(concurring in part and dissenting in part).
I am in complete accord with so much of the opinion as affirms the judgment on the “Fourth Cause of Action.” I am unable to agree with that portion of the opinion which holds -the defendant liable for accepting payment of its loa,n. The trust indenture expressly permitted the trustee to make loans to “Ageco.” A six months’ loan without security was made October 16, 1931. Partial payments were made in March 1932, before maturity, and the balance was paid May 11, 1932. I agree that a trustee, even though the trust instrument permits him to lend money to the settlor of the trust, is under a fiduciary duty not to collect the loan if he has reason to believe that collecting the debt will impair the likelihood of his cestuis receiving payment of debts owed by the settlor to them, but I cannot view this as such a case. The trial judge found that the proof did not establish that the Bank had reasonable cause to believe that Ageco was insolvent or in imminent danger of insolvency in March or May 1932. Judge Hand’s opinion recites facts which show that the Bank’s officials were uncertain whether the Ageco “System” would survive -the 1932 crisis and be able to refund its long term debts and loans which were soon to become due, and “thought it more likely than not that the ‘System’ would survive, but the future was most insecure.”. My brothers hold that this is enough to require the Bank to account for “profits.” I agree that if there was a breach of .fiduciary duty in collecting the debt the Bank’s “profits” should be determined as suggested in Judge Hand’s opinion. But I am not convinced -that there was a breach of fiduciary duty. The debtor did not go into bankruptcy until 1940. In 1932 there was no reason for the Bank to suppose that accepting payment of its debt would accelerate by a single day a bankruptcy which the debtor was able to avert for eight years or that, if the debt were not paid, the debtor would have one cent more of assets for distribution in a reorganization not then imminent. To this situation I would apply the same principle which leads us to -affirm the judgment on the fourth cause of action, namely, that “merely vague or remote selfish advantages to a trustee are not sufficient to prove such an adverse interest as to bring his conduct into question.”
CLARK, Circuit Judge(concurring in part and dissenting in part).
I concur in the opinion holding defendant liable for the repayment of the loan to itself and leaving the amount to be settled after the filing of briefs by the parties developing the issues. But I do not agree with the holding absolving defendant of any liability with respect to the second transaction complained of.
This latter transaction was an exchange of securities — under an agreement effected' by the Ageco management — between defendant Chase and four subholding companies of the system. Acting as an individual trader and not in its capacity as trustee, Chase delivered some $4,249,000 face amount Ageco debentures and other utility notes; in turn it received securities of certain lower constituents of the hierarchy. The district court did not get to the point of setting values to the securities involved and probably we should not attempt to do so here. But for purposes of our discussion of defendant’s legal liability we may assume the plaintiff’s claims- — based on the testimony of the expert Hartt, which was generally -accepted by. the court —that defendant received securities worth some two million more than it gave up. The opinion holds that defendant need not replace the securities or otherwise give up this advantage on the ground that possibility of loss to Ageco’s bondholders was too remote; since the securities received by defendant came from subholding companies some tiers down from Ageco, the resulting insulation mitigated possible effects on Ageco’s security holders to such an extent that they could not complain. But this, it seems to me, is based on an er*677roneous concept of the working of the capital structure of a holding-company system. For the closer to the operating companies á reduction of assets occurs, the more explosive its effect.
The basic principle of holding-company finance is that of leverage through pyramiding.1 All earnings originate as revenues of the operating companies. Since each holding company generally owns only the equity voting stock of the company below — which stock can pass dividends only after prior fixed charges are met — the income filters up through the system to the top only as excess over the preferred claims against the lower companies. Hence the profit of the top holding company is in the highest degree speculative, since it represents only the balance left after a host of prior calls on income are satisfied.2
I cannot escape the conclusion from this that the security holders of the top holding company suffer first whenever assets — either operating properties or securities— are reduced within the system. And the further down an unfavorable exchange occurs, the more highly magnified its effect is on the upper tier of security holders. So the occurrence of the four circumstances which the opinion assumes necessary before the Ageco debentures would be injured by this unfavorable exchange — the insolvency of Ageco and the solvency of -the various undercompanies — does not appear unlikely or highly speculative. Ageco would almost inevitably be the first one unable to meet its interest and dividend requirements.3
I take it to be clear that had Chase made the exchange directly with Ageco, its resulting gain is one that it would have to give up in view of its fiduciary obligations to the bondholders of Ageco and the latter’s insolvency. But here the situation is not different save -that the loss may be potentially greater as it ripples up through the tiers of companies.
I would therefore remand this part of the proceedings to the district court for findings as to the relative value of the exchanged securities. Such remand should probably await decision on the other branch of the case settling the appropriate rule-of damages if benefit is found.
. Bonbright & Means, The Holding Company, 1932; Comment, Section 11(b) of the Holding Company Act: Fifteen Years in Retrospect, 59 Yale L.J. 1088-1092.
. An excellent short description of this pyramiding effect is to be found in Trachsel, Public Utility Regulation 385-393, 1947.
. Barring the use of such dubious and more or less temporary devices as high-priced servicing contracts, asset write-ups, or inadequate depreciation reserves to pump income into the top levels when operating profits are inadequate. See Federal Trade Commission, Utility Corporations, Sen. Doc. No. 92, Part 72-A, 70th Cong., 1st Sess. 352-355, 440-448, 496, 847.