Heller, Hirsch & Co. v. National Marine Bank

The contention in this case is between the holders of what is called preferred stock and creditors of an insolvent corporation.

The stockholders of the Chesapeake Guano Company, a corporation formed under the general corporation laws of this State, voted some years ago to increase the company's capital by the issue of sixty thousand dollars of preferred stock. Without pausing at this point to examine whether the method pursued was the proper one or not, it suffices for the present to say that the authorized shares were all taken. Subsequently the company contracted the debts due to unsecured creditors and thereafter became insolvent, and its property and assets were placed in the hands of receivers. The funds now for distribution arose from sources that will be named hereafter. As the discussion requires, and the ultimate decision of the controversy involves, for the first time, a judicial interpretation of the statutes under the provisions of which this stock was issued, the enactments, though somewhat lengthy, will be set forth in full. They are contained in Sec. 294, Art. 23, of the Code. This section is made up of two Acts of Assembly passed at different periods. They are the Act of 1868, ch. 471, sec. 219, and the Act of 1880, ch. 474. In transcribing them below the terms of the later Act will be put in italics, so that they may be easily distinguished; and more especially, so that the radical changes they made in the substance of the thing with which the Legislature had dealt under the earlier, may be more readily perceived. The following are the words of the Code: "Every corporation incorporated under the laws of this State, which has the power to issue bonds as evidences of indebtedness, and to secure the same by mortgage of the property of such corporation, or which has the power to obtain such money upon mortgage, may, whenever in the judgment of said corporation it is expedient to do so, in place of issuing such bonds and securing the same by a mortgage of the property of said corporation, or instead of obtaining money upon mortgage, issue a preferred stock for any amount for which said corporation may be authorized to issue its bonds, or for any amount which the said corporation may be authorized to obtain upon mortgage of its property, and may dispose of the said stock by sale, on such terms as it may prescribe, or by permitting the same to be subscribed for, as in the judgment of said corporation may be deemed expedient; and every corporation creating such preferred stock as aforesaid, may execute as agreement under seal, to beacknowledged as conveyances of land are required to beacknowledged, and recorded in the office of the Clerk of theCircuit Court for the county where the principal office of suchcorporation shall be situated, or in the office of the Clerk ofthe Superior Court of Baltimore City, in case such office shallbe situated in said city, guaranteeing to the purchasers of, or subscribers to, such preferred stock, a perpetual dividend of six per centum per annum out of the profits of the said corporation, payable yearly or half-yearly, as said corporation shall determine, before any dividend is distributed to any of the stockholders of the said corporation, other than the holders of said preferred stock so created; and the holders thereof shall have all the incidents, rights, privileges and immunities, and liabilities, to which the capital stock of said corporation, or the holders thereof, may be entitled or subject; provided, however, that no corporation shall exercise any power under this section, unless the creation of such preferred stock shall be authorized by a general meeting of the stockholders of such corporation; and the said preferredstock shall be and constitute a lien on the franchises andproperty of such corporation, and have priority over anysubsequently created mortgage, or other incumberance." The provision requiring an agreement to be executed and to be placed on record was strictly complied with. The certificates were issued and the amount subscribed was fully paid. Thereafter the debts which it is claimed ought to be paid out of the fund now in Court for distribution, were contracted. The fund arose in this way: The improvements on the company's property — that is, the buildings and machinery — together with the stock in trade, were insured by the corporation against loss by fire. After the receivers had been appointed these improvements and this stock, or some of it, were burned. The receivers collected the insurance. This constitutes part of the fund. The rest is made up of book-accounts and rents collected by the receivers. No part of the property, real or personal, except, perhaps, stock in trade, appears to have been sold. The holders of the preferred stock — or of what is called preferred stock — issued under the above quoted section of the Code, claim that they are, as holders of those shares and in virtue of the terms of the statute, preferred creditors and entitled, in consequence, to be paid back out of these funds the amount paid in by them on their shares, whilst the persons who became creditors of the company after the recording of the agreement already alluded to, insist that they are entitled to be paid the debts due to them before any distribution is made to the stockholders. Thus this feature of the controversy is sharply defined.

