Allan v. Moline Plow Co.

• Decision Date: 13 September 1926
• Docket Number: No. 7204.,7204.
• Citation: 14 F.2d 912
• Parties: ALLAN v. MOLINE PLOW CO., Inc.
• Court: U.S. Court of Appeals — Eighth Circuit

14 F.2d 912 (1926)

ALLAN v. MOLINE PLOW CO., Inc.

No. 7204.

Circuit Court of Appeals, Eighth Circuit.

September 13, 1926.

William R. Gilbert, of St. Louis, Mo. (Jesse A. Wolfort and Roscoe Anderson, both of St. Louis, Mo., on the brief), for appellant.

Sears Lehmann, of St. Louis, Mo. (S. O. Levinson, of Chicago, Ill., on the brief), for appellee.

Before LEWIS, Circuit Judge, and FARIS and PHILLIPS, District Judges.

PHILLIPS, District Judge.

This is an appeal from an order dismissing the bill in a suit brought by George H. Allan against Moline Plow Company, Incorporated, a corporation organized under the laws of Virginia, hereinafter called the Virginia Company.

On September 1, 1918, the Moline Plow Company of Illinois, a corporation organized under the laws of Illinois, hereinafter called the Illinois Company, issued its 7 per cent. serial coupon notes payable to bearer, for the aggregate amount of $6,000,000. Each note was for the principal sum of $1,000. They were issued in six series, designated as series A, B, C, D, E, and F, respectively. The notes of series A matured on September 1, 1919, B September 1, 1920, C September 1, 1921, D September 1, 1922, E September 1, 1923, and F September 1, 1924. Plaintiff was the owner of four series D notes. These notes contained, among other things, the following provision:

"This note is one of an issue of notes of the company, all of like date, tenor and amount, except as to the maturity thereof, which notes shall not exceed the aggregate principal amount of $6,000,000, and are all issued under and pursuant to a certain agreement, dated September 1, 1918, executed by the company and the Central Union Trust Company of New York, as trustee, to which agreement reference is hereby made for a description of the terms under which the said notes are issued and of the rights and obligations of the company and the trustee with respect thereto."

On September 1, 1918, the agreement referred to in the notes was duly made and entered into between the Illinois Company and the Central Union Trust Company of New York. In this agreement, the Illinois Company is called the company and the Central Union Trust Company is called the trustee. This agreement, among other things, contained the following provisions:

"Now, therefore, in consideration of the premises and of the purchase and acceptance of the notes by those who shall hold the same from time to time, the parties hereto hereby covenant and agree, for the equal benefit, security and protection of the legal holder or holders of any and all of the notes and coupons, without preference, priority or distinction of any of the notes or coupons over any of the other thereof, by reason of priority in the time of issue, negotiation or maturity thereof, or otherwise howsoever, as follows:

* * * * * * *

"Article IV. Remedies in Case of Default.

"Section 1. If default be made in the payment of the principal of any of the notes, or if default be made in the payment of any installment of interest thereon and such default shall continue for 60 days, or if default be made in the performance of any other covenant, condition or agreement on the part of the company in the notes or in this agreement contained and such default shall continue for 60 days after written notice shall have been given to the company by the trustee, which shall give such notice upon the written request of the holders of 25 per cent. in amount of the notes then outstanding, then, in each and every such case, the trustee, by written notice to the company may, and shall upon the written request of the holders of 25 per cent. in amount of the notes then outstanding, declare the principal of all the notes of all series then outstanding to be due and payable immediately, and, upon such declaration, the same shall become immediately due and payable, anything in this agreement or in the notes contained to the contrary notwithstanding. * * *

"Section 2. If default be made by the company in the payment of interest on or principal of any of the notes, whether the same shall become due by maturity, declaration, notice of redemption or otherwise, or if default be made by the company in the performance of any other covenant, condition or agreement on the part of the company in the notes or in this agreement contained, then, in each such case, upon demand of the trustee, the company agrees to pay to the trustee for the benefit of the holders of the notes and coupons then outstanding, the whole amount then due and payable on all such outstanding notes and coupons, with interest upon overdue installments of interest at the rate of 7 per cent. per annum, and, in addition thereto, such further amount as shall be sufficient to cover the cost and expenses of collection, including a reasonable compensation to the trustee, its agents, attorneys and counsel, and any expenses or liabilities incurred by the trustee hereunder, and in case the company shall fail to pay the same forthwith upon demand, the trustee, in its own name and as trustee of an express trust, shall be entitled to recover judgment against the company for the whole amount due and unpaid and to issue execution thereon against the whole or any part of the property of the company, real or personal. * * *

