Richardson v. Vermont & Massachusetts Railroad , 44 Vt. 613 ( 1872 )

The opinion of the court was delivered by

Peck, J.

The corporation had authority to stipulate, as it did, that each stockholder should be entitled to interest on sums paid on stock subscriptions, while the road was in process of construction, till it should be completed and go into operation : payable whenever the surplus earnings should enable it properly to do so, that is, when the corporation should be pecuniarily in condition to warrant the payment of dividends. In the early stages of such undertakings, the use of money necessary for the construction of the road may be presumed to be worth the legal interest; and therefore he who pays early practically contributes more than he who pays the same sum late. This arrangement for the payment of interest, or interest dividends, so called, is equitable and just, as it is but a mode of distributing benefits among the stockholders in proportion to the aid they have respectively contributed to , the common enterprise, and thus producing equality between them. Equality is equity as between the stockholders; and such payment, made only out of the surplus earnings not needed for the payment of debts of the corporation, nor for the prosecution of its business, does not interfere with the rights, of creditors, nor contravene any principle of public policy. It is no more withdrawing capital from the corporation than would be the payment of ordinary dividends, to which purpose the fund would otherwise be appropriated. Nor is there any want of legal consideration to uphold the promise. In addition to the equality thereby to be produced among the stockholders, it is apparent that they paid in their money on the faith of this agreement; for it had its origin in the outset of the enterprise. In the original stock subscription contract, there was a recommendation that when the stockholders should be organized as a corporation, they pass a vote binding the • corporation to pay interest on all sums assessed and paid in before the road should be put in operation, and that each subscriber have the privilege of paying in, at any time, the whole amount of Ms subscription after a.vote of the stockholders to that effect, and receive interest thereon until the railroad should go into operation. This was carried out at the meeting of the stockholders November 21,1844, at which the corporation was organized, by the vote of the corporation, “ that as soon as any assessment or assessments upon the capital stock shall be laid, each subscriber shall have the privilege of paying in, at any time, the whole amount of his subscription, or any portion thereof, provided that such portion thereof be not less than the amount of one or more assessments, and that all subscribers be allowed interest on all sums paid by them, up to the time when the road shall be completed and put in operation.” It is insisted on the part of the defense that this vote was not binding for the reason that the subject was not specially named in the notice calling the meeting. It is not necessary to pass upon this objection, for the corporation having the right to pass such a vote, and the objection being only to the formality of the proceeding, the defect, if any, was capable of being cured by subsequent ratification. The subsequent action of the corporation, in paying the interest to stockholders under and in pursuance of this vote, as shown by Rogers, the treasurer of the corporation, and other evidence in the case, and particularly in the vote of the corporation at its annual meeting, February-9, 1853, and the vote and action of the directors, and action of the treasurer in carrying out that vote, is a ratification of the vote of November 21, 1844. It appears that the interest was paid to the stockholders from time to time up to October 1, 1848, and that the road was not completed till April 15, 1849, when interest ceased to accrue. The interest accruing from October 1, 1848, to April 15,1849, remaining unpaid, the vote of the corporation, at the annual meeting February 9, 1853, was passed for the issuing certificates to the stockholders for the amount of such unpaid interest, payable July 15, 1856, with a provision that if there is not sufficient money in the treasury on the 15th of July, 1856, to meet the whole amount of such certificates or dividend, the holders of such scrip shall receive pro rata so much as the treasurer is able to pay ; and as soon thereafter as the treasurer is able to pay the balance due on such interest scrip, he shall give notice of the fact, <fec. In pursuance of this vote the directors passed the vote of February 22, 1853, and the treasurer proceded to issue the certificates accordingly. The orators seek to recover only according to the terms of these two last votes, and the adjustment made and certificates issued in pursuance of. them. It is claimed in defense that the vote of the stockholders of February 9, 1853, is not binding because the subject of the vote was not named in the call - of the meeting. The answer to this is that Art. 2 of the by-laws provides that “ at the annual meetings any matter may be acted upon within the power of the corporation.” We think therefore that the proceedings of the corporation, terminating in the issuing of tbe interest certificates, created an obligation upon tbe corporation to pay according to tbe terms and conditions of such certificates. Tbe policy as well as tbe validity of such contracts has been frequently recognized. Waterman v. Troy Greenfield R. R. Co., 8 Gray, 433; Rut. B. R. R. Co. v. Thrall, 35 Vt., 536. In Waterman v. Troy Greenfield R. R. Co., tbe plaintiff failed upon tbe ground that the action was premature ; the court very properly holding that the construction of tbe agreement, (which was similar to the vote in this case of November 21, 1844,) was, that the interest was not payable till the road was completed and in operation, and the corporation in receipt of income from its business. The conclusion to which we have come in this case is not in conflict with the decisions in Massachusetts, in suits at law between some of these stockholders and this defendant corporation, relative to this interest on payments upon stock subscriptions. Wright v. Vt. & Mass. R. R. Co., 12 Cush., was commenced July 3, 1849, before the vote of February 9, 1853, fixing the time and prescribing the contingency upon which the payment should be made. Shaw, Ch. J., speaking of the vote of November 21, 1844, says: “ supposing the original vote of the stockholders should.be regarded as declaring a general right of the stockholders previously to paying in any instalment on the shares, that each should be entitled to interest, to be computed on his payments, from the time of each payment to the time when the railroad should go into operation and be in condition to earn income and pay dividends, this would be equitable, because it would put stockholders on an equal footing, whether they should pay earlier or later. It would encourage capitalists to advance their money early to meet the exigencies of the company before it could enjoy any income ; and it seems right that the use of such capital should be paid for as a common charge on all.” In that case it did not appear that the roa,d was completed or put in operation at the commencement of the suit, or that the corporation was pecuniarily in a condition to pay; and the case turned on the point that the action was premature. The language of Shaw, Ch. J., in delivering the opinion of the court, is, that “ whether the plaintiff might or not maintain an action to recover this claim when the road should be completed and put in operation, we do not perceive bow he could do it before that time, without some vote of the corporation fixing the time of payment, and making it payable in money.” Barnard et als. v. Vt. & Mass. R. R. Co., 7 Allen, 512; and Cunningham et als. v. Vt. Mass. R. R. Co., 12 Gray, 411, were commenced after the railroad was completed and in operation, and after the vote of February 9, 1853, and the issue of the interest certificates in pursuance of it; but the plaintiffs failed to recover, not because the defendant was not under obligation to pay according to that vote, but'on the ground that the contingency o’f the possession by the defendant, of sufficient funds for that purpose, specified in that vole, was not shown. This objection to a recovery by the plaintiff, on which those cases turned, is obviated in this case by the admission in the answer, as well as by the proof in the case, of abundant funds to answer the contingency and fulfill the condition on which the interest was to be paid.

