the court appointing him, subject only to its authority and discipline, by substituting for him a business manager, nominated by the court, but subject to other jurisdictions in many of his most important duties and responsibilities.

BEACH ON RAILWAYS-81

§ 765. Introduction.

CHAPTER XXVIII.

OF REORGANIZATION.

§ 766. Of statutes relating to reorganization.

The same subject, continued-The New York statutes.

The provisions of the plan of reorganization to be strictly followed.

Of laches.

§ 767.

§ 768.

§ 769.

§ 770.

§ 771.

Of fraud in reorganization.

§ 772.

Wherein consists the change in corporate identity.

§ 773.

Of the power of a majority of the bondholders to control the minority.

Of the franchise and public obligations of the new company.

§ 774. The reorganized company not liable for the debts and contracts of the old company.

765. Introduction. The reorganization of a railway company is a business arrangement by which, a new corporation being formed, the franchises and property and certain of the obligations of the old company are transferred to the new.' This may be accomplished by a renewal of charter, where the corporate existence of the old company has expired by limitation of time; or reorganization may be effected by a transfer of the corporate assets to a new company by the stockholders of the old, without the intervention of the courts. But as the necessity for the reorganization of railway companies usually arises out of insolvency, their reorganization is generally effected by proceedings in equity to foreclose the mortgages upon the cor

The simplest

porate property and franchises. method of reorganization by foreclosure is a sale of the railway under a decree of court, and the organization of the purchasers into a new corporation; for by the foreclosure the rights of the stockholders in the old company are entirely cut off. But it is sometimes so far within the power of the stockholders and unsecured creditors to embarrass and delay proceedings for the foreclosure of the mortgage and sale of the property, that it is. expedient for the mortgage creditors to arrange for a reorganization, and give up something of their own security for the sake of avoiding litigation. and delay. Under these plans of reorganization, the old stockholders are allowed to come into the new corporation upon the payment of a certain sum for each share of stock held by them; and the bondholders are generally allowed to exchange the old bonds for new ones issued by the reorganized company upon different terms with respect to interest and time of payment. Without such previous arrangements, great sacrifice and loss would ensue. They are therefore promoted rather than discouraged by the courts. The purchasers of the property and franchises of a railway company at foreclosure sale need not, however, organize a new company to operate the read. it to an existing corporation."

1 Cf. Cook on Stock & Stockh. § 654.

2 Cf. 2 Morawetz on Corporations.

They may transfer

3 See Reilly v. Oglesby, 25 W. Va. 36; Banks v. Judah, 8 Conn. 145; San Francisco etc. R. R. Co. v. Bee, 48 Cal. 398.

4 Cf. Canada Southern R'y Co. v. Gebhard, 109 U. S. 509.

8 Robinson v. Philadelphia etc. R. R. Co. 28 Fed. Rep. 340; Ricker v. Alsop, 27 Fed. Rep. 251.

9 People v. Brooklyn etc. R'y Co. 89 N. Y. 75. Cf. Acres v. Mayne, 59 Texas, 623, 625; Wellsborough etc. Co. v. Griffin, 57 Pa. St. 417.

§ 766. Of statutes relating to reorganization.— In several of the American States reorganization is regulated by statute.' And it is held that statutes authorizing the mortgaging of the franchises of corporations are in no sense contracts, on the part of the State, with the purchasers of bonds secured by such a mortgage, that the statutory provisions existing at the time of the execution of the mortgage for the incorporation of the purchasers en foreclosure sale shall remain unchanged." Accordingly, the subsequent passage of a statute requiring corporations organized under the laws of the State to pay to the State treasurer a certain percentage upon their capital stock, applies to a corporation formed by the holders of mortgage bonds issued prior to the enactment, and the secretary of State may not lawfully file its articles of association until the tax has been paid.3

1 E. g. New York Laws of 1874, ch. 430; Ohio Rev. Stat. (1880), §§ 3393 et seq.; Ind. Rev. Stat. (1881), § 3945 et seq.

2_People v. Cook, 110 N. Y. 443, 450, upon the authority of Memphis etc. R. R. Co. v. Commissioners, 112 U. S. 609.

3 People v. Cook, 110 N. Y. 443.

767. The same subject, continued-The New York statutes.-In New York there are several statutes relating to the reorganization of railway companies. The act of 1874, chapter 430, provides that "in case the railroad and property connected therewith, and the rights, privileges and franchises of any corporation, except a street rail

road company, created under the general railroad law of this State, or existing under any special or general act or acts of the legislature thereof, shall be sold under or pursuant to the judgment or decree of any court of competent jurisdiction, made or given to execute the provisions or enforce the lien of any deed or deeds of trust or mortgage theretofore executed by any such company, the purchasers of such railroad property or franchises, and such persons as they may associate with themselves, their grantees or assignees, or a majority of them, may become a body politic or corporate, and as such may take, hold and possess the title included in said sale, and shall have all the franchises, rights, powers, privileges and immunities which were possessed before such sale by the corporation whose property shall have been sold as aforesaid, by and upon filing in the office of the secretary of State a certificate duly executed under their hands and seals, and acknowledged before an officer authorized to take the acknowledgment of deeds; in which certificate the said persons shall describe by name and reference to the act or acts of the legislature of this State under which it was organized, the corporation whose property and franchises they shall have acquired as aforesaid, and also the court by authority of which such sale shall have been made, giving the date of the judgment or decree thereof, authorizing or directing the same, together with a brief description of the property sold; and shall also set forth," the name of the corporation, the capital stock, the number of directors, and the plans and agreements of reorganization." Every stockholder in any company, the franchises and

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