(after stating the facts as above). Under the facts in this case two questions arise: First, did the foreclosure and sale cut off the claims of the unsecured creditors against the property of the old company? and, second, if not, what remedy, if any, has the appellee Dumber Company against the new company?
[ 1] The questions thus presented were so fully considered by the Supreme Court, under similar facts, in Northern Pacific Ry. Co. v. Boyd, 228 U. S. 482, 33 Sup. Ct. 554, 57 L. Ed. 931, that we take the liberty of quoting from the opinion at length. In discussing the effect of the foreclosure and sale the court there said:
‘•Corporations, insolvent or financially embarrassed, often find it necessary to scale their debts and readjust stock issues with an agreement to conduct (he same business with the same property under a reorganization. This may he done in pursuance of a private contract between bondholders and stockholders. And though the corporate property is thereby transferred to a new company, having the same shareholders, the transaction would bo binding between the parties, lint, of course, such a transfer by stockholders from themselves to themselves cannot defeat the claim of a nonassenting creditor. As against him the sale is void in equity, regardless of the motive with which it was made. For if such contract reorganization was consummated in good fa'ith and in ignorance of the existence of the creditor, yet when he appeared and established his debt the subordinate interest, of the old stockholders would still be subject to his claim in the hands of the reorganized company. f * * There is no difference in principle if the contract: of reorganization, instead of being effectuated by private sale, is consummated by a master’s deed under a consent decree.”
And in answer to the argument that this is only true where there is fraud in the decree the court said:
“Such and similar possibilities at one time caused doubts to be expressed as to whether a court could permit a foreclosure sale which left any interest to the stockholders. Bur. it is now settled that such reorganizations are not necessarily illegal, and, as proceedings to subject the property must usually be in a court where those who ask equity must do equity, such reorganizations may even have an effect more extensive ihan those marte withont judicial sale, and bind creditors who do not accept fair terms offered.”
Again:
“As between the parties and the public generally, the sale was valid. As against creditors, it was a mere form. Though the Northern Pacific Railroad *506was divested of the legal title, the old stockholders were still owners of the , same railroad, incumbered by the same debts. The circumlocution did not better their title against Boyd as a nonassenting creditor. They had changed the name, but not the relation. The property in the hands of the former owners, under a new charter, was as much subject to any existing liability as that of a defendant who buys his own property at a tax sale. The invalidity of the sale flowed from the character of the reorganization agreement regardless of'the value of the property, for in cases like this the question must be decided.according to a fixed principle, not leaving the rights of the creditors to depend upon the balancing of evidence as to whether on the day of sale the property was insufficient to pay prior incumbrances. * * * This conclusion does not, as claimed, require the impossible, and make it necessary to pay an unsecured creditor in cash as a condition of stockholders retaining an interest in the reorganized company. Hlis interest can be preserved by the issuance, on equitable terms, of income bonds or preferred stock. If he declines a fair offer, he is left to protect himself as any other creditor of a judgment debtor, and, having refused to come into a just reorganization, could not thereafter be heard in a court of equity to attack it. If, however, no such tender was made and kept good, he retains the right to subject the interest of the old stockholders in the property to the payment of his debt. If their interest is valueless, he gets nothing. If it be valuable, he merely subjects that which the law had originally and continuously made liable for the payment of corporate liabilities.”
See, also, Kansas City Southern Ry. Co. v. Guardian Trust Co., 240 U. S. 170, 36 Sup. Ct. 334, 60 L. Ed. 579; Central Improvement Co. v. Cambria Steel Co., 210 Fed. 701, 127 C. C. A. 184; Western Union Tel. Co. v. United States & Mexican Trust Co., 221 Fed. 545, 137 C. C. A. 113.
The reorganization agreement and foreclosure sale under consideration in that case were fully as favorable to the contention of the new company as are the plan of reorganization and foreclosure sale here involved. In that case the reorganization agreement made no provision for the payment of the unsecured creditors of the old company, but the new company voluntarily purchased claims against the old, aggregating $14,000,000. Here all parties in interest, stockholders, bondholders, and unsecured' creditors, were parties to the reorganization agreement/ and express provision was made for general creditors. There w,as no áttempt or intent to bar them, doubtless for the reason that they could not be barred under the plan of reorganization adopted, without incurring the hazard and uncertainty of litigation. It is plain, ’ therefore, that the claim of the appellee Fumber Company was not barred or cut off by the foreclosure suit.
[2] The next question is: Was adequate'and equitable provision made to preserve the interest of the Fumber Company under the reorganization ? There was here no offer or tender of income bonds or preferred stock, as suggested in the Northern Pacific Case. Of course, the method there suggested is not exclusive, but in our opinion it is exclusive of such a provision as was here made; 23,400 shares of the common stock in the new company, without par value, were set aside or reserved to satisfy the claims of unsecured creditors, aggregating 'approximately $550,000: The stock thus reserved or set aside was to be first offered for sale to the stockholders of the old company at $15 per share. Had the whole block been sold or taken up at that price, approximately $350,000 would have been realized therefrom; but at the time of the hearing in the court below, five years after the reor-*507ganizalion, only 1,532 shares of this stock had been sold or taken up, and we have no hesitation in saying that such a provision was neither adequate nor equitable, and we need not stop to inquire whether a timely lender was made and kept good.
