Court Opinion

ID: 3565799
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:15:36.743071+00
Date Added: 2024-06-11T13:43:04.130451
License: Public Domain

The fundamental question involved in this appeal is whether, under the Corporation act, cumulative prior preference stock, carrying eight per cent. dividend redeemable at $115 per share, can be created and issued ahead of already outstanding cumulative preferred stock? The defendant company, in its certificate of incorporation dated May 3d 1899, created two kinds of stock, common and preferred. The preferred stock has a preference. It is made cumulative.
Liquidation is to be paid in full both as to principal and accrued dividends, and after the common stock is paid at par, the balance of the assets shall be divided pro rata among the holders of both classes of stock.
The Corporation act (P.L. 1896 p. 283 § 18; 2 Comp. Stat. ofN.J. p. 1608) provides, "every corporation shall have power to create two or more kinds of stock of such classes," as shall be stated and expressed in the certificate *Page 342 
of incorporation. Section 27 provides that the corporation may change the nature of its business, extend its corporate existence, c., "create one or more classes of preferred stock,"c. P.L. 1901 p. 245, added the words "or in any certificate of amendment thereof." P.L. 1908 p. 128, inserted in section 27 the words, "change its common stock into one or more classes of preferred stock," before the words, "create one or more classes of preferred stock." Section 29 provides, "the decrease of capital stock may be effected by retiring or reducing any class of stock." From the words thus used in the twenty-seventh section of the statute, "create one or more classes of preferred stock," power is found by the court for creating cumulative prior preference stock ahead of preferred cumulative stock already created, issued and outstanding. These sections should be read together. They contemplate a complete scheme for creating common and preferred stock.
The words in section 18, "every corporation shall have power to create two or more kinds of such stock," are precise and apt words for the creation of different kinds of stock, where none has been created. The words in section 27, "create one or more classes of preferred stock," are likewise precise and apt words for the creation of preferred stock, where none of that class has already been created. Thus read, the construction of the two sections are harmonious. A power to set cumulative preference stock over already created and outstanding cumulative preferred stock, if it exists, should be expressed in such clear and precise language that the man on the street may know what he is buying, and that he will not be misled. If there is doubt whether such power has been granted from the words of the statute it ought to be denied. Such a power ought not to be interpolated into the statute by implication or by judicial construction. These provisions in the statute limit a corporation to a classification of its preferred stock once and for all time. They should not be construed as though they read change the common stock and create additional classes of *Page 343 
prior preferred stock, unless there can be no other legitimate construction. A critical examination of the words of the statute leads to the same conclusion.
The word "preferred," standing alone, means first in rank, to set above something else, having the first claim, it has some advantage over another thing of the same character. It should not be construed to mean secondary, if so, the expression is pertinent. If such a power exists, it seems to me, it must rest upon the notion that words have no settled meaning or that language is powerless to express thought.
For affirmance — THE CHIEF-JUSTICE, PARKER, MINTURN, KATZENBACH, CAMPBELL, LLOYD, WHITE, VAN BUSKIRK, KAYS, JJ. 9.
For reversal — BLACK, CLARK, McGLENNON, JJ. 3.