Court Opinion

ID: 6664593
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:05:11.262273+00
Date Added: 2024-06-11T16:00:17.652667
License: Public Domain

Judge Chambers
dissented in part, and delivered the following opinion:—
I do not concur in that portion of the opinion expressed by the majority of the court, which decides the right of the State to recover; or that which decides upon the contingent validity of the bonds issued or executed by the Company to the State, for $10,000.
The questions, (in reference to this part of the case,) involved in the record and argued at, the bar, were, first, whether the act of the Board of Directors in declaring a dividend in part payable in bonds, was a lawful exercise of authority, and obligatory on the State ; and if not, then whether the present action could be sustained by the State, for the $10,000, the nominal value of the bonds.
The court has declared, that “ no discrimination can be made between stockholders, in making a dividend.”
It would seem to follow, necessarily, from this position, that, in this instance, the issue of bonds was unauthorized; and, if the President and Directors, by their charter, had no authority to issue the bonds, they are not obligatory on the stockholders, for whom the Directors were trustees.
The argument was not at all directed to maintain, or deny, the right of the State to recover the specific sum of $10,000, or any other sum, in any form of action other than that resorted to, and without the aid of an argument I am unwilling to go beyond the points necessarily arising in the cause, to decide questions, in regard to which difficulties are apparent to my mind.
*376Magruder, J.,
delivered his opinion as follows:
The resolution of the Board of Directors, declaring a dividend payable partly in bonds, and in part in money, is in this suit made the plaintiff’s cause of action;—the evidence of its claim.
The court has already decided, that, in this suit, the plaintiff cannot recover the $5,000, for the reasons then stated.
I am further of opinion, that the State cannot recover, the $15,000, and this for the reasons stated by a majority of the court, and that the judgment of the court below must be affirmed.
It was because of the difficulties that this proceeding, on the part of the Board of Directors presents, and the very many important and interesting questions, to which that proceeding might give rise, that I united with my brethren in advising the course, which was suggested by us a few days since. If it had been adopted, it would have obviated the difficulties and the evils which too much discussion, or too much opinion, perhaps, will cause, and prevent any such evils in future.
Disappointed in this, I can only say that the judgment must be affirmed.
Archer, C. J.,
delivered the opinion of this court.
The following paper, purporting to be a declaration of dividend, made by the defendant in this case, has given rise to the present controversy.
“ Office of the Baltimore and Ohio R. R. Comp’y,
November 4th, 1846.
“The President and Directors have declared a-dividend, on the stock of the Company, as standing on the books on the first day-1846, of three dollars per share, payable on and after Friday, the 20th day of the present month, in the manner following, to wit: to all stockholders of less than fifty shares, cash, at the Commercial and Farmers’ Bank; and to all stockholders of fifty shares and over, one dollar per share in cash, at the Commercial and Farmers’ Bank, and two dollars per share in the Company’s bonds, bearing interest payable quarterly, re*377deemable in twenty years, and deliverable to the stockholders at the office of the Company. J. J. Atkinson, iSee’j/.”
The Twentieth Annual Report of the Company, offered in evidence in this case, furnishes the basis and the reasons which actuated the Company in the above proceeding. In this report it is said, that the net revenue, including the receipts from the coal trade, after deducting the expenses of working and keeping the road in repair, amounted to the sum of $440,475 34. Of this sum, however, besides $65,749 64, (being principal and interest, and premium, in sterling bills,) on account of the debt due the Messrs. Barings, there have been applied, during the year, to the re-construction of the road, and to the construction of burthen cars adapted to the general trade, to improvements at the depots, and to right of way, to the purchase of locomotive engines, and to the construction of water stations, to the purchase of additional power and machinery for the accommodation of an increasing coal trade, and on account of a subscription on behalf of the Company, to the'capital stock of the Pittsburgh and Connellsville Rail-road, the further sum of $284,184 76, making together $349,934 40, and leaving, of the net revenue of the year, at the disposal of the Board, the sum of $90,540 94, or about one and a quarter per cent.
It appears, by the same report, that the Board determined to raise the means for the re-construction of the entire length of the road between Harper’s Ferry and Baltimore, by the sale of the Company’s six per cent, bonds, payable in twenty years, and believing that a sufficient sum for this purpose might, in this way, be raised, in parcels, to meet their engagements, they directed thirty miles of the road to be immediately placed under contract.