[3] The remaining question is: To what measure of relief, if any, is the appellee Lumber Company entitled? The court below found that at. the time of reorganization the property of the old company was of the value of not less than $6,200,000, and that the total indebtedness of the old company, secured and unsecured, did not exceed that sum. The finding as to the value is assailed by the appellant. The testimony on that question was meager and unsatisfactory. There was testimony tending to show that the old company had made a report to the Public Service Commission of the state of Montana in 1916, fixing the value of the property at a sum greatly in excess of that found by the court, but it was explained that this value was based upon the bonded debt and par value of the stock, and not upon the actual value of the property. There was testimony tending to show that experts employed by the reorganization committee made a report fixing the value of the property at $6,000,000, and there was other testimony tending to show that the value did not exceed $4,600,000. This, together with the bonds and stocks of the old company and the new, is substantially all the testimony found in the record. We do not feel that we would be justified in disregarding the value of $6,200,000 as found by the court below, as it would seem that the testimony in support of that finding is fully as strong and convincing as was the testimony in the case to which we have referred. However, there is at least apparent conflict in the findings as made. Thus in the course of its opinion the court below said:
"In 1916 and tor some time tlie old company liad failed to earn fixed charges, was at the end of its resources as a going concern, and insolvent.”
And again:
“This evidence does not suffice to prove that at reorganization the properties wore not of sufficient value to reasonably work out full payment of all the creditors of the old company. On the contrary, taking into consideration all facts and circumstances in proof, and weighed in the light of those plaintiff might have adduced and did not; that with comparative ease it might have fully informed the court and wherein defendant virtually could not, the rinding is justified, required, and made that at reorganization the properties of the old company were of sufficient value to pay in full all the old company’s creditors, secured and unsecured and including defendant; that is to say, were of value not less than 86,200,000, and the total of all debts, secured ana unsecured, did not exceed said sum.”
If the term “insolvent” was used by the court in the bankruptcy sense — that is, that the aggregate of all the property at a fair valuation was not sufficient in amount to pay the debts — there is conflict be-' tween the two; but if the term was used simply in the sense that the company was at the end of its resources as a going concern, and unable to pay its debts as they matured in the ordinary course of business, the findings may be reconciled. But the court was in error in finding that $6,200.000 would suffice to pay all debts of the old company, secured and unsecured. The amount of the decree of foreclosure at the date *508of sale was admittedly $5,167,272, the amount of the prior bond issue unaffected by the foreclosure was admittedly $667,000, the aggregate of the claims allowed and approved by the receiver was admittedly $517,300, and the claim of the L,umber Company was admittedly $35,-077, making a total indebtedness of $6,384,345. Whether the court would have found that the value of the property exceeded $6,200,000, if it had made a correct estimate of the indebtedness, we are not advised; but we 'feel constrained to accept the specific finding as to value in view of the fact that the court, in our opinion, placed that value at the outside limit justified by the testimony.
It appears from the testimony, without contradiction, that for a long time prior to the appointment of the receiver the old company was unable to pay interest on its bonds and operating expenses, that bondholders and stockholders loaned large sums to the company to enable it to meet these fixed charges, that for a considerable portion of the sums thus loaned no claim has been made against either the receiver or the new company, and that for the balance of the sums advanced,, aggregating more than $500,000, creditors who were amply able to protect their rights, accepted the provision made for them in the reorganization agreement, a provision which will net them much less than the face value of their claims, and a provision which the Lumber Company has refused to accept. The court below said, incidentally, that to hold otherwise than it did would involve the unpleasant implication that bonds and stocks are afloat not paid in full.
But, if we turn to the plan of reorganization as carried out, we find that it provides for a new bond issue of $3,000,000 to take up all outstanding bonds of the old company and to provide a construction fund and working capital of $500,000; that it provides for new preferred stock of the par value of $1,794,150, and, as modified, for 50,000 shares of common stock without par value. If we assume that the bonds and preferred stock are worth par, and the common stock worth $15 par value, and this assumption is more favorable to the appellee Lumber Company than the facts will warrant, the bond issue, the preferred stock, and the common stock combined do not exceed in value $5,500,000. For these reasons, and frorn a careful examination of the testimony, we are convinced, as already stated, that the court below fixed the value of the property of the old company at the outside limit, and that no increase in that value would be justified. As said by the court in the Boyd Case:
“If, however, no such tender was made and kept good, he retains the right to subject the interest of the old stockholders in the property to the payment of his debt. If their interest is valueless, he gets nothing. If it be valuable, he' merely subjects that which the law had originally and continuously made liable for the payment of(jthe corporate liabilities.”
The Lumber Company then has the right, and the right only, to subject the interest of the old stockholders in the property to the payment of its claim, and after making just and equitable provision for other unsecured creditors, and of the provision made the Lumber Company cannot complain, we are satisfied that the remaining interest ot " the old stockholders in the property was substantially less than the fair value of the claim of the appellee Lumber Company. After deducting *509the amount of the foreclosure decree and outstanding bonds from the value fixed by the court, there is a balance of $365,725 to satisfy the claims of unsecured creditors, and this balance should be prorated among the several creditors. This will allow to each creditor approximately 66 per cent, of the face value of his claim, and we deem such an allowance fair and even liberal under the testimony; for, had the property been sold outright to bondholders or third parties leaving the stockholders and unsecured creditors to shift for themselves, we are satisfied that they would not fare nearly so well.
The decree of the cotirt below will therefore be modified, by reducing the claim of the Lumber Company to 66 per cent, of the original judgment, with interest at the rate of 8 per cent, per annum from the date of its judgment. The clerk will make the necessary computation before entering judgment here, and, as thus modified, the decree of the court below is affirmed, with costs to the appellant.
<&wkey;For other oases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes
<g=?Fcr other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes