135 Ga. 472 | Ga. | 1910
(After stating the foregoing facts.)
In its last analysis this is an action to recover interest which the second and third preference income bondholders, through their respective trustees, claim was applicable to such purpose from the income of the railway company for the fiscal'year 1907, according to- the contract between the railway company and the trustees, as contained in the bonds and the mortgages given to secure their payment. As the bonds and mortgages of the two series of income bonds are identical in form and terms, and differ only in giving preference in payment to the second over the third, we will discuss the questions raised as if there were but one case. Indeed, the two cases were consolidated and tried as one case in the trial court. The bond and mortgage constitute the contract between the complaining bondholders and the railway company, and the rights of the former and the obligations of the latter are controlled solely by a construction of the contract in its application to the issues made by the pleadings.
It is élementary law that in the interpretation of written contracts courts should diligently examine the whole instrument to ascertain the intention of the parties, and, if the contract is not ambiguous, that intention must be found within the four corners of the instrument. The mortgage begins with a recital that the mortgaging railway company is possessed of all the charter powers
One of the main points of difference between the litigants is the extent of the limitation on the directors5 discretion in managing the corporation, imposed by the words, “cost of repairs, renewals, and reasonable betterments to the railroad equipment and property for its economical and efficient operation.55 The trustees for the income bondholders insist that these words debar the directors of the railway company from using its income and earnings in making payment for additions or permanent betterments, to the prejudice of the income bondholders. The railway company contends,'that the mortgage is not a contract to pajr interest, but is a contract to pay the principal of the bonds absolutely, and from time to time, to-use, for the payment of interest (not to exceed five per cent.), available funds the maximum of which shall be measured by the net income of the railway company as defined in the mortgage; that the various provisions of the mortgage amount to no more than an agreement to pay dividends if earned, and the directors5 discretion in using the earnings of the company was not intended to be so curtailed that the physical properties could not be expanded and developed so as to meet the requirements of the- growth of the country,
Every contract possesses its own individuality, which must be observed in its interpretation. When these income bonds were issued, it is manifest that the obligor and obligee regarded it to their mutual advantage to enter into this form of contract. The obligor promised to pay not only the principal sum, but also interest thereon at a-rate not exceeding five per cent, in any one fiscal.year, when declared to be earned and due according to a carefully prepared plan for the ascertainment of a fund out of which it was payable. The-mortgage unequivocally declares that it was executed “to secure-equally the payment of the principal and interest of all such bonds.”The issuance of the income bonds was something more than a-pledge of the good faith of the corporation that interest was to be' paid if earned; it amounted to something more than an agreement' to pay dividends if dividends were earned. It.was a solemn convention that the directors of the corporation were to cast the accounts according to the exhaustive plan for the ascertainment of the fund out of which interest was payable, with the privilege of the bondholders to appeal to the courts should they differ with the directors in the computation. To contend otherwise is to denounce as senseless and inane the elaborate effort of skilled financiers to express their contract involving millions of dollars. When the corporation contracted that there should be only such deductions from gross earnings and income as were enumerated, it placed a limitation on the discretion of the'”directors. There is little, if any, dispute as to the meaning of any of the items of deduction, except as to what charges may properly be embraced in the deduction of “cost of repairs, renewals, and reasonable betterments to the railroad equipment and property used by the ráilroad company and proper for its economical and efficient operation.” This phrase is not of doubtful meaning. It reflects an appreciation of the directors as to their duty to the public in the operation of a quasi public institution, and a performance of that duty with due regard to the railroad companj'’s creditors, whose contract of indebtedness is integrated in the income bond and mortgage. A railroad company owes a duty to serve the public efficiently, but it owes no duty
The term “betterment” is very elastic. Courts, lexicographers, and financiers recognize it as such, and this record abounds with illustrations and definitions showing the expansive scope which has been given to the word. • If there were no income bonds standing in the way, and only stockholders were concerned, betterments might be extended to embrace not only a multitude of improvements but also additions' to and enlargement of the physical properties of the
But we do not think that the betterment of the equipment and the property used by the railroad company is necessarily limited to repairs and renewals. A renewal is but a replacement; and if nothing more was intended than a substitution or a reproduction of the old equipment, it would have been idle to specify reasonable betterments as an item of deduction. To illustrate: This company is the successor of another corporation, which had operated this railroad system for more than half a century. The present corporation began business with an old equipment. Suppose, in the matter of the improvement of the Savannah shop, a modern trip-hammer was supplied to take the place of the old, effete method employed before the trip-hammer came into use. Shall it be said that the company must be chained down to old, obsolete, and inefficient machinery in its repair-shop, and forbidden to use its income in economically providing itself with modern appliances? We think not. Again, we do not think it was intended that the locomotive or ear ,of twenty years ago, which has become worthless from use, must be duplicated, but rather that the new equipment should be adapted to the “economical and efficient operation of the railroad company.” If the business of the company demanded an increase of equipment, such equipment as is proper to economically operate the railroad compatibly with efficient public service would be a reasonable betterment, notwithstanding in a technical sense it might also be an addition.
