chasers of corporate property on a foreclosure sale, on incorporating, are bound by the laws in force at that time as to rates, notwithstanding such provisions were not applicable to the mortgagor company which was expressly exempt from regulation of its rates.5 So the power of a company to fix its own rates, so as not to be subject to interference by the legislature, as given by its charter, does not pass to the purchasers at a foreclosure sale who subsequently reorganized as a corporation, but after the adoption of a state constitution giving the legislature power to regulate such rates. And a mileage book act fixing the rates for such books is constitutional as to railroads thereafter reorganized after foreclosure sale, notwithstanding the new company succeeds to the rights of the old company to charge a specified fare, where the reorganization statute gives the new company the rights of the old "subject to all the provisions, duties and liabilities imposed by law on such corporations."7

8

§ 4974. Exemption from rate regulation. Ordinarily a new reorganized company does not succeed to an exemption from rate regulation possessed by the old company, at least where the right to regulate is conferred by a constitutional provision or statute in existence at the time of the reorganization; and it is held that this is true although the statute provides that the purchaser shall succeed not only to "all the franchises, rights, privileges" of the mortgagor but also to its "immunities." 10 However, in New York, it is held that a right given by a special statute to a particular railroad company to charge a certain rate of fare "was alienable, or transferable by mortgage, and passed with the property to the purchaser under the judgment in foreclosure." 11 And there are like holdings in the federal courts.12

Grand Rapids & I. R. Co. v. Osborn, 193 U. S. 17, 29, 48 L. Ed. 598; Norfolk & W. R. Co. v. Pendleton, 156 U. S. 667, 39 L. Ed. 574. To same effect, Commissioner of Railroads v. Grand Rapids & I. R. Co., 130 Mich. 248, 89 N. W. 967.

Dow v. Beidelman, 49 Ark. 325, 5 S. W. 297, following Memphis & L. R. R. Co. v. Berry, 41 Ark. 436, aff'd 112 U. S. 609, 28 L. Ed. 837.

7 Minor v. Erie R. Co., 171 N. Y. 566, 64 N. E. 454, aff'g 73 N. Y. App. Div. 621, 76 N. Y. Supp. 513.

Norfolk & W. R. Co. v. Pendleton, 156 U. S. 667, 39 L. Ed. 574.

See supra, preceding section.

10 Matthews v. Board of Corporation Com'rs of North Carolina, 97 Fed. 400.

11 Parker v. Elmira, C. & N. R. Co., 165 N. Y. 274, 280, 59 N. E. 81.

12 Omaha Water Co. v. Omaha, 147 Fed. 1, 12 L. R. A. (N. S.) 736, 8 Ann. Cas. 614, where, however, right was conferred by contract; Ball v. Rutland R. Co., 93 Fed. 513.

§ 4975.- Exemption from taxation. Whether an exemption from taxation passed to the new company, upon reorganization, depends largely upon the terms of the statute authorizing the transfer of the property and stating the effect thereof. This question is treated of at length in another chapter. 13 It is sufficient to state here that, in the absence of an express statutory provision to the contrary, exemption from taxation is a personal privilege and is not transferable; and that where a statute is relied on as conferring the right to the exemption as a successor of another corporation, it is strictly construed in favor of the public and against the exemption.

§ 4976. Public duties of old company as passing to new company. The reorganized company is bound to perform the duties to the public which the old company owed to the public.14 Where a railroad company's franchises, privileges and property were mortgaged and sold under the power of sale in the mortgage, under legislative authority, and conveyed by the purchaser to a new corporation organized for the purpose of taking the property and franchises and continuing the operation of the road, it was held that the new company occupied the place of the old company so far as its franchises, privileges and powers were concerned, and that liability for stock killed by reason of failure to fence its road was determined by a provision in regard thereto in the charter of the old company, and not by the general corporation law.15 So, in the case of the Union Pacific Railroad, built under a congressional charter reserving the right to alter or amend it, it has been held that public interests, and not simply private purposes, are to be regarded, and the purchaser at foreclosure sale takes the property subject to the proper regulations and use established by Congress, notwithstanding the mortgage foreclosed antedated the legislation.16

