
    The United Water Works Co., Limited, et al., Plaintiffs v. The Omaha Water Co. et al., Defendants.
    (Supreme Court, New York Special Term,
    November, 1897.)
    1. Corporations—Plan of reorganization—Committee may borrow money and pledge bonds deposited.
    Bondholders of a corporation may -legally enter into an agreement providing that a committee of their number shall prepare a plan of reorganization and that, upon its. adoption, in a manner stipulated, by a majority of the bondholders, the committee may, in order to make a cash payment on any foreclosure sale or in order to carry out the plan of reorganization, borrow money and pledge, for its repayment, any bonds or coupons deposited under the agreement, or- any other assets in the hands of the committee; and in the absence of fraud, the subsequent acts of the committee in forming a new corporation, in having a conveyance of the property foreclosed made to it, in executing mortgages thereon, valid by the ■ laws of the state where the new corporation was incorporated, and in issuing securities of the new company in place of bonds surrendered, must be allowed to" stand.
    2. Same — Who can question the validity of an incorporation in a foreign state.
    Where such a committee, authorized, in case of a purchase of the property, to incorporate in any state, incorporates in the state of Maine, the question whether it may, in Nebraska, as successor of a former company, exercise there all the powers given to it by its charter, is one which can be raised only by the state of Nebraska and in a proceeding brought for- that purpose.
    3. Same —Issue of bonds and stock to pay for property — Pledge' of voting power of stock as security for the payment of bonds.
    Where the statutes of the state of incorporation do not forbid,' the issue of bonds and sto.ck to pay for property acquired by the new corporation and the pledging óf the voting power of the, stock as security for the payment of the new bonds is not improper.
    
      Action to nullify a reorganization agreement and all proceedings thereunder.
    George H. Yeaman (Mr. Libby, of counsel), for plaintiffs.
    Turner, McClure & Rolston, for defendant Farmers’ Loan & Trust Company.
    Howard Mansfield, for defendant the reorganization committee.
    Albert Symington, for defendant The Omaha Water Company.
    Davies, Stone & Auerbach, for defendant The Guaranty Trust Company, of New York.
   McLaughlin, J.

Under the terms of the agreement, dated August 16, 1893, the plaintiffs became legally bound by the plan of reorganization subsequently adopted by the bondholders committee. This agreement, among other things, provided that: “ The committee may, for the purpose of making the cash payment required on any foreclosure sale * * * , borrow money for any such purpose or for the purpose of otherwise carrying out the provisions of the plan, and may pledge for repayment of any moneys so borrowed any of the bonds and coupons deposited hereunder, or any other assets in the hands of the committee;” and (paragraph 12) that the committee should, prior to the conveyance of the purchased property to a new company, submit to the certificate holders a detailed plan of reorganization, which should be binding upon them unless a majority of the certificate holders in interest should within thirty days thereafter file their mitten dissents therefrom.

The bondholders had an unquestioned legal right to delegate the great power here, conferred upon a committee if they saw fit to do so; but, having delegated that power, they and their successors in interest cannot after the exercise of the power repudiate the acts of the committee. A detailed plan of reorganization was submitted by the committee as provided in the agreement, and a majority of the certificate holders not only did not dissent, but, on the contrary, approved of and acquiesced in the plan proposed. Whether this plan was a wise one or not; whether it was one which good business judgment would sanction and approve, is a question which the courts will not consider, since the bondholders in depositing their bonds agreed to 'be bound by the judgment of the committee and the final decision of a majority of the certificate holders. • It, therefore, follows that the plan proposed became and is now absolutely binding upon the plaintiffs, unless it be shown that the committee Was guilty of fraud or its acts are illegal in themselves.