If this stock is preferred stock, pure and simple, the contention of the creditors is right. The law is perfectly well settled that as between creditors and ordinary preferred stockholders, the latter, as owners of the property of an insolvent corporation, are, upon a distribution of its assets, entitled to nothing until its creditors are first fully paid. There is a palpable difference between the relation of a stockholder and a creditor to the corporate property. Stock, whether preferred or common, is capital; and generally speaking, a certificate of stock merely evidences the amount which the holder has contributed to or ventured in the enterprise. Such a certificate, representing nothing more than the extent of his ownership in the capital, cannot well be treated as indicating that he is, by virtue of it alone, also to the same extent a creditor who may compete with other creditors in the distribution of the fund arising from a conversion of the corporation's assets into money. He cannot, if he is simply an ordinary preferred stockholder, in the nature of things, so far as third persons are concerned, be at one and the same time and by force of the same certificate, both part-owner of the property and creditor of the company for that portion of its capital which stands in his name. His certificate, therefore, in such circumstances, merely measures the quantum of his ownership. As his chance of gain throws on the stockholder, as respects creditors, the entire risk of the loss of his contribution to the capital, it is a fixed characteristic of capital stock that no part of it can be withdrawn for the purpose of repaying the principal of the capital until the debts of the corporation are satisfied.Warren v. King, 108 U.S. 389; Cook on Stock, c., sec. 271;Hamlin v. Toledo, St. L. K.R.R. Co., 47 U.S. App. 422;S.C., 36 L.R.A. 826. Whether this characteristic may be modified by statute will be considered later on. To be strictly accurate, we ought to say there is a sense in which a shareholder is a creditor. In that sense every corporation includes its capital stock amongst its liabilities, but it is a liability which is postponed to every other liability. And as to the matured and unpaid guaranteed dividends due on preferred stock, the relation of creditor undoubtedly exists. B. O.R.R. Co. v. State, 36 Md. 541.

But, after all, is this particular stock, technically speaking, ordinary preferred stock, and subject consequently to the legal incidents and characteristics of that species of property?

If you call it preferred stock, and it is what you call it, then the law is perfectly clear that it has no priority over the contesting creditors. If you call it preferred stock, and it isnot preferred stock, then, obviously, it is not governed by the principles applicable to preferred stock, but by those relating to the thing that it really is. The mere naming of it does not make it that which it is named, if, in fact, it is something else. Its properties and qualities determine what it is. If the statute calls it what its properties and qualities show that it is not, surely it does not thereby become what it is misnamed, and cease to be what it essentially is. Calling stock preferred stock does not per se define the rights in such stock, but these depend on the statute or contract under which it was issued. Elkins v. Cam. A.R. Co., 36 N.J. Eq. 233. As said by the Supreme Court of Ohio: "To call a thing a wrong name does not change its nature. A mortgage creditor, although denominated a preferred stockholder, is a mortgage creditor nevertheless; and interest is not changed into a dividend by calling it a dividend. Nothing is more common in the construction of statutes and contracts than for the Court to correct such self-evident misnomers by supplying the proper words. To use the language of the Court in Corcoran v. Powers, 6 Ohio St. 19, ``The question in such cases is, not what did the parties call it, but what do the facts and circumstances require the Court to call it.'" Burt v. Rattle, 31 Ohio St. 116. Courts are not influenced by mere names. They look beyond these and give to the subject dealt with the character — thestatus — which its properties denote it possesses. The qualities and properties of a thing are its essentials — they define and mark what it is — the name is purely accidental — it is no part of the thing named. If, then, the thing which the statute contemplates, possesses the characteristics and qualities of preferred stock — and possesses none other — it is preferred stock; but if, on the other hand, it possesses characteristics and qualities that are entirely foreign to preferred stock as strictly defined, and that are descriptive of something else, then the thing is obviously either not ordinary preferred stock, or not preferred stock at all, even though it be called preferred stock, and have in addition to its own qualities some of the characteristics that do pertain to preferred stock. Precisely because preferred stock has no lien on the company's property and cannot be repaid in advance of general creditors, it is necessarily true that a security which is, by express and emphatic legislative enactment, entitled to just such a lien and just such priority, is not preferred stock technically speaking, though called by that name and though having many features incident to preferred stock. The whole ingenious and exceedingly able argument for the appellants proceeded upon the assumption that this is ordinary preferred stock, because called preferred stock, and because it possesses the incidents of such stock (but it ignored the fact that it has a quality which preferred stock has not), and the conclusion thence deduced was, that being that kind of stock it has no preferential lien. Now, the converse is exactly true. If the statute plainly gives a lien and a preference, then this so-called preferred stock is not ordinary preferred stock at all, no matter what it is called and no matter what incidents it may have in common with preferred stock, and therefore, it has not that particular characteristic which, if it were ordinary preferred stock, would defer it to the claims of unsecured creditors. Brushing aside the name, let us see what are the essential qualities of this statutory creation.

