Bates v. Androscoggin & Kennebec Railroad , 49 Me. 491 ( 1860 )

The opinion of the Court was drawn up by

Rice, J.

An examination of the terms of the contract between the parties upon which the action is based, in the light of the surrounding circumstances, will leave no doubt as to its construction, nor a.s to the intention of the parties at the time of its inception. The defendants are a corporation, and were, at the time the contract originated, engaged in the prosecution of a great public enterprise — the construction of a railroad from Danville to Waterville. This enterprise, which was then of a character comparatively new in this State, and involved the expenditure of large sums of money, had, manifestly, been commenced by the corporation without accurately estimating the cost necessary for its completion. The law contemplated that a sufficient amount of stock should be subscribed, to furnish funds to enable the company to construct and equip their road. The charter was sufficiently broad and liberal in its terms to admit of the accomplishment of this object. But when a subscription to its stock, sufficient only to meet a portion of the cost of the construction of the road, had been obtained, the work of construction was commenced, and a result which ordinary sagacity could not have failed to foresee, was speedily reached. The available proceeds of the stock subscription were exhausted, debts without means to pay contracted, and the road not completed.

In this condition of things the financial skill or ingenuity of those interested in carrying forward the enterprise and completing the construction of the road, was put in requisition." Bonds for a first and second loan, amounting to more than half a million of dollars, appear to have been issued and sold in the market, and yet there was a large deficiency of funds to meet liabilities already incurred, and the pros poctive necessities of the corporation to finish their road. It was apparent that further sales of stock could not be effected on the intrinsic value of the stock itself.

In this exigency, "plans” were devised to induce existing stockholders, and others, to make additional subscriptions to the capital stock of the corporation.

These plans were referred to the directors, who, at a meeting of their board, held July 10, 1849, matured therefrom the following terms of subscription:—

"We, the undersigned, stockholders in the Androscoggin and Kennebec Rail Road Company, and others, agree to take and pay for the number of shares set to our names, at $100 a share, by paying the money therefor, or, giving our notes, payable in four, eight, and ten months, on the following conditions, viz.:—

"1. So much of the net earnings of the road as may be necessary, after paying interest to the bondholders, shall be applied to the payment of twelve per cent, in semiannual dividends of six per cent, each, to the holders of stock hereby created, until the net earnings of the road shall be sufficient to pay an interest of six per cent, on the stock, and all the bonds issued of the first and second loans.”

The other conditions are not deemed material in determining the point before us.

This proposition was presented to and ratified and adopted by the stockholders of the company, at a meeting held August 21, 1849. The stock thus provided for constitutes what is denominated the "preferred stock” of the corporation, though the certificates issued therefor were in the form of the ordinary stock certificates of the company, and were only distinguishable from the ordinary stock certificates by an indorsement made upon the back therebf by the order of the directors.

This certificate was in form as follows :—

"Preferred Stock. This certificate is for preferred stock created July 10, 1849, and entitles the holder, from the net earnings of the road, to the payment of six dollars per share, semi-annually, until the net earnings of the road shall be sufficient to pay an interest of six per cent, per annum on all the stock issued, and all the bonds issued for the first and second loans,” and signed by the president and treasurer.

The manifest design of this proposition for subscription was, to offer an inducement first, to the stockholders, and then to others, to take the additional stock then created, and thereby to provide the funds and money to meet the existing liabilities of the company, and to complete the construction of their road. Such is the fair import of the plan then adopted, and so the directors understood it, and so held it out to the world, as fully appears from the certificate by them directed to be placed upon the stock certificates, as cited above. That is, the corporation say, in substance and effect, by their plan for subscription, first, to their own stockholders and then to the world, in consideration that you will subscribe for the stock now created and proposed to be issued, we will pay you twelve per cent, in semi-annual dividends of six per cent, each, until the net earnings of the road shall be sufficient to pay an interest of six per cent, on the stock and all the bonds issued for the first and second loans. This twelve per cent, was simply the consideration offered to induce parties to take the new stock, and may have been offered first, to existing stockholders, to enable them, by duplicating their subscriptions, to obtain six per cent, on their whole investment in the stock of the road.

It is evident, from an examination of the whole transaction, that the words "in semi-annual dividends,” were not used in a technical sense, but were intended to mean nothing different from semi-annual payments, which payments depended upon no contingency, except that the net earnings of the road, after paying interest to the bondholders, should be sufficient to meet this obligation.

The next question of substance is, when did this contract, by its terms, terminate? The plan contains within itself an explicit answer to this question; "when the net earnings of the road shall be sufficient to pay an interest of six per cent, on the stock and,all the bonds issued for the first and second loan.” This manifestly has reference to the annual operations of the road, and, when the earnings of the road should be sufficient to enable the company to pay an interest of six per cent, annually upon its stock and all the bonds of the first and second loans, the twelve per cent, interest promised, as a consideration for the subscription to the new stock, was to cease, and the preferred stockholders would thereafter have no rights superior to the holders of old stock; it evidently then being anticipated, that from and after such time the company would be able to pay six per cent, on its whole investment in the construction of their road. It would require the operation of an entire year, including the unfavorable as well as the favorable months for business, to test its capacity to pay six per cent. As well might that capacity be tested by selecting tbe most favorable month, week, or day, even, as the six most favorable months in the year for that purpose.