The sale of the bonds, as contemplated, was not, however, effected—their price in the market not, in the opinion of the Board, justifying such sale, and they temporarily applied the revenues of the Company towards the consummation of this object, designing at the time, however, to reimburse the stockholders, and also to reimburse the stockholders, for such *378amount of the annual revenues of the Company, as had theretofore been applied to enable the Company to provide the necessary power and machinery, to enable them to commence and cárry on the coal trade.
Upon this principle, adding the sums applied from the revenue, for the re-construction of the road, and for the power and machinery for the coal trade, (after deducting the sum of $43,312 14, with which that trade had been credited,) amounting together to $146,S16 05, to the residue of the surplus, to Wit, $90,504 94, there would remain a net surplus of revenue of $237,356. 99, expended and unexpended.
With the intention of carrying out the original design of reimbursing the stockholders, for such amount of revenue of the Company as had been applied, from time to time, to the purposes of the Company, above adverted to, and having only in hand cash to the amount of $90,504 94, it was determined that the sum of $146,816 05, expended as above detailed, should form the " basis upon which the stockholders should be reimbursed, by bonds of the Company, to be issued in favor of the stockholders.
It appears from the evidence, that the money to pay the bash part of the dividend was deposited in the Commercial and Farmers’ Bank, to be paid to all stockholders who might demand the same; and that the certificates of stock were in readiness, for delivery, for the other portion of said dividend, at the office of the Company in Baltimore; and that all the stock had been issued and delivered to the stockholders, in accordance with the terms of the resolution declaring the dividend, except the stock that was payable to the State; and also, that the entire dividend, in cash, had been paid, except the State’s portion, and some small sums not called for, but not exceeding what usually remains unpaid, for a longer or shorter time, after every dividend.
The State, being a stockholder, and refusing to receive the dividend thus declared by the Company, as it was declared, has instituted this action to recover the amount of three per cent.' in money, considering the dividend in the same light, *379and as having the same legal effect, as if it had been declared in money, and not in money and bonds. The prayers of the plaintiff and defendant present the following propositions for the consideration of the court, so far as the charter is concerned.
1st. Had the Company a right to expend any part of its revenue for the re-construction of the road ?
2d. Could it make such expenditure, absolutely, and without being bound to refund, or might it appropriate and agree to refund to the stockholders, in their discretion ?
3d. Under the 19th section of the charter, are the Directors bound to divide only such part of the net profits, as they may deem proper? and is their judgment of what is proper conclusive upon the stockholders ?
4th. Can they apply any portion of the net profits not divided, to any legitimate purposes of the Company ?
The determination of these questions depends on the construction of the act of 1826, ch. 123, entitled, “An act to incorporate the Baltimore and Ohio Rail-road Companywhich act is the charter of this Company.
By the 14th section of this law, the purpose and object of the charier is disclosed. Its design is there declared to be, “ to make a Rail-road from the city of Baltimore to some suitable point on the Ohio riverby the 22d section of this act, the road was required to be finished within twelve years from the passage of the law; and by the 2d section, it is declared, that the capital stock of the Company shall consist of three millions of dollars.
In all questions of power, arising under an act of assembly granting a franchise of this description, the test of the existence of the power, is to be found in the inquiry, whether the same is expressly granted, or whether it is incidental to any express grant of power, and necessary to its accomplishment ?
The 14th section declares, that “ the President and Directors of said Company shall be, and they are hereby invested, with all the rights and powers necessary to the construction and repair of a Rail-road, from the, city of Baltimore to the Ohio river”
*380Here, then, is a sweeping grant of power, both to construct and repair, with no other limitation on its exercise, than that it shall be necessary to accomplish the one object or the other. All right and power to accomplish these objects are given, with no other limitation than that just adverted to.
