specified time, to enable the committee to carry out the plan of reorganization; and the committee are oftentimes made the agency for distributing the securities of the new company among those so depositing their securities issued by the old company. It is needless to state that the committee act as a trustee in so receiving and distributing securities and must act with the utmost good faith and according to the terms of the agreement.69 However, the committee must necessarily be accorded a wide discretion in receiving and distributing securities, which will not be interfered with by the courts except in a clear case.70 Thus, where the reorganization agreement leaves it to the discretion of a majority of the committee as to whether they shall distribute the stock of the new company at any time before five years, the discretion of the committee will not be interfered with by the courts unless in a clear case of abuse.71

The committee, where limited by the agreement to a division and disposition of the securities of the new company either among, or for the benefit of, the bondholders, have no power to make a present of any interest whatever in the new company to stockholders of the old company or to others than the holders of the bonds.72

§ 4919. Right to intervene in foreclosure suit. Where there are several bondholders' committees, and considerable difference of opinion exists between them, it is proper, it seems, to permit them to intervene in the foreclosure suit.73

§ 4920.

Rights as to foreclosure purchase where bondholders fail to pay assessments. If a majority of the bondholders fail to

C9 Bondholders of a corporation who have exchanged their bonds for those of a reorganized company, which, by the reorganization agreement, were to be made a first lien on the property of the company, have a right to enforce such agreement, and to insist upon the retention by the reorganization committee of all securities placed in its hands to secure the taking up of prior liens until their extinguishment is assured; and an arrangement by which such liens are to be paid off or extended at the option of the holders does not meet the requirements of the agreement. Peoria & E. Ry. Co. v. Coster, 97 Fed. 519.

70 As to the discretion of a reorganization committee as to the use, disposition and distribution of reserved securities of the new corporation, and interference therewith by a court of equity at the suit of a stockholder, see Venner v. Fitzgerald, 91 Fed. 335.

71 Haines v. Kinderhook & H. Ry. Co., 33 N. Y. App. Div. 154, 53 N. Y. Supp. 368.

72 United Water Works Co. v. Omaha Water Co., 164 N. Y. 41, 53, 58 N. E. 58.

73 Farmers' Loan & Trust Co. v. Cape Fear & Y. V. Ry. Co., 71 Fed. 38, and see § 1374, supra.

74

pay the assessments levied on them to pay the costs of the foreclosure sale and reorganization, the committee may abandon the purchase; but if the committee go ahead and themselves furnish the necessary money, the property purchased is subject to the trust in favor of those. joining in the reorganization agreement.75

§ 4921. Duty to adopt plan of reorganization before sale in foreclosure suit. Where a reorganization agreement is made by the bondholders pending a foreclosure suit on a mortgage securing such bonds, whereby the title to such bonds is placed in a committee who are required to adopt a plan of reorganization and give notice thereof to the bondholders, so that any of them may withdraw if the plan is not satisfactory, it is the duty of the committee to prepare a plan and submit it to the bondholders before the property is sold under foreclosure, and the filing of such a plan long after the sale does not exonerate the committee from liability.76

§ 4922. Duty to convey property purchased to new corporation. If the corporate property is purchased at a judicial sale by the committee, or by the trustees in the mortgage as authorized by the mortgage or foreclosure decree, the purchaser holds the property in trust for those joining in the reorganization agreement or who are entitled to participate in the purchase, and in a proper case must convey the property to the new corporation.77

§ 4923. Certificates of deposit. On deposit of the bonds with the committee, certificates of deposit are usually issued, under which

74 Indiana, I. & I. R. Co. v. Swannell, 157 Ill. 616, 30 L. R. A. 290, 41 N. E. 989. See also Grace v. Noel Mill Co. (Tenn.), 63 S. W. 246.

75 Indiana, I. & I. R. Co. v. Swannell, 157 Ill. 616, 3 L. R. A. 290, 41 N. E. 989; Cushman v. Bonfield, 139 Ill. 219, 28 N. E. 937.

76 Industrial & General Trust v. Tod, 180 N. Y. 215, 73 N. E. 7.

77 Indiana, I. & I. R. Co. v. Swannell, 157 Ill. 616, 30 L. R. A. 290, 41 N. E. 989, aff'g 54 Ill. App. 260; Cushman v. Bonfield, 139 Ill. 219, 28 N. E. 937, aff'g 36 Ill. App. 436; Grace v. Noel Mill Co. (Tenn. Ch.), 63 S. W. 246.

