
    John Ferguson, Appellant, v. The Ann Arbor Railroad Company and Others, Respondents.
    
      Corporation —reorganization of,, by bondholders — the new '.corporation may sell its common stock at any price to stockholders of the old corporation — rights of a judgment creditor of the old corpoc'ation.
    
    After a railroad corporation had gone into the hands of a receiver its bondholders adopted a plan of reorganization under which the property was bought in at a mortgage foreclosure sale by a bondholders’ reorganization committee' for a new corporation, which issued §7,000,000 worth of bond's and §4,000,000 worth of preferred stock, and subsequent to these §3,250,000 worth of common stock, which latter stock the stockholders of the old corporation were to have the privilege of purchasing at §10 for a §100 share.
    In a judgment creditor’s action, brought by a creditor of the old corporation, the plaintiff sought to reach a sum of money which it was claimed that the new corporation had realized from the new common stock taken by the stockholders of the old corporation. Neither the old corporation nor its stockholders were made parties to the action.
    
      Held, that the property of the old' corporation, sol'd to the new corporation upon a foreclosure of the mortgages upon it, could not be reached by the plaintiff, and that his only claim would be upon any surplus which might remain of the , purchase price after paying incumbrances;
    That the new corporation had a right to sell its common stock at any price it saw fit to ask for it; ■
    That if the plaintiff claimed that the old corporation had any equitable interest in this stock, or that the stockholders in the old corporation had' not paid enough for it, he must proceed against those parties, but that he could not take from the new corporation what it had realized from the stock.
    Appeal by the. plaintiff, John Ferguson, from a judgment of the Supreme Court in favor of the defendants, The Ann Arbor Railroad Company and others, entered in the office of the clerk of the county of New York on the 31st day of December, 1896, upon the decision of the court rendered after a trial at the New York Special Term, sustaining the defendants’ demurrer to the complaint, upon the ground that it did not state facts sufficient to constitute a cause of action, and also from an order entered in said clerk’s office on the 26tli day of December, 1896, directing the entry of said judgment.
    - Gha/rles F. Le Barbier, for the appellant.
    
      Franldin B. Lord and Robert D. Murrcvy, for the respondents.
   Williams, J.:

The action seems to have been brought as a judgment creditor’s action in behalf of plaintiffs and all other creditors, etc. 'The plaintiff alleged a judgment, and execution issued thereon and returned unsatisfied, the judgment debtor being a corporation known as the Toledo, Ann Arbor and North Michigan Railroad Company. It was not alleged whether this corporation was domestic or foreign, except that it was stated that its last known residence was within this State. The judgment debtor was not made a party to this action. The plaintiff sought by this action to reach a certain fund or amount of money, which he alleged belonged to the judgment debtor and was subject to the claims of its judgment creditors. The facts alleged were as follows: After plaintiff brought his action to recover his judgment upon which this action was based, a receiver was appointed in the State of Ohio of the property of the judgment debtor corporation. Shortly after this receiver was appointed a committee was organized for the purpose of protecting the interests of the bondholders of the judgment debtor corporation, and its various divisions pursuant to a plan of reorganization, such committee being known as the “ Bondholders’ reorganization committee of the Toledo,. Ann Arbor and North Michigan Railroad Company,” and the persons constituting this committee were .made parties to 'the action. The plan of this committee, which was promulgated, adopted and carried out, was to have a new corporation organized under tJie laws of the State of Michigan, known as the Ann Arbor Railroad Company, to have a sale of all the property of the old corporation under the mortgages to secure the bonds, and to have the property bid in for the committee and transferred to the new corporation that the new corporation should issue $7,000,000 of four per cent bonds, of which $5,962,200 should go to the bondholders of the corporation, and $1,037,800 should be used to provide the means of purchasing the Frankfort and Southeastern Division, making requisite expenditures, and paying the expenses of reorganization, the interest charges being reduced from $428,495 to $280,000 per annuih. And in order to partly compensate the bondholders of the old corporation for their sacrifice of interest and the surrender of new first mortgage bonds, to provide for the rehabilitation of the property, and to compensate the consolidated mortgage bondholders for the surrender of their lien, the new corporation was to issue preferred stock to the amount of '$4,000,000, entitled to all surplus earnings up to five per cent per annum, of which $3,544,400 were to be issued to the bondholders and $455,600 to be sold and the proceeds applied to improvements, and the new, corporation to issue common stock for $3,250,000, being one-half the amount of the stock of the old corporation, to be offered to the stockholders of the old corporation at $10 per share of $100 each; par value holders of two shares of - the stock of the old company to be entitled to take one share of - the new stock, and the.sum realized from this disposition-of the stock to be expended in improvements of the new company. It was alleged that this plan of the committee was carried out and the new corporation was organized, the property of the old corporation was sold on foreclosure’ of the mortgages, was hid in by a member of the committee and was transferred to the new corporation-for $2,627,000; that the bonds and stock were issued- by the new corporation and were disposed of pursuant to the plan of the committee; and that this new common stock was offered and 15,150 shares of it were taken by the stockholders of the old company; and that the new corporation received therefor $151,500. -

