262 Pa. 68 | Pa. | 1918
Opinion by
This action in equity is 'to compel the payment of dividends on preferred stock of the defendant corporation.
Defendant has an interest-bearing debt of about three million dollars and there is no doubt as to its amount or as to fixed charges; the controversy is as to operating expenses. The contract between defendant and its pre-. ferred stockholders is silent as to what shall constitute
At the merger the stock of subsidiary corporations, in-eluding that of the Harwood Coal Company, was taken by defendant at an over valuation and so carried on the books. The property of the coal company, consisted largely of coal and culm that are being rapidly exhausted by the defendant company. This exhaustion depreciate^ the value of the coal company stock; to meet which, and the over valuation, defendant in 1916 set aside $146,000 as an amortization or a sinking fund, which covered the five years, 1912 to 1916, inclusive. The evidence shows this to be proper practice, otherwise, for example, when the property of the coal company is exhausted its stock will be worthless and defendant’s capital to that extent impaired. It seems to be a method which in effect ates a fund to make good the coal or other material that is consumed, the same as a fund may be set aside to replace machinery that wears out or becomes obsolete. See Knoxville v. Knoxville Water Co., 212 U. S. 1; People ex rel. Jamaica W. S. Co. v. Tax Comrs., 196 N. Y. 39; Park v. Grant Locomotive Works, 40 N. J. Eq. 115, 120;
In our opinion, to so construe the contract between defendant and the holders of its preferred stock as to require the payment of,dividends, when it would lessen the efficiency of the corporation to serve the public, would be to render the contract to that extent invalid. Such company cannot so contract with its stockholders as to destroy its usefulness as a public service corporation: See Warren v. Queen & Co., 240 Pa. 154, 161.
The fact that certain balances are denominated in the books of a corporation as net earnings is, as against the corporation, persuasive but not conclusive evidence that they are such. In the absence of intervening rights, they are subject to explanation.
As plaintiffs cannot prevail in this action, the question of cumulative dividends need not be considered.
The assignments of error are overruled and the appeal is dismissed at the costs of appellants.