In the operation of a railroad company the purchase of new
We do not think that the cases of Day v. Ogdensburg &c. R. Co., 107 N. Y. 129 (13 N. E. 765), Thomas v. N. Y. &c. Ry. Co., 139 N. Y. 163 (34 N. E. 877), and Union Pacific R. Co. v. U. S., 99 U. S. 420 (25 L. Ed. 274), are opposed to the proposition that any limitations upon the general powers of directors, intended to define the boundaries of their discretion, should be given due effect. In the Day case the interest, even when ascertained, was not secured by the mortgage; it was payable from “the net earnings of the railroad and other property of the company for each period, after satisfying the expenses of operating and maintaining the same, with all taxes, assessments, and floating indebtedness and the interest on all liens, charges, incumbrances, and other indebtedness.” The court held that the income bondholders, so far as their claim to interest was concerned, were simple contract creditors having a debt against the corporation, but no lien by mortgage, and with no other right than to have it paid out of the net earnings as determined by the board of directors at the expiration of each interest period; and that no limitation was placed on the directors’ discretion in determining what expenditures were properly chargeable against income; and that the contract was but an agreement to pay dividends if dividends were earned. The contract in the case at bar is vitally differ
Albany and Quincy survey; extra yard space, etc. The sum of $6,894.44 was charged to operating expenses. Of this sum $4,-869.44 represents the cost of a survey for a line of railroad from Albany, Georgia, to Quincy, Florida. It was thought by the directors that it was necessary to build a railroad between these points to prevent the construction of a rival road calculated to seriously impair the business of the company. A railroad company called the Georgia Central & Gulf Eailroad Company was chartered to build this road, but was never organized, and the project was abandoned. The auditor reported that if this railroad had been constructed it would have formed part of the amount paid for construction, and would have been a capital charge; as it was, nothing was done towards the construction of the' railroad, and the survey, therefore, appears to have been, and was considered, an expense which drove off a competitor and helped the business of the company. Two thousand dollars were spent in the fiscal year 1906, and the auditor disallowed this sum, but the remainder of the item, to wit $2,869.44, the auditor allowed as an expense of operation. The other items complained of, representing $2,025, were paid, in the enlargement of the yard at Savannah, to a near-by land proprietor, who, because of this enlargement, was damaged by the shutting up of his right of way, and thereby his access wa,s cut off, and for the purchase of land. The auditor reported that the sums paid for damages resulting from the enlargement of the yard and for the purchase of land were not chargeable against operating expenses. We think the money devoted to the payment of consequential damages, as well as yard enlargement, is not a proper charge against income. Nor do we think that the expenses incurred in making a survey for a new road, never built, are chargeable to operating expenses.
