
    The Industrial and General Trust, Limited, Respondent, v. J. Kennedy Tod and James G. Leiper, Appellants, Impleaded with Another.
    
      Conversion of bonds by a reorganization committee — when a failure to report apion of reorganization and, the use of bonds deposited, in payment of the purchase price of a railroad, bought in by the committee and conveyed to another corporation, constitutes a conversion — measure of damages.
    
    During the pendency of an action to foreclose a mortgage executed by a railroad company to secure an isstie of bonds, certain of the bondholders entered into a reorganization agreement by which they appointed a reorganization committee and gave it power to take such steps as it .should deem expedient to secure a sale and conveyance of the mortgagor’s property and franchises, to enforce the rights of the bondholders and to protect their interests. The agreement provided that it should be the special duty of the committee to prepare a plan of reorganization, and that, when such plan was adopted, notice thereof should be. given to the bondholders, who, if dissatisfied therewith, might withdraw from the agreement.
    The agreement also provided that the committee might, for the purpose of effecting the reorganization, take steps for the formation of a new corporation and • for the acquisition by such corporation of all the mortgagor’s assets and franchises; that, in case of any sale of such franchises or assets, the committee might, in its discretion, purchase the same for the bondholders and might use the bonds deposited under the agreement for the purpose of paying therefor; that, if the committee should make such purchase, the assets and franchises might be conveyed to the committee or to' such person or corporation as it might designate. It further provided that the committee’s construction of the agreement should be final.
    The committee purchased the mortgaged assets and franchises at the foreclosure sale at the upset price fixed in the decree of foreclosure, without preparing and submitting a plan of reorganization to the bondholders,' although it had led the representative of one of the bondholders who signed the agreement to believe that no action would be taken until the plan of reorganization had been submitted. A new corporation was then formed, to which the com- ; missioned appointed by the decree of sale conveyed the mortgaged property, notwithstanding the fact that the representative of the bondholder mentioned had previously notified the committee that, under his construction of the reorganization agreement, the committee held' the property as trustees for the bondholders and that he protested against the committee transferring the property to the new corporation without ample notice to him and without his assent. On the same day on which the new corporation received the deed, it mortgaged the property to secure an issue of bonds. The next day the commissioner marked upon each bond which had been deposited under the reorganization agreement the following: “139 76/100 dollars paid on this bond as part of. the proceeds of sale under foreclosure.”'
    In an action brought against the committee by the bondholder before mentioned, . it was .
    
      Held, that the committee’s use of the bonds to pay for property transferred to another corporation amounted to a conversion of such bonds, and that, .having led the plaintiff's representative to believe that it acquiesced in his construction of the reorganization agreement, it. could- not justify its action, under- that provision of the agreement which provided that its construction thereof should ' be final;
    That the letters written by the'plaintiff’s representative, in which he contended that the committee held the property as trustees for the bondholders, and protested against the sale thereof without notice to him and without his .assent, did not constitute a ratification of the committee’s acts, which would defeat a recovery, as the conversion was not consummated until the plaintiff’s bonds had been used to pay for property transferred to a corporation with which the plaintiff had no relations;
    That the plaintiff having been prevented by the conduct of the committee from bidding upon the sale of taking other steps to protect its rights, its damages should be computed upon the basis of the value of the property represented by the bonds at the time the initial steps in the conversion were-taken, and not upon the price realized at the sale.
    Motion by the defendants, J. Kennedy Tod and another, for a new trial upon a ease .containing exceptions,, ordered to be heard at the Appellate Division in the first instance upon the verdict of. a jury in favor of the plaintiff, rendered after a trial at-the New York Trial Term.
    
      Also ail appeal by the defendants, J. Kennedy Tod and another, from an order of the Supreme Court, made at the New-York Trial Term and entered in the office of the clerk of the county of New York on the 23d day of June, 1899, denying the defendants’motion for a new trial made upon the minutes on the ground that the verdict was for excessive damages and was contrary to law.
    This motion and this appeal were transferred from the first department to the second department.
    
      Stephen H. Olin and Austen G. Fox, for the appellants.
    
