Kansas City Southern Ry. Co. v. Guardian Trust Co.,
240 U.S. 166 (1916)

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U.S. Supreme Court

Kansas City Southern Ry. Co. v. Guardian Trust Co., 240 U.S. 166 (1916)

Kansas City Southern Railway Company

v. Guardian Trust Company

No. 85

Argued December 13, 14, 15, 1915

Decided February 21, 1916

240 U.S. 166


A reorganization scheme adopted upon the foreclosure of a mortgage of a railroad company and a purchase thereunder which provides substantially for the stockholders of the company, but which makes inadequate provision for its unsecured creditors, cannot be sustained, and in this case, held that the purchaser was chargeable with such unsecured debts. Northern Pacific Ry. v. Boyd, 228 U. S. 482.

One owning both stock and floating debt of a company whose property is under foreclosure and who assents to a scheme of reorganization which does not on its face show that it unduly provides for the stockholders and does not adequately provide for the unsecured creditors is not precluded from subsequently claiming that for such reason the property is still chargeable after the sale with his unsecured debt.

On the facts of this case, held that the party attacking a reorganization scheme as not adequately protecting unsecured creditors while providing for stockholders was not barred by laches.

Even though reorganization schemes must be framed so as to induce parties interested to come in and furnish fresh money, and courts should avoid artificial scruples in considering such arrangements, substantial justice must be done, and well settled rules of equity must not be transgressed.

210 F. 696 affirmed.

Page 240 U. S. 167

The facts, which involve the validity of a scheme of reorganization adopted upon the foreclosure of a railroad company and a purchase of the same which provided for the stockholders but left its unsecured creditors inadequately provided for, are stated in the opinion.

Page 240 U. S. 172

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