As to the policy of obtaining stock subscriptions in this way, we express no opinion, nor do we herein intend to express any opinion as to the legal rights of the holders of original and preferred stock, as between themselves.

Such being the nature of the contract and the rights of the parties under it, the only remaining questions to be decided are, whether the technical objections raised are such as will defeat this action.

The action, as we have already, seen, is not upon the stock, per se, nor technically for dividends declared upon the stock of the company, but upon, a contract by which the defendants obligated themselves to pay certain specified sums, at certain times, in consideration that the plaintiff had taken stock of the company. Those payments, by the terms of the contract, are to be made to the holders of the stock. The certificates of the stock do not therefore form the basis on which the action is founded, but are only evidence tending to show, that the plaintiff was the holder of stock, out of the subscription and payment for which the contract, on which the action was brought, originated. The fact that the plaintiff took or holds stock may be proved by other competent evidence, as well as by the certificates; and the fact that «the plaintiff, in his declaration, has preferred to set out these stock certificates according to their tenor, will not require their exclusion, on the ground of variance, in consequence of verbal inaccuracies or omissions, because they do not constitute the substance of the issue, nor are they matters of essential description. 1 Greenl. Ev., § 56. The substance of the issue before us is the agreement to pay certain sums of money to the holders of a certain issue, as capital stock, in the defendant company. The certificates are introduced as evidence tending to establish the fact that the plaintiff is the holder of such stock. Evidence tending to establish the same fact is found in the express admission of the defendants, that the name of the plaintiff was borne upon the stock book of the company, as the owner of ten shares of the preferred stock of the company, at the time the certificates were issued.

The next inquiry is, when and how long did he hold said stock.

The declaration alleges, with sufficient distinctness, that the plaintiff had taken and paid for the number of shares specified as a consideration of the promise declared on. But there is an informality in that part of both counts of the declaration, which sets out the time during which the plaintiff was the holder of such stock. After setting out the fact that he had taken and paid for stock, &c., the declaration in both counts proceeds thus, "and the plaintiff avers that he is the legal holder of said certificates.” This is not a distinct affirmation, that he is and has been at all times, since the date of the certificates, or since the alleged cause of action accrued, the holder of the stock referred to in said certificates. But, though thus defective in technical accuracy and form, there is sufficient in the whole declaration to enable the Court rightly to understand the case, and it is therefore amendable. 'And, as no questions have been raised in the pleadings, as to the sufficiency of the declaration, and it not appearing that any inconvenience has been suffered by the defendants from this informality, the plaintiff may have leave to amend without terms.

The defendants, as already remarked, admit that the plaintiff was the owner of ten shares of the stock at the date of his respective certificates. The certificate for eight shares is dated April 5, 1850, and the proof is, that no payments of interest have been made since January 1, 1852. It also appears, by the transfer on that certificate, in evidence by the plaintiff, that, on the 19th day of March, 1852, he transferred to Eaton and Parker eight shares in the capita] stock of the defendants’ company. The fact that this written transfer, or assignment, is upon the back of the certificate issued for the stock in question, and the further fact that, prior to the commencement of this action, Mr. Heath received the certificate from Mr. Eaton, authorizes the inference that Eaton and Parker continued to hold these eight shares of stock from the time of the transfer to them until the date of the plaintiff’s writ.

Should it be objected that the transfer of the stock was incomplete, until it was entered upon the books of the company, the answer is that, as between the parties to the transfer, neither the certificate nor the statute, c. 81, § 22, required such transfer to be entered upon the books of the company to make it effectual. If so entered, a new certificate might have been issued to the transferees on the surrender of the old certificate, and their right to the stock protected against the acts of the original owner or his creditors. The plaintiff, from and after the transfer of this stock, ceased to be the holder thereof, and’ the defendants only promised to pay twelve per cent, to the holder. The result is, that the plaintiff is entitled to recover on his first count at the rate of twelve per cent, per annum, on eight hundred dollars, from the first day of January, 1852, to the 19th day of March in the same year.

As to the second count, there is no evidence of transfer, and the inference is authorized that the plaintiff has continued to hold it from the time the certificate was issued until the date of his writ. He is therefore entitled to recover upon that count from the first day of January, 1852, the time to which interest had been paid, until the happening of the contingency contemplated in the contract, at the same rate per cent., as in the first count. The reports do not show that this contingency occurred until July 1, 1854, and, at that time, the defendants show that the net earnings of the road, for the year then ended, had been sufficient to pay six per cent, on the stock and all the bonds issued for the first and second loans. The plaintiff was entitled to his interest semi-annually until that contingency happened. Judgment must therefore be entered for plaintiff, under the second count, for the amount of interest, at twelve per cent, per annum, on two hundred dollars, from January 1, 1852, to January 1, 1854.

Objection was also taken that the extracts from the records of the company do not show that the meeting of the stockholders, of July 3d, was legally called, or that it was regularly adjourned to August 21, 1849, when the vote of ratification was passed. We perceive no legal objection to the •introduction of those extracts,'from the records, and are of opinion that, from such portion of the records as are before us, and in the absence of all evidence to the contrary, the presumption is, that the proceedings were regular. At all events, in view of the whole transaction, and all the acts of the defendants in relation to the subject matter, it is not now competent for them to take this objection.

Defendants defaulted.

Tenney, C. J., Appleton, Cutting, May and Goodenow, JJ., concurred.