It is claimed by the defendant’s counsel, that the interest could' not legally be voted to stockholders, who were such at any given time, to the exclusion of Cbhers who subsequently acquired stock before the dividend is declared. But no other persons appear to < have asserted the right to the interest claimed by the orators, and specified in the orators’ certificates of indebtedness, nor are such facts shown as establish any superior equity outstanding in any other persons.

As to the amount on which the interest should be cast upon the seventy-five dollar stock, and the fifty dollar stock, a question is made whether it should be cast upon the $100, the nominal amount of the shares, or upon the sum which the subscribers actually paid. We think, upon the facts ap- " pearing in this case, that notwithstanding this stock was to be of equal rank and value as the other stock for which one hundred dollars per share was paid, yet in the matter of this interest, such stockholders should be limited to “ interest on all sums paid by them,” according to the language of the original vote of November 21, 1844, and are not entitled to interest upon the nominal value of one hundred dollars per share, and that the certificates should be reduced accordingly.

There is not such a clear, complete and adequate remedy at law as to require or justify the denial of relief in a court of equity, on the ground that the remedy must be at law. The ability of the corporation to pay, which constitutes the contingency upon which these certificates are payable, must be construed in reference to the nature of the subject, and the relative condition of the parties, and their duty to creditors haring a paramount right. The mere fact of the corporation having funds in its treasury, sufficient in amount to pay the orators, would not be sufficient to show the ability of the corporation contemplated in the vote and certificates. That ability must consist of a fund adequate, not only for the payment of the claims of the plaintiffs in the cause, but for the payment of all other stockholders having like claims; and must be a surplus fund over and above what is requisite for the payment of the current expenses of the business, for discharging its duties to creditors, and over and above what reasonable prudence would require to be kept in the treasury to meet the accidents, risks, and contingencies incident to the business of operating the railroad. In other words, there must be such pecuniary ability as would, but for the obligation to pay this interest, justify the payment of a dividend to stockholders. The orators’ claims are in the nature of claims upon a particular fund, upon which others have an equal claim, and to which another class of claimants may have a paramount right» The determination of the orators’ rights might involve an accounting to ascertain the existence and extent of the claims of others standing in like condition with the orators, and also other investigations and inquiries into the condition of the corporation in various aspects, more appropriate for a court of chancery than for a jury in a court of law. The case is one proper for chancery jurisdiction ; notwithstanding, in this particular case, the admission in the answer, of funds properly applicable to the payment of these claims if valid, renders proof on these points unnecessary.

The defendant corporation exists and is operating its railroad under and by virtue of acts of the legislature of Vermont and of Massachusetts, respectively. The railroad is a continuous line, located wholly within the two States, being partly in each. It results legally from this that the courts of Vermont as well as the courts of Massachusetts have jurisdiction of this corporation. In addition to this, it is provided in the said act of the legislature of Vermont, under which the corporation exists, .in the manner already stated, that some officer of the company shall at all times be an inhabitant of Vermont, on whom process against the company may be legally served, and the company shall be held to answer in the jurisdiction where the service is made and the process is returnable. The objection urged by the defendant’s counsel to the jurisdiction of the courts of Vermont over this corporation, involves the absurdity of holding it not within the jurisdiction of the courts of either State, and is without color of foundation.

The decree of the court, of chancery is reversed, and the orators are entitled to a decree according to the prayer of the bill, with costs, except that on the seventy-five dollar stock and the fifty dollar stock interest should be cast upon the sum paid to the corporation'therefor, instead of upon its nominal amount of one hundred dollars per share, and the interest certificates should be reduced accordingly wherever the stock can be identified and distinguished from the stock for which one hundred dollars was paid to the corporation. The cause is remanded to the court of chancery, with directions to enter decree for orators, as above indicated.