Page:Harvard Law Review Volume 32.djvu/530

494 sale as part of the purchase price. "It is not deemed proper and necessary to require purchasers to put up cash with one hand to take it down with the other," as one court has said. And in such sales, the vital and controlling feature, although this has not yet been recognized to be the fact, is the tendency of the courts to fix an upset price as a minimum at which the property can be bought in by the majority bondholders so that the minority may not receive a sum less than the value of their bonds. Our courts, particularly the lower federal courts, have adopted this procedure because they felt that the theory of a public sale under foreclosure was unsound, and that there would be no competitive bidding. Therefore they desired to protect the minority from being despoiled by the majority who could "chill the sale," i. e. bid the property in for a pittance and give the minority bondholders nothing.

But the American courts have gone much too far in this solicitude for the interests of the minority. The fixing of an upset price to protect minority bondholders means the intervention of the court at the controlling moment of a reorganization with the purpose, or result, of defeating the control of the majority. If the plan of reorganization is approved by the majority of the security-holders of all classes; if it appears fair and just to the court after full hearing of the contentions of the minority; and if the plan be open to the dissenting bondholders on an equality with the majority, the court should refuse to fix an upset price, or should fix a purely nominal price, disregarding the value of the property, and solely in order to take care of the mechanics of determining the value of the bonds of the majority turned in to the master as payment for the property. Thus the majority could force the minority to accept their plan of reorganization by buying the property up for an insignificant sum, and offering the minority the alternative of taking virtually nothing in cash, or of taking new