UPSET PRICES IN CORPORATE REORGANIZATION 499 the public.^^ In brief, the court during a reorganization must in- sure a convenient procedure to enforce contract-rights but should not make new contracts for the parties. The decisions of the Supreme Court in the Shaw case ^^ and the Shedd case ^° have not been followed by the lower federal courts, especially so far as the theory of these cases is concemed.^^ In- deed, the doctrine of the necessity of fixing an upset price in re- organizations by way of foreclosure, is a doctrine built up solely by the lower federal courts; it has arisen out of an overwhelming solicitude for minority rights and a confusion as to the duties of the chancellor under a foreclosure sale. The reasons impelling this fixing of an upset price because of the court's fear that the sale will be "chilled," are aptly stated in a decision by the Circuit Court of Appeals for the Seventh Circuit; "At execution sales and at foreclosure sales of ordinary farms or town lots, the general public may in fact be interested as intending bidders because of their separate financial abUity to purchase. It was in the consideration of such sales that the ancient and familiar rule arose. But in modern times, when vast railroad and industrial enterprises are financed by selling millions of bonds payable to bearer through the world's exchanges, a different class of sales has appeared. Courts have had to recognize that separate individual ability is not equal to the pur- chase and rehabilitation of a broken-down railroad. 'Reorganization' has become familiar. This means, usually, that the equity of the stock- holders, if any ever existed in actual value, has vanished; that the prop- erty virtually belongs in equity to the bondholders; and that, if the bondholders will combine for the mutual protection of their equal in- terest, they will have a practical monopoly of the bidding. This last is so because, if all the bondholders are in the combination, it is utterly immaterial to them whether they bid the full amount of the decree or a sum that will pay only one cent on the dollar of their bonds; and there- fore, by creating that masterful situation, they can force any outside combination to offer the full amount of the decree without danger or expense to themselves. Most commonly the controversy over the sale 28 Merchants' Loan & Trust Co. v. Chicago Rys., 158 Fed. 927 (1907); Kneeland V. American Loan Co., 136 U. S. 89, 97; Lake, St. El. Ry. Co. v. Ziegler, 99 Fed. 114, 129 (1900). 2' Shaw V. Railroad Co., supra. '» First Nat. Bank v. Shedd, supra. ^1 But see decision by Justice Bradley as Circuit Justice in Duncan v. Mobile & O. Ry. Co., 3 Woods (U. S.) 597, 8 Fed. Cas. 25, 26 (1879).