If trustee wrongfully refuses to convey, he may be removed. Harrison v. Union Trust Co., 144 N. Y. 326, 39 N. E. 353.

The bondholders for whom the committee or trustee purchases become equitable tenants in common of the property purchased. Indiana, I. & I. R. Co. v. Swannell, 157 Ill. 616, 30 L. R. A. 290, 41 N. E. 989.

If the trustee is authorized only to reconvey to the new corporation, he cannot sell the property at public auction. James v. Cowing, 82 N. Y. 449.

the depositor acquires the right to compel performance in equity of the requirements of the terms of the certificate, including the delivery at the appropriate time to the certificate holders of certain securities of the reorganized company.78 Such receipts or certificates are assignable,79 but ordinarily are not negotiable instruments so as to be free from equities.80 Where bondholders sign an agreement giving the reorganization committee full control of their bonds which have been deposited with it, a subsequent purchaser of certificates of deposit, with knowledge of such agreement, cannot recover back the bonds so deposited.81

§ 4924. Contracts of committee as binding upon bondholders. Contracts made by the committee, within the scope of their authority. are binding upon the bondholders who join in the reorganization agreement, and cannot be set aside by the court at the suit of one of such bondholders against the persons contracting with the committee, in the absence of any claim of fraud, regardless of the existence of conduct on the part of the committee which might, as between them and the bondholders, amount to a violation of their trust duties.82

§ 4925. Not ce to committee. Where a reorganization agreement makes the reorganization committee the agent of the signers of the agreement, notice to the committee of matters pertaining to the reorganization is equivalent to notice to the signers.83

In a

§ 4926. Liabilities of committee and their enforcement. proper case, the committee may be held liable for damages at the suit of a party to the reorganization agreement.84 Thus, members of the reorganization committee may be held liable for waste and misappli

78 See American Trust Co. v. Holtsinger, 226 Mass. 30, 114 N. E. 956; Bean v. American Loan & Trust Co., 122 N. Y. 622, 26 N. E. 11.

Forms, see Fletcher's Corporation Forms.

79 Chicago, R. I. & P. R. Co. v. Howard, 7 Wall. (U. S.) 392, 415, 19 L. Ed. 117. See also Hubbard v. Manhattan Trust Co., 87 Fed. 51, 58.

80 Chicago, R. I. & P. R. Co. v. Howard. 7 Wall. (U. S.) 392, 415, 19 L. Ed. 117.

81 Mercantile Trust & Deposit Co.

of Baltimore, Maryland v. Low, 87 Fed. 241.

82 Brooks v. Dick, 135 N. Y. 652, 32 N. E. 230, aff'g 62 Hun 622, 17 N. Y. Supp. 259.

83 Cox v. Stokes, 78 Hun (N. Y.) 331, 29 N. Y. Supp. 141, rev'd 156 N. Y. 491, 51 N. E. 316.

84 See Dunning v. Bates, 186 Mass. 123, 71 N. E. 309; Industrial & General Trust v. Tod, 180 N. Y. 215, 73 N. E. 7; James v. Cowing, 82 N. Y. 449.

cation of securities, at the suit of stockholders or other interested persons, in a proper case.85 So an action for an accounting is often a proper remedy in behalf of persons for whom the committee or trustees are acting.8 86 Bondholders may sue the committee or trustees, where appointed by them, for failure to account, in not turning over to the new corporation all that ought to be turned over.87 And if stock and bonds are deposited with the committee, there is such a fiduciary relation existing between the depositors and the members of the committee as to create a cause of action for an accounting in favor of the depositors against the committee where they act in bad faith in connection therewith, such as by speculating with the securities and issuing false statements in regard thereto to the depositors; and it is not necessary to delay the action until the work of the reorganization committee has been completed.88 The chairman of a reorganization committee may make himself personally liable for services rendered by a person employed in the reorganization.89

On the other hand, the committee ordinarily are not personally liable where they act in good faith; 90 and the reorganization agreement itself often expressly exempts them from personal liability except in cases of wilful misfeasance or gross negligence or the like.91 However, no clause of immunity can be drawn that will protect a committee acting in bad faith, since such a clause would be against public policy and hence not enforceable.92

Personal liability of trustee in deed of trust or mortgage, see $$ 13491355, supra.