      Louis Marshall and Samuel Untermyer, for the respondent.
   Woodward, J.:

The Birmingham, Sheffield and Tennessee River Railway Company was organized under the laws of the State of Alabama. The work of construction was commenced in 1889. For the purpose of enabling the projectors of this enterprise to carry on the work, the corporation executed a mortgage, dated April 1, 1889, to the Knickerbocker Trust Company of New York, by which all of the corporate property was mortgaged to secure the payment of an issue of bonds to the amount of $25,000 per mile, bearing interest at the rate .of five per cent per annum, and maturing April 1, 1929. Bonds were issued to the aggregate amount of $2,975,000. Default in the payment of the interest on the coupons followed some time prior to 1893, and in June of that year the Knickerbocker Trust Company instituted a suit in the United States Circuit Court for the northern division of the northern district of Alabama for the foreclosure of the mortgage held by it. On the 7th day of June, 1893, Edmund A. Hopkins was appointed receiver of all the corporate property. On the 9th of April, 1895, a reorganization agreement was drawn up, by which the defendants J. Kennedy Tod, Edmund A. Hopkins and J. G. Leiper were constituted a.committee representing the’bondholders, and were given very broad powers to represent those who should become parties to the agreement, and' should deposit their bonds with the. Manhattan Trust Company. The time for depositing such bonds was limited to the fifteenth day of May, with power in the committee to extend the time or to receive bonds after that date in its discretion. . The plaintiff, an English corporation, represented by Mr. Untermyer in New York, did not file its bonds within the prescribed time, but was afterward permitted to do so by the committee, the Manhattan Trust Company issuing its certificates of deposit, dated May 29, 1895, for the 570 bonds of the plaintiff, with the unpaid coupons. The reorganization agreement, in .so far as it is necessary to an understanding of the questions involved in this action, provides that the Bondholders hereby make, constitute and appoint J. Kennedy Tod, Edmund A. Hopkins and J. G. Leiper and their respective successors (to be appointed as hereinafter provided) as the Reorganization Committee of the Railway Company; and they hereby constitute the said Reorganization Committee' their only and exclusive attorneys, .agents and trustees, and the attorneys, agents and trustees of each and every one of them, for the purpose of carrying out this Agreement. And the Bondholders hereby severally and separately confer upon the said Committee whatever power and authority it may be necessary for the Committee to exercise in order to legally and efficiently' execute the said trust; and they, and: each of them, also constitute and appoint the said Committee their true and lawful attorneys, irrevocable, to execute on their behalf such instruments in writing and to do such acts and things as to the said Committee may seem proper to enable it to carry out the trusts created by this agreement in all its parts; hereby giving and granting to the said Committee full power and authority to do and perform all and every act and thing which it may deem convenient and necessary to be done in and abqut the premises, as fully to all intents and purposes as the said Bondholders might or could do personally, hereby ratifying and confirming all that the said Committee shall lawfully do or cause to be done by virtue hereof. The said Committee is hereby further expressly authorized and empowered to take such proceedings, give such- directions and institute, or cause to be instituted, any and all such suits or proceedings as it may be advised by counsel are necessary or proper; to take such steps' to secure the sale and conveyance of the property and franchises of the' Railway Company, either by means of existing legal proceedings, or by the institution of a new. suit or suits or proceedings, or by negotiation or agreement-or otherwise, as to it shall seem expedient; to enforce the rights of the Bondholders and protect their interests in every'way that said Committee may deem necessary or advisable. * * * The powers hereinbefore given shall not be narrowed or limited by any enumera^ tian of the powers conferred by this agreement.”

Fourth. The Committee is hereby expressly authorized and empowered, and it shall be its special duty, to prepare and adopt a plan for the reorganization of the affairs of the Railway' Company, with or without foreclosure. When the Committee shall have adopted such plan, a copy thereof shall be lodged with the Manhattan Trust Company. Notice shall thereupon be given to the holders of the Trust Certificates issued hereunder, and such plan shall become binding upon all of the said holders who do not withdraw herefrom (in the manner hereinafter provided), unless the holders of a majority in interest of the said Certificates shall within twenty days after such notice file with the Manhattan Trust Company their written dissent from the plan. The notice from the Committee to the holders of the Trust Certificates shall be given by mailing the same,, with postage prepaid, to the addresses registered by such holders with the Manhattan Trust Company, at the time of depositing the bonds represented thereby. Such registered addresses may, from time to time thereafter, be changed by a notice in writing delivered to the Manhattan Trust Company.