Thus is the power conferred, and thus is the duty imposed, of constructing a Rail-road. For this purpose a capital is provided, of $3,000,000; and this power, and this duty, are to be exercised in no other way, looking to this section alone, than by the means placed at the disposal of the Company, that is, by its capital, and the products of its capital. It was certainly a part of the contract of the Company, when they accepted their charter, that they would make and keep in repair the road, though it required their whole fortune, which consists of their capital, and of the earnings of their capital. These duties the Company undertook to perform, with the means placed by the charter at their disposal; subject, however, to the right, conferred by the 19 th section, at the discretion of the President and Directors to divide the net profits. To accomplish a work of this vast magnitude, requiring a costly Rail-road to be made over a difficult and mountainous country, required enlarged powers; and they were liberally given, in the section under consideration. It has been urged, that it is an established rule that every corporation is limited in its powers by the object to be accomplished, and if there be a specification of the means for accomplishing a particular object, then such specification excludes all others. The ruléis admitted. But we do not .consider it as applicable to this case. The means for accomplishing the object, it is said, are provided by the 13th sec. of the act. That section is as follows:
“ That if the capital stock of said Company shall be deemed insufficient for the purposes of this act, it shall and may be lawful for the President and Directors of the said Company, or a majority of them, from time to time to increase the said capital stock, by the addition of as many shares as they may deem necessary, for which they may at their option cause subscriptions to be received in the manner prescribed by them, *381or may sell the same for the benefit of the Company, for any sum not under their par value; and they, or a majority of them, shall have power to borrow money for the objects of this act; to issue certificates, or other evidence of such loans; and to pledge the property of the Company for the payment of the same and its interest.”
The above section undoubtedly does specify powers for the purpose of accomplishing the object,—that is, it gives the power to increase the capital of the stock, on the terms therein mentioned, and the power to borrow money.
But such specific powers, given as a means of accomplishing a power, however it might exclude other means of accomplishing the construction of a road, furnishes most certainly no limitation of a grant of all powers, limited only by their necessity ; and this, we have seen, is the grant of power in the 14th section.
It is obvious that the legislature, having granted the specific powers referred to in the 13th section, were apprehensive that, by these means, the great object had in view by the act could not be accomplished ; they therefore, the more effectually to carry out these purposes, by the 14th section endowed the Company with all rights and powers necessary to make and keep the road in repair. And in so doing they had a wise foresight; for, if the Company were to be made dependent on the means provided by the 13th section, for constructing the road, it might be questionable whether the great purpose of the act could ever be effected. The evidence in the cause shows us that, even in 1846, the stock of the Company could not be sold but at ruinous sacrifices; and this suit apprizes us that, even with the aid of extensive liens, money could not be borrowed but upon unfavorable terms.
The 19th section interposes no difficulty in the way of the above construction. That section we will advert to. It is in the following words:
“ Jlnd be it enacted, That the said President and Directors shall annually, or semi-annually, declare and make such dividend as they may deem proper, of the net profits arising from the *382resources of the said Company, after deducting the necessary current and probable contingent expenses ; and that they shall . divide the same amongst the proprietors of the stock of said ■ Company, in proper proportions to their respective shares.”
There is clearly nothing in this section which is in any manner imperative on the Company to declare dividends of their net profits. Their duty is defined to make such dividend as they may deem proper from the resources of the Company. If, in the honest exercise of their duties, looking to the whole interest of the Company, they deemed that the net profits should he otherwise applied, to accomplish or further the objects of the act of incorporation, they were at liberty to withhold a dividend.
The design of this section was, to define what was to be the subject of a dividend, and to prescribe the mode of dividing among the stockholders, and to allow a dividend from time to time, if the President and Directors deemed it proper.
If we are right in our construction of this section of the act, then this section strengthens óur interpretation of the 14th section. If they are not compelled to divide the net profits, but may retain, then such retention must be to accomplish the objects designated in the 14th section. They could apply them to nothing else legitimately.
The 18th section of the charter, which authorizes the President and Directors to purchase, with the funds of the Company, and place on any Rail-road constructed by them under the act, all machines, wagons,' vehicles, or carriages of any description, which may be necessary or proper for transportation on said road, does not militate against the construction which we give to the 14th section. This section itself takes a distinction between the construction of the road, and the motive power and vehicles for transportation; and however true it may be, in the language of the President of this Company to the committee of ways and means, that “ professionally, construction comprehended the whole cost of not only making the railway, but of stocking it with motive power, machinery, and stations of every kind, and also any new appurtenances of the same description *383that might from time to time be neededstill, it seems to have been supposed by the legislature that, to enable the Company to purchase the motive power, &c., some further authority was necessary, and out of abundant caution this power was given by the 18th section. That the section directs the purchase to be made out of the funds of the Company cannot affect the question. The funds of the Company are its entire resources, comprehending its capital and its receipts ; and the authority conferred by the section stands as it would have stood if there had been a general power to purchase, without any reference to the funds of the Company.
