Commonwealth v. Boston & Albany Railroad , 142 Mass. 146 ( 1886 )

C. Allen, J.

The Pub. Sts. c. 112, § 61, forbid a railroad corporation, without authority of the General Court, to increase its capital stock beyond the fixed maximum, to declare a stock dividend, to divide the proceeds of the sale of stock among its stockholders, or to issue certificates of stock when the par value of the shares so issued is not first paid in cash to its treasurer. It is contended on the part of the Commonwealth that the actual and the intended distribution of shares by the defendant are in violation of this section, such distributions being stock dividends. Literally, they are so; but it is certainly open to grave doubt whether a division of shares which have once been fully paid for to a corporation, and have since been purchased by such corporation with its surplus earnings, would fall within the mischief intended to be guarded against by tbé statute, and properly be termed a “stock dividend ” within its meaning. We give no further consideration to this question, because the surplus earnings do not appear to be sufficient fully to cover the distribution which the second information alleges is intended, and because we are of opinion that the informations must be dismissed upon another ground, namely, that by a fair construction of the St. of 1882, e. 121, the authority of the General Court was given for the division of the shares in question.

The Commonwealth sustained towards the defendant .a double relation, as sovereign and as shareholder. Wishing as shareholder to negotiate an exchange of its shares for bonds of the corporation on certain terms, it enacts as sovereign that, upon such assignment to the corporation of the shares, the corporation shall hold and dispose of the same as its absolute property. It was known that the corporation had undivided surplus earnings to a large amount, which entered into and increased the market value of the shares. At the end of the first fiscal year after the passage of the St. of 1882, these surplus earnings amounted to $2,632,921. It is implied in the information, and conceded in the argument, that these surplus earnings might have been divided among the stockholders. The price of the shares transferred by the Commonwealth was $3,858,400. The St. of 1882, in express terms, authorized the corporation to dispose of the shares assigned to it by the Commonwealth; but on the literal construction of the Pub. Sts. e. 112, § 61, now insisted on, the corporation would not be at liberty to divide the proceeds of such sale among its stockholders, even to an amount equivalent to its surplus earnings. The fact that the payment for the shares was made wholly in bonds, instead of being made partly in bonds and partly by the direct application of surplus earnings in the form of cash or cash assets, cannot be of such significance as to change the rights and obligations of the corporation. Its financial condition would in effect remain the same. Upon the construction contended for by the Commonwealth, if surplus earnings had been used directly in payment for these shares, the corporation would thereby have lost the power in any form to divide such earnings or their equivalent among its stockholders, and the authority to purchase, hold, and dispose of the shares so assigned to it as its absolute property would be a restriction instead of a privilege. But the Legislature plainly was intending to confer a privilege, to add something to the powers which the corporation would otherwise have possessed. It is argued that the intention was to free the shares from certain trusts theretofore existing, and enable the corporation to own and hold its own shares, since otherwise they would have been cancelled ipso facto. We are not aware of any such trusts that would not be extinguished by the mere transfer of the shares; and it has not been considered in this Commonwealth that shares in a corporation are necessarily extinguished by being transferred to the corporation, so that they cannot be reissued, or that the amount of capital stock is thereby reduced. Crease v. Babcock, 10 Met. 525, 556. American Railway-Frog Co. v. Haven, 101 Mass. 398, 402. Dupee v. Boston Water Power Co. 114 Mass. 37, 43. Nor has such a rule prevailed in this country generally. City Bank v. Bruce, 17 N. Y. 507. Coleman vf Columbia Oil Co. 51 Penn. St. 74. State v. Smith, 48 Vt. 266, 285. Williams v. Savage Manuf. Co. 3 Md. Ch. 418, 452. Taylor v. Miami Exporting Co. 6 Ohio, 176, 219. Robison v. Beall, 26 Ga. 17, 28. Hartridge v. Rockwell, R. M. Charlt. 260. See also Currier v. Lebanon Slate Co. 56 N. H. 262, 268.

There was therefore no occasion to add the clause in question for the purposes suggested in the argument for the Commonwealth. These purposes failing as an explanation, no other purpose is suggested to account for the language of the statute. We are left to put such a construction upon it as it. naturally bears, in view of the circumstances under which the statute was passed, having regard to the financial condition of the corporation, and to the position of the State as a contracting party, certainly intending to offer to the corporation some inducement to make the purchase. The natural meaning of the words used imports an authority to dispose absolutely of all the purchased shares, free from all conditions and restrictions. They are classed together as a whole. Whatever authority is given in respect to any of them is given in respect to all. It can hardly be supposed, under any circumstances, that the Legislature would intend to restrict the distribution of purchased shares equal in value to the amount on hand of surplus earnings, which might be distributed at the pleasure of the corporation. Looking at the whole statute, we are brought to the conclusion that the past and contemplated action of the corporation is within its authority.

Informations dismissed.