The Federal Reporter with Key-Number Annotations, Volume 250: Cases Argued and Determined in the Circuit Courts of Appeals and District Courts of the United States, August-October, 1918. Page: 381
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UNITED STATES & M. T. CO. V. UNITED STATES & M. T. CO. 381
[1] We perceive no defect in the title of the new company to the
railroad property. The foreclosure proceedings in the trial court and
the organization and constitution of that company as a purchaser ap-
pear regular. Further, the case had proceeded so far without with-
drawal or effort to withdraw appellants' bonds from the committee,
and without objection or remonstrance against what was being done,
that, under the terms of the deposit agreement, the bonds became irre-
trievably subject to use on the purchase price. They had been volun-
tarily committed to that purpose, among others, by the appellants, and
the condition or emergency had arisen. It would not have been equita-
ble to other bondholders to have allowed them to withdraw at the last
moment; and, though an attack upon the gold notes of the new com-
pany and the hen securing them would require the presence of the
trustee in the collateral trust indenture, we think we should also say
that we see no flaw in them. It was contended at the hearing that the
committee controlled the disbursement of the proceeds of the notes
and had improperly used part of them. That could only be considered
in a case to which the committee were parties. We do not, however,
think any inference on the subject necessarily arises from the court's
order confining the new company's credits on the purchase price of the
railroad to the payments of receivers' certificates and obligations. For
example, no just complaint could be made by the bondholders of pay-
ments by the committee from the proceeds of the notes, of claims that
were in fact superior in equity to the lien of the old bonds though not
then formally allowed as such by the court. The rights of the bond-
holders would not be clear until such claims were discharged, and it
was entirely proper for the committee or the new company to dis-
charge them with any available funds raised on the property.
[2] It is much the better practice for a reorganization committee to
formulate their plan for reorganization before the final decree and
sale. That course enables the security holders to know, while a choice
might be of value, how they would fare by accepting or rejecting it,
and it gives the court in charge of the case an opportunity to hear the
objections of those dissenting, and to afford them such relief as equity
may require. It is no longer the rule that a court has nothing to do
with the reorganization of a railroad that is to be consummated
through its judicial processes, or that it is powerless to prevent injus-
tice. The failure to observe that course in the case here, the absence
of a definite project, may well have deterred bondholders from agree-
ing to subscribe for the gold notes, which, it is said, are now in process
of enforcement. But, however this may all be, the power conferred
upon the committee was broad enough to cover what they did.
As matters now stand, the title to the railroad is vested in the new
company. The execution and pledge by that company of its bonds
and stock under the order of the Public Utilities Commission is in ef-
fect a mortgage of the railroad to secure the $6,000,000 of gold notes,
or such of them as have been issued and sold. When the gold notes
have been discharged, the pledged provisional securities become with-
out office or function, save upon the further order of the Commission.
The owners of the bonds of the old company, who deposited their hold-
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The Federal Reporter with Key-Number Annotations, Volume 250: Cases Argued and Determined in the Circuit Courts of Appeals and District Courts of the United States, August-October, 1918., legislative document, 1918; Saint Paul, Minnesota. (https://digital.library.unt.edu/ark:/67531/metadc38821/m1/396/: accessed April 25, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.