Wrightsville and Tennille dividend. The railway company re-' ceived, during the fiscal year 1907, the sum of $10,405 as dividends upon the stock of the Wrightsville and Tennille Eailroad Company, owned by it. The railway company did not include this amount in the income of the company for that fiscal year. It appeared that the railway company purchased this stock for the sum of $104,050,
Upper Cahaba reserve. During the year 1905-1906 the railway company acquired, by purchase .and construction, coal lands (subject to lease) and about twelve miles of railroad in St. Clair county, Alabama. Having no available funds, it borrowed the money by the issuance of $600,000 serial bonds. In 1907 the sum of $25,-109.95 was reserved out of the income of that year as a payment towards the retirement of this bond issue. Section 8 of the mortgage did not authorize the application of any part of its income to a
Lumber reserve. In the spring of 1903 the railroad companies in the Southeastern Freight Association territory made an advance in rates on yellow pine lumber of two cents per hundred pounds to points beyond the Ohio River. Certain lumber manufacturers filed a bill in the circuit court of the United States for the southern district of Georgia, to enjoin this advance in lumber rates. The Central of Georgia Railway Company was a party to this litigation. The litigation terminated by a decision of the Supreme Court of the United States, on May 27, 1907, adversely to the railway companies, and they were required to refund this overcharge. The traffic department of the .Central of Georgia Railway Company estimated that $150,000 was this company’s proportion of the overcharge, and this sum was deducted by the railway company from its June earnings in 1907, and held as a reserve with which to pay in the future all claims allowed against the railway company for a recovery of this excess rate. The auditor found that during the fiscal year 1907 the railway company received as a part of its gross earnings $50,000 from the excessive freight rate on lumber, and that, inasmuch as the gross earnings of 1907 were swelled by the sum of $50,000 from this illegal source, the company should deduct that sum from the gross earnings and hold it in reserve; but that the remainder, $100,000 should not be reserved out of the gross' earnings of 1907, because each fiscal year stands to itself, and that this sum of $100,000 was reflected in the surplus account of the railroad company, which, on June 30, 1907, amounted to $536,707.54. Accordingly the auditor found that the sum of $100,000 of this reserve does not belong to the accounting of 1907, and is not to be deducted from the gross earnings of that year. "We concur with the auditor upon this finding.
Payment of equipment-trust obligations. The railway company paid out and reserved, for the year 1907, the sum of $704,170.49 for the retirement of equipment-trust notes. The auditor found as a matter of law that the railway company was authorized to buy equipment to replace the old equipment, but was not authorized, under section 8 of the mortgage, to make additions to equipment. Accordingly, the auditor ascertained from the evidence that the
New power-plant and other items. The power plant in the Savannah shops had become inadequate and practically worn out from service since' 1855, and was displaced, and a new electrical power plant was installed. The railway company officials estimated that to have replaced the old power-plant with new machinery would have entailed a charge of $6,000. The new plant cost $38,490.84, and the auditor found that it was in no sense a replacement of the old, but was a distinct addition, and not a betterment in contemplation of paragraph 8 of the mortgage. Accordingly he disallowed the expense of the erection of the new power-plant, less the $6,000, as a deduction from income. The other items included eleven cabooses built in the company’s shop, fifty ballast-cars, and the cost of a new steel hammer. This installation of machinery for transmitting electrical power to the tools used in the Savannah shops, instead of renewing the old steam plant, would be a betterment of the property used by the railway company, if the same was reasonable and proper for the economical and efficient operation of the road. It was a question of fact whether these items were properly comprehended as betterments under the definition we have given to this term as used in ihe mortgage.
