145 Mo. App. 502 | Mo. Ct. App. | 1909
(after stating the facts).
The relation of plaintiff to defendant company is argued by her counsel to have been that of creditor, instead of shareholder, and, therefore, they, contend defendant was bound in every contingency, to pay the dividends semiannually as stipulated and whether its net earnings war-rated a' declaration of dividends, or even if its capital would have been impaired by paying them. The general rule of law is that holders of preference shares in a corporation are no more entitled to dividends, unless the earnings of the company justify the directors to declare and pay them, than are the holders of common shares; for dividends are payable only out of surplus earnings. [2 Clark & Marshall, Priv. Corp., sec. 529c and cases cited in note 226; Purdy’s Beach, Priv. Corp., sec. 476; Chaffee v. Railroad, 16 Am. and Eng. R. R. Cas. 408; In re London, etc., Co. L. R. 5 Eq. 525.] Usually the holders of preference shares are stockholders of the company, subject to the rights and liabilities attaching to that relation, and the principal privilege they enjoy is priority of claim to dividends as against the holders of common shares; which priority is the prominent characteristic of preferred stock. [Kent v. Mining Co., 78 N. Y. 159.] Without authority from the Legislature, an incorporated company cannot confer on holders of preferred shares a right to be paid ■ dividends, if the capital of the company will thereby be impaired or the demands of its creditors postponed. [Hamlin v. Trust Co., 78 Fed. 664; 2 Clark & Marshall, sec. 417c; Purdy’s Beach, sec. 476.] Instead of the issuance of preferred stock necessarily creating a debt, a standard treatise says such a transaction “is a mode by which a corporation obtains funds for its enterprises without borrows ing money or contracting a debt. Its holders {i. e. the holders of preferred stock) are a privileged class who are entitled to dividends of a certain per cent out of
The most important inquiries in cases like this relate, firstly, to whether a date is fixed within which a company is bound to pay the preferred shares, for all true debts must fall due some time, and, secondly, to whether such shares are subject to losses of the business in the sense that the holders of them are postponed to creditors at large in case the company becomes insolvent, for such postponement is not easily reconcilable with the notion that the holders of what are nominally preference shares are in reality creditors. The proviso in section 5067, that preferred stock shall at all times have priority of payment out of the assets of the company for their full face value, together with all arrearages and interest thereon, over the common stock, appears to emphasize the only priority accorded to preferred shares; and the language of the section as a whole imports that other liabilities and debts of a company shall take precedence in payment over interest and dividends on preferred stock. Similar language was treated in Elkins v. Railroad, 36 N. J. Eq. 236, as equiv
“That when so issued and declared to be preferred stock, the holders thereof respectively shall be entitled to receive dividends on the same not to exceed seven •per centum per annum, before any dividend shall be set •apart or paid on the other and ordinary stock of said company.” Loc. cit. 235.
The portion of the Indiana statute which at first glance looks most favorable to plaintiff, is the one forbidding the company to mortgage any of its property without the written consent of the holders of - a majority of the preferred stock. Section 5068. One might think this proviso useless unless the preferred shares are intended to enjoy priority of payment over debts. But section 5067 expressly gives debts and liabilities the priority. This proviso about mortgages is an in•congruons one, and when narrowly observed, rather clashes in its own terms with the idea that preferred shares are to have absolute priority; for the assets may be mortgaged with the consent of a majority of the preferred shares against the will of the minority. Just what the purpose of the proviso was is difficult to say, but we suppose the Legislature apprehended preferred stock might suffer some detriment from a mortgage it would not suffer by merely postponing it to unsecured debts, if the company became insolvent.
The gist of the argument for plaintiff is this: The statute authorized the company to guaranty payment <of dividends on preferred shares and deprived the holder of those shares of the right to vote; two facts which demonstrate the Legislature intended to make
Perhaps the inference might be drawn that one dividend could have been declared in 1907, had not the directors thought best to extend the business.
Where it is clear a dividend ought to have been declared on preferred shares, a court of equity in a proper suit may compel this to be done or treat it as having been done. [Boardman v. Railroad, 88 N. Y. 157, 180.] But the present action is one at law, and
The judgment is affirmed.