therefore, is revocable by either party at any time before actual performance.33 An agreement for the reorganization of a corporation contemplating the disposal of the stock thereof and the transaction of certain business may form a valid consideration for an agreement by a party to relinquish his right to such stock.34 § 4878. Intention to create monopoly. When a proposed reorganization is attacked as illegal on the ground that the business of the new corporation will be in violation of law, the fact must affirmatively appear, the presumption being that there is no intention to engage in an illegal business, or otherwise violate the law. It has been held, therefore, that where the property of a corporation is about to be sold in judicial proceedings, the court cannot entertain objections to the purchase thereof by a committee of the bondholders or stockholders, based upon the ground that the corporation has attempted to create a trust or monopoly, and that the proposed purchasers will also endeavor to do so. The court cannot assume that any improper use will be made of the property, or undertake to control it after it has been sold and conveyed by the receiver.35 § 4879. Permitting stockholders to participate without including general creditors. This question is discussed elsewhere.36 § 4880. Agreement as to issuance of stock or bonds. A reorganization plan is not void because it authorizes the issuance of new bonds in excess of the old issue, and this is so although it does not appear that the new issue is to be used for the purposes of the corporation.37 But a reorganization agreement is illegal where it provides for an issue of stock or bonds in violation of a constitutional or statutory prohibition against a fictitious increase of the stock or indebtedness of a corporation, or the acceptance of labor or property in payment of stock or bonds at a greater value than the market price at the time the labor is done or the property delivered.38 33 Providence Albertype Co. v. Kent & Stanley Co., 19 R. I. 561, 35 Atl. 152. 24 Hladovec v. Paul, 222 Ill. 254, 78 N. E. 619, aff 'g 124 Ill. App. 589. 35 Olmstead v. Distilling & Cattle Feeding Co., 73 Fed. 44. 36 See § 4895, infra. 37 Cushman v. Bonfield, 36 Ill. App. 436, aff'd 139 Ill. 219, 28 N. E. 937. 28 Altenberg v. Grant, 85 Fed. 345. The carrying out of an agreement between the holders of mortgage bonds of an embarrassed railroad company, by which the property and franchises of the company are to be purchased by trustees at a sale on foreclosure of the mortgage and conveyed by them to a new corporation to be organized by the bondholders, A contract between the majority stockholders of a corporation of a particular state and other persons for the reorganization of the company on a plan which would render it illegal under the laws of that state, as creating a fictitious increase of stock, cannot be presumed to contemplate a reorganization under the laws of some other state, wherein such a reorganization might be valid, where it appears that the owners of the majority of stock in the old corporation are residents of the former state, that the business of the new corporation is to be carried on in that state, and is to be of a quasi public character, and that the contract was made in that state.39 § 4881. -What law governs. The validity ordinarily depends upon the law of the state where the old corporation is created and where the reorganization is attempted.40 § 4882. Estoppel to attack illegality. Where a scheme for reorganization of a corporation is illegal, a stockholder may set up such illegality although by reason of lack of knowledge of the facts. he failed to oppose the reorganization prior to the time it had been sanctioned by the court.41 § 4883. Construction-In general. Reorganization agreements frequently come before the courts for construction, and there are many decisions in the reports in which particular agreements have been construed. They are to be construed, of course, in accordance with the same rules which govern in the construction of any other contract. The intention of the parties is to be ascertained and given effect. The reorganization agreement must be construed in the and by which the new corporation is to issue to them new mortgage bonds and full paid up stock in lieu of the old bonds, without any payment of money, does not violate a constitutional provision that no private corporation shall issue stock or bonds except for money or property actually received, or labor done, and that all fictitious increase of stock or indebtedness shall be void. Memphis & L. R. Railroad v. Dow, 120 U. S. 287, 30 L. Ed. 595. 