New-York tribune., 1875-02-18
ERIE RAILWAY PREFERRED.
AN IMPORTANT DECISION.
WHAT ARE NET EARNINGSf '

GuDreDe Court Of Lie Uaiicd Stdtes-ThOmas ST.
John appellant, agt. The Egie Hallway Company ap-
peal the Circuit Court of the United States Tor tbe
Southern District Of New-York
Mr.. Justice swayuo doIyered the opinion OF the
Court.
This is m appeal IL equity from the Circuit Court
Of the United States for Southern District Of New
York.
The facts OF the und-puied
BY an act OF the legislature Of NevYork OF the 2ith
April, 1892, corporation known as the New-York ana
Erie Railroad Company created. TAc Company -
sued Ave successive series OF bonds, amounting 10 the
aggregate to about s2O0oO0o0 The Grst series was So
cured by n lien upon The road given bg sl2tne. Inc
other series secured ~ mortgages. IAe DOuls
usualy oesl-ua' ds hrst, cunI, thrI' iouIiD
and hgn mort slg4 bonds, according % tltf places
respectively IN successon IHe Company also Issed
Unsecured bonds, known hs sn lu'und bonds, l" Tue
amount " about S70NOO1. L. 1870 br COMPANY became
bankrupt. Foreclosure proceedings we're In
cages, and a receiver was appointed. he hed
ana operated the read anti ,he i'r OF the company
were reorganiz' This occurred ~ ioc2 Prior % thaS
time the hue Of the road extended from Fermont TO
Duhhirk. bat lae Company n"a t-Aeh leases "i 0her
the Hud.on Ky.r opposite to Ne~-IO-k. Tess latter
roads gave the CJhp4hl access - jersey Cy, anu le
dock properly Was tue eastern Jo'nlius VI Ihe rOdl.
Leases 0f her roads 10 tue C0nuY, n0 necessary 70
De specncliy mentioned, also eAs.ed. u tAe y oi
OcLootT, l1J Tie sN"IeioiI''5 ,l cItutoiS o. 'Ie ~
p-Ay ente.e" 1iO h AN asa a@r !shl p... u4.S tOa
properly aad effects o. the Cohmn' we're SOLD uader
decree IN the foreclosure sIiI GAL Wete uou%ht ~ oy
,llt 10 clause IN the Agreement. new corporation,
under the name VI the Erie k1l"I: COMPANY was Ol-
pursuant to acts Of tho L'gi Iture " New
IOik VI tIe iJD OI Apr I5 Ayrl 1871, dnd A4rch g.
1862. All the prOOer.y OF the oil Company oOdght hy
the Trustees was transferred 10 tue ne" corporation,
nut still subject All tEe lCDs aad ncum0raDces upOn
itwnch suDsster before tho foreclosure Ind sale IAc
-repmtut OF 1859 INCORPORATE utO the decree OF
SALE aud recOgnz and sIucilOned by the several
VI LIe Legislature uuer which the new corpora
t!Ua was Jrgaulz;l. 1t a,sO made n part OF lIe
in,iory ea &c In riis casr Is no. questioned. rne 81
% itsI IN D ~
s.,, H. ,ti1- an1,nt OF sad comnon so,k OF ,ld
C0.ully lJysJ sur.-, o-:I 0f tDe value Oi $780,
- "a. NJ S-Y,,k .nI Ef@ RAIgoII Con.pany TIE
whole amount OK tLo preferred capital Stock Of sad
Company Do cqILl ID tue amount % the total u-e-
cu.cd ana Judgment dcDt or the >ew-York and Ete
Rlf,rOad pIg wt-l serest tIcreOu provided
by referred 70 II sd ac,s, aud By tue pro-
vision or tno si4 aC,, passed pu . lGl, When asceF
tanned 4rsI.us 10 tue prJvsi0us % saiI act"
TIE nt W prefer. "a sock AIDING N 1902 WIS
s. $500. D tAc Us. o. criuJer 1861 II "as S55,OJIJ
Tue It.h ara 10 Oi tHc agreement "4s az fouows:
"ftfL,: Cf 10 are holders of the Convertible
sinking IuuI and otAer unsecured bonds or s1l 90 Il
pauy hereby agree 70 exchange Ou- respective bonds
Ior preferred SOCK o Ike amount witn TIE principal OF
Our bonds, WIN coupons nov over iuc' aLd Tor two
years advance added, AM 10 depot oar bonds with
SAID rusJ-es c1cDauged, rece.vlIg therefor
cepts tie iurn 4Ihed d. eHcI preferred STOCK Is 10
b. eut.teu preferred UyId-Lds UuJ Js the net earn
ings Ct rrnc curreut year, Dut NOT Ot-erwIoc
NOT 10 exceed per cent ~ ahy QUO year. paI AnIo Se-
annually, aier py meat Ot inOr'--5 Interest ald ue-
Th. ac, u Apr > SOL enacted he last paragraph in
"sEc l. sad preferred stock shall be entitled to pre-.