The Act of 1868, ch. 471, sec. 219, authorized corporations to issue preferred stock. It was an alternative method of obtaining money. Any corporation which, under its charter, had authority to borrow money and issue bonds therefor, and secure the payment of the bonds by mortgage, might, instead of resorting to that method, issue preferred stock. In issuing it the companies were empowered to execute an agreement guaranteeing to the purchasers of, or subscribers to, such preferred stock, a perpetual dividend of six per cent. out of the profits of the corporation before any dividend could be paid to the holders of the common stock. The holders of such preferred stock were given all the incidents, rights, privileges and immuninities, and made subject to all the liabilities to which the holders of common stock were entitled or subject. This was strictly and technically ordinary preferred stock. It had no priority over creditors or over subsequent mortgages or incumbrances, and it had no lien on the franchises or the property of the corporation. It merely guaranteed a dividend of six per cent. out of the profits — that is the net profits — and if there were no profits there would be no dividend. Its priority was simply a priority over the usual rights and interest of another, but subordinate, class of stockholders. That is the kind of preferred stock authorized by the Act of 1868, as a mere glance at its provisions — quoted in the beginning of this opinion, omitting the lines in italics — will demonstrate. In the language of the Supreme Court Warren. v. King, supra, "It would be difficult to say that these statutory provisions allowed any preference in shares of capital stock, except a preference amongst classes of shares, or any preference of any class over creditors. * * * * There is nothing in the certificate that clothes them with a single attribute of a creditor." The stock authorized by the Act of 1868, was not only called preferred stock, but it had every incident of stock, and none that was not. For twelve years the statute remained unchanged. Shares issued under it were, as we have said, essentially shares of capital with none of the qualities of an evidence of debt, and shareholders were simply owners of the capital, with none of the rights of creditors of the company. But in 1880 the statute was amended by the addition of the words in italics. By the provision requiring the agreement to be recorded no change was effected in the relation of the preferred to the common shareholder — the former was given no greater right over the latter than he had before the agreement was required to be recorded — and the relation of the preferred shareholder to the company's subsequent creditors was not disturbed unless the last clause, giving the shareholder a lien and declaring a preference in his favor, altered the nature of the preferred stock and made it something that it had not been under the Act of 1868. If the clause giving the shareholder a lien and a priority did not create a new species of preferred stock, or a security differing radically from ordinary preferred stock, it is difficult, if not impossible to assign any reason for the adoption of the Act of 1880. The clause specifically declaring that "the said preferred stock shall be and constitute a lien on the franchises andproperty of such corporation, and have priority over any subsequently created mortgage or other incumbrance," essentially changed the whole nature of the thing antecedently described as preferred stock, and the statutory lien converted it into something wholly different. The statute says "said preferred stock" — not the guaranteed dividend thereon — shall be and constitute a lien on the property and franchises of the company. If you say the lien only extends to the dividend, then you say the stock shall not be a lien, though the Legislature said it should be.

Preferred stock under the Act of 1868 had no lien whatever; this statutory preferred stock, under the Act of 1880 — "The said preferred stock" — has a lien on franchises and on property. Preferred stock under the Act of 1868 had no priority over creditors; this statutory preferred stock under the Act of 1880 has priority over subsequent mortgages and incumbrances. The two are therefore intrinsically different, and the argument that gives to the latter no greater effect or wider range than the former possessed, simply because of the identity in the name applied to both, must totally ignore and in fact expunge the clause of the statute expressly creating the lien. If this statutory preferred stock has a lien, then it differs from ordinary preferred stock in that it has the lien. If, because it is called preferred stock, it has no lien, though the statute says it shall have, then the name controls the substance, and the lien expressly given is simultaneously taken away by the name conferred. Either the name or the substance must yield and certainly the latter cannot be made subordinate to the former.

