The Abbeville press and banner. [volume] (Abbeville, S.C.) 1869-1924, 1903-07-08
AGAINST STOCKHOLDERS.
DECISION IN THE CHRONICLE
CASE.
Preferred Stockholders Are Not Cor.
pOrate' Creditors.
Augusta Herald.

corporation, a legal question which has beel
before Judge Gary siDce iast Friday, was de
cided today,
The preferred stockholders contended tha
according to the scripts they held they wer
creditors and the preferred stock took I'M
same stand as u note. Judge Gary decided
that they are not creditors, but that they
have some preference over common stock
holders. The decision In full Is as follows.
Landon A. Thomas VS.. Augusta Chronicle
Co.
Bowdren Phlnizy VS.. Augusta Chronicle
Co.
Consolidated Causes In Equity, Richmond
Superior court.
The above stated consolidated causes came
to be heard on the original petitions. De-
murrer and answer of defendant company
the intervening petition ofJohn w. Dlckey
et al, and other interven ing petitions OF pre-
ferred stockholders and of creditors, and up
on the agreed statement OF facts
Said causes, by a consent order, were REFER
red TO the court 10 pass upon, ana determine
all questions OF law and fact without the IN
tervention OF jury.
From an examination OF the pleadiugs and
the agreed statement OF facts and from argu'
ment of counsel. in said causes 1t appears that
there are only two questions or matters OF
contention TO be passed upon by the court To
wit:
red stock certificates are creditors OF the In
solvent defendant corporation, or whether
they are only preferred stockholders
Whistler the money advanced by Mr.. John
company to pay its Indebtedness and operat.
ing expenses is An Indebtedness OF tue de
fendant company and entitled 10 share With
the other creditors in the fund In court.
These two propositions will be discussed III
the order named above.
The relation between the holders OF the
certificates and the corporation are not, on
the lace OF the contract. those OF creditor and
debtor.
There is no special form for preferred stock
and no particular words which give TO IL 1T
Preferred stock holders are entitled 10 some
advantages or priority. over com uon stock
holders. usually to receive dividends from
the earnings OF the company, before the com
mon stock can receive a dividend from such
earnings.
The term upon which preferred stock may
be issued Is q matter of >ntrast. 1t may
Issue stock as in this Case, - ed eemabie al
certain time upon certain conditions-"I
matters not what name is given to its ooliRa-
tions, whether stock note or bond; the ma
ture Of the transaction, whether u De pure
borrowing Of money or not Is determined By
the real substance and effect OF the contract
between the parties.
Analysis of"the certlfica., will show that
the present transaction Was not pure bOr
rowing OF money"
The Certificate states that the "stock bears
interest At the rate OF six per cent per an
num-" But provides that the surplus
with which TO retire the preferred stock
thereby providing preference for the hold
ers of these certificates and undertaking TO
secure TO them out OF the net prohts return
OF the an cunt invested In stock before com
mon stockholders are Permitted TO retire
their stock.
and al claims TO dividends until the six pei
cent terest guarant teed TO be paid upon the
preferred stock shall have been paid in each
and every year.
would be meaningless to speak of this as
waiver as against creditors, because stock
holders are subordinate 10 creditors and tht
creditors have priority without any waiver.
But, not 80 with preferred stockholders. No
provision Is made for the payment of the "siX
per cent interest,"" except out OF the net earn
1ngs.
A suit could not be maintained for 1t under
the terms of the contract.
"S-Interest bearing stocks. Occasionally q
corporation issued Stock with promise tina
1t will pay interest thereon: such contract
is in the nature OF an agreement TO pay q
dividend from the profits alone."
"It has been held that stipulated interest
on stock cannot become debt. payable alb.
s0luteiy, lst, Cook on stock and stockholders
Tine relation of q debtor aud creditor does
exist between the preferred stockholder and
the corporation, and the right 10 preferred
ar Guaranteed dividend Is not debt, until
'n' ui' Chaffee vs. Ruthlaud.
... r. X. Co.. 55v ITO.
Besiaes the preferred stockholders have the
right to elect one direction In the corpora.
tiSn." The holders OF the preferred stock
therefore had an interest in the profits and
losses of the bnsn ess OF the corporation. Tn.
preferred common stock had filled, and II
was issued "ior the purpose OF retiring the
outstanding Indebtedness exclusive OF tht
S35 900 bonded Indebtedness.
The law Is now clearly settled that O pre-
fered stock holder is not q corporate creditor.
The preferred stockho der is but stock.
holder with right TO have his dividend
paid before dividends on the common stock
are paid, and he is not entitled 10 any divi
no funds which
are properly applicable TO the payments oi
dividends. A:conlracl that dividends shall be
paid on the preferred stock, whei her any pro-
hts are made or not. would be contrary TO pub
Tic policy and void. Dividends on preferred
stockare payable only out OF the net earrings
OF the com pany. l. Cook on stock and stock.
holders. (8rd) sec lon 2Il.
The contest here is not between the hold.
ers OF these certificates and the holders OF the
common stock OF the corporation, but be
tween them and the creditors Of the corpora
tion.
An we'll, the holders Of these certificates, as
also the corporation, have held themselves
out to the world by these certificates at
against subsequent bona tide creditors Cf the
corporation {; they. should be held 10 be pre-
fered stock holders, not CT editors.
Upon the dissolution OF corporation
and the dis ribution OF its assets among
the shareholders after the payment o
the corporate Indebtedness, 1t Is a settled
ruie OF law, that in the absence OF any pro-
vision in the statute laws OF certificates
to the contrary. preferred stockholders have
no priority over common stockholders
Their stock was preferred in respect To divi
dends and not in reference to the capital
stock. The assets Of the corporation are to
be distributed as though no preferred shares
had been issued. The preferred share holder
in the distribution becomes com mon stock
holder" etc-l Cook on stock and stock
holders (3rd Ed.) Section 27S.
The dscisious in the Supreme Court o
Georgia In the Building and Loan cases are
not applicable to the facts In this case.
The holders of the certificates set forth ir
the pleadiDgs herein are preferred stock
hoIders, and not creditors of the corporation
The creditors of the corporation, and all o
the costs and expenses OF the suit must hrs
he maid out of the assets and, as no surplus
will remain thereafter, any balance remain
ing must be divided amongst the common
and preferred stockholders.
Trbe second question seems to be settled BY
tho agreed sta ement OF facts. 1t is statet
,herein that 81, ,GiO.55 OF this money was ad
vanced by John w. Dickey, ct. al, and uset
in paying an Indebtedness Ior tnis amour n,a,
end that the balance OF the indebtedness
claimed. namely 50, ,ll9.47. was advanced o!
Ssin l. w, Dickey, ct. al to the Chronic
S.ompany. and used by said company. pay
Ing its operating expenses-some OF IN
amounts paid being In the nature OF laporer
liens and all Of said money 80 advanced wa
necessary to keep the Chronicle agoing con !,
earn These items upQuestionably constitute
an indebtedness OF the Defendant company
and shou Id be paid out OF the fund in cour
along with the indebtedness due TO otne
creditors. The fact that this money was &C
ynnced by John w. Dickey, Ell. al, Will
they owned a majority OF tue common stoc
and were thereby enabled to elect It's officer
aud control the affairs OF tne company, ca
make no difference as TO the status OF tn
claim. for there is no reason In law or /
eIuity why stockholder: or even m'
iority stock holder. should not lend or at
vance money TO the corporation In which
ia a shareholder, 10 meet It's necessities. es'
nacially when such advance or loan Is necei
sary TO enable the corporation TO pay II
trhe amnnnis of indebt edness due the Othe