Williston v. Michigan Southern & Northern Indiana Railroad

Foster, J. In the opinion of the court, the holder of guaranteed stock, under such a certificate as the one now before us, is not, by the terms thereof, constituted such a creditor of the cor • poration, as to be entitled to maintain an action at law to recover payment of the stipulated dividends. These are declared [404] to be payable out of the net earnings. And the stockholder of '■bis class is also entitled to share pro rata with the general stockholders in any excess of net earnings over ten per cent, per annum. After these provisions follows the clause relied upon by the plaintiff: “ The payment of dividends as aforesaid is hereby guaranteed ; ” and it applies as well to the pro rata share in the excess of earnings above ten per cent, as to the stipulation for dividends to that amount. The word “ dividends ” ex vi termini imports a distribution of the funds of a corporation among its members, pursuant to a vote of the directors or managers. And in the present instance we are satisfied that it must receive this, its ordinary legal and practical construction. We cannot conclude that the corporation entered into an engagement by which each guaranteed shareholder could semi-annually recover a judgment for undeclared dividends, and collect it upon execution in competition with the claims of creditors. The plaintiff as a stockholder is entitled to participate in the management of the company, and the corporate debts are created by officers and agents, in the election of whom each of his shares has a vote. The union of a right to receive a distributive share of the profits or net earnings with the right to enforce a payment of such ajpercentage as a debt would be unusual, if not incongruous. f~Each share represents a fixed and proportionate interest in the capital of the company, the intrinsic value of which consists in that of the railroad, its appendages, franchises and personal property, over and above the liabilities of the corporation.^^To suppose such a relation to be coupled with that of an ordinary contract to pay interest on a debt, and that the same contribution to capital constitutes at once a member and creditor of the company, would destroy all distinction between capital stock and corporate indebtedness. The guaranty expressed in the certificate relates to the disposition to be made of net earnings among different classes of shareholders, and cannot be construed as a contract for the payment of interest. The net earnings are the fund upon which the stipulated dividends are rfiade chargeable, and the guaranty is an engagement for the application of that fund to a particular class, in preference to or priority over the common [405] and less favored stockholders. We do not find it necessary to consider carefully whether the phrase “ net earnings,” as here used, is equivalent to profits; although it may be observed that the same word “ earnings ” is employed with reference to the payment of dividends to ordinary stockholders in the latter part of the certificate. An examination of the English cases cited for the plaintiff confirms our opinion that he must be regarded as a member of the company, and not an ordinary creditor. In all of them the struggle has been as to the degree of preference or priority enjoyed by preferred or guaranteed shares over those of a lower and less privileged description. They are all bills in equity, brought by certain shareholders on behalf of themselves and all others of the same class, to restrain the payment of dividends upon common stock. The relief prayed for and the remedy awarded have uniformly been a declaration of the extent of the rights of the higher class, and an injunction against making dividends upon common stock until the claims of the preferred or guaranteed stock were satisfied. We are aware of no case in which there has been a decree for the payment of either preferred or guaranteed dividends, but only that, until these had been paid pursuant to agreement, no dividends should be permitted to any lower class. We do not, however, intend to intimate that a court of equity of competent jurisdiction might not under some circumstances decree the payment of guaranteed dividends. Taft v. Providence & Fishkill Railroad, an unpublished case in the supreme court of Rhode Island, strongly confirms the views we have expressed as to the character of the contracts created by virtue of a stock certificate almost exactly like the one in the present case. McLaughlin v. Detroit & Milwaukee Railroad, 8 Mich. 100, merely decided that, under a certificate bearing interest up to a certain date, and afterwards entitled to dividends, such interest could be collected as a debt. In that case there was a prepayment under an agreement that the party paying should receive interest on the money he advanced until it was treated as capital and began to participate in profits. [406] But the plaintiff suggests that, if the present suit cannot be maintained, it may be converted, into a bill in equity. And if we possessed adequate jurisdiction to administer equitable relief in the premises, such an amendment of the form of action would be readily permitted. But the defendants are a foreign corporation, having no place of business or officers in this commonwealth. Service of the writ has been made only by trustee process, attaching funds in the hands of their debtors here. We have no power to control the action of the company, and no means of securing obedience to any injunction or other decree. The suit in equity appropriate to the present case ought perhaps to be brought, as in the English cases, by the plaintiff on behalf of himself and all others similarly situated; especially if a decree is sought for the payment of dividends, and not a mere injunction against making dividends to shareholders whose rights are subordinate to those of the plaintiff. However this may be, we are satisfied that it is maintainable only in courts having general jurisdiction over the corporation. The amend merit suggested would therefore be unavailing. Having arrived at the conclusion that we can grant no relief, it would be unbecoming to express any further opinion upon the questions of construction so fully and ably argued. Our views, if announced, would bind the rights of neither party The duty of interpretation belongs to the tribunals which have power to enforce their opinions by an effectual decree. Judgment for the defendants.