Giving to the holder of what the Act of 1880 designates preferred stock, a lien is not without precedent. It can be done and the ultimate question always is, has it been done? That it can be done a few citations will show. In Elliott onRailroads, sec. 85, the general rule is thus stated: "Unless a preference in payment of capital invested has been specially contracted for (Re Bangor, c. Co., L.R. 20, Eq. 59; ReBridgewater Nav. Co., L.R. 39 Ch. Div. 1), or is given bystatute (McGregor v. Home Ins. Co., 33 N.J. Eq. 181), the holder of the preferred stocks hares equally with the common shareholders in a distribution of assets upon dissolution * * * *. This results from the rule that he is a stockholder and not a creditor." "But much," the same author proceeds to observe inSec. 86, "will necessarily depend upon the language used, and where the interest is guaranteed absolutely and the corporation also agrees to liquidate the principal at a specified time, orthe like, so that the so-called stock is in reality an interest-bearing debenture, the relation created thereby will be that of debtor and creditor, and the holder will not be merely a stockholder as he would be if it were preferred or interest-bearing stock payable only out of the profits (Burt v. Rattle, 31 Ohio St. 116;West Chester R.R. v. Jackson, 77 Pa St. 321; Totten v.Tison, 54 Ga. 139). Its validity, therefore, would depend upon some other power than the power to issue preferred stock." And inCook on Stock, c., Sec. 271, it is said: "A mortgage to secure preferred stock and dividends thereon has been upheld in a few cases. In other cases that which was called preferred stock was nothing more than income bonds with a voting power." In the case of Garrett et al. v. May et al., 19 Md. 191, the late Mr. Reverdy Johnson, in his argument, spoke of the "income bonds," which were there the subject of controversy, as equivalent to preferred stock. As the interest and principal of the bonds were payable out of income, it meant net income. "The holder," he said, "is thus made only a preferred stockholder." "Occasionally, however," remarks Mr. Cook, sec. 271 Stock, c.," a mortgage is given by the corporation to secure the payment of dividends on preferred stock and to give it a preference in payment over subsequent debts of the corporation upon insolvency or dissolution. It is difficult to see how such a mortgage could be legal except when it is issued under express statutoryauthority." In West Chester R.R. v. Jackson, supra, it was said by JUDGE WOODWARD, speaking for the Court, "A corporation may issue new shares and give them a preference as a mode of borrowing money, where it has power to borrow on bond and mortgage, as preferred stock is only a form of mortgage." InSkiddy v. Atl. R.R., 3 Hughes, 355, it was held that where preferred stock had been issued, reciting that the stipulated interest was a lien on all the property of the corporation after the first mortgage, the lien would be upheld by the Court as against subsequent mortgages and general creditors, though such lien had not been secured by any mortgage.

There ought, then, be no doubt that this method of creating a lien in favor of a stockholder can be resorted to, if the Legislature sees fit to authorize it. That it has authorized it by the terms of the Act of 1880, hereinbefore transscribed and put in italics, is, it seems to us, perfectly clear. The General Assembly has, in plain and unmistakable words, declared that this particular kind of stock — the "said preferred stock" — shall be and constitute a lien on the company's property. No language could be more explicit; and, most certainly, Courts have no authority to reject or to disregard it. Stock issued under this Act is consequently a lien on the property of the company issuing it, and entitled to the preference which the statute gives it.

It is no answer to say that the giving of such a lien is nugatory by reason of a lien being inconsistent with the properties and qualities of stock; because it is quite obvious that after a lapse of twelve years the Legislature, by adopting the Act of 1880, intended to do just what it did do, even though in doing it the nature of the thing dealt with was changed and a new and entirely different statutory preferred stock was created. That it had the power to do this cannot be disputed. There was neither physical nor legal impossibility in the way; and no principle of sound and enlightened public policy was invaded. The substance of the thing was changed, the name was retained.

Much was said in the argument, and something is to be found in the books, about such liens in favor of stockholders being void because against public policy; but SIR GEORGE JESSEL, M.R., in dealing with that indefinite and variable quantity called public policy, said in Printing and Numerical Reg. Co. v. Sampson, L.R. 19 Eq. 465, "It must not be forgotten that you are not to extend arbitrarily those rules which say that a given contract is void as being against public policy, because if there is one thing which more than another public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred, and shall be enforced by Courts of Justice. Therefore, you have this paramount public policy to consider — that you are not lightly to interfere with this freedom of contract. Now, there is no doubt public policy may say that a contract to commit crime, or a contract to give a reward to another to commit crime, is necessarily void. The decisions have gone further, and contracts to commit an immoral offence, or to give money or reward to another to commit an immoral offence, or to induce another to do something against the general rules of morality, though far more indefinite than the previous class, have always been held to be void. I should be sorry to extend the doctrine much further." In the case of U.S. v. Trans-Mo. Freight Ass., 166 U.S. 290, the Supreme Court had under review the Act of Congress of July 2d 1890, enacted "to protect trade and commerce against unlawful restraints and monopolies." It was argued that the impolicy of giving to the Act the construction which its language plainly conveyed, was so clear that it could not be supposed Congress intended the natural import of the words it had used; but a majority of the Court, speaking through MR. JUSTICE PECKHAM, said: "The public policy of the government is to be found in its statutes, and when they have not directly spoken, then in the decisions of the Courts and the constant practice of the government officials; but when the law-making power speaks upon a particular subject, over which it has constitutional power to legislate, public policy in such a case is what the statuteenacts." It is impossible to see how the lien given to this peculiar preferred stock can be treated as invalid on the ground that it contravenes public policy, since the explicit words of the statute declare a policy with which the lien that is given is essentially in accord. It must be, said this Court in TrustEstate of Woods, Weeks Co., 52 Md. 520, a very plain case to justify a Court in holding a contract to be against public policy. We are dealing now, not with a contract, but with astatute.