39 Altenberg v. Grant, 85 Fed. 345. 40 Altenberg v. Grant, 85 Fed. 345. 41 Bank of China, Japan & The Straits v. Morse, 168 N. Y. 458, 56 L. R. A. 139, 85 Am. St. Rep. 676, 61 N. E. 774. 42 United States. Meddaugh v. Wilson, 151 U. S. 333, 38 L. Ed. 183; Kildare Lumber Co. v. National Bank of Commerce, 69 Fed. 2; Davidson V. Mexican National R. Co., 58 Fed. 653; Carey v. Houston & T. Cent. Ry. Co., 45 Fed. 438; Mackintosh v. Flint & P. M. R. Co., 34 Fed. 582; Matthews v. Murchison, 15 Fed. 691; Hancock v. Toledo, P. & W. R. Co., 9 Fed. 738. Illinois. Crown Coal & Tow Co. v. Thomas, 177 Ill. 534, 52 N. E. 1042. Kentucky. Grant v. Pearce, 16 Ky. L. Rep. 204. Maryland. Glymont Improvement light of the situation of the parties and the objects sought to be accomplished." 43 However, the construction of reorganization agreements is often attended with considerable difficulty because of their many and frequently intricate provisions.44 & Excursion Co. v. Toler, 80 Md. 278, 30 Atl. 651. New Jersey. Hitchcock v. Midland R. Co., 33 N. J. Eq. 86. New York. Industrial & General Trust v. Tod, 180 N. Y. 215, 73 N. E. 7, rev'g 93 App. Div. 263, 87 N. Y. Supp. 687; Galinger v. Iowa Cent. Ry. Co., 144 N. Y. 655, 39 N. E. 398; Dow v. Iowa Cent. Ry. Co., 144 N. Y. 426, 39 N. E. 398, aff 'g 70 Hun 186, 24 N. Y. Supp. 292; White v. Wood, 129 N. Y. 527, 29 N. E. 835 rev'g 59 Hun 619, 13 N. Y. Supp. 631; Thornton v. Wabash Ry. Co., 81 N. Y. 462; Vose v. Cowdrey, 49 N. Y. 336; Glens Falls Paper Mill Co. v. Trask, 29 App. Div. 449, 51 N. Y. Supp. 977, aff'd 164 N. Y. 604, 58 N. E. 1087; Davidson v. Mexican National R. Co., 11 App. Div. 28, 42 N. Y. Supp. 1015; Coppell v. Hollins, 91 Hun 570, 36 N. Y. Supp. 500; Gernsheim v. Central Trust Co., 61 Hun 625, 16 N. Y. Supp. 127; Dutenhofer v. Adirondack Ry. Co., 60 Hun 578, 14 N. Y. Supp. 558; Gernsheim v. Olcott, 56 Hun 644, 10 N. Y. Supp. 438; Carpenter v. Catlin, 44 Barb. 75. Texas. Thayer v. Wathen, 17 Tex. Civ. App. 382, 44 S. W. 906; Keating v. McCutchen, 14 Tex. Civ. App. 150, 36 S. W. 597; Gresham v. Island City Savings Bank, 2 Tex. Civ. App. 52, 21 S. W. 556. Construction of a reorganization agreement as to sums to be furnished to be applied to liquidate the debts of the old company, see Davidson v. Mexican Nat. R. Co., 58 Fed. 653. "Prior" lien, as the term was used in proposed plan of reorganization, was held to mean a superior lien, and not necessarily one precedent in time. Titus v. United States Smelting, Re fining & Mining Exploration Co., 231 Fed. 205. Where, after a decree of foreclosure against a railroad company, the judgment creditors entered into an agreement for reorganization, assigning their judgments to the reorganizers in consideration of first mortgage bonds of the new company, to be delivered to them within six months after the date of the foreclosure sale," and the property was bid in by one of the assignees and the sale confirmed, but the time for compliance with its terms was extended by the court, and the terms of the sale were finally complied with and a conveyance decreed, it was held that the words above quoted referred to the time of completing the sale, and not to the time of bidding in the property, or of the confirmation. Houston, E. & W. T. Ry. Co. v. Keller, 90 Tex. 214, 37 S. W. 1062. As to the rights of holders of scrip issued by a corporation formed for the purpose of taking and holding land for the benefit of the holders of bonds issued by a corporation which formerly owned the land, and secured by a mortgage thereon, the land having been conveyed to trustees for the bondholders in satisfaction of the bonds, and having been conveyed by the trustees to the new corporation, in return for scrip issued to the bondholders, see Rogers v. New York & T. Land Co., 134 N. Y. 197, 32 N. E. 27. 43 Appeal of Columbus, S. & H. R. Co., 109 Fed. 177. 