275 Mass. 435 | Mass. | 1931
The plaintiffs by this suit seek to enforce certain rights alleged to be vested in them as holders of preferred stock upon the liquidation of the defendant corporation. The case was reserved upon bill and answer for the determination of the full court. All the facts set out in the bill and not denied in the answer and all relevant facts well pleaded in the answer must be accepted as true. The corporation was incorporated in Massachusetts in 1912 with an authorized capital stock of $2,000,000 consisting of 10,000 shares of cumulative preferred stock and 10,000 shares of common, one share of each class being of a par value of $100. The agreement of association and articles of organization provided that "The holders of the preferred stock shall be entitled to dividends at the rate of 7% per
Holders of three hundred eleven shares of the preferred stock, including the plaintiffs, who owned one hundred shares, refused to release the claims to back dividends and did not accept the offer of exchange thus authorized. In December, 1929, the stockholders voted to close the affairs of the corporation, liquidate its assets, pay its debts and distribute the balance among the stockholders. The proceeds of all the net assets of the corporation will not be sufficient to pay in full the par value of the first preferred stock. The directors intend to distribute the net assets among the first preferred stockholders according to the aggregate par value of their respective holdings and have already voted to make a payment of $15 on each share.
I. The first contention of the plaintiffs is that they are entitled to have the unpaid dividends accumulated on their shares up to January 1, 1924, paid in priority to any payment on the par value of the first preferred stock. The reasoning on which this contention rests is that the issuing of the second preferred stock to preferred stockholders in consideration of their releasing all their claims to accumulated dividends was in substance the payment of a dividend of the accumulated dividends, and that, since the corporation could not lawfully pay dividends to some preferred stockholders and refuse to pay dividends to others, but must treat all alike, the issuing of the second preferred stock was equivalent to the declaration of a
II. The plaintiffs’ .alternative contention is that their claim to all accumulated dividends is to be paid pro rata with the par value of all the preferred stock. The rights of the plaintiffs with respect to the corporation and other stockholders are contractual in nature. Those rights arise out of the agreement of association and articles of organization touching the holders of preferred stock, and are measured and bounded by the terms there stated. Joslin v. Boston & Maine Railroad, 274 Mass. 551, 555. The governing language, by the true meaning of which these rights must be ascertained, has already been quoted. Every part of it must be considered in its relation to the whole. All its words must be given a meaning in order to effectuate the intent of the parties and to carry out the main purpose of the instrument. Koshland v. Columbia Ins. Co. 237 Mass. 467, 475. The contract stating the rights of the preferred stockholders has a double aspect. The provision touching annual dividends at the specified rate payable quarterly out of “the surplus or net
This conclusion is in accord with sound legal principles. It is supported by the reasoning of several decisions. Drewry-Hughes Co. v. Throckmorton, 120 Va. 859. Johnson v. Johnson & Briggs, 138 Va. 487. In re New Chinese Antimony Co. Ltd. [1916] 2 Ch. 115. In re Springbok Agricultural Estates, Ltd. [1920] 1 Ch. 563. In re Dominion Tar & Chemical Co. Ltd. [1929] 2 Ch. 387. A contrary result appears to have been reached in Michael v. Cayey-Caguas Tobacco Co. 190 App. Div. (N. Y.) 618, largely upon the authority of In re W. J. Hall & Co. Ltd. [1909] 1 Ch. 521, a case not followed in the more recent English decisions just cited.
The words of the contract here under consideration make no distinction, in the event of liquidation or winding up, between the principal amount of the shares and the unpaid dividends accrued thereon. Holders of preferred stock are entitled to be paid both in full without discrimination or preference. The proper course for the defendant corporation to pursue in distribution of assets is to treat all the preferred stock and all unpaid dividends accrued
Decree, accordingly.