None of the cases cited by the appellant's counsel arose uponstatutes containing such a provision as is set forth in theAct of 1880. They are for that reason distinguishable from this case. They all dealt with ordinary preferred stock — and not with stock issued under a special legislative enactment declaring that stock created thereunder shall be and constitute a lien on the company's property and shall have priority over subsequent mortgages and incumbrances.

If this statutory preferred stock has priority over any subsequently created mortgage or incumbrance, it must have priority over the claims which such subsequently created mortgage would itself have precedence over. It would be a solecism — an incongruity — to say that the stock shall have priority over subsequently created mortgages and of course, therefore, over those claims which would be deferred to such mortgage, where there is one; and yet shall have no priority over the same claims where there is no mortgage. Obviously, the statute means a priority over subsequent mortgages and over such claims as such subsequent mortgages would have preference over. Suppose these claims were secured by a mortgage executed after the issue of the stock. Would not the mortgage be postponed, by the express terms of the statute, to the prior lien of the stock? Can claims, when unsecured by a mortgage, take precedence of the stock to which they would be subordinate if they were in the form of a mortgage? If they can, it must be solely because when unsecured they are given a priority which is denied them when they are secured; thus reversing the ordinary rule and placing an unsecured claim in advance of a secured one. The statute cannot be interpreted in a way to produce such a result.

We now come to the inquiry as to whether the stock was properly issued. The statute prohibits the issue of this kind of stock "unless the creation of such preferred stock shall be authorized by a general meeting of the stockholders of" the corporation. It is objected that a general meeting of stockholders was not properly called, because, first, the meeting which did assemble, was called by the directors and not by the stockholders; and secondly, because notice was given in but one instead of intwo newspapers. This objection is founded on Sec. 6, Art. 23 of the Code, and altogether disregards Sec. 76 of the same Article. Sec. 6 permits stockholders to call a general meeting only when the president and directors refuse to call it after being required by the stockholders to do so. The notice prescribed by Sec 6 isten days, and when the corporation is located in Baltimore City, this notice must be published in two newspapers. Upon turning to Sec. 76 it will be found that provision is made for calling a meeting of the stockholders for the purpose of increasing or diminishing the amount of the capital stock. This notice must be given by the directors or a majority of them; it must be published in one paper and a copy must be mailed to each stockholder; and the length of the notice must be four weeks. All the provisions of Sec. 76 were strictly complied with. WhilstSec. 6 provides generally for calling meetings of stockholders,Sec. 76 provides specially for the case of a meeting called for a particular purpose. The general provision must yield to the particular, when the thing to be done is that which the latter has relation to. The proviso requiring a general meeting of stockholders to authorize the issue of preferred stock was contained in the Act of 1868, before the amendment of 1880. The issue of preferred stock under the Act of 1868 was necessarily an increase of the capital, and the proper method to be pursued in calling a meeting of the stockholders to determine whether such preferred stock should be issued was the one pointed out inSec. 76. The changes made by the Act of 1880 in the characteristics of this stock did not change the mode to be followed in securing the sanction of the stockholders to its issue. As that mode — the one designated in Sec. 76 — was strictly followed, the objection founded on the failure to comply with Sec. 6 must fall.

