RIKER 'D. ALSOP.
then have been their duty, when making distribution to the certificate holders under the fifteenth article of the trust, to recognize and protect the rights of construction bondholders who had subscribed the agreement. If they had purchased the road when a foreclosure sale was imminent, the trust fund which would have been in their hands for distribution would have been in equity precisely what it would have been if no foreclosure sale had taken place and no purchase had been made; and the rights of holders of construction bonds who had subscribed the agreement to have their security as to two-thirds rtimain undisturbed, and the duties of the trustees to preserve their security, would have been exactly the same as if the trustees had succeeded in carrying out the scheme of the first 12 articles of the agreement, and were about to make distribution of the trust fund to certificate holders under the twelfth article. The trustees did not purchase upon the foreclosure of the second mortgage because a sale of the property was imminent. They did so because a sale, and a purchase by them under such a sale, would afford a convenient method of closing out their trust, and enable them to convey a satisfactory title to the pew corporation. Of course they occupy no better position towards the complainant than they would if they had purchased pursuant to the conditions of the trust. They now insist, as they have insisted all along, that they owe no duty to the complainant, and that no one had any right to share in the proceeds of the trust fund arising under the agreement except certificate holders, or in the distribution of the property which they acquired by purchase. It does not follow because the complainant had no interest in the trust fund, and was not entitled to share in its distribution after he had parted with his certificate, that the trustees owed him no duty respecting the unsurrendered two-thirds of his bonds. They undertook to become his trustee for the purpose of protecting, as well as could practically be dope, his interest as a secured bondholder of the company, to the extent of two-thirds of hiB original security, in consideration of hiB becoming a subscriber to the agreement. If this is not a correct view of the relation they promised to assume towards the construction bondholders, what inducement did the agreement offer to holders of such bonds to join in it? Their mortgage was a prior lien to the income mortgage of $3,200,000. They were to have nothing for relinquishing one-third of their secure ity except an equal share in the- trust fund with the income bond· holders, and a proportionate share with creditors and stockholders. They were to have but comparatively little participation in the man· agement and control of the fund, because they would be but a mi. nority of the voting power. Obviously, one of the main inducements which led them to sign was the consideration that the trustees, who were to undertake the readjustment of the affairs of the company, should become their trustees, for the protection of their interests as bondholders, in carrying ant the details of the scheme. v.27F.no.3-17
The sixteenth article of the ,agreement indicates very conclusively that every subscriber to the agreement, whether bondholder or stockholder, was to be protected in the event of a pnrchase of the property by any other subscriber, directly or indirectly, which would include a. purchase by the trustees. Under this article it would have been the privilege of the complainant to surrender his six bonds under the seventh article of the agreement, and receive a certificate for their amount. Thus, the agreement was carefully devised to protect every subscriber to' the full extent of his interest, both as bondholder and certificate holder, in the event that the trustees might be unable to protect him. That contingency did not occur, but the trustees themselves pnrchased the property. They could acquire no better rights upon such a purchase against the complainant than could have been acquired by any other purchaser who had become a party to the agreement. 'rhere is nothing in the provisions of the agreement conferring upon certificate holders the right, by a majority vote, at general meetings or special meetings called for the purpose, to modify the conditions of the agreement which affect the rights of the complainant as a holder of bonds. It was evidently contemplated by the agreement that those who surrendered their claims to the trustees were, to the extent of claims surrendered, to be placed upon the footing of stockholders of the company. They were ultimately to receive stock in proportion to the amount of their respective surrendered claims. While the readjustment was pending, they were to be permitted to exercise the powers ordinarily exercised by stockholders in directing and controlling the trustees, who, through the stock in their hands, were, in turn, to direct and control the affairs of the corporation. The trustees were therefore, in effect, representing a body of quasi stockholders. But neither certificate holders nor trustees were invested with any authority to extinguish or impair the rights of bondholders whose claims against the corporation were paramount to any equities which stockholders' could acquire in its property. The obligations assumed by the trustees towards bon«iholders in the of the complainant are not to be found in any of the express provisions of the trust agreement. These provisions are mainly intended to define the powers and duties of the trustees in administering the trust fund which should come to their hands, and the rights and interests of those entitled to participate in it. The duties incumbent upon the trustees in the protection of the complainant grow out of the character of the relations which they assumed towards every person who became a party to the agreement. They undertook to use their best exertions for the financial rehabilitation of the company, without requiring any sacrifice on the part of construction bondholders beyond that of one-third of their holdings. The complainant had a right to reply upon the faithful discharge of that obligation. The trustees were placed, by his consent, in part, in a.