Court Opinion

ID: 9773455
Source: CourtListenerOpinion
Date Created: 2023-08-29 17:46:34.027823+00
Date Added: 2024-06-11T07:31:54.020980
License: Public Domain

WESTHUES, Judge
(dissenting).
I cannot concur in the result reached in this case by the opinion of Judge EAGER whose opinion we shall hereafter refer to as “the opinion.” As stated in the opinion, “The sole question involved here is whether the preferred stockholders of plaintiff are entitled to participate with common stockholders in dividends after the preferred stock has received the stated 5% preferential dividend in any given year, and the common has received a like dividend.”
In the opinion, after a full history of the reorganization of the St. Louis, Arkansas and Texas Railway Company of Texas and the St. Louis, Arkansas and Texas Railway Company of Arkansas and Missouri which culminated in the organization of the St. Louis Southwestern- Railway Company (referred to as the “Cotton Belt”), it is stated that the certificates of stock, preferred and common, correctly reflected the agreement and understanding of the parties in the reorganization negotiations.
The preferred stock certificates, in reference to dividends, read: “The holders of the preferred stock are entitled in each year to receive dividends at the rate of five per cent per annum, payable out of the net profits of the Company before any dividends shall be declared or paid on the common stock for such year, but if in any year dividends amounting to five per cent shall not be declared payable on the preferred stock, the holders shall not thereafter receive any further dividends for said year, the dividends on the preferred stock not being cumulative.”
The certificates of the common stock provided that: “The common stock of the Company is subject to the right of the holders of the preferred stock to receive in each year dividends (non-cumulative) not exceeding five per cent before any dividend shall be declared or paid for that year on the common stock.”
Section 2558, RSMo 1889, in force in 1891, read in part: “* * * and it is also further provided, that when a dividend of ten per cent per annum shall have been declared upon the preferred stock of any company, issued in pursuance of this section, then all other dividends shall be declared and distributed pro rata until the dividends on the common stock shall equal the dividends on the preferred stock, among all the stockholders of such corporation; *264* * (Emphasis ours to word “until.”)
The preferred stockholders say that Section 2558, RSMo 1889, governs this case. They further claim that the intent of the parties in view of the times when the stock was issued was that the preferred stock should be participating; that preferred stock was legally presumed to have participating rights. The common stockholders contend the exact contrary, that is, that Section 2558, supra, does not apply; that it appears from the 1891 reorganization that preferred stock should have no dividend rights beyond the 5% and that at the time of reorganization, the opinion and understanding of investors and persons dealing with railroad finances was that unless expressly so provided preferred stock was not participating.
In the opinion, the question of what the “general understanding” was at the time of the reorganization is considered at length (beginning at page 14 and concluding on page 29, 318 S.W.2d 255 to 263). The conclusion reached is not that the “general understanding” was that preferred stock should be non-participating but that the weight of authority held it should not participate unless expressly so stated in the contract. In reaching the conclusion that the weight of authority was on the side of the common stockholders, the writer of the opinion removed the opinions of a number of text writers on the subject from the scales on the side of the preferred stockholders. This is done on the theory that the authorities cited to the text did not support the authors and that they were written prior to 1891. If the authors expressed an opinion on the subject, it should be given at least some weight. “General understandings” do not come into being suddenly but come into existence gradually through the years so the fact that the texts were written before 1891 added weight to the theory that preferred stock should participate.
At the conclusion of the consideration of this subject, it is stated in the opinion that "We might well hold that the terms of the common stock certificate stating that the preferred shall receive ‘in each year dividends (non-cumulative) not exceeding five per cent * * *,’ being a component part of the contract and contemporaneous with the other documents, expressed an intent of non-participation beyond 5%.” In the first place, the quoted portion from the stock certificate is not complete. It reads that the preferred shall receive “in each year dividends (non-cumulative) not exceeding five per cent before any dividend shall be declared or paid for that year on the common stock.” That there was no general understanding on the question in 1891 is obvious. The fact that fourteen pages of the opinion are devoted to determining what side of the question had the weight of authority refutes the contention that there was a general understanding.
Furthermore, the parties directly concerned, that is, the stockholders and the board of directors, were uncertain what the status of the stockholders was concerning dividend rights. Had the board been of the opinion that the preferred stock was not entitled to any dividend exceeding 5% in any one year, it would, no doubt, have ordered the excess dividend to be paid to the common stockholders.
