In Re Riggi Bros. Co.
42 F.2d 174
2d Cir.
1930
Check Treatment
CHASE, Circuit Judge

(after stating the facts as above).

The approval of this compromise settlement is not to be tested wholly by what may now be thought would have been the result of litigation to settle the respective claims of the parties. It is certain that litigation for that purpose would have been the inevitable result of a failure to compromise and equally certain that it would have’ made for delay and expense. This should be kept in mind in reviewing the approval of the compromise. Petition of Stuart (C. C, A.) 272 F. 938-941. Coupled with the certainty of litigation was the uncertainty of its result and the soundness of the exercise of discretion in approving it largely depends upon how substantial was this element of uncertainty. The action of the District Court is presumptively right, and will not be set aside unless clearly shown to have been wrong. Pullman Couch Co. v. Eshelman (C. C. A.) 1 F.(2d) 885, 887, 888. Consequently, we shall make no attempt to decide with exactness what would have been the outcome had no settlement been made and approved. Any virtue which may reside in a compromise is based on doing away with the effect of such a decision. For present purposes it is enough to consider only what was reasonably to be expected to happen had no agreement been made.

The description in the mortgage appears to be clearly sufficient. See First National Bank of Chelsea v. Fitts, 67 Vt. 57, 30 A. 697; Symes v. Fletcher, 95 Vt. 431, 115 A. 502; Wells v. Blodgett, 92 Vt. 330, 104 A. 146; Niles v. Fuller, 101 Vt. 471, 144 A. 375. The condition of the mortgage set forth that it was given to secure one of the notes payable in terms to the mortgagee as trustee and to seeure the payment of the two other-notes to the mortgagee as trustee for the holders of those notes. In view of this, the affidavit was probably sufficient as a substantial compliance with the statute. Enright & Fitch v. Amsden, 70 Vt. 183-188, 40 A. 37. Besides, the mortgagee actually took possession of the mortgaged property before the petition in bankruptcy was filed. In Vermont, the mortgage then became good at common law and related back to the time of its execution. Bean v. Parker, 89 Vt. 532-540, 96 A. 17, and cases there cited. See, also, Thompson v. Fairbanks, 196 U. S. 516, 25 S. Ct. 306, 49 L. Ed. 577; Humphrey v. Taiman, 198 U. S. 91, 25 S. Ct. 567, 49 L. Ed. 956. All this made any advantage the trustee in bankruptcy could have gained through a preservation of the liens of attaching creditors, to say the least, problematical, and made an attack on the mortgage by way of the affidavit hardly to be thought worth while.

There was no formal vote or written consent by stockholders to the execution of the *177 mortgage as required by the New York law, but the holders of at least two-thirds of the outstanding common stock did actually consent to its execution. If the ten shares of preferred stock could be ignored, there was good reason to believe that the mortgage could have been enforced without showing strict compliance with the statute. Black v. Ellis, 129 App. Div. 140, 113 N. Y. S. 558; In re Constantine Tobacco Co. (C. C. A.) 290 F. 128; Karasik v. People’s Trust Co. (D. C.) 252 F. 324. The certificate of incorporation of the bankrupt provided that “the holders of the preferred stock shall have no right to vote * * * on any question involving the management of the corporation.” The certificate issued for the ten shares contained a like provision. The giving of a mortgage to provide funds for operation is so plainly an act of management, Cunningham v. German Insurance Bank (C. C. A.) 101 F. 977, that this limitation on the right to vote could be said to exclude the holders of preferred stock, were it not for the fact that on May 3,1926, when the mortgage was executed, section 51 of the New York Stock Corporation Law (Consol. Laws, c. 59) provided that, unless specifically excluded by the certificate of incorporation or other certificate from the right to vote in a proceeding for mortgaging property, all shares of stock should be entitled to vote. Yet, if the claim of the mortgagee that the preferred stockholders, by being specifically excluded by the certificate from voting on questions of management, were thereby specifically excluded from voting on the execution of a mortgage, cannot be sustained, there is a doubt whether by a general act of the Legislature, passed, as section 51 was, after the voting rights of common and preferred stockholders had been fixed and stock issued on that basis, the common- stockholders can be compelled to share their hitherto exclusive right to vote on matters of management with preferred stockholders, who would thus be presented at the expense of the common stockholders with voting rights they did not acquire when they obtained their stock.

Moreover, we are dealing with a New York corporation doing business in Vermont and with a mortgage it gave in Vermont on property wholly located therein. Vermont had no statute similar to the New York law requiring consent of stockholders to a mortgage. At the time section 5008 of the Vermont General Laws indicated the policy that state had adopted toward transactions by foreign corporations doing business therein.

“See. 5008. Unauthorized transactions. If an act is done in this state in behalf of a foreign corporation and such act is authorized by the board of directors, or similar officers, or such act is done within the scope of authority given by such board, such act shall, provided that a corporation with authority to do such act might at the time such act was done have been formed under the laws of this state, be regarded as the act of the corporation and the corporation shall be liable therefor, even if such act was not necessary or proper to accomplish its purposes, to the same extent that it would have been liable for such act, had it been so necessary or proper.”

We do not decide what effect, if any, this Vermont statute would have had on the validity of the mortgage. It is quite enough now to know that the trustee would have met with serious opposition in trying to free the property from the mortgage lien. While he might, perhaps, have succeeded, the nature of the legal problems involved was such that the expense, delay, and likelihood of failure may well have made a. compromise settlement advisable. The District Judge thought so, found that the settlement was beneficial to all the creditors, and we cannot say on the record before us that he was wrong.

Order affirmed.