§ 4977. Power of reorganized company to issue new stock or bonds and limitations thereof. In some states the reorganized com

13 Supra, chapter on Taxation.

14 New York & G. L. R. Co. v. State, 50 N. J. L. 303, 307, 13 Atl. 1. See also Mahan v. Michigan Tel. Co., 132 Mich. 242, 93 N. W. 629, and see cases cited in § 1406, note 18, supra. New railroad company is not bound to complete the whole road but only the portion mortgaged and which it

purchased.

Chartiers R. Co. v. Hod

gens, 85 Pa. St. 501.

Duty of new railroad company to rebuild dismantled road, see State v. Jack, 145 Fed. 281.

15 Daniels v. St. Louis, K. C. & N. R. Co., 62 Mo. 43.

16 Union Pac. R. Co. v. Mason City

pany cannot issue a greater amount of stock than the value of the property turned over to it.17 The new company created after purchase at the foreclosure sale may issue bonds for "property actually received," within a statute authorizing the issuance of bonds for such purpose.18 A statute providing that no corporation shall issue bonds except for money, labor or property equal to seventy-five per cent of their par value is not violated by the deposit of bonds under a reorganization agreement to be held as security for other bonds then. issued, since not a reissue by the mortgagor company.19

The power of the public service commission to refuse to consent to the issuance of securities by a reorganized company after foreclosure depends of course upon the local statutes.20 In New York, the statute requiring corporations to obtain the consent of the public service commission before issuing stocks, bonds or other evidences of indebtedness, applies to corporations formed upon reorganization; 21 but such public service commission has no power to refuse to consent to the issue of securities by a railroad company under a plan of reorganization after foreclosure because the value of the mortgaged property and the amount of new capital to be invested is less than the amount of securities sought to be issued.22

§ 4978. Duty to issue or deliver stock. When a corporation is organized for the purpose of taking the property and franchises and carrying on the business of existing corporations, under an agreement

& F. D. R. Co., 199 U. S. 160, 50 L. Ed. 134.

17 Sec Schuler v. Southern Iron & Steel Co., 77 N. J. Eq. 60, 75 Atl.

552.

The price obtained at a sale of corporate assets in bankruptcy, bought in by the creditors by agreement, or the appraisement of value in the bankruptcy proceeding, is not conclusive proof of the value of the property, so as to make an issue of stock by the reorganized company in a larger amount than such sum an overissue to the amount of the excess. Schuler v. Southern Iron & Steel Co., 77 N. J. Eq. 60, 75, Atl. 552.

18 Thayer v. Wathen, 17 Tex. Civ. App. 382, 44 S. W. 906.

19 Mowry v. Farmers' Loan & Trust

Co., 76 Fed. 38, construing Wisconsin

statute.

20 People v. Public Service Commission for First Dist., 203 N. Y. 299, 96 N. E. 1011, aff'g 145 N. Y. App. Div. 318, 130 N. Y. Supp. 97.

21 But the provisions of the public service commission statute requiring the approval of the commission to the exercise or transfer of franchises by a railroad corporation have been held to have no application to a corporation formed on the reorganization of a railroad corporation after foreclosure. People v. Public Service Commission for First Dist., 203 N. Y. 299, 96 N. E. 1011.

