The Republican journal. [volume] (Belfast, Me.) 1829-current, 1885-08-27
Decision in the Railroad Case.
THE OLD BOARD OF DIRECTORS SUSTAINED
EVERY PARTICULAR,

Belfast & Moosehead Lake r. r. Co. in Equi-
ty VS.. City of Belfast ct ais.
Drummond Il DrummOnd, and DuntOn. City
Solicitor, for Complainants and City of Belfast.
Strout, Gage & Strout for Preferred Stock
holders.
A railroad corporation, at its organization,
adopted bylaw, that its net earnings should
be divided semi-annually amongst its stock
holders, first paying upon the preferred stock
an amount per annum not exceeding six per
cent, and then, if surplus. as much upon
non-preferred stock-and dividing any remain
ing surplus amongst all stockholders alike. At
ter this, preferred stock was subscribed for in
general terms. HELD: That the subscribers
for preferred stock took their shares upon the
conditions named in the bylaw as a contract
between themselves and the corporation.
There was a stipulation in the contract of
subscription that there should be no assess
ment on shares until the full amount be sub
scribed sufficient to build the road, thereby
avoiding the necessity of ever placing mort
gage upon it,. But, without dissent by any
party. debts were incurred and the road mort
gagged to obtain funds for its completion.
HELD: That this change in the policy of the
company did not require that all such indebt-
edness should be paid before preferred divi-
dends be declared.
The preferred stakeholder Is not creditor
nor is a dividend guaranteed to him; he is en-
titled thereto by the bylaw, provided there are
net earnings: deficiency of dividend for one
year, for want of net earnings for that year, Is
not TO be made up from the net earnings of an
other year; the bylaw implies that all net
earnings are to be wholly distributed each year.
The term net earnings, in the bylaw, means
such as are applicable TO dividends. These
would be the gross receipts less the expenses Of
operating the road, and less also interest on
such of the company's Indebtedness as it is pru-
dent and proper to keep in permanent form.
and less also any floating or temporary lab-
ties which good judgment would require to be
presently paid, and less also an annual contrbu-
ton to a sinking fund for the payment of debts,
whenever eXpedient and proper to provide such
a fund.
As rule. officers of the corporation are the
sole Judges of the propriety of declaring divi-
dends But they are not allowed to act illegal
ly, wantonly or oppressively. And when the
right TO a dividend is clear and there are funds
from which it can properly be made, a court of
equity will compel the company to declare it.
The company was incorporated in 1867; COM
pleted the construction of IFS road in 1870, the
same costing one million dollars the stock sub
scriptOns were about S650,000; it leased its
road in 1870, for fifty years. for $4,000 per an
mum, lessees assuming all expenses, taxes
and risks during the term; at date of this bill
November. 1882, the company from its receipts
of rent had paid off 100000 of floating ndebt-
edness; owed S150,000 of bonded mortgage
debt, contracted in 1870, maturing in 1890; owed
the city of Belfast its principal stakeholder,
SSS.000 (abou) for money borrowed in 1870,
payable in November, 1885; and, after pay
ment of all interest due on its obligations, had
about S31, 900 money in hand. The road has
not the prospect of earning more than its oper-
ating expenses after its lease expires in 1920.
HELD: That the directors would be justified
in refusing to declare a dividend until there are
means enough on hand with which to pay tine
debt TO Belfast. And it is the opinion of the
court that, after that. some reasonable provi-
sion should be made for the final eXtinguish-
ment of the mortgage debt by reservng for
such purpose, i'll sinking fund, a portion of
the rent to be received. and dividing the bal
ance among stockholders; renewing the debt or
some portion of it when it becomes due in
| 1870; but assuring the payment of all indebted
ness by or before the expiration of the lease.
| PETERS. c. j. The plaintiff. were incorpo-
rated as a railroad company in 1861, the charter
authorizing the issuing Of preferred and non
preferred stock. The company was organized
and bylaws were established prior to opening
the books for the subscription of shares. The
! 18Th bylaw was this: ''Dividends on the pre-
! ferred stock shall first be made semi-annually
from the net earnings of said road, not exceed
! ing six per centum per annum. after which
| dividend, if there shall remain surplus, a
| dividend shall be made upon the non preferred
stock up to like per cent. per annum: and
/ should q surplus then remain of net earnings.
after both of said dividends, in any one year.