Fifth. Any holder of a Trust Certificate issued hereunder may at any time within thirty days after the mailing to him of notice of the filing of a plan of reorganization as hereinbefore provided,, withdraw from this Agreement and receive back the bond ór bonds deposited by him, upon payment of bis_pro rata share of the'expenses theretofore incurred by the Committee ; such payment in no event to exceed one-half of one per cent of the par value of the bonds and overdue coupons represented by such Certificate or Certificates. Upon the withdrawal of the bond's represented by such Certificate or Certificates and the payment of lustró rata share of the expenses of the Committee, as above provided, the holder of such Certificate or Certificates shall be thereupon, and without any further act, fully released from the obligations of this Agreement and from such plan of reorganization ; but as to every Certificate holder who does not within the said period of thirty days withdraw the bonds represented by his Certificate or, Certificates, his assent and ratification of the said plan shall be conclusively and finally assumed, conferred and given.

“Sixth. 'For the purpose of effecting a reorganization of the affairs of the Railway Company, the Committee is further authorized to take such steps as it may deem advisable for the formation of a new corporation, or to agree with any other party or parties for the formation thereof, and the Committee may take such steps as may be nécessary for transferring to such new corporation all the assets -.of -the said Railway Company and for the acquisition thereof by such new Company at any judicial sale of such assets or franchises. In case of any sale of any of the franchises or assets of the new Company, the Committee is authorized and empowered in its discretion to purchase the same, or any part thereof, for the account and benefit of the Bondholders, at such price as the Committee may deem expedient; but the Committee shall be under no-obligation to effect any such .purchase. For such purposes the Committee may .incur such-expenses as it may deem judicious, and may use the bonds deposited hereunder for the purpose of paving for any assets or franchises purchased. If the Committee shall purchase the whole or any part of the assets or franchises of the Railway Company, as hereinbefore authorized, the same may be conveyed to it or to any such person or persons, or corporation or corporations, as the Committee may designate. * *

“Eleventh. The Committee.may supply any defects or omissions which it may deem necessary to be supplied to enable it -to carry out the general purposes of this Agreement. The Committee is authorized to construe this Agreement, and its construction of the same shall be final,” etc.

On the 31st day of May, 1895, Mr. Hopkins resigned from the committee, and since .that time the affairs of the committee have been carried on by the defendants Tod and Lei-per. On the 1st day of July, 1895, a decree of sale was entered in the foreclosure suit brought by the Knickerbocker Trust Company in the United States Circuit Court, and a commissioner was appointed, who was directed to sell at auction the property covered by the mortgage after sixty days’, notice, no bid to be received for less than $50.0,000. This decree was entered after a conference between Mr. Rives, of counsel for the committee, and Mr. Stone, representing the Knickerbocker Trust Company. 'The sale, was. noticed for September 16,1895, and in addition to a notice in Alabama an advertisement was inserted in the New York Evening Post. In letters, under date of May twenty-eighth, June fourteenth and July ninth, Mr. Untermeyer asked Mr. Tod in reference to the plan of reorganization, when it might be expected, etc., and on the 16th of July, 1895, Mr. Tod made reply, in which he said: “ A Decree of Sale has been entered. The property is now being advertised for sale, and will, I understand, be sold upon the 16th day of September. No plan has yet been adopted, and I am unable to predict the probable date upon which a plan will be issued, but I have not forgotten your request to.be advised of it in advance.”. There was, at the time of writing this letter, two months intervening between the date and the time fixed for the sale, and the tone of Mr. Tod’s letter indicated that he understood that Mr. Untermeyer was to be informed of the provisions of the plan in advance. There was sufficient time to mature a plan, and to give the thirty days’ notice to bondholders, before the date of the sale as then fixed, and Mr. Tod’s statement that he had “ not forgotten your request to be advised of it in advance,” were facts to be taken into consideration in determining the good faith of the defendants and the ratification by the plaintiff of the acts of the committee. There is a conflict of evidence as to certain alleged interviews with William Stewart Tod, who appears to have represented J. Kennedy Tod in some degree, between the date of this letter and the sale of the railway company’s property on the sixteenth day of September.- It, is insisted by Mr. Untermeyer that William Stewart Tod, assuming to act for J. Kennedy Tod, assured him that a. sale would not take place until a plan had been prepared and submitted to the bondholders, as contemplated by the agreement. This is disputed-by William Stewart Tod, and as it was material upon the questions at issue the verdict of the jury must be deemed to have established the truth of Mr. Untermeyer’s version of these interviews, the tendency of which was to show that the committee did not act in good faith in construing the agreement, but while leading Mr. Untermeyer to •believe that no action would be taken until the plan of reorganization had been prepared and submitted, was actively engaged in promoting, a sale of the railroad and in closing the door of opportunity to the bondholders. Notwithstanding tlie .assurances of William Stewart Tod to Mr. Untermeyer, and the evident understanding of J. Kennedy Tod, the railway was sold on the sixteenth day of September, the committee purchasing the property at the upset price fixed by the court in its decree of sale, $500,000. Fifty thousand dollars in cash was paid on the day of sale by the committee. ' On the 15th day of October, 1895, the commissioner filed his report of sale, and on the twenty-ninth- of the same month the court in Alabama confirmed the sale. Mr. Untermeyer had notice of this sale on or before the thirtieth day of October. On the 22d day of November, 1895, the Northern Alabama Railway Company was incorporated under the laws of Alabama, to operate over the line' of the Birmingham, Sheffield and Tennessee River Railway "Company, it being necessary, under the laws of that State, to hold the franchise, that the ¡property be transferred to a new company. On the 29th day of November, 1895, the commissioner deeded the Birmingham, Sheffield and Tennessee River railway property to the Northern Alabama Railway Company, and on the same date the latter company by mortgage conveyed all the property and franchises to. the Knickerbocker Trust Company as security for- $1,700,000. of bonds. On the 30th day of November, 1895, J. Fred Johnson, the commissioner named in the decree of sale, attended at the office of the Manhattan Trust Company in the city of New York, where all of the bonds, including those of the plaintiff, which had been deposited under the reorganization agreement, were produced and presented to the commissioner, who stamped upon each of them the following words :