But it is urged, that if the net profits of the Company can be applied to the construction of the road, or to extraordinary works of repair there would be no profits left to secure the guarantee provided by the 9th section of the act of May session, 1836.
But we think the true construction of that section is, that this guarantee is to be satisfied out of the gross profits of the Company.
This section provides, that the interest on each instalment of stock subscribed shall, after the lapse of three years from the time of payment by the State, be paid out of the profits of the work. The term profits may mean gross profits or net profits. Which it means must be determined by its association, and by the whole clause. Now, in the same sentence, the terms clear annual profits are used. Then, in another part of the same section, and in the same sentence, on a contingency therein mentioned, the language is, that the State shall be entitled to receive a perpetual dividend of six per centum per annum, out of the profits of the work, as declared from time to time. So that the term profits, as used in the first part of the sentence, is used without limitation or qualification, and wherever after-wards it is used, it is qualified and defined to mean clear annual profits, or as declared from time to time, which declaration of profits, as declared from time to time, would be only from the clear annual profits by the charter. It then appears, that they have used the term profits as contradistinguished *384from net profits, or dear annual profits, or profits declared from, time to time. And as this has been done, we think the inference is clear, that by the term profits, as first used in reference to the guarantee, they meant gross profits. This guarantee is in no manner impaired by the act of 1S38, ch. 386.
The above views dispose of the various propositions contained in the prayers, except the question arising under the second proposition, as to the ability of the Company, at its discretion, to appropriate its net revenue, and agree to refund the same to its stockholders, or to make such appropriations absolutely to the purposes of the road.
We have before seen that the Company, in the honest discharge of its duties, may, under the charter, appropriate the net revenue of the Company to the purposes of the charter; it is, we think equally clear, that they may, having appropriated the net revenue of the Company to the purposes of the charter, designing at the time to repay them, agree to refund the same to the stockholders.
If designing to make a dividend of the net profits, they have used them for the purposes of the Company, intending at the time to return them to the stockholders, as was the case in the cause before the court, as is abundantly evident from the Twentieth Annual Report, which is in evidence before the court, we think there is nothing in the charter which would prohibit the Company from refunding the amount thus used by them to the stockholders. The character of the act ought to be determined by its intention.
The legislature would not, certainly, have designed, that if the Company had on hand $500,000 of net profits, and designing to divide the same, anil should frpm any cause connected with the prosecution of the enterprise, have required the use of $100,000, that they must, in order to carry out their design of dividing the said $500,000 among their stockholders, abstain from the appropriation of any part of the net profits temporarily to that object, and resort to a loan for the purpose, keeping the net profits idle in their coffers, until the period of the declaration of a dividend should arrive.
*385We are satisfied they might, agree to refund the net profits which they may have used, and might, under the powers granted to them by the charter, borrow money to supply the place of that which had been used, and that they might borrow from the stockholders as well as from any one else, and that they had a perfect right, with the consent of the stockholders, to treat the money thus used as a loan, and for this purpose, might pass to the stockholders, who were willing to receive them, their bonds. The second, third and fourth prayers of plaintiff give rise to other questions.
The propositions contained in these prayers, may be reduced to two.
1st. That the mode of payment specified by the advertisement, was not obligatory on the stockholders, and the plaintiff was entitled to recover.
2d. That the plaintiff could recover the whole of said dividend, though the Company had not sufficient cash on hand to pay the same.
We agree with the first part of the first proposition, which asserts that the mode of dividend was not obligatory on the plaintiff. The plaintiff ivas certainly not bound to accept the bonds which the Company proposed to deliver. The State, if she pleased, might refuse the bonds, and decline to become a lender to the Company, and certainly the Company could not become a borrower from the State without the State’s assent. A forced loan could not be contended for, and a valid loan requires the assent of all the parties. But, although the State was not bound by the mode of dividend, it will not follow that the State is entitled to recover; the reason which conducts us to this conclusion, will be assigned in discussing the second proposition.
