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accepts the benefits of a reorganization plan cannot enforce a judg ment obtained against the old company, to the prejudice of other creditors.16 So a dissenting stockholder who nevertheless has exchanged his stock pursuant to a reorganization agreement and has thus secured and accepted pecuniary benefits, cannot afterwards enjoin the reorganization.17 And minority stockholders who object to a reorganization but nevertheless subscribe for additional stock in the new company, although under protest, are estopped from seeking a rescission of the transfer of the property to the new company, especially where they have permitted the new company to conduct the business for a year and a half.18

Where a corporation is dissolved by a vote of two-thirds of its stock, as authorized by statute, and thereafter all the stockholders except one organize a new corporation and take over most of the property of the old corporation, the excluded stockholder, by accepting cash dividends upon each share of his stock and joining in dividing up the assets not turned over to the new corporation, is precluded from objecting to the transfer of the assets to the new corporation, and his only rights are, if the assets were not sold for their fair market value, to have an accounting and a decree for the difference between the dividends received and the fair value of his stock.19 Acceptance of dividends on stock in the new company will preclude a stockholder, on the insolvency of the new company, from denying liability on the ground of lack of consent to the reorganization.20

§ 4904. Silence as equivalent to consent-In general. Mere silence of a bondholder, when a plan of reorganization is published, is no ground for implying his consent thereto, especially where, as one of the directors of the corporation, he voted against the reorganiza

organization ordered by the court, upon petition of a majority of the creditors, and who accept and retain the benefits accruing from the reorganization, are estopped to attack the validity of the court proceedings, although the order of the court was unauthorized and void because based upon a petition which had been previously dismissed by another judge of the same court. Hunt v. Roosen, 87 Minn. 68, 91 N. W. 259.

16 Farmers' Loan & Trust Co. v.

Central Railroad & Banking Co. of
Georgia, 120 Fed. 1006.

17 Treadwell v. United Verde Copper Co., 134 N. Y. App. Div. 394, 119 N. Y. Supp. 112.

18 Post v. Beacon Vacuum Pump & Electrical Co., 84 Fed. 371, rev'd on other grounds in 89 Fed. 1.

19 First Nat. Bank of Centralia v. Marshall, 26 Ill. App. 440.

20 Aldrich v. Bingham, 131 Fed. 363.

tion.21 A reorganization does not bind stockholders present by proxy but not voting in favor of the reorganization.22

§ 4905. Failure to dissent as equivalent to consent as provided for by reorganization agreement. A bondholder who joined therein. was deemed bound by an agreement providing that a plan of reorganization should be binding on all bondholders unless a majority of the bondholders should dissent within thirty days, no dissent having been made by the majority within said time.23 So where a bondholder becomes a party to an agreement that a reorganization plan is to be filed by a committee and is to become binding on each bondholder unless he withdraws his bond within thirty days after notice of the reorganization, failure by a bondholder to withdraw his bond within the prescribed time will be deemed conclusive as to his consent to and approval of the plan filed.24 But a provision in a reorganization agreement that the detailed plan to be prepared by the committee should be binding upon all certificate holders unless the holder of a majority in interest should within thirty days file their dissent from the plan, means the details of the plan included in the original agreement, and does not include matters in contravention of the original plan and hostile to it.25

§ 4906. Power of legislature to make mere failure to assent equivalent to express assent. A provision in an act for the reorganization of an embarrassed corporation, that all bondholders who do not, within a given time named in the act, expressly dissent from the plan of reorganization, shall be deemed to have assented to it, does not impair the obligation of a contract but is a valid provision where it also provides for reasonable notice to all bondholders.26

§ 4907. Right to rescind. A party to a reorganization agreement cannot rescind without cause nor without a return, or an offer to return, of benefits received therefrom,27 unless the right is conferred

21 Philadelphia & R. R. Co. v. Love, 125 Pa. St. 488, 17 Atl. 455.

22 Cattlemen's Trust Co. v. Beck, Tex. Civ. App. 167 S. W. 753. 23 Cowell v. City Water Supply Co., 130 Iowa 671, 105 N. W. 1016.

24 Industrial & General Trust v. Tod, 93 N. Y. App. Div. 263, 87 N. Y. Supp. 687, rev'd on other grounds 180 N. Y. 215, 73 N. E. 7.