This brings us to the only other question in the case; and that is whether the sums collected by the receivers from the various sources indicated above, can be claimed by the holders of this preferred stock, or must be paid to the unsecured creditors. If the fund collected from the insurance companies is payable to the stockholders rather than to the unsecured creditors, it must be so payable, because the lien on the franchises and property of the company is, by reason of its being a lien on the franchises and property, a lien on the money paid by the insurance companies to the receivers, under the policies indemnifying the Guano Company against loss by fire. But since the decision by LORD CHANCELLOR KING, in the case of Lynchv. Dalzel, 3 Bro. Par. Cas. 497, it has never been disputed that a policy of insurance against loss by fire is only a personal contract of indemnity against a possible loss on account of the interest of the insured in the thing mentioned in the policy. Such personal contracts of indemnity do not attach to the realty or in any manner go with the same, as incident, by any conveyance or assignment, unless there is, in addition, some special stipulation to that effect between the insurer and the insured.Wash. Fire Ins. Co. v. Kelly, 32 Md. 441; Wheeler v. Ins.Co., 101 U.S. 442; Ins. Co. v. Stinson, 103 U.S. 29; PalmerSav. Bk. v. Ins. Co. North Amer., 166 Mass. 189; S.C., 32 L.R.A. 615. Consequently a mortgagee, and for the same reason any other lien creditor, has no right to claim the benefit of a policy underwritten for the mortgagor or owner of the property, unless there is an express agreement permitting it. The insolvency of the mortgagor or debtor cannot operate to expand the lien held by the mortgagee or creditor; or bring within the scope of that lien a fund which, according to settled principles, is not subject to its operation. If the proceeds of such a policy are not covered by the lien which the creditor holds, the subsequent insolvency of the debtor cannot bring them under the lien; because, mere insolvency can, of itself, in no instance, amplify a lien, whose existence and extent depend wholly upon the terms of the contract creating the lien. There is no pretence that there was any special stipulation between the Guano Company and the preferred stockholders appropriating to the latter, in the event of a loss by fire, the funds which might be realized under the policies of insurance; and it of course follows, that these stockholders have no lien upon those funds, and having no lien upon them they have no claim to them; because these stockholders are not general creditors, and have no right to appropriate to the payment of their stock any assets other than those which the statute specifically subjects to their lien, until the general and other creditors are first fully paid.

With regard to the book-accounts collected by the receivers the record discloses very little. Presumably these book-accounts represent sums due to the company for merchandise sold by it. It does not appear at what time this merchandise was acquired, but it was probably long after the creation of the preferred stock. However this may be, it cannot be held that the money when collected was covered by the lien given by the statute unless the merchandise sold for that money was itself subject to that lien when sold. It cannot be successfully contended that the lien attached to merchandise which the company was engaged in making for sale, without at the same time conceding that every article sold went into the possession of the purchaser charged with the lien. In a manufacturing concern engaged, as the name implies, in the sale of fertilizers, it could never have been the purpose of the statute to attach the lien to the articles produced for sale, as such a lien would effectually prevent any sale and would at once, as a consequence, stop the very business which the company was organized to conduct.

Lastly, with respect to the rents. The lien given by the statute attaches to the franchises and property. Were the lien that of a mortgage on land, the specific thing pledged would be the land. Rents, unless specifically included, would not be conveyed by a pledge of the land; "they belong to the tenant in possession, whether a mortgagor or a third person claiming under him." Kountze v. Omaha Hotel Co., 107 U.S. 378. InFreedmen's Saving and Trust Co. v. Shepherd, 127 U.S. 494, it appeared that one Bradley executed a deed of trust pledging to the Savings and Trust Company certain real estate. The rent accruing from this property was claimed by the Trust Company and by other creditors of Bradley. In denying the claim of the Trust Company the Supreme Court said: "Bradley's deed pledged the property, not the rents accruing therefrom, as security for the payment of his notes." See also Gilman v.Ill. M. Tel. Co., 91 U.S. 603. It is true that when possession is taken by a receiver in behalf of the mortgagee the rents may be appropriated to the payment of the mortgage debt (Teal v. Walker, 111 U.S. 242), but this lien given under the statute to a preferred shareholder is not the lien of a mortgage, and cannot be expanded so as to include anything more than the Legislature designated — namely, franchises and property.

From what has been said it results that, in our opinion, the so-called preferred stock is a lien on the company's franchises and property owned at the time the stock was issued; but that it is not a lien on the funds now in the hands of the receivers and arising from the sources hereinbefore indicated. In so far as the decree below declared the preferred stock a lien on the franchises and property of the Chesapeake Guano Company, it is affirmed; but in so far as it awarded the funds collected from the insurance companies, from the book-accounts and from the rents of the property, to the preferred stockholders, it will be reversed.

Decree affirmed in part and reversed in part and causeremanded that a new decree conforming to this opinion may besigned. The costs to be equally divided between each side.

(Decided June 22d 1899).