It was alleged in the petition, that the net earnings and income of the Ocean Steamship Company for the fiscal year ending June 30, 1907, had been received by the railway company; that the directors of the steamship company were elected, controlled by, and'
Every corporation is a distinct legal entity, and, as such, owns the property belonging to it. Its stockholders are interested in its property to the extent of naming directors who shall manage its affairs and property, and in defining their powers, etc., but they, are not owners of the corporate property. A corporation may have many stockholders, or it may have only one, and that one may be a corporation. A corporation owning all the stock in another corporation is a legal entity, separate and distinct from the corporation whose stock it owns. Exchange Bank v. Macon Co., 97 Ga. 1 (25 S. E. 326, 33 L. R. A. 800). A sole stockholder is not en-! titled to demand the profits of the corporation until they have been set aside and ordered by the directors to be paid. The usual and proper way to appropriate corporate profits to stockholders is by declaring a dividend, but there may be a division of profits among stockholders without the formality of declaring a dividend. Such division of profits is the equivalent of a dividend. 2 Cook on Corporations, § 534. Where the profits of a corporation are actually
The auditor reported, and the court decreed, that the sum of $10,750 be allowed to the Central Trust Company ^ of New York and $13,000 be allowed to the Manhattan Trust Company of New York, in full compensation for all services rendered by the trustees, including expenses, disbursements, and counsel fees, to be paid by the Central of Georgia Eailway Company. The railway company excepts to these allowances to the trustees. The 11th
The auditor reported .that the railway company was liable to the trustees on the unpaid interest on the income bonds at the rate of five per cent, per annum. The court sustained the exceptions of the railway company to this finding. The bond provides that its principal shall be paid, “with interest thereon from Novem-' ber 1st, 1905, at a rate not exceeding five per cent, in any one fiscal year, payable at the . . office or agency, on October the 1st of each year, when declared to be earned and due. Such interest is non-eumulative, and shall be payable only out of the net earnings and income of the said railway company applicable for such purpose, when and as the same shall be ascertained and fixed for each preceding fiscal year in the manner and upon the conditions provided in the mortgage securing these presents.” The 8th paragraph of the mortgage provides that the interest declared by the directors shall be paid on the 1st day of October. The directors rendered a statement to the trustees as .to the amount of net earnings and income applicable to the payment of interest on the bonds. The, amount as reported was unsatisfactory to the trustees, and they filed their action in accordance with the provisions in the 8th paragraph of the mortgage. The mortgage provides: “If it shall be adjudged in such action that there are such net earnings and income available, under the terms of this mortgage, for the purpose of paying the interest on the bonds secured by this mortgage, beyond the. amount declared in the statement so furnished by the railway company, then, unless the railway company shall, within three months after such adjudication, pay the said balance of net earnings and income so -adjudged to be available by way of interest to the holders of bonds hereby secured, not exceeding the maximum percentage allowed in any one fiscal year, such non-payment shall constitute a default in the payment of interest, for which the trustee shall be authorized to proceed to enforce this mortgage. The remedy herein provided for ascertaining the amount of the net earnings, in case of dispute, shall be exclusive of all other proceedings, actions, Suits, and demands whatsoever.”. Under the contract there was no default in the payment of interest until after the lapse of three months after the adjudica
In its decree the court fixed the compensation of the auditor at $10,000, and the stenographer for all services rendered to the auditor at $750, to be paid 'equally by the trustees and the railway company. The trustees except to that part of the decree which provides that the compensation of the auditor and stenographer shall be borne equally by the. complainants, in the two causes on the one part and the defendant railway company o_n the other part, on the ground that the decree of the court was wholly in favor of the trustees except as to that part of the exception touching the allowance of interest. The railway company also excepts to the allowance of $10,000 to the auditor as excessive. It was stipulated between counsel, which stipulation- was approved by the court and made the judgment of the court in the consolidated cases, that in taxing the auditor’s fees as required by law the court may in his discretion, if he shall deem it proper to do so, fix the auditor’s compensation at án amount in excess of the maximum prescribed by § 4602 of the Civil Code. When we consider the importance, of this litigation, the effect of its result upon the future management of the railway company, the great degree of legal skill required in deciding the issues, and the time necessary to digest the very voluminous record, we do not think the amount allowed the auditor by the court is unreasonable. Nor do we think that the court erred in apportioning this expense between the litigants. This is a matter within the discretion of the court, as has been frequently decided by this court.
The parties stipulated in the mortgage that the trustee might institute and maintain an action for an account of the net earnings and income under the mortgage. This right is neither challenged nor disputed. Therefore it would be irrelevant to enter into a discussion of the right of the trustee-to bring this suit independently of the contractual permission. For this reason we forbear a discussion of, or any decision upon, the rulings of the auditor as to
The purpose of the action was for an adjudication that there are net earnings and income available, under the terms of the mortgage, for the payment of the interest for the fiscal year ending June 30, 1907, beyond the amount declared in the statement of the railway company. The fund available for the payment of the interest as reported by the auditor, exclusive of the items relating to the payment of the trust equipment notes and the Savannah shop, being in excess of the sums decreed to he paid therefrom, the judgment of the court is affirmed in each case, on both main and cross-bills of exceptions.