It is not claimed that the committee was guilty of fraud — indeed, it is not even suggested that it was guilty of deceit or concealment of any kind. The plan proposed was mailed to ■ all the certificate holders with a circular containing an explanation of its purposes, together- with a statement of the reasons which had controlled the committee in reaching the conclusion submitted. The acts of the committee, therefore, cannot be assailed on the ground of fraud; neither do I think they were illegal in themselves. It is urged, however, in this connection, that the new corporation cannot exercise the necessary franchise in Nebraska, and' therefore is legally incapable of succeeding to the rights of the American Water Company. But this question does not seem to me to deserve serious consideration, inasmuch as the plaintiffs are not in a position to have it considered. The agreement above referred to (paragraph 6) provided that, in case the committee purchased the property at a foreclosure sale, it might then be conveyed by it to a new corporation incorporated under the laws of such state as "the committee might determine. The committee, in the exercise of the- discretion thus given, saw" fit to incorporate under the laws of Maine, and, so far as appears, that corporation now has the-right to exercise within the state of- Nebraska all the powers conferred upon it by its charter. Indeed, its right to.own, and its power to operate and control the water works referred-to, can be questioned only by the state of Nebraska in a proceeding brought for that purpose. Cowell v. Spring Co., 100 U. S. 55; Christian v. Yount, 101 id, 352; Watts v. Gantt, 42 Neb. 869; Carlow v. Aultman, 28 id. 672.

The issue of bonds and stock in payment of the indebtedness incurred for the property acquired by the new corporation is not, in my opinion, subject to the criticism made by the plaintiffs,, because there is no provision in- the statutes of Maine against -such issue or against the issue of stock for insufficient valuation. Rev. Stat. of Maine, chap. 46, §§ 45 and 47; see, also, Memphis, etc., R. R. Co. v. Dow, 19 Fed. Repr. 388. Neither is there anything in the statutes of that state which prevents the pledging of: the voting power of stock as security for the payment of bonds issued by it. The act of the committee in this respect does not yiolate the terms of the original agreement, nor is it against public policy. It 'has frequently been said, especially in connection with- the reorganization of insolvent corporations, that such power may be conferred. Mobile & O. R. R. Co. v. Nicholas, 12 South. Repr. 723. The execution and delivery of the mortgages by the new corporation upon the- property acquired by it, and the issue of bonds to represent in whole or in part the interest of the certificate holders, in no way violates the bondholders’ agreement, because there is nothing therein contained which restricts or was intended 'to restrict the power of the new corporation in this respect. The agreement, it will be observed, left indefinite the nature of these interests and the power of the committee with reference thereto. § 11. And the mortgages provided for in the agreement, and as executed and delivered, are in no way in conflict with the laws of. Nebraska, so far as appears. The statutes of that state, offered in evidence, relate only to railroad and union depot companies. Indeed, the statutes of Nebraska, unless there be some special provision prohibiting the execution of such mortgages, could have no effect upon the - question, since the power of the corporation to manage its property must be determined by, and depend upon, the laws of the state under which it came into existence.

Other questions are raised by the plaintiffs, but it does not seem to be necessary or profitable to consider them. The situation is this: A new corporation, formed under the proposed plan, has received a conveyance of the property in question, upon which it has executed in accordance with the laws of the state under which it was incorporated the mortgages sought to be set aside; these mortgages have been delivered and recorded in the state where the property is located, and the corporation is now in the actual possession and operation of the water works referred to; the-securities of the new company have been issued and distributed among the holders of surrendered certificates representing upwards of $3,300,000, in amount, of the bonds which have already been used in paying for the property purchased; the owners of these bonds, or those who have succeeded to their interests, have not only acquiesced in, but, so far as the evidence discloses, approved of the acts of the committee in making the purchase. And yet these plaintiffs, representing at most but fifty-eight certificates nut of 3,569, ask■ to have the approval of such a large majority set aside-and the whole proceeding declared illegal and void. This, a court of equity, under the facts disclosed, ought not to do.

It follows that the complaint should be dismissed, with costs.

Complaint dismissed, with costs.  