constitutional prohibitions. In the United States, the legislatures may undoubtedly prescribe any terms and conditions they may see fit in authorizing reorganizations, provided they violate no constitutional prohibition; but the constitutional prohibition against laws impairing the obligation of contracts prevents them from depriving any stockholder, bondholder or creditor of a corporation of the rights secured to him by his contract. In the United States, therefore, a legislature cannot deprive a mortgage bondholder of a corporation of the right to the benefit of his security by authorizing a majority of the bondholders to force him into a reorganization without a foreclosure of the mortgage.87 It may, however, prevent him from coming into a reorganization of the corporation without complying with certain terms, unless the right to do so is given him by his contract, provided he is not deprived of his right to share in the proceeds of the mortgaged property.88 Thus, a statute which makes the failure of a bondholder to signify his refusal to concur in the reorganization agreement, within a specified time, equivalent to an express assent in writing, does not, according to a leading case in the Supreme Court of the United States, impair the obligation of his bond, but is a valid statute.89 Moreover, statutes providing for a reorganization by a majority of the bondholders, where the corporation is insolvent or financially unable to meet its obligations, 'do not deprive minority. bondholders of their property without due process of law.90

In England and Canada, where there is no such constitutional limitation on the power of the legislature, the same rule does not apply, but parliament may authorize a corporation or a majority of the stockholders or bondholders in a corporation to force a settlement

8/See Canada Southern R. Co. v. Gebhard, 109 U. S. 527, 27 L. Ed. 1020. Compare, however, Gates v. Boston & N. Y. A. L. R. Co., 53 Conn. 333, 5 Atl. 695.

88 See Gilfillan v. Union Canal Co. of Pennsylvania, 109 U. S. 401, 27 L. Ed. 977; Vatable v. New York, L. E. & W. R. Co., 96 N. Y. 49.

89 Gilfillan v. Union Canal Co. of Pennsylvania, 109 U. S. 401, 27 L. Ed. 977, where the court said that while a majority of the bondholders cannot compel a minority to enter into a reorganization agreement against their will, and that a statute passed after

the bonds were issued subjecting the minority to the provisions of the agreement without their consent would probably be invalid, yet it seems to us a proper exercise of legislative power to require a minority to act whenever such an arrangement is proposed, and to provide that all shall be bound who do not, in some direct way, within a reasonable time after notice, signify their refusal to concur."

90 ('anada Southern R. Co. v. Gebhard, 109 U. S. 527, 536, 27 L. Ed. 1020.

and reorganization upon the minority.91 And it has been held by the Supreme Court of the United States that the proceedings under such a statute will be binding upon bondholders who are citizens of the United States. In the case referred to, the Canadian Parliament had authorized a Canadian railroad company to enforce a settlement upon the holders of mortgage bonds of the company, by which they should receive other securities in the company in the place of their bonds, and the statute provided for participation in the reorganization of the company on equal terms by citizens of the United States holding bonds of the company. The settlement went into effect with the assent of a majority of the bondholders, and it was held binding upon nonassenting bondholders who were citizens of the United States, so that they could not afterwards maintain a suit to recover on the bonds in the courts of the United States.92 In that case it was said in substance by Chief Justice Waite: "Holders of bonds and other obligations issued by large corporations for sale in market, and secured by mortgages to trustees, or otherwise, have, by fair implication, certain contract relations with each other. They are not corporators, and thus necessarily, in the absence of fraud or undue influence, bound by the will of the majority as to matters within the scope of the corporate powers, but they are interested in the administration of a trust which has been created for their common benefit. Ordinarily their ultimate security depends in a large degree on the success of the work in which the corporation is engaged, and it is not uncommon for differences of opinion to exist as to what ought to be done for the promotion of their mutual interests. In the absence of statutory authority or some provision in the instrument which establishes the trust, nothing can be done by a majority, however large, which will bind a minority without their consent. Hence it seems to be eminently proper that where the legislative power exists some statutory provision should be made for binding the minority in a reasonable way by the will of the majority; and unless, as is the case in the states of the United States, the passage of laws impairing the obligation of contracts is forbidden, we see no good reason why such provision may not be made in respect to existing as well as prospective obligations. The nature of securities of this class is such that the right of legislative supervision for the good of all, unless restrained by some constitutional prohibition, seems almost

91 Canada Southern R. Co. v. Gebhard, 109 U. S. 527, 27 L. Ed. 1020; In re London Chartered Bank of Australia, [1893] 3 Ch. Div. 540; Nicholl

v. Eberhardt Co., 61 L. T. (N. S.) 489.

92 Canada Southern R. Co. v. Gebhard, 109 U. S. 527, 27 L. Ed. 1020.

necessarily to form one of their ingredients; and when insolvency is threatened, and the interests of the public, as well as creditors, are imperiled by the financial embarrassments of the corporation, a reasonable scheme of arrangement may, in our opinion, as well be legalized as an ordinary composition in bankruptcy. In fact, such arrangement acts are a species of bankrupt acts. Their object is to enable corporations created for the good of the public to relieve themselves from financial embarrassments by appropriating their property to the settlement and adjustment of their affairs, so that they may accomplish the purposes for which they were incorporated. In no just sense do such governmental regulations deprive a person of his property without due process of law. They simply require each individual to so conduct himself for the general good as not unnecessarily to injure another." 93