the same shall be divided pro rata on all the
| stock
| sGribed for preferred stock became entitled to
! it according TO the terms of the bylaws. We
! have no doubt of it. There was nothing else
! anywhere TO indicate what the preferred stock
wa- 10 be. Subscribers merely agreed to take
| preferred stock, others subscribing for com
mon stock. The bylaw. or the terms stated in
it, must be regarded part of the contract
| entered into by the corporation and the sub
scribers. The bylaws describes and identifies
| the stock. Davis V. Proprietors, Met. 32l.
| Other questions in the involved in
the following facts: 1t appears that in the
| early days of the enterprise policy was re-
/ solved upon to build the road wholly from sub
| scriplions to stock. In the first place the city
of Belfast, through its government, expressed
! It's view that the construction of the road
/ should not be commenced until stock enough
should be subscribed to secure its completion,
/ and that no mortgage should ever be put upon
| the road. After that, the railroad company by
its vote committed itself to the same policy.
And after that vote the company adopted thi.
/ bylaw: Nor shall anv assessment whatever
I he made upon any shares, or any portion there
/ of, until the full amount of the estimated cost
| of the road shall have been subscrlb-
ed by responsible parties in accordance with
| the rules and regulations of the Directors. &C.,
4 &c.' one Of those rules made a part of the
! subscription paper, reiterated the idea before
! expressed. with these words added thereto,
= thereby avoiding the necessity of any mort
gage or incumbranee being ever contracted by
| tins corporation.
Ihereupon subscriptions were made for both
| kinds of stock. Without wadng through the
! historical details which caused the departure il
is enough to say that the original theory of the
company was not adhered to. Without the
| fault of the company, unforeseen eXigencies
arose lmperativeIy requiring large amount of
| Indebtedness to be created. The collected sub
>crptions amounted to SG4S, 100; while the
| cost of the road exceeded a million dollars
! Stock m those " aft
! fully paid for. and no other shares were ever
/ issued. 10 avert the disaster that would have
fallen upon them without it. the corporation
| was compelled to obtain means, to finish the
construction Of the road, in several ways. On
! May 10 1870. a bonded Indebtedness for $780,
4 600 was created, payable in twenty years with
| interest semi-annually, secured by mortgage
upon the road The company also borrowed
of the city of Belfast, its principal stakeholder
and gave its note therefor, dated Nov. 16, 1871
the sum of S10l 800, payable. with annual in
terest, on November 1G, 1885. Besides these
amounts the company incurred miscellaneous
floating Indebtedness of about S150,00O more
1t being admitted that those debts were all
legally incurred, discussion of the difficulties
which were encountered in obtaining the cred
its, would not be material to the issue.
In April, 1870, the company leased its road
to the Maine Central Railroad Company for a
term of fifty years from May 10, $780, at rent
of S36,OO0 per annum, probably One-half there
Ol on luc tentn Gays OF May ana November III
each year during said term, the lessee to operate
the road, keep it in repair. and pay all taxes
assessed thereon. The road has been possessed
and operated by the lessee ever since. When
this lease terminates, it is not probable that the
! road will be able to earn much more, if any.
thing. than its operating expenses. BY means
of the rent received, the company had paid of
all of its floating or miscellaneous liabilities
and something on the city debt, so that on
| November 10, 1889, after receiving the Novem-
Der rent, the financial standing Of the company
was substantially as follows: 1t owed $50 0O(
in bonds, maturing in May, 1890. 1t owed the
city of Belfast $S7,900. Its sinking fund
amounted TO $26 033A. And it had in its
possession S10SG3, remaining after ayno
! interest then due upon the note and bonds.
Out of the payments of rent received from
November, 1878, to May, 1882, both inclusive
the company paid semi-annual dividends OF
two and one-quarter per cent. each, to the
holders of the preferred stock, but paid nothing
upon the common stock, and has refused tC
declare any further dividends. A dispute arts.
ing between the two classes of stockholders
whether the preferred stockholders were en-.
titled to any dividend from the surplus or
hand of $l0S63, this bill was filed in order to
determine the question.
Upon these facts, affected somewhat by
other incidental facts which will appear, the
position is taken, by the counsel for the city
that the preferred stockholders, as between
themselves and the common stockholders, are
not entitled to any dividends until the entire
Indebtedness of the company is paid; that, in
asmuch as the subscriptions to both classes of
stock were made when the declared policy OF
fba.