“New York, 29th November, 1895.
“139 76/100 dollars paid on this bond ás part of the proceeds of sale under foreclosure,'
“J. FRED JOHNSON, Commissioner.”

The bonds were then returned to the Manhattan Trust Company, where they have since remained.

Prior to the stamping of these bonds on the thirtieth day of November, this being the act which the learned trial court held as a matter of law to constitute conversion, and, on the.twenty-third of November, Mr. Hntermeyer wrote a letter to Mr. Tod, chairman of the committee, in which lie- says: “ Upon our construction of the agreement, the Committee now hold the property which .they purchased at the sale, which was had without notice to us, as Trustees for the bondholders. If, when the plan is promulgated, it fails to meet with our satisfaction, we are not, in my judgment, relegated to' the acceptance of the infinitesimal sum named in the decree as the upset price which Mr. William Tod seemed to regard as our only alternative. .* * * We should certainly object to the Committee parting with any part of the property to the new Company or otherwise without ample notice to us and without our assent.” On the thirtieth of November Mr. Untermeyer wrote to Mr. Tod, saying: “ Information has come to us to the effect that the Committee is about to convey the property in its hands to the North Alabama Railway Company, notwithstanding the protest made by me. * * * Will you kindly advise me whether this information is accurate ? On our construction of the Reorganization Agreement the Committee has no such authority.”