§ 4869. Repeal or amendment of statutory authority as impairment of contract. A provision in a statute relative to the creation of a new corporation upon the reorganization of a corporation does not constitute a contract within the impairment clause of the Federal Constitution,94 For instance, a statute authorizing persons who may purchase the property and franchises of railroad companies or other corporations at foreclosure sales, or other judicial sales, to organize a corporation to receive and hold the property and franchises purchased, does not, before it is acted upon, create any contract between the state and the holders of mortgage bonds of such corporations, or future purchasers at such sales, so as to prevent the legis lature from repealing or changing the statute, or providing that a tax shall be paid on such a reorganization.95 The authority to incorporate, after a purchase at foreclosure sale, as conferred by statute, is not a part of the property right of the bondholders but instead a privilege granted by the state, which may be withdrawn; and hence an amendment of a statute, taking from the bondholders, in case of a foreclosure, the right to reorganize, except upon condition of sub

93 Canada Southern R. Co. v. Gebhard, 109 U. S. 527, 27 L. Ed. 1020.

94 Grand Rapids & I. R. Co. v. Osborn, 193 U. S. 17, 48 L. Ed. 598.

95 People v. Cook, 148 U. S. 397, 37 L. Ed. 498.

A statute authorizing the purchasers of railroads sold upon foreclosure to incorporate, which was in force when the mortgage was executed, is

not a contract between the state and the bondholders, and hence there is no violation of obligation of contract by the enforcement of a subsequent statute providing for the payment of an incorporation fee. People v. Cook, 148 U. S. 397, 37 L. Ed. 498, followed in Grand Rapids & I. R. Co. v. Osborn, 193 U. S. 17, 28, 48 L. Ed. 598.

mission to the rates of fare fixed in the statute, is not unconstitutional as impairing the obligations and property rights secured by a mortgage executed prior to such amendment.96

§ 4870. Change of state bank into national bank-Statutory authority. Express provision is made, in the act of Congress relating to national banking associations, for the reorganization of state banks into national banks. It is provided therein, in substance, that any bank incorporated by special law, or any banking institution organized under a general law of any state, with sufficient capital, may become a national banking association by the vote of fifty-one or more per cent of the stock, with the approval of the comptroller of the currency; "and in such case the articles of association and the organization certificate may be executed by a majority of the directors of the bank or banking institution, and the certificate shall declare that the owners of fifty-one per centum of the capital stock have authorized the directors to make such certificate, and to change and convert the bank or banking institution into a national association. A majority of the directors, after executing the articles of association. and organization certificate, shall have power to execute all other papers, and to do whatever may be required to make its organization. perfect and complete as a national association." There are other provisions not necessary to mention in this connection.97 Under this statute, it has been a common practice to reorganize state banks by changing them into national banks.98 No authority other than that

95 Commissioner of Railroads V. Grand Rapids & I. R. Co., 130 Mich. 248, 89 N. W. 967, 9 Det. L. N. 10, aff'd 193 U. S. 17, 48 L. Ed. 598.

97 U. S. Rev. St. § 5154; 6 Fed. Ann. St. (2nd Ed.) p. 713..

Prior to the amendment of this statute by the Federal Reserve Act of 1913, a two-thirds vote of the stockholders was necessary.

The certificate of the comptroller of the currency is conclusive as to the regularity of the proceedings converting a state bank into a national bank. Keyser v. Hitz, 2 Mackey (D. C.) 473, 133 U. S. 138, 33 L. Ed. 531.

98 See the following decisions: United States. Casey v. Galli, 94 U. S. 673, 24 L. Ed. 168.

conferred by the act of Congress is required to enable a bank existing under a general or special state law to reorganize as a national banking association, and hence state authority is not necessary.99

A state law authorizing any state banking corporation to become a national banking association under the laws of the United States, and providing that it may continue to use its corporate name for the purpose of prosecuting and defending suits, etc., simply confers a privilege, and does not impair their efficiency to perform their functions as agencies of the United States government, nor conflict with the act of Congress requiring national banks to have a corporate name, etc.1

§ 4871. Effect of reorganization as to rights and liabilities. While it is not very clear how a banking corporation organized under state laws, owing its existence and powers to such laws, and being purely a state corporation, can properly be said to be the same corporation when it has reorganized under the National Banking Act, and become a federal corporation, deriving its existence and powers solely from the laws of the United States, yet it is settled, in so far as decisions can settle a question, that when a state bank is reorganized as a national bank under the act of Congress, the reorganization does not change the identity of the corporation, but merely continues the same body under a different jurisdiction, and that, as a national bank, it takes all the assets and rights possessed by it, and becomes subject to all the liabilities incurred by it, as a state bank. It makes no difference that it has in form been organized as

same may be applicable to such savings or other banks, such banks are entitled to organize as national banks. Keyser v. Hitz, 133 U. S. 138, 33 L. Ed. 531, 2 Mackey (D. C.) 473.

99 Casey v. Galli, 94 U. S. 673, 24 L. Ed. 168.

1 Thomas v. Farmers' Bank of Mary. land, 46 Md. 43.

"The general scheme of the National Banking Act," said the New York Court of Appeals, "is that state banks may avail themselves of its privileges and subject themselves to its liabilities, without abandoning their corporate existence, without any change in the organization, officers, stockholders, or property, and without interruption of their pending business or contracts. All property and rights which they held before organizing as national banks are continued to be vested in them under their new status. Although, in form, their property and rights as state banks, purport to be transferred to them in their new status of national banks, yet in sub

2 Michigan Ins. Bank v. Eldred, 143 U. S. 293, 36 L. Ed. 162; Metropolitan Nat. Bank v. Claggett, 141 U. S. 520, 35 L. Ed. 841; Coffey v. National Bank of Missouri, 46 Mo. 140, 2 Am. Rep. 153; City Nat. Bank of Poughkeepsie v. Phelps, 97 N. Y. 44, 49 Am. Rep. 513; Thorp v. Wegeforth, 56 Pa. St. 82, 93 Am. Dec. 789.

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