Now, as to the second proposition, which asserts that the State can recover the whole amount of the dividend, although the Company had not cash on hand sufficient to pay the dividend, and did not intend to declare a cash dividend of three per cent., but of one per cent, only,—we remark that the plaintiff has certainly no standing in court, except upon the *386dividend. The relation of debtor and creditor cannot exist as between the Company and the stockholder in this respect, until the dividend is made. The plaintiff, by the. institution of this action, affirms the dividend, and he must take it as it is.
The relation of trustee and cestui que trust, exists in a qualified sense, as between the President and Directors and the stockholders; and the funds which may be in the hands of the President and Directors, in which the stockholders may have an interest cannot be sued for in an action of general indebitatus assumpsit, unless a dividend has been declared. It is immaterial in our view of the subject, whether the declaration of a dividend constitutes a contract, or is to be considered in the light of the performance of a duty. In either case, it is to be taken as it emanates from the Board. A part of it cannot be taken and the rest discarded. It cannot be said you have declared three per cent, and we will have the money, although in the very declaration, they say they can only pay you in the liabilities of the Company. All the evidence in the cause demonstrates, that all the net revenue of the Company, designed by the Company for its stockholders, under the provisions of the 19th sec. of the charter, except the cash on hand, at the time of the dividend, was used in the works of the Company; but with the design of repaying it to the stockholders; and that it should, with the assent of the stockholders, assume the shape of a loan. This, we have seen, it was competent for them to do, with the consent of the stockholders; but any stockholder might refuse to receive the liabilities of the Company, thus offered, and might treat the dividend, so far as he was concerned, and sor far as the declaration of dividend proposed the delivery to him, of the bonds of the Company, as an illegal dividend; and to the extent, the Stale has been damnified as a stockholder, by the accomplishment of this loan from the other stockholders, she is entitled to redress, but surely not in the form of an action of general indebitatus assumpsit.
Is it not obvious, that if the State is allowed to treat this advertisement as a cash dividend, she is producing the very *387injustice of which she complains ? She would receive her three per cent, in money, and when all the other stockholders above fifty shares, had received but one per cent, and the residue in bonds. It is true, the President and Directors have discrimi-i nated in this advertisement, between the large stockholders and the small, giving to the latter three per cent, in money, and / to the others, money and bonds. This, it is conceded, the , charter did not justify. But this distribution to the small stockholders, was a greater proportion of cash, than they were entitled to, looking to the amount of cash in hand for division. The illegal payment to the small stockholders of more cash than from the unexpended funds they were entitled to, could surely furnish no reason, why the State should receive a like sum. If the State, as a stockholder, has received injury by such payment, she no doubt has her remedy, but not that which has been pursued.
The question arising, under the fifth prayer of the defendant, and the last prayer of the plaintiff, is, whether there can be any recovery in this case, of the $5,000, which was the amount of the cash dividend, payable to the State, wtihoul a demand being made, either of the Company or its authorized agents, for payment. We are clearly of opinion, that such demand was necessary, before a right of action would exist, on the part of the plaintiff, to recover this dividend. The establishment of the principle, that suits could be instituted without demand for dividends, declared by banking and other corporations, would greatly impair the value of stock held therein, by rendering it necessary to employ agents, to hunt up the stockholders, in various parts of the State, or the Union, in order to prevent a multiplicity of suits, or on a failure to do this, suits, and of consequence, costs might be multiplied to an alarming extent. Such a doctrine has, certainly, never been supposed to exist. Dividends are paid when called for, and we apprehend, that limitations would not run until demand was made.
Moreover, interest would not be chargeable against an incorporation, on dividends declared, until a demand was made, *388which could not be so, if the Company was liable without demand.
The decision of this court, in I G. 8p J. 425, on the principle which it establishes, bears a strong affinity to this case. There it was decided, that a trustee, ordered by a Court of Chancery, to pay claims allowed by the Chancellor, would not be liable to a suit, until, not only notice should be given to him of the order, but demand made upon him by the claimant, for payment. We do not think the Company stood in the situation of a common debtor, whose business it is to look to a compliance with his engagement. As regards the argument, ab inconvenienli, we think it would apply as strongly to the case before the court, as to that case.
judgment affirmed.