The writer of this dissent was the author of the opinion written in Division One which was concurred in by all of the judges of that division. After reading and considering the opinion of Judge EAGER, I am more convinced than ever that Section 2558, supra, is applicable. The following is taken from the opinion in Division One (wherein there is some repetition of what this writer has stated supra) which in my opinion should be our ruling. Note what was said:
“It is the contention of the preferred stockholders, whom we shall hereafter call *265respondents, that Sec. 2SS8, supra, governs this case; that the preferred stock was issued in pursuance of that section and that it is controlling. Further, they contend that apart from the statute, the intent of the parties in view of the times when the stock was issued, was that the preferred stock should be participating stock; that even if there is no evidence as to intent of the parties, preferred stock is legally presumed to have participating rights.
“The contention of the common stockholders, to whom we shall hereafter refer as appellants, is that Sec. 2558, supra, does not confer any rights upon the preferred stock; that the case must be decided upon the terms of the contract; that it clearly appears that the intention of the parties to the 1891 reorganization was that the preferred stock should have no dividend rights. beyond the 5% mentioned in the stock certificate. They further contend that, at the time of reorganization, the opinion and understanding of the investors and persons dealing with railroad finances was that preferred stock, unless otherwise expressly provided for, did not participate beyond the specified dividend in any one year.
“The trial court heard evidence upon all of those questions and in a memorandum opinion held that ‘The Court is of the opinion that a reasonable construction of Section 2558 Revised Statutes Missouri, 1889, in the light of its legislative history, would make it applicable to a railroad company preferred stock issued while it was in force and providing a preference up to 10%, and render such stock participating after a dividend equal to the preference had been declared on the common stock. Necessarily, then, it would have that effect on the preferred stock of the St. Louis Southwestern Railway Company. Aside from said statute, the Court is further of the opinion that a reasonable construction of the documents and interpretation of the circumstances relating to the reorganization of the St. Louis, Arkansas & Texas Railway Company and the issuance of the St. Louis Southwestern Railway Company’s preferred stock, in the light of the legal and lay opinions of that time, would also render such stock participating.
“ ‘Consequently, the preferred stockholders of the St. Louis Southwestern Railway Company are entitled to participate with the common stockholders in the dividend declared on November 26, 1951.’
“Appellants say that the trial court was in error in holding that a reasonable construction of the documents and of the circumstances relating to the reorganization in the light of the legal and lay opinions of that time would render the preferred stock participating. Respondents contend that the trial court was correct in so ruling. Both sides briefed this question at length. Each side introduced evidence on the subject. The view we have taken of this case renders unnecessary a determination of that question. We may say in passing that the trial court’s view is supported by good authority.
“It is our opinion that the above-quoted portions taken from the certificates of stock and the statute, Sec. 2558, supra, are controlling. It is admitted that the recitation in the certificates of stock correctly reflect and are in harmony with the resolutions and proceedings -in pursuance of which the stock certificates were issued. The provisions of these certificates as to dividends are plain, specific, and unambiguous. The provision in the preferred stock certificate provides that the holders of such stock are entitled to dividends of 5% each year before the common stockholders are to receive any dividend. The other quoted portion from the preferred stock certificate provides that the dividends shall not be cumulative. This provision has no bearing on the question to be decided in this lawsuit.
“The provision above-quoted from the common stock certificate simply provides that the common stock is subject to the right of the preferred stockholders to be *266paid in each year dividends not exceeding 5% before such common stockholders shall receive any dividend. No provision was made concerning what was to be done in case the preferred and common stock-hblders each had received a 5% dividend ■in any one year and the Cotton Belt would in the same year declare a dividend in excess of 5% on all stock. It is at this point that the statute governs the situation. Sec. 25S8, supra, was a special statute prescribing the conditions under which preferred stock could be issued by any railroad company organized under the laws of this state. An examination of the reorganization proceedings taken by the Cotton Belt for the issuance of the preferred stock shows that the provisions of the statute, Sec. 2558, supra, were followed. It is evident that the persons controlling the reorganization were well aware of the statute and therefore knew of its provisions as to dividends. Appellants argue that the trial court was in error in construing the statute and that the statute limits rather than adds to the dividend rights of •the preferred stockholders. In their brief, appellants quote from and cite the following cases on statutory construction:
“ ‘ “The legislative intent in the enactment of the law is to be sought and effectuated.” O’Malley v. Continental Life Ins. Co. [1934], 335 Mo. 1115, 1119, 75 S.W.2d 837, 839.