25 United Water Works Co.

Omaha Water Co., 164 N. Y. 41, 54, 58 N. E. 58, rev'g 21 N. Y. Misc. 594, 48 N. Y. Supp. 817.

26 Gilfillan v. Union Canal Co. of Pennsylvania, 109 U. S. 401, 27 L. Ed. 977, aff'g 93 Pa. St. 95. See also § 4868, supra.

27 Appeal of Columbus, S. & H. R.
Co., 109 Fed. 177; Cox v. Stokes, 156
N. Y. 491, 506, 51 N. E. 316.
The right of subscribers

V.

to a

by the reorganization agreement. However, the right of depositing bondholders to withdraw their bonds, within a specified time, is often expressly provided for in the preliminary agreement.28 And a provision that a depositor may withdraw his bonds after the publication of a plan of reorganization upon the payment of his share of the expenses is not necessarily inconsistent with his right to withdraw upon like condition before such publication.29

§ 4908. Rights of participating bondholders in and to property bought in for their benefit. All the bondholders who are parties to a reorganization agreement under which the mortgage trustee bought in the property for their benefit are, in equity, the real owners of the property and to be regarded as tenants in common, and may follow the property so purchased into the hands of a purchaser from such trustee with knowledge of the trust; and the trustee who purchases under such agreement, notwithstanding the failure of the bondholders to pay certain assessments as provided for therein, remains bound by the terms of his trust.30 Furthermore, the failure of some of the bondholders to perform their undertakings with the person who purchases at the judicial sale in their behalf has no effect upon the rights of others who comply with the agreement.31 So the equitable rights of bondholders who have complied with the reorganization agreement and paid their share of the bid are not affected by the failure of the trustee who made the purchase in their behalf to properly apply assessments paid by them.32

§ 4909. Equality between participating bondholders. Where bondholders enter into an agreement with reference to a foreclosure sale and reorganization of the company, in the absence of agreement otherwise the court will protect the several bondholders in seeking equality

reorganization agreement to rescind depends upon the general rules governing rescission of contracts. See Edenborn v. Sim, 206 Fed. 275, where parties could not be put in statu quo.

28 Provision that bondholder might withdraw his bonds "within sixty days" from the publication of the plan of reorganization was construed as making the word "within" mean "before," in Colonial Trust Co. v. Wallace, 183 Fed. 897.

29 Colonial Trust Co. v. Wallace, 183 Fed. 897.

30 Indiana, I. & I. R. Co. v. Swannell, 157 Ill. 616, 30 L. R. A. 290, 41 N. E. 989, holding also that the trustee could not rescind the trust agreement after obtaining title in pursuance of it. See also Cushman v. Bonfield, 139 III. 219, 28 N. E. 937.

31 Cushman v. Bonfield, 139 Ill. 219, 28 N. E. 937.

32 Cushman v. Bonfield, 139 Ill. 219, 28 N. E. 937.

of interest.33 Thus, where bondholders form a committee which purchases at the foreclosure sale and makes payment in bonds and matured coupons, a bondholder who detached matured coupons before depositing his bonds and who received payment of the coupons from the proceeds of the sale, is not entitled to bonds of the new company on an equality with the other bondholders who did not detach their coupons, unless he returns the money collected on the coupons.34

§ 4910. Acceptance of new securities as satisfaction of claims of recipients. Generally, where a creditor of a corporation accepts the bonds or stock of the new company in the place of his old securities or claim, or they are tendered to him in accordance with his agreement to accept them, the bonds or claims against the old company are deemed paid and satisfied,35-especially where there has been an

33 Fuller v. Venable, 108 Fed. 126. 34 Fuller v. Venable, 118 Fed. 543, 108 Fed. 126.

Where a bondholder detached the coupons before depositing his bonds, he must produce or surrender the defaulted coupons or pay the money collected therefor, before he is entitled to share equally in the new securities with the other bondholders who did not detach their coupons. Fuller v. Venable, 108 Fed. 126.

35 Central Trust Co. of New York v. Cincinnati, J. & M. Ry. Co., 58 Fed. 500; Houston, E. & W. T. R. Co. v. Keller, 90 Tex. 214, 37 S. W. 1062. See also Kildare Lumber Co. v. National Bank of Commerce, 69 Fed. 2.