The new corporation was made a party to this action and the. plaintiff sought to reach and apply this $151,500 to-the payment of its judgment. This was the only property sought to, be reached in the action. We are unable to see any theory upon which the plaintiff, as a judgment creditor of the old corporation, is entitled to maintain this action, or to have this fund applied to the paymént of his judgment. First. The judgment debtor is not a party to the action, and is in no way represented in the action. Second. The bondholders had a legal right to protect their interests when the old corporation seemed to be in failing circumstances and was put in the hands of a receiver. In order to protect themselves they formed this plan for a reorganization. It is not claimed there was anything illegal in the plan in any way, except that it permitted the stockholders of the old corporation to buy the common stock of the new corporation at $10 per share .of the par value of $100. It does not appear what the amount of the old bonds was. The new corporation paid for all the property $2,627,000, and this went in reductioil of the amount of the bonds whatever it was. Aiter this sale the title of the old corporation to the mortgaged property was gone, and neither it nor its creditors had any claim on that property. It was represented by the purchase price. If there was a .surplus óf that after paying incumbrances, the plaintiff might claim his proportion of that surplus; but he had no rights in the mortgaged property itself which had been sold. Then the new corporation issued $7,000,000 of new bonds and $4,000,000 of preferred' stock and $3,250,000 of common' stock. How much this common stock was worth in view of the $11,000,000 of bonds and stock, which was ahead of it, does not appear. The old stockholders were permitted to purchase the common stock at $10 per share, and for all that appears that was all the stock was worth. If so, then this part of the plan was no more objectionable than any other part of it. The most that can be claimed is that the stockholders of the old corporation were enabled to get shares of stock in the new corporation at less than their real value. Suppose they were, the stock belonged to the new corporation and not to the old one, and could be sold at whatever price the new corporation saw fit to ask for it. And if it is claimed that the old corporation had in any way any equitable interest in this stock sold by the new corporation, and that the stockholders in the old corporation had not paid enough for the stock,' their remedy would have been to follow the stock into the hands of such stockholders. They would have no right to take from the new corporation what little it did realize from a sale <?f the stock.

The stockholders of the old corporation are not parties to the action, and, therefore, no relief can be had against them here. We do not see that the fund in question in-any way represents any assets of the old corporation which the creditors of that corporation -can reach in payment of its debts. It will be remembered that there is no allegation that the old corporation or its directors or stockholders were parties to the plan for reorganization. The bond: holders alone formed the plan and carried it out; and the stockholders had nothing to do with the matter except that they were permitted to and did purchase some of the common stock of the new corporation at $10 on the $100 of its par value. The new corporation, so far as appears, had a right to offer.and sell this stock at the rate it did, and so far as it appears it realized all the stock was worth. There is no basis in the complaint for claiming any right to the fund arising from the sale of this stock.

Our conclusion is that the demurrer was properly sustained, and that the judgment appealed from should be affirmed, with costs, and with leave to the plaintiff to amend on payment of costs in this court and in the court below.

Van Brunt, P. J., Rumsey and Parker, JJ., concurred; Patterson, J., concurred in result.

Judgment affirmed, with costs, and with leave to the plaintiff to amend on payment of costs in this court and" in the court below.  