44 See Jef Chaison Townsite Co. v. Beaumont Saw Mill Co., 63 Tex. Civ. App. 186, 133 S. W. 714. Construction of agreement whereby If the agreement was drawn up by the reorganization committee, then it is to be construed most strictly against the committee.45 A bondholder's committee is to be held to the most strict accountability, and in construing the terms of an agreement between such a committee and the bondholders, in case of doubt, the construction most favorable to the latter must be placed upon it.46 § 4884. Agreement to accept "securities." An agreement of bondholders to accept in full for their claims their pro rata part of "securities" in the reorganized company, after foreclosure, means mortgage bonds and not certificates of stock in the new corporation.47 § 4885. Frovision for submitting plan of reorganization. Reorganization agreements are sometimes construed to impliedly require the committee to prepare a plan of reorganization and submit it to the bondholders before the property is sold on foreclosure.48 Where the agreement by bondholders appointed a committee to purchase the property at foreclosure sale, to be conveyed to a new company to be created, after submitting a plan of reorganization to the bondholders which should be binding on all the bondholders unless a majority dissented within thirty days, a reorganization plan is not binding, although a majority do not dissent therefrom, where the plan submitted was repugnant to the agreement instead of conforming thereto.49 a judgment creditor was to take a certain amount of bonds in place of his judgment, and the total issue of bonds was not to exceed a certain sum, and at least a certain sum in cash from the sale of the bonds should be put into additions or extensions of the property, see South Texas Tel. Co. v. Huntington, 104 Tex. 350, 138 S. W. 381, rev'g (Tex.), 136 S. W. 1053, (Tex Civ. App.), 121 S. W. 242. 45 United Waterworks Co. V. Omaha Water Co., 164 N. Y. 41, 53, 58 N. E. 58, rev'g 21 N. Y. Misc. 594, 48 N. Y. Supp. 817. A reorganization agreement prepared by the committee should be construed most favorably to the bondholders who had no part in preparing it and who were compelled to accept it as it was or not accept it at all. Industrial & General Trust v. Tod, 180 N. Y. 215, 225, 73 N. E. 7. In construing the terms of a reor ganization agreement, as to the powers of the committee, it must be construed most favorably to the bondholders and against the committee. Carter v. First Nat. Bank of Pocahontas, 128 Md. 581, 591, 98 Atl. 77. 46 Carter v. First Nat. Bank of Pocahontas, 128 Md. 581, 98 Atl. 77. 47 Thayer v. Wathen, 17 Tex. Civ. App. 382, 44 S. W. 906. 48 Industrial & General Trust V. Tod, 180 N. Y. 215, 226, 73 N. E. 7, rev 'g 93 N. Y. App. Div. 263, 87 N. Y. Supp. 687. 49 United Waterworks Co., Ltd. v. Stone, 127 Fed. 587. § 4886. Provisions as to expenses of reorganization. Where the plan of reorganization agreed upon provides that the new corporation shall pay all the expenses incurred by the reorganization committee, it is liable for services of attorneys rendered with the approval of the reorganization committee and in furtherance of the plan.50 § 4887. Modification of agreement. The courts cannot modify the agreement,51 nor can the committee unless authorized so to do.52 Sometimes, however, the reorganization agreement itself provides for its modification.53 A stockholder given an opportunity to join a bondholders' reorganization agreement, but who has not complied with the conditions imposed, has no standing to procure a modification of the agreement by striking cut certain provisions therein, since no contractual or trust relations exist between the stockholder and the committee.54 § 4888. Agreement as binding upon new corporation. The New York statute, for instance, provides that the plan or agreement "shall be binding upon the corporation, until changed as therein provided, or as otherwise provided by law." 55 § 4889. Attacks on agreement as premature. Attacks on a reorganization plan are not premature because made by intervention in the foreclosure suit before a decree.56 § 4890. Specific performance. In a proper case, a valid reorganization agreement will be specifically enforced,57 provided the agreement is sufficiently definite.58 Where the principal stockholder in an insolvent corporation desired to purchase the assets and reorganize the company, and he agreed with a creditor of the corporation in consideration of a release of his claims to cause certain notes to be issued to him by the new company, such stockholder cannot set up as a defense to an action to enforce specific performance of the con 50 Trimble v. Kansas City Southern R. Co., 257 Mo. 414, 165 S. W. 995. 51 See § 4841, supra. 52 See § 4915, infra. 53 See § 4915, infra. 54 Miller v. Dodge, 28 N. Y. Mise. 640, 59 N. Y. Supp. 1070. 55 New York Stock Law, $10. VII Priv. Corp.-75 56 Guaranty Trust Co. of New York v. Missouri Pac. Ry. Co., 238 Fed. 812, 816. 57 Dester v. Ross, 85 Mich. 370, 48 N. W. 530; Lyle v. Addicks, 62 N. J. Eq. 123, 49 Atl. 1121. 58 Ballou v. March, 133 Pa. St. 64, 19 Atl. 304. Corporation |