“ ‘ “In construing a statute the legislative intent must be kept in mind, if it may be ascertained, and the whole act or portions thereof as are in pari materia, should be construed together.” Holder v. Elms Hotel Co. [1936], 338 Mo. 857, 862, 92 S.W.2d 620, 622, 104 A.L.R. 339.’”
“Appellants also further argue that in construing Sec. 2558 we must keep in mind that there was a change in the attitude of the general public and law making bodies toward railroads after its predecessor was first enacted in 1871. See Laws 1871, p. 53. They say that the attitude at that time (in 1871) was liberal as evidenced by the provisions of the statute permitting preferred stock to be issued on a vote of ‘a majority in interest of all the votes cast’ by the stockholders. The Constitution adopted in 1875, Art. XII, Sec. 10, provided that preferred stock could not be issued without the approval of all stockholders. Sec. 780 of the 1879 statutes was amended and became Sec. 2558, supra, of the 1889 statutes. Among the amendments was one changing the provision authorizing the issuance of preferred stock. The statute was amended to conform to the Constitution and required a favorable vote of all stockholders .authorizing preferred stock. So, it is apparent that the trend of legislation, as stated by appellants; from about 1873 and for some years thereafter, was to place restrictions and limitations on the issuance of preferred stock by railroad companies. When the section, later to become 2558, was first enacted, the provisions quoted supra, read the same, with one exception, as they did in the Revisions of 1879 and .1889 and revisions thereafter. In 1939, Sec. 2558 became Sec. 5149 and it was repealed in 1945 when a new section was enacted in lieu thereof.1 See Laws 1945, p. 686.
“In the Revision of 1889, the word 'until,’ which we italicized in the quotation above, was substituted for the word ‘after’ so that the statute as originally enacted read ‘then all other dividends shall be declared and distributed pro rata after the dividends on the common stock shall equal the dividends on the preferred stock, among all the stockholders of such corporation; * * *.’
“We cannot agree with appellants’ contention that the statute may not in any event be applied in this case because it is restrictive and does not give preferred stockholders any rights. If that had been the intention of the legislature, a simple provision to the effect that the preferred *267stockholders could not be paid in any one year a dividend in excess of 10% would have been sufficient. The statute is restrictive in the sense that the preferred stock may not earn in excess of 10% per year unless the common stockholders are likewise paid such a dividend. In this case, the plan of reorganization provided that no more than 5% should be received by the preferred stockholders unless the common stockholders should also receive such a dividend. In that sense, the statute is restrictive. But we cannot ignore the provision ‘then all other dividends shall be declared and distributed pro rata.’ It is our opinion that the statute does apply to the present situation.
“It is the further contention of appellants that the legislature, when it amended the statute, intended to substitute the word ‘until’ for the word ‘after’ and that this court must construe the meaning of the statute as thus written. Respondents contend that it is evident from the wording of the statute that the word ‘until’ was substituted for the word ‘after’ through some mistake and that this court should interpret the statute as though the word ‘after’ were in the statute as it was originally enacted. All parties are in agreement that if the statute be construed as written, then the common stockholders could in no event receive a dividend equal to that of the preferred stockholders. Note what is said in one of appellants’ briefs: ‘If after a ten per cent dividend was declared upon the preferred stock all other dividends were distributed pro rata among all the stockholders, obviously the common never could catch up with the ten per cent paid on the preferred.’ If we read the pertinent portion of the statute and omit the word ‘until,’ it says ‘and it is also, further provided, that when a dividend of ten per cent per annum shall have been declared upon the preferred stock of any company, * * then all other dividends shall be declared and distributed pro rata * * * among all the stockholders of such corporation; * * *.’ So reading the statute, it plainly says that all dividends in any one year in excess of the dividends specified shall be distributed among all stockholders. If we employ the word ‘until’ as the statute reads, nothing is added or taken from that provision providing for distribution of the dividends in excess of that to which the preferred stock is entitled. If, however, we use the word ‘after’ then the clause has a definite meaning, that is, that after the preferred stockholders have been paid their specified dividend, then such holders shall not receive any further dividends unless the common stockholders have also received a dividend equal to that paid the preferred. Such a construction is favorable to the common stockholders. We cannot, as they want, ignore the statute nor can we legally eliminate the statute.
