Ellingwood v. Wolf's Head Oil Refining Company

*362 Richards, Judge, delivering opinion of majority of the court: There is no dispute between the parties interested in this proceeding, that when the preferred stockholders and the common stockholders met at the annual meeting held on May 3, 1943, the corporation was in default in respect to the declaration and payment of dividends in the amount of two years’ dividends on the preferred stock. All of said arrearages of dividends had accrued prior to 1942, and during said year 1942 the corporation declared and paid a full six per cent dividend on the preferred stock. This being the situation the court is called upon to determine the voting rights of the two classes of stock under the pertinent charter provisions. It is well recognized that a certificate of incorporation may contain any provision with respect to the stock to be issued by the corporation, and the voting rights to be exercised by said stock, that is agreed upon by the stockholders, provided that the provision agreed to is not against public policy. Thompson on Corporations, (3d Ed.) Sec. 989. The courts of this State have held that the rights of stockholders are contract rights and that it is necessary to look to the certificate of incorporation to ascertain what those rights are. Gaskill v. Gladys Belle Oil Co., 16 Del. Ch. *363 289, 298, 146 A. 337; Penington v. Commonwealth Hotel Const. Corp., 17 Del. Ch. 188, 151 A. 228; Id., 17 Del. Ch. 394, 155 A. 514, 75 A.L.R. 1136. Nothing is to be presumed in favor of preferences attached to stock, and when a corporate charter attempts to confer preferences upon any class of stock provided for by it the same should be expressed in clear language. In interpreting the meaning of charter provisions the same method is applied as that which is followed in interpreting written contracts generally. The instrument should be considered in its entirety, and all of the language reviewed togethér in order to determine the meaning intended to be given to any portion of it. Holland v. National Automotive Fibres, Inc., 22 Del. Ch. 99, 194 A. 124; Gashill v. Gladys Belle Oil Co., supra; Penington v. Commonwealth Hotel Construction Co., supra. The charter of Wolf’s Head Oil Refining Company, Incorporated, evidences an intention on the part of the incorporators to make provision for the protection of the preferred stockholders. It is specified in Article IV of the charter, .that in case of “liquidation, dissolution or winding up of the affairs of the corporation,” said preferred stockholders shall be entitled to full payment of the par value of their shares and all unpaid dividends accrued thereon, before any of the assets shall be distributed to the common stockholders. This same article gives to the board of directors the optional right to redeem the preferred stock in whole or in part, at any time before January first, 1940, but requires said board of directors to give sixty days’ notice to all record holders of said preferred stock; and in addition thereto to pay in cash to each holder of preferred stock to be redeemed one hundred and ten per cent of the par value thereof. Now we come to Article V of the charter which guarantees to the holders of the preferred stock “cumulative dividends thereon at the rate of six per cent for each and every *364 fiscal year of the company.” This same article gives to the holders of the common stock exclusive “voting power for the election of directors, and for all other purposes.” This is followed by the provision that the preferred stockholders shall have no voting power. Then comes the proviso, “* * * that if at any time the corporation shall be in default in respect to the declaration and payment of dividends in the amount of two years dividends on the preferred stock, then the holders of a majority of the preferred shall have an election to exercise the sole right to vote for the election of directors and for all other purposes, to the exclusion of any such right on the part of the holders of the common stock until the corporation shall have declared and paid for a period of a full year a 6% dividend on the preferred stock, when the right to vote for the election of directors, and for all other purposes, shall revert to the holders of the common stock.” We desire to emphasize the fact that the wording of the above-quoted article is, “if at any time the corporation shall be in default in respect to the declaration and payment of dividends in the amount of two years’ dividends on the preferred stock.” The appellant contends that the subsequent wording of the article, “until the corporation shall have declared and paid for a period of a full year a 6% dividend on the preferred stock,” restricts the above-quoted language of the article with respect to the duration of the time when the preferred stockholders have the right to elect to exercise the sole right to vote for the election of directors and for all other purposes. If this be true, it likewise takes from the preferred stockholders a portion of the protection which we have pointed out was conferred upon them by the charter. The appellant takes the position that after the preferred stockholders have elected to exercise the sole right to vote for the election of directors and for all other purposes, and have actually exercised said right to vote in pursuance of the election to do so, the payment of a six per cent dividend for the period of a full year causes said sole right to vote by the preferred stockholders, to revert to the common stockholders until the corporation shall again default in respect to the declaration and payment of dividends in the amount of *365 two years’ dividends on the preferred stock. This ignores the rights of the preferred stockholders if the corporation is still in default in the payment of dividends on said preferred stock in the amount of two years’ dividends. This also loses sight of the fact that the plain words of the charter are, “if at any time the corporation shall be in default”; and the further plain provision that “the said right of the preferred stock and its holders to exercise an election to vote shall survive any exercise of such election and a subsequent reversion of the right to vote to the common stock and its holders, and shall be a continuing privilege and right of said preferred stockholders.” We agree that when a six per cent dividend for a period of a full year is paid on the preferred stock, the sole right to vote for directors and for all other purposes reverts to the common stockholders, notwithstanding the fact that dividends in the amount of two years are due on the preferred stock. If the preferred stockholders failed to again elect to exercise the sole right to vote, by giving notice to the corporation of their decision to exercise such right, as the charter requires them to do, the common stockholders would be entitled to exercise the right to vote for the election of directors and for all other purposes. But if the corporation is still in default in the declaration and payment of dividends in the amount of two years’ dividends on the preferred stock, when a six per cent dividend is paid on preferred stock for the period of a full year, said preferred stockholders can still avail themselves of the right to vote for the election of directors and for all other purposes, if they comply with the conditions of the charter by giving notice to the corporation of their decision to exercise such right to vote. The language used in the charter describing the conditions under which the preferred stockholders obtain the right to vote has nothing to say about the time when the arrearage in dividends on said stock shall have accrued. If the position is taken that the arrearage in dividends must have accrued after the right to vote had reverted to the common *366 stock, the preferred stockholders would be deprived of the right to vote for the election of directors no matter how great the arrearage in dividends might be, until additonal dividends in the amount of two years’ dividends should accrue. This construction would take from the preferred stockholders the benefit which we think the charter intended to confer upon them. It is not denied that when a majority of the preferred stockholders first elected to exercise their right to vote for the election of directors and for all other purposes in 1936, the dividends accrued and unpaid on the preferred stock amounted to 22%%, of that said accrued and unpaid dividends was more than two years’ dividends. Neither is it denied that from 1936 to May 3, 1943, additional dividends accrued on the preferred stock amounting to 40%%, and that the dividends paid on said stock during that period amounted to 25%%. Therefore it clearly appears that when the annual meeting of the corporation was held on May 3, 1943, dividends amounting to 37%% were accrued and unpaid on the preferred stock. Thus it appears that the corporation was in default in respect to the declaration and payment of dividends in the amount of two years’ dividends. In view of this situation we are of the opinion that the preferred stockholders were entitled to vote for the election of directors and for all other purposes, at the annual meeting of the corporation held on May 3,1943, and that the persons whose names appeared on the ticket nominated and voted for by them are the legally elected directors of the corporation. The decree of the Chancellor is affirmed.