22 People v. Public Service Commission for First Dist., 203 N. Y. 299, 309, 96 N. E. 1011.

between all the stockholders of the old corporations, under which the new corporation is to pay for the property and franchises by apportioning to them all of its stock except such as is reserved for the use of the treasury, and the transfer is made by the old corporations to the new in pursuance of the arrangement, the new corporation assumes a contract duty to each of the stockholders of the old to deliver to him his proportion of its stock, and they may maintain their actions against it if it refuses to perform the same. They are not required to seek relief through the original corporations.23 However, the right to demand stock in the new corporation may be barred by laches.24 Where a corporation is organized to take over the business and assets of another, and enters into a contract with the latter and its stockholders, in consideration of a transfer of such business and assets, to issue to each of the old stockholders certificates of its stock, share for share, upon surrender of their certificates of stock in the old company, holder of a certificate of stock in the old company may maintain a suit against the new company for specific performance of the contract, and he may do so without making the old company or any other stockholders parties defendant, or declaring that the suit is brought for the benefit of such of the old stockholders as may come in and be made parties.2 If the reorganized corporation has issued all its stock, then of course it cannot be compelled to issue shares in exchange for shares claimed by a stockholder in the old company.26

23 Anthony V. American Glucose Co., 146 N. Y. 407, 41 N. E. 23.

But where the stockholders of an embarrassed corporation vote to reorganize the same, apply its assets in payment of its debts, cancel the old stock, and issue stock in the reorganized corporation to each of the old stockholders in proportion to his shares, on payment of the par value thereof in cash, and the business of the old company is closed, and its stock declared canceled, a subsequent purchaser of shares of stock in the old company cannot compel the reorganized company to issue stock to him in lieu of the interest so purchased. Stoddard v. Decatur Cracker Co., 184, Ill. 53, 56 N. E. 327, aff'g 84 Ill. App. 374.

25

24 When a corporation is reorganized, new stock issued, and the old stock canceled, and a purchaser of the stock in the reorganized company demands its issue to him within a month after his purchase, and the demand is refused, and such stockholder fails for seven years to assert his rights under the purchase, his laches is a bar to any relief. Stoddard v. Decatur Cracker Co., 184 Ill. 53, 56 N. E. 327, aff'g 84 Ill. App.

374.

25 Fletcher v. Newark Tel. Co., 55 N. J. Eq. 47, 35 Atl. 903.

26 Dupoyster v. First Nat. Bank of Wickliffe, 29 Ky. L. Rep. 1153, 96 S. W. 830.

A stockholder in the original corporation who is allotted stock in the new company and whose rights afterward are not recognized may recover from the new company the value of the stock therein allotted to him, together with dividends paid on such stock up to the time of judgment.27 If a stockholder is entitled to shares of stock in the reorganized company which refuses to deliver them, he is entitled to a mandatory injunction or an alternative decree for the money value of the stock.28

§ 4979. Rights of new company against its promoters. If one of a syndicate organized to reorganize a certain company makes a secret profit by selling to the corporation property in which he is personally interested, the profit may be recovered by the company.29

§ 4980. New corporation as bona fide purchaser. Where the purchaser at the foreclosure sale is a representative of the mortgage bondholders, the new corporation to which he conveys the property is not a bona fide purchaser without notice.30 When the property of a corporation is conveyed by it to trustees for the benefit of its mortgage bondholders, and in satisfaction of the bonds, and the bondholders enter into an agreement under which a corporation is to be formed for the purpose of taking and holding the property, and under which the corporation is to assume certain burdens and obligations towards them, the corporation, when formed in pursuance of the agreement and when it takes a conveyance of the land, paying nothing therefor, is not in the position of a bona fide purchaser as against the bondholders asserting rights under the agreement, although it may have assumed certain duties with reference to the property.3 31

XIII. LIABILITIES OF NEW COMPANY

§ 4981. General rule. In so far as liability for debts of the old company is concerned, it is necessary to always keep in mind the distinction between a voluntary reorganization which is generally effected by the stockholders without consulting the creditors, and a forced or involuntary reorganization which is generally effected

27 Sparrow v. E. Bement & Sons, 142 Mich. 441, 10 L. R. A. (N. S.) 725, 105 N. W. 881.

28 Motley v. Southern Ry. Co., 184 Fed. 956.

29 Edenborn v. Sim, 206 Fed. 275.

30 Continental Trust Co. of New York v. American Surety Co., 80 Fed. 180.

31 Rogers v. New York & T. Land Co., 134 N. Y. 197, 211, 32 N. E. 27.