Wagstaff v. Holly Sugar Corp. ( 1938 )

Townley, J.

(dissenting). Article 4, subdivision e, of the charter was inserted for the protection of holders of preferred stock. The limitation of dividends upon the common stock to ten dollars a share per year was to assure the accumulation of a surplus as a reserve fund for the greater security of the preferred stock. The rights established by these provisions cannot be destroyed by the simple device of dividing existing shares into fractions and paying the maximum of ten dollars on each fraction. To call these fractions full shares is to substitute form for substance and deceive by the mere use of words. As between preferred and common stockholders, the charter provisions permitting an increase in common stock must be interpreted to permit the issuance of additional stock for value only. In that case the value received becomes part of the capital structure and is the basis for the additional obligation represented by the new stock.

Judgment, so far as appealed from, affirmed, with costs.