Circumstances may of course arise under which a bondholder will not be estopped from bringing suit for wrongdoing of trustees in connection with the reorganization of a corporation, though he has accepted securities of the new company supposedly in full satisfaction of his claim. Dunning v. Bates, 186 Mass. 123, 71 N. E. 309.

85 Mawhinney v. Bliss, 124 N. Y. App. Div. 609, 109 N. Y. Supp. 332, aff'd without opinion 194 N. Y. 590, SS N. E. 1125.

85 Zebley v. Farmers' Loan & Trust Co., 139 N. Y. 461, 34 N. E. 1067, action by bondholders against mortgage trustee; Mawhinney v. Bliss, 117 N. Y. App. Div. 255, 102 N. Y. Supp. 279.

If the committee are ex

87 The right of action is in the bondholders and not in the new corporation. Dunning v. Bates, 186 Mass. 123, 71 N. E. 309.

88 Mawhinney v. Bliss, 117 N. Y. App. Div. 255, 102 N. Y. Supp. 279, aff'd without opinion 189 N. Y. 501, 81 N. E. 1169.

89 Gerding v. Funk, 48 N. Y. App. Div. 603, 64 N. Y. Supp. 423, aff'd without opinion 169 N. Y. 572, 61 N. E. 1129.

90 Van Sielen v. Bartol, 95 Fed. 793; White v. Wood, 129 N. Y. 527, 29 N. E. 835, rev'g on other grounds 59 Hun 619, 13 N. Y. Supp. 631.

91 Van Siclen v. Bartol, 95 Fed. 793; Industrial & General Trust v. Tod, 170 N. Y. 233, 63 N. E. 285.

92 Industrial & General Trust V. Tod, 180 N. Y. 215, 225, 73 N. E. 7.

pressly exempted from personal liability for their acts except in case of wilful malfeasance or gross negligence, they are not liable for the failure of an impracticable plan of organization, where they acted in good faith, although they may have made mistakes.93

Where the reorganization agreement requires the committee to adopt a reorganization plan and give notice thereof to the bondholders so that any of them might withdraw if the plan should not be satisfactory, an action of conversion will not lie against the members of the committee for using the bonds to pay the purchase price of the property bid in at the foreclosure sale, without first submitting a plan of reorganization as required by the agreement, since such failure to perform is a breach of contract but not a conversion of the bonds.4 Where a committee are sued by a bondholder for breach of the reorganization agreement, as a breach of contract, based upon the failure. of the committee to file the plan of reorganization before the foreclosure sale, it is necessary, in order to recover damages, to show actual damage, from such acts of the committee.95 And where a bondholder was wrongfully deprived of his right to withdraw his bond deposited with a committee in charge of reorganization proceedings, his damages were held to be the value of the bond at the date of the violation of the agreement. And where it appeared that for years the bonds of the corporation had been without market value, it was held that the value could be established approximately on the basis of the intrinsic value of the property on which they were a lien.96

§ 4927. Compensation and expenses. The committee are entitled. to compensation for their services and reimbursement for sums necessarily expended by them,97 although the right to and amount of

93 Van Siclen v. Bartol, 95 Fed. 793.

94 Industrial & General Trust V. Tod, 170 N. Y. 233, 63 N. E. 285, rev'g 52 N. Y. App. Div. 195, 64 N. Y. Supp. 1093.

95 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.

96 Industrial & General Trust V. Tod, 180 N. Y. 215, 73 N. E. 7, rev'g 93 N. Y. App. Div. 263, 87 N. Y. Supp. 687.

97 See Louisville & N. R. Co. v. Schmidt, 128 Ky. 229, 107 S. W. 745.

Where a committee appointed by bondholders to reorganize the corporation by foreclosure of the mortgage securing the bonds and the purchase of the property at foreclosure for the benefit of a corporation to be organized act in perfect good faith, compensation for the services rendered will not be denied them on the ground that the validity of such foreclosure and the title to the property purchased has become involved in protracted litigation. Mills v. Potter, 189 Mass. 238, 75 N. E. 627.

Compensation of trustee in deed of trust, see § 1356, supra.