"Section 3. All remedies conferred by this agreement shall be deemed cumulative and not exclusive, and shall not be so construed as to deprive the trustee of any legal or equitable remedy by judicial proceedings appropriate to enforce the conditions, covenants and agreements of this agreement.

"Section 4. No holder of any note issued hereunder shall have the right to institute any suit, action or proceeding, at law or in equity, for the collection of any sum due from the company on such note, for principal or interest, or upon or in respect of this agreement, or for the execution of any trust or power hereof, or for any other remedy under or upon this agreement, unless such holder shall previously have given to the trustee written notice of an existing default, and unless, also, such holder or holders shall have tendered to the trustee security and indemnity satisfactory to it against all costs, expenses and liabilities which might be incurred in or by reason of such action, suit or proceeding, and unless, also, the holders of 25 per cent. in amount of the notes then outstanding shall have requested the trustee in writing to take action in respect of such default and the trustee shall have declined or failed to take such action; it being intended that no one or more holders of notes shall have any right in any manner to enforce any right hereunder, or under or in respect of any of the notes, except in the manner herein provided, and for the equal, proportionate benefit of all holders of the outstanding notes."

In the industrial depression that followed the World War, the Illinois Company found itself in financial difficulties. A reorganization committee was formed and the following plan of reorganization was agreed upon and carried out:

The Virginia Company was organized. The property and assets of the Illinois Company were transferred to the Virginia Company. The Virginia Company issued, and delivered to the reorganization committee, debenture bonds due in 1941, of the aggregate face value of $12,500,000, 7 per cent. cumulative first preferred stock, of the aggregate par value of $12,500,000, 7 per cent. noncumulative second preferred stock, of the aggregate par value of $7,500,000, and 199,500 shares of common stock, of no par value. The securities were dated September 1, 1921. Each of the creditors who joined in and accepted the reorganization plan, including the holders of the serial notes issued September 1, 1918, received for each $1,000 of indebtedness held by them 7 per cent. debentures of the par value of $500, new first preferred stock of the par value of $500, and 2½ shares of the new common stock. For each share of first preferred stock outstanding of the Illinois Company, one share of new second preferred stock was issued. For each share of second preferred stock outstanding of the Illinois Company three-fifths of a share of new common stock was issued. For each share of common stock outstanding of the Illinois Company, one-eighth share of new common stock was issued.

The reorganization agreement provided that no dividends should be paid on the second preferred and common stock until the bonds and the first preferred stock with interest thereon and dividends had been paid and retired. It provided further that "the claims of all creditors (except those to be paid in accordance with paragraph 7 of this offer) whether they have or have not heretofore signed and accepted the plan and agreement of reorganization, shall be treated on a plane of exact equality." Paragraph 7 referred to above made provision for the payment of current liabilities of the Illinois Company, not to exceed $700,000. The Virginia Company assumed current obligations of the Illinois Company aggregating approximately $700,000. 96½ per cent. of the note holders and 99½ per cent. of the other creditors accepted the plan and exchanged their notes and claims for the new securities.

Thereafter, and on September 26, 1925, without complying with the provisions of the trust agreement, the plaintiff brought this suit against the Virginia Company, setting up that he was the owner of four notes; that the same were due and unpaid; that pursuant to the plan of reorganization, the assets of the Illinois Company had been transferred to the Virginia Company in exchange for securities issued to the reorganization committee; that such transfer was in fraud of the creditors of the Illinois Company, including the plaintiff, and prayed that the Virginia Company "be adjudged and decreed to hold said assets so received from the Moline Plow Company of Illinois for the benefit of the plaintiff and all other creditors of the Moline Plow Company of Illinois...