ferrcd dividends ou " the t ellhius Or salI road
earned in current year. 3uC -a s'uerglse not 10
exceed per cent IN auy OHe yft1' pA' 'ie seHI an
nIALy after pay uent oi IhyeIS'1 uu uelaS GU
coupons iJ Aud the L0iucgs thereof may vOte per
souaiy oy prcXJ ~ all uIeen-s Cf tue corporation,
IN he sane nnAer as Ae Hoiie'S oi oooH S'ocA' OuS
Tie complainant the holder OF 600 shares Of the pre-
fer Ell stoca i4s Comp ~ PAD me drl-yrd coupons,
anu dividend OF cent Ou All tue preferred stock
iJr ear 1850 per cent duHuAIy CLereaiter GnI
the ear "5 since 'H'' IIuT u",uuS hHs OoSn p'lL
After IssunS Ot Lie preferred sutK Tie Company
ea.ts VI several dti4.IOlli gOLl' some Or GLel
nave been pion aS.S an some ho'. IIe ne" Conpt1'
tou the leases -cli Oy the oil Company Ntn au OOl
Ca,IOu ~ tle anA Ill rht' %u-cu sAe Latter was
DoInd TO pay These eSs ahou1t@d n me year loG4 10
S72 100 T4e ahIL t.ats ~ ,ue aItiJnu I5Ises taken
~ the new COMPANY dmaLLtet ~ tne year 1893 "
$J76I07. Subsequent To 1861 tue Company borrowed
SJ.uUVJJ, iOr "nC GLVc a.efhS JOI Is nearug inter
est Of prr cent per annuu pavanle IA gold
Tne interest paid upo1 t9is 4eOs AZ 1915 -" sS'sJ4 os
IHt ,aone5 " a a., s CS Ha 80 nd vas | tpaed .e
raa net earnings of the Comrrrv during year
aftet dcIuctIAg t4c .geres' pa Ji Jne norSa2e deLL'
eX-.IIZ Wneu uc .re.cGsi s1'' wa l-sde' Was Tess
t1an Sjslu0O Tne p,m.nt t rents aud iaterest
u.Ou lac Sterling Jons 4OsJtDod more ALn tLat eUre
Il 10 leu $ tud - li.e.rst upou tic sCcthhg
Dou..s ulI beeA paiI during year, there would
u,o Duen more 1IOG-u 81 tu5 Ne earnings lot 70
.v tlC d.yidcDGs >.i uUI uJ Ia" CJDl.AlIdnL IL 10
interest naI p-id tAo s.eriInI 'ondS, and ~
r-nis uuu 4 e4>ts uade sacs tne pre- erred s0cg
WAS i.,Iei, tAcre WoII nave Drra enough Remaining 10
nave .aiI "a sIa Iars ot e di'lu'.ds od' No part OF
s4cu dIy4deuds could nave DrrL PAID "ltiod, leaving
aYp.iI sOue Irt VI t"e Interest upon Tue steIlIug
bonds a o, .ne rnts unGeI tIe leases ade SlHce tic
picfcrr. q stock WI, l,sucI
Tne complauAuC CLAIMS that his rights are to be de-
telmlaed tue ,ate o. LLinss NIlch existed WDch MS
stock issued, aud that tney as Ia no"s Affected
d, .le ieas llG ho bonds isOed Uy the Com
pauy ecditE uc"Ce' ne cODOeuus tu't IuiI u'Fl-
aends hrrn paid before auY part or The net
earnings were applied IA pye VI IAe interest On the
bonds tuI Tie l I' u-4e4 TIC 4cdsSs VI O'uer
roads lie n'w corpora in
The uel udAut lIsis- this interest aud the rents
al tue rIs Nc.o ucSusSaFIy Ia DE- INST lu5 ptiu.
The complainant e this Oi ~ loGJ ~ eA!0rce MS view
re question presented depends for t, solution wholly
urou tue construction gEeh - tAe nln clause OF the
l'5J 4nd ths Iourlh section OF Ihe act OF
1851 4ney are teI ii eAst' 20 rSEdS INC point "
The " iua ;akcrs OF the preferred stock were cred
itOr- IN AoauJ ned tLd pJri-ioh ant Oecdne s'ocH
holders. TIey therefore c-asud ~ nc Tic IOrmer, ana
eaa ,uly be REGARDED ~ the later Taey surrendered
tueg uCD.s ana received Al EetHrh sIocA VI sue sao
AoLuL which gave tAeI ca tAce Tor Am IaI uV uehus
" per cent and voice 0y Vonng III the choce Of
tHOse ny wnom t4r -E4irs d" lac OoMpauy were 70 10
Administered. Wnt they w're u receive was not In
terest dvdsnds; al they we're to receive them IN
priority TO tue hOd1rs " ho common slo.H Ane iasfr
could receive uui the former were satisfied
TIe ui1umul pdyhDe Oh "e pIeA1IIou 'ooA vas -
nura The mount Ell isct 10 the limit prescribed de-
nIei wnoy upJu tHe Residue OF tue net earnings ap-
express. relation ui stIckAOIers None TO express
tue r.itiOu CREDITORS i found Ia the las rument ana
there nohinS from whch hc LteDt " cOuunie tlat
relation any OIgrr ctl DC Inferred Ii the MORTGAGES
were OreClOsed a8d tuerc were surplus LETT insufficient
to satisfy general CREDITORS H Is quite clear thAt the
O the preferred STOCK could nave 10 rIgHt 10
TIe Ilvi lends be paid after the mortgage IN
terest ana delayed coupons we're PAID IL fdlI
cautIJ 70 prevent possibility VI calm being set
uD Of nc holders Of the mortgage secu
rites. Whether the restriction was necessary for that
purpose need NOT consider Ine preferred dVldends
were be pad Out Oi tac net rdtnIugs or tne road
The denIti0l of ne /, clear OF all charges and
Deductions "-Wrbser. That wnTch reualns after the
deductOR OF all Charges or outlay, as net pront-
Worcester The pUpdIIr ucceptallOn OF the term Is he
same Tuere controversy between the parties on
tins subject must nave been earned
in +. tne current year" T1er- tneso four specnc
limitations. There Others. II Is 40; SAID that he
preferred dvi1ens sIi DC paid next after tue mort
rata with anything e5 before auy thing else except
dIyIdenGs upJu common sock Beyond the fOHr