Where the reorganization agreement to which all the stockholders and bondholders are parties shows that it was the intention that the bonds to be issued by the new company after foreclosure sale should extinguish the old bonds for which they were to be exchanged, the holders of such bonds, after the consummation of the plan, cannot claim any interest in the proceeds of the sale on the theory that they have the rights of unsecured creditors to the extent of the difference between the face of their bonds and the amount of the

proceeds of the sale of their mortgage security; and it is immaterial that the old company was not a party to the reorganization agreement. Central Trust Co. of New York v. Cincinnati, J. & M. Ry. Co., 58 Fed. 500. If a corporation makes an assignment for the benefit of creditors, and the creditors afterwards consent to a reorganization of the corporation, and accept its bonds or notes in satisfaction of their claims, they thereby release any rights they may have had, under the assignment or otherwise, against the property of the old corporation. First Nat. Bank of Chattanooga, Tennessee V. Radford Trust Co., 80 Fed. 569.

Where a corporation assigned its charter to a new corporation, in consideration of its payment of the debts of the old company, and creditors of the latter accepted bonds of the new company as a full satisfaction of their claims, it was held that they lost any lien or priority they may have had, imposed by the charter of the new company, what they thus received being substantially different in amount and security from what they were entitled to thereunder. Commonwealth of Virginia v. State, 32 Md. 501.

express election to accept the new securities and surrender the old, although the holder might have refused,-36 unless the reorganization. agreement shows a contrary intention.37 And a creditor and stockholder who accepts stock in a reorganized company in lieu of his note and stock in the old company, where his acts in connection with such transfer are a fraud upon other stockholders, cannot contend that his claim against the old company is still unpaid on the ground that he himself was induced to make the transfer by fraud.38

Of course, in connection with a reorganization by the refunding of securities, a holder of bonds secured by a prior mortgage may

If the holders of first mortgage bonds enter into an agreement by which they waive their lien, and agree to take second mortgage bonds instead, and the first mortgage is discharged, their rights as first mortgage bondholders are gone. If the corporation fails to issue to them seeond mortgage bonds, as required by the agreement, they will be entitled to share as second mortgage bondholders in the proceeds of a forelosure sale, but they are not thereby restored to their former position as first mortgage bondholders. Fidelity Insurance, Trust & Safe-Deposit Co. v. Shenandoah Valley R. Co., 33 W. Va. 761, 11 S. E. 58.

Where a creditor of a corporation agrees to accept stock in a new corporation, to be organized to take over the corporate property, in lieu of his debt, his debt is canceled and cannot be enforced against the new company where stock in the new company has been tendered to him and refused. Smith v. Hutchinson Box Board & Paper Co., 101 Kan. 274, 166 Pac. 484.

36 Pirst Nat. Bank of Chattanooga, Tennessee v. Radford Trust Co., 80 Fed. 569, 578.

37 Freeman V. Watson, 215 Fed.

852.

The issuance by a reorganized bank of certificates of deposit as evidence of its debts, and their acceptance by the creditors of the old company,

does not operate as a payment of the debts and the discharge of all the stockholders of the old company from further liability for their payment, where the contrary intention is clearly evident from the reorganizafion proceedings. Willius v. Mànn, 91 Minn. 494, 501, 98 N. W. 341, 867.

A committee was organized to purchase a portion of the property of a corporation during the pendency of insolvency proceedings. Looking towards accomplishment of the result by the committee, a corporation was organized under an agreement that creditors of the insolvent company might transfer claims against the insolvent company to the new company in exchange for stock of the latter. The new company did not, as a matter of fact, utilize any of the indebtedness transferred to it by creditors in purchasing the property of the insolvent corporation. The court held that by a transfer of claims by the creditors of the insolvent corporation, in exchange for stock, payment of their claims could not be deemed to have taken place, but that by the transfer of the claims the new corporation became possessed of the rights of the creditors as against the assets of the insolvent corporation. McEwen v. Harriman Land Co., 138 Fed. 797.

38 Hardy v. Swigart, 25 Colo. 136, 53 Pac. 380.

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