morse, 168 N. Y. 458, 478, 56 L. R. A. 139, 85 Am. St. Rep. 676, 61 N. E. 774. 31 Bank of China, Japan & The Straits v. Morse, 168 N. Y. 458, 56 L. R. A. 139, 85 Am. St. Rep. 676, 61 N. E. 774. A reorganization plan under the English Company's Act providing for Harvesting § 4877. Necessity for, and sufficiency of, consideration for agreement. An agreement for reorganization, like any other contract, is not binding unless the promises of the parties are supported by a consideration.32 Ordinarily it is a case of mutual promises, in which the promise of each party is supported by the promises of the others, but the promise of one of the parties may for some reason be unenforceable, and in such a case it would not be a consideration for the promise of the other. Thus, a promise by a corporation to pay part of its indebtedness with stock in a proposed new corporation, and the balance in cash and notes or bonds of the new corporation, is no consideration, so long as it is unperformed, for promises by creditors to subscribe for their proportion of the stock of the new corporation, and to accept the same, with the cash and notes or bonds, in full satisfaction of their claims, for the corporation has no power to bind the proposed new corporation. Such an agreement, the relief from payment of unpaid subscriptions by stockholders in the original corporation who become stockholders in the new company, by payment of a small portion of the liability thereon, and for the compulsory payment of the full amount by those who do not come into the reorganized corporation, was held not enforceable because of inequality of treatment of shareholders. Bank of China, Japan & The Straits v. Morse, 168 N. Y. 458, 56 L. R. A. 139, 85 Am. St. Rep. 676, 61 N. E. 774. 32 Thompson v. Gross, 106 Wis. 34, 81 N. W. 1061. The fact that the creditors of an insolvent corporation were not made parties to an agreement included in a plan for its reorganization, binding the stockholders to give their notes to the corporation to the amount of their respective holdings of stock, to be collected in case of "a deficiency of assets," and providing that payment thereof should pro tanto discharge the stockholders' statutory liability existing at the date of the agreement, does not affect the validity of the agreement. Such agreement is not void on the part of the stock holders for want of consideration, on the ground that the corporation cannot release their statutory liability to creditors, since payments under the agreement constitute a trust fund in the hands of the corporation, in which creditors cannot participate except by releasing pro tanto their rights against the stockholders under the statute. Thompson v. Gross, 106 Wis. 34, 81 N. W. 1061. Where the holder of receiver's certificates of an insolvent corporation, the validity of which is being contested in an action by the bondholders of the company, agrees, in consideration that the certificates shall be recognized as valid and a decree entered to that effect, to advance money for the purpose of reorganizing the company, taking in return therefor and for his certificates, first mortgage bonds, the bondholders to receive second mortgage bonds, the performance of the agreement by the bondholders by procuring the decree constitutes a sufficient consideration for the agreement. Cox v. Stokes, 156 N. Y. 491, 51 N. E. 316, rev'g 78 Hun 331, 29 N. Y. Supp. 141. |