New York, L.E. & W. Railroad v. Nickals, 119 U.S. 296 (1886)
U.S. Supreme CourtNew York, L.E. & W. Railroad v. Nickals, 119 U.S. 296 (1886)
New York, Lake Erie and Western Railroad v. Nickals
Argued November 1-2, 1886
Decided November 29, 1886
119 U.S. 296
The Erie Railway Company, being embarrassed and in the lands of a receiver appointed in a suit for the foreclosure of two of the mortgages upon the property of the company, its creditors and its shareholders, preferred and common, entered into an agreement for the reorganization of the company, to be accomplished by means of a foreclosure. Among other things, it was agreed that there should be issued
"preferred stock, to an amount equal to the preferred stock of the Erie Railway Company now outstanding, to-wit, eighty five thousand three hundred and sixty nine shares, of the nominal amount of one hundred dollars each, entitling the holders to noncumulative dividends at the rate of six percent per annum, in preference to the payment of any dividend on the common stock, but dependent on the profits of each particular year as declared by the board of directors."
The mortgage was foreclosed, and a new company was organized, and the new preferred stock was issued as agreed. The directors of the new company reported to its share- and bondholders that during and for the year ending September 30, 1880, the operations of the road left a net profit of $1,790,020.51, which had been applied to making a double track and other improvements on the property of the company. A, a preferred stockholder, on behalf of himself and other holders, filed a bill in equity to compel the company to pay a dividend to the holders of preferred stock. Held that while the preferred stockholders are entitled to a six percent dividend in advance of the common stockholders, they are not entitled, as of right, to dividends payable out of the net profits accruing in any particular year unless the directors declare or ought to declare a dividend payable out of such profits, and that whether a dividend should be declared in any year is a matter belonging in the first instance to five directors to determine, with reference to the condition of the company's property and affairs as a whole.
This was a bill in equity brought by a holder of preferred stock of the New York, Lake Erie, and Western Railroad Company on behalf of himself and other stockholders to compel the company to declare and pay a dividend to the preferred stockholders out of the net profits from the operations of the company during the year ending September 30, 1880. Decree below in favor of complainants, from which respondent appealed. The case is stated in the opinion of the Court.