Gernsheim v. Central Trust Co.

1. Corporations—Reorganization—Ascertaining Liabilities of Old Company. An agreement was entered into between a trust company and the holders of the various classes of mortgages on a railroad, by which the trust company, for the purpose of reorganizing the railroad company, was to obtain control of all the outstanding mortgages on the property, provide for the issue of new stock, ascertain what the floating debt of the old company and the expense of carrying out the plan of reorganization would be, and fix the amount to be paid by the stockholders of the old company to enable them to take shares in the new corporation. Held, that the judgment of the trust company as to what should be taken into account in ascertaining such debt and liabilities of the old company, if honestly and fairly exercised upon any doubtful or disputable question, would not be reversed. 3. Same—Interest on Bonds of New Company. Such agreement provided that the amount to be paid by the stockholders of the old company to entitle them to shares in the new company should embrace, among other things, “liabilities incurred in the reorganization.” Held, that interest on new mortgage bonds of the new company going to the former holders of old bonds of the company, which had been exchanged for the new bonds, and for which interest the property of the old company in the hands of the new company was liable, was properly included among the liabilities incurred in the reorganization. 3. Same—Ascertaining Liabilities—Notice to Stockholders. In ascertaining such liabilities, and the amount to be paid by stockholders, it was necessary for the trust company to make inquiries in New York and New Orleans, and to examine, at great length, numerous books, papers, and vouchers. Held, that the findings of the trust company would not be declared invalid on the ground that no notice was given the stockholders of the times and places when and where the trust company would conduct its investigations. i. Same—Effect of Unauthorized Assessment. Where the officers of a trust company, which is acting as an agent for the reorganization of a railroad company, order an assessment on the stock of the old company, in pursuance of the plan of reorganization, and such assessment is invalid for want of sanction by the board of directors of the agent company, the power of the agent company to issue an assessment thereafter will not be affected by the unauthorized action of its officers in the premises.

Appeal from special term, New York county. Action by Michael Gernsheim, Eugene A. Loeb, and others, plaintiffs, against the Central Trust Company of New York, Frederic P. Oleott, and others, defendants, to declare void the findings of the Central Trust Company, in its capacity as quasi arbitrator, as to what amount should be paid by the stockholders of the Houston & Texas Central Bail way Company to entitle them to participate in the distribution of the stock issued in pursuance of the plan of reorganization of the railway company, to set aside an assessment on stockholders based on such findings, and to enjoin defendants from issuing and disposing of any of the stock of the new company in pursuance of the plan of reorganization. The authority of the Central Trust Company to act in the premises is contained in the ninth clause of an agreement executed between it and the stockholders of the old company, which, so far as it is referred to in the opinion of Patterson, J., below, is as follows: “Ninth, The said ten million dollars ($10,000,000) par value of said new stock is to be issued to and shall be divided pro rata among such holders of the floating debt of the said railway company as, within a time to be prescribed by said trust company, may provide a pro rata share proportionate to the whole floating debt of the company, of the cash payments to be made hereunder for interest and bonus to the holders of the first mortgage bonds and coupons, and for the necessary charges, expenses, and liabilities incurred, orto be incurred, by the said trust company in carrying out the provisions of this agreement. ”