“In thus construing the statute, we have followed well established rules of construction. One of the prime rules of construction is that courts must construe a statute so as to ascertain and give effect to the intention of the legislative body enacting the law. 82 C.J.S. [Statutes] § 321 [p. 560.] Having ascertained the intention of the legislature, verbal inaccuracies may be corrected. Note the general rule stated in 82 C.J.S. [Statutes] § 342 [pp. 685-687:] ‘Generally, mere verbal inaccuracies, or clerical errors or misprints will be corrected by the court, in the construction of a statute, whenever necessary to carry out the intention of the legislature as gathered from the entire act. Accordingly, the court may disregard or rectify errors or mistakes in statutes in the use of words, numbers, grammar, punctuation, or spelling, in order to give effect to the intent of the legislature. In other words, if the legislative intent is clear, it must be given effect regardless of inaccuracies of language. So words may be modified or altered so as to give the statute the effect intended by the legislature, and where one word has been erroneously used for another, and the context affords the means of correction, the proper word will be deemed substituted; * * *.’ Note also what is said in 82 *268C.J.S. [Statutes] § 329 [pp. 651, 652]: ‘The words and phrases employed in a statute should be given a -reasonable and sensible construction to carry out, if possible, the intention of the legislature. The statutory words should be construed so as to give them some meaning and the statute some force and effect. Uncertain or ambiguous words will be construed so as, if possible, to produce a reasonable result in harmony with the purpose of the act.’ The general rules above-stated are supported by cases from Missouri. State ex rel. Dean v. Daues, 321 Mo. 1126, 14 S.W.2d 990, 1[oc.] c[it.] 1001, 1002 (6-8); Consolidated School Dists. v. Hackmann, 302 Mo. 558, 258 S.W. 1011; Hayes v. Hayes, 363 Mo. 583, 252 S.W.2d 323, 1[oc.] c[it] 327(2); Kidd v. Puritana Cereal Food Co., 145 Mo.App. 502, 122 S.W. 784, 1[oc.] c[it.] 788. We are of the opinion that the trial court correctly ruled the question.”
I should like to point out wherein the ruling in Judge EAGER’S opinion may result in a gross injustice to preferred stockholders. Let us keep in mind that the preferred stock in this case is non-cumulative, meaning that if no dividend is paid in any one year, no dividend shall be declared thereafter for that year for the benefit of the preferred stock. Suppose, for example, that the common stockholders of a railroad corporation, through the board of directors, have control of the financial affairs of the company. The preferred stock is, as in this case, non-cumulative. The board then could declare a dividend, say, every 10 years, of 40%; the preferred stock would receive 5% and no more and the common stock 35%. Here is where I think the statute is a protection to the preferred stockholders. If we applied the statute, the preferred stock would receive 5%, the common stock would then be paid 5% and the statute says when that has been done, “then all other dividends shall be declared and distributed pro rata * *, among all the stockholders of such corporation; * * Under the ruling of the opinion of Judge EAGER, it is certainly a misnomer to call the preferred stock “preferred.” In fact, the common stock would be the preferred. It is said that the authority to issue preferred stock is for the purpose of tempting investors to help finance the building and improving of railroads. As said in Judge EAGER’S opinion, “The issuance of railroad preferred stock was sometimes regarded as a sort of ‘hybrid’ method of raising capital, somewhere between mortgage bonds (with their burdensome fixed charges) and common stock (which had apparently not been very attractive).” A buyer of such preferred stock may have at the time thought he was purchasing a Georgia peach when in reality under the ruling of Judge EAGER’S opinion, he received a green persimmon.
The opinion, in considering Section 2558, supra, states, “As we construe it, it is only applicable where (as stated) ‘a dividend of ten per cent per annum’ has been declared upon the preferred stock; * * So construing the statute would lead to an absurdity. I do not believe that the legislature intended such a limited application of the statute. It would mean that had the parties in the organization of the “Cotton Belt” provided that the preferred stock be paid a 10% dividend instead of a 5% dividend, then the statute would apply. I agree that then the preferred stock providing for a 10% dividend would be in reality preferred. Does that make good sense? I think not. I desire to add a quotation from an opinion adopted by this court en banc in the case of State v. Kollenborn, Mo.Sup., 304 S.W.2d 855, 864, bottom of page 864: “What is not good sense should not be the law.”
I respectfully dissent.

. Now V.A.M.S. § 388.220.