It is urged by the defendants that these letters are inconsistent with the present attitude of the plaintiff; that they constitute a ratification of the acts of the defendants in purchasing the property at the sale, and that the use of the bonds in paying for the property was but an incident to the transaction, not constituting conversion. If the committee had merely purchased the property of the railway company, and had then promulgated a plan for the reorganization, there might be some degree of force in this contention. The railway property was the foundation of the security, for the bonds, and it is not clear how the plaintiff could have suffered any loss by the committee purchasing the property and holding it in trust for the bondholders. The committee did not, however, stop here; it went forward and completed the reorganization of the property, turning it over to a new corporation, which in turn transferred the property by mortgage to a trust company, and this in the face of the protest of plaintiff. To use the bonds®of the plaintiff to pay for property which had been transferred to the Northern Alabama Railway Company and by that corporation mortgaged to the Knickerbocker Trust Company is quite a different thing from using the ponds to pay for property held in trust by the reorganization committee, and we are of opinion that the learned trial court was justified in holding that the transaction on the 30th day of November, 1895, constituted conversion of the plaintiffs’ bonds. ' This conclusion is not inconsistent with the rule that a party may waive a rule of law or a statute, or even a constitutional provision enacted for his benefit or protection, where it is exclusively a matter of private right and no considerations of public policy or morals are involved (Sentnis v. Ladew, 140 N. Y. 463), because that provision of the agreement which stipulates that the committee may construe the contract, and that such construction shall be final, contemplates that the committee shall act in good faith and upon questions which are fairly open to construction. The plaintiff all the time insisted that the proper construction of the contract called for the submission of a plan of reorganization as a condition precedent to. action on the part of the committee which would take from the bondholders any rights of property. The committee apparently acquiesced in this' contention ; there was certainly no denial on the part of the committee that the construction put upon the agreement by the plaintiff . was the correct one,' and the letters of J. Kennedy Tod, as well as the statements of William Stewart Tod, were calculated to leave the plaintiff with the idea that the. committee intended to act in accord with this construction of the contract. Under such circum^stances, the committee could not go on and vmake use of the plaintiff’s bonds in paying for .property which had been turned over .to another corporation, and then be heard to claim that it had acted in good faith in construing the,- contract in a manner to. permit of such use . of the plaintiff’s property. If the committee had informed Mr. Untermeyer that its construction of the agreement warranted it in going forward, or had given notice that it intended to act upon such a construction of the agreement so that- the plaintiff would have been in a position to protect itself, it may be that the provision authorizing the committee to construe the contract would have been controlling, but under the circumstances developed in this case the rule referred to can have no application.

Neither are the defendants in a position to urge that the plaintiff, through Mr. Untermeyer, by letters of November twenty-third and thirtieth, ratified the acts of the committee in such a manner as to defeat a recovery in this action. The conversion was consummated when the bonds of the plaintiff were used to pay for property belonging to the Northern Alabama Railway Company, and the plaintiff could lose no rights in the present action by insisting on. the twenty-third of November, and again on the thirtieth of that month, that the committee held the railroad property in the capacity of a trustee. So long as.the railroad property was in the hands of the committee, acting as trustees for the bondholders, no rights of the plaintiff had been impaired, even though the committee had acted in excess of its powers, and a ratification of. such action on the part of the plaintiff, which might have justified the use of plaintiff’s bonds in paying for the property in the hands of the committee, could not be held to authorize the use of these bonds in payment of property in the possession of a corporation with which the plaintiff had no relations, and especially so when the plaintiff had protested against the committee parting with the property.

.The remaining question necessary to be considered upon this appeal is the measure of damages. We have examined this branch of the case with care, and we are of opinion that the trial court did not err in its submission of the case to the jury upon the' evidence. The conversion was of the plaintiff’s bonds, the value of which was the fair valuation of these securities'in'their relation to the railroad property on the day of the sale, for the purchase must, under' the circumstances, be regarded as one of the steps in the final conversion of the plaintiff’s property. The duty of promulgating a plan of reorganization being upon the defendants, as a condition precedent to any action which might interfere with the rights of the plaintiff in its securities, the purchase of the property before such plan was submitted to the bondholders, and its subsequent disposition, coupled with the use of the plaintiff’s bonds in paying for property not in the possession of the committee, was all a part of the conversion which was consummated on the 30th day of November, 1895, and the measure of damages thus became the value of the railroad property represented by the bonds at the time of taking the initial steps in the conversion, and not, as contended by the defendants, the price realized at the sale, where the plaintiff was, by defendant’s conduct, deprived of an opportunity to protect its rights by bidding upon the property, or taking such other steps as might have been deemed advisable. The learned trial court permitted the. jury to consider the price realized upon this sale in determining the value of the property, in connection with the other evidence offered on the part of both parties, and as the evidence is sufficient to support the verdict, there is no reason why judgment should not issue in favor of the plaintiff, in accord with the verdict of the jury.

The exceptions should be overruled and judgment be entered in favor of the plaintiff, and the order denying a motion for a new trial should be affirmed.

All concurred, except Jenks, J., taking no part.

Exceptions overruled and judgment directed in favor of 'the plaintiff on the verdict, with costs. Order denying motion for new trial affirmed. ,  