| Or. | Oct 15, 1918
The statutes of some of the states authorize corporations to dispose of preferred stock to a certain amount, upon certain conditions and guarantee holders of such stock dividends, and to secure the redemption of the same. Article XI, Section 3, of our Constitution provides that the stockholders of all corporations shall be liable for the indebtedness of the corporation to the amount of their stock, subscribed and unpaid. The general rule is that a preferred stockholder possesses all the rights, and is subject to the general liabilities of ordinary stockholders. The rights of preferred stockholders, like those of common stockholders, depend upon their contract with the corporation: 7 E. C. L., § 170, p. 200; Heller v. National Marine Bank, 89 Md. 602" court="Md." date_filed="1899-06-05" href="https://app.midpage.ai/document/heller-hirsch--co-v-national-marine-bank-3487445?utm_source=webapp" opinion_id="3487445">89 Md. 602 (43 Atl. 800, 73 Am. St. Rep. 212, note page 231, 45 L. R. A. 438).
Preferred stockholders, as well as common, in a certain sense are creditors. It is in the sense that a corporation includes all its capital stock among its liabilities, but it is a liability which is postponed to every other liability. As such a creditor, a stockholder is subordinate to every other creditor of the corporation. In the ordinary sense, a stockholder cannot be a creditor of the corporation by virtue of his ownership of stock: Belfast & M. L. R. Co. v. Belfast, 77 Me. 445" court="Me." date_filed="1885-08-06" href="https://app.midpage.ai/document/belfast--moosehead-lake-railroad-v-city-of-belfast-4934488?utm_source=webapp" opinion_id="4934488">77 Me. 445 (1 Atl. 362). It has frequently been attempted to issue stock which shall at once prefer its owners to the holders of common stock, and protect them against any subsequent indebtedness of the corporation by giving their claims priority over subse
A preferred stockholder is either a stockholder or a creditor. He cannot by virtue of the same certificate be both; he does not sustain a dual relation to the corporation. A stockholder takes a risk in the concerns of the company not only as to dividends and a proportion of assets on the dissolution of the company, but as to the statutory liability for debts in case the corporation becomes insolvent. A creditor takes no interest in the company’s affairs; is not concerned in its property or profits as such: 4 Thompson on Corporations (2 ed.), § 3607, p. 186.
Such mortgages are referred to in 1 Cook on Stock and Stockholders and Corporation Law (3 ed.), Section 271, page 370, in the following language:
‘ ‘ Occasionally, however, a mortgage is given by the corporation to secure the payment of dividends on preferred stock and to give it a preference in payment over subsequent debts of the corporation upon insolvency or dissolution. It is difficult to see how such a mortgage would be legal except where it is issued
A person holding interest-bearing stock, payable out of the profits of a concern, is a stockholder, and not a creditor: Elliott on Railroads, §86; Heller v. National Marine Bank, 89 Md. 602" court="Md." date_filed="1899-06-05" href="https://app.midpage.ai/document/heller-hirsch--co-v-national-marine-bank-3487445?utm_source=webapp" opinion_id="3487445">89 Md. 602 (43 Atl. 800, 73 Am. St. Rep. 212, note at page 220, 45 L. R. A. 438).
In Heller v. National Marine Bank, 89 Md. 602 (43 Atl. 800, 73 Am. St. Rep. 212, 45 L. R. A. 438), one of the principal cases upon which plaintiff relied, it was held that the holder of preferred stock, so called, was entitled to a preference as to capital over subsequent mortgages and other encumbrances, where the statute under which the “preferred stock” was issued expressly declared that it should be and constitute a lien on the franchise and property of the corporation, and have priority over any subsequent mortgages or other encumbrances: See note to Lloyd v. Pennsylvania Electric Vehicle Co., 75 N. J. Eq. 263 (72 Atl.
The creditors of the corporation should first be provided for before the holder of preferred stock in the corporation would have the right to have the company return to him his money with interest, when the corporation is unable to pay all its debts. The various suits involving the affairs of the Linnhaven Orchard Company illustrate its condition. The manager of the corporation stated that in 1914 the mortgage indebtedness of the company was $52,361, and. the floating indebtedness $10,444. The company is insolvent.
As to the defendants, B. F. Baines et al., who claim •judgment liens, we see no reason for any further discussion than that in the case of First Savings Bank v. Linnhaven Orchard Co., supra.
The decree of the- lower court will be modified so as to declare the purchasing defendants, Bernard Arndt et al., each to have a lien upon the respective tract purchased by him or her, and that such liens are superior in right to plaintiff’s mortgages; that such purchasing defendants are entitled to have their claims satisfied' from the proceeds of the sale of said land next after the satisfaction of the judgment liens of defendants, B. F. Raines et al., and before the payment of plaintiff’s mortgages.
Modified. Rehearing Denied.