A railroad company with stockholders and bondholders, being much
embarrassed, put before the latter a plan by which they should
surrender a part of their bonds and receive preferred stock
therefor, the same to "be 7 percent stock and not cumulative, but
to share with the common stock any surplus which may be earned over
and above 7 percent upon both in anyone year." The bondholders
having accepted the plan, a committee was appointed to "carry out
the intention" of it. The committee reported an indenture in form
to be signed by the bondholders and the company. The indenture
contained this provision:
"And said corporation covenants and agrees that said preferred
stock shall be entitled to a dividend of 7 percent from the net
earnings of said road in each year, before any dividend shall be
declared upon other, unpreferred shares of said corporation, and to
an equal dividend with said other shares in the net earnings of
said corporation, beyond SAID 7 percent, but shall at no time be
entitled to an accumulated dividend,"
&c. The indenture was approved by the stockholders, who
ordered it to be executed and ordered the directors "to procure
such certificates in relation to the preferred stock, to be issued
under said agreement, as may be necessary to carry the Same into
effect." In accordance with this, the directors issued and gave to
the former bondholders certificates which, premising that they were
issued in adjustment of bonds, "and subject to the terms and
conditions of the indenture," &c., and "with the rights set
forth therein," declared that the
Page 84 U. S. 97
holder was entitled
"to receive all the net earnings of said company, which may be
divided pursuant to said indenture, in each year, up to $7 per
share,
and to share in any surplus beyond $7 per share, which
may be divided upon the common stock."
Held:
1st. That parol evidence was inadmissible to show how all the
parties in interest understood the transaction, from its
commencement to its consummation.
2d. That after the preferred stockholders received 7 percent,
the common stockholders were entitled to an equal sum, percent,
before the preferred ones got more.
The Hannibal & St. Joseph Railroad, in Missouri, with an
income of but $450,000 and having a capital stock of $3,000,000, a
debt of $8,000,000 of 7 percent bonds, and an arrear in interest of
$4,000,000 -- both bonds and interest -- secured by mortgage on all
the property of the company, found itself, A.D. 1862, in
consequence of the then universal depression of values brought
about by the rebellion, in such embarrassments that it could
neither pay dividends on its stock nor interest on its debt, and as
the State of Missouri had a lien of $3,000,000 upon it, which had
precedence of every other claim, it became obvious that some
vigorous measures of reorganization were necessary if anything was
to be saved for either bond creditors or stockholders.
In this state of things, on the 15th of October, 1862, the
company issued to the several holders of its bonds a circular
entitled,
"A plan for extricating it from its present
difficulties, and improving its securities." In this plan, the
company proposed to these several bondholders that they should
exchange their bonds in part for other bonds, having a longer time
to run, and in part for preferred stock,
"the preferred stock to be 7 percent, and not cumulative, but to
share with the common stock any surplus which may be earned over
and above 7 percent, UPON BOTH, in anyone year."
Prior to November 24, 1862, all the bondholders had come into
this plan, their assent being signified by an agreement in these
words annexed to the plan itself:
"We, the subscribers, owners of bonds issued by the Hannibal
Page 84 U. S. 98
& St. Joseph Railroad Company, of the kinds and amounts set
opposite our names, respectively, hereby agree to surrender the
same and receive in exchange therefor new bonds and preferred
stock,
in accordance with the provisions of the plan for
extricating the company from its present difficulties and improving
its securities, dated 15th October, 1862, and hereunto
annexed."
On the same 24th of November, 1862, the board of directors of
the road
"Voted that Messrs. Bartlett, Thayer, and Hunnewell be, and they
are hereby appointed a committee with power to carry out the
intention of the circular of October 15, 1862, entitled 'A plan for
extricating it from its present difficulties and improving its
securities,' and that they are authorized to make such expenditures
therefor as to them may seem discreet."
This committee, in discharge of the duties of their appointment,
reported an "indenture" to be executed by the company on the one
hand, and the bondholders or the trustees of the mortgage on the
other, which, after referring to the embarrassments of the company,
went on to give effect to the plan, though no reference was
anywhere made in the instrument to this agreement itself. The
indenture contained this clause:
"And said corporation covenants and agrees that said preferred
stock shall be entitled to a dividend of 7 percent from the net
earnings of said road in each year, whenever a dividend of said net
earnings shall be made, before any dividend shall be declared upon
other unpreferred shares of said corporation, and to an equal
dividend with said other shares in the net earnings of said
corporation beyond SAID 7 percent, but in no case to be entitled to
an accumulated dividend (in case a dividend shall fail to be made
in any one or more years, or, if made, be insufficient to pay said
7 percent) in any subsequent division of said net earnings, but
shall be entitled only in that event to SAID 7 percent, and to
share in said surplus earnings as aforesaid."
On the 1st April, 1863, this form of indenture, being laid
before the board of directors, was by it referred to a
stockholders'
Page 84 U. S. 99
meeting to be held on the 30th May, 1863. At this meeting, the
board of directors were
"Instructed to procure and adopt, on behalf of the corporation,
such certificates in relation to the preferred stock,
to be
issued under said agreement, as may be necessary to carry the same
into effect, and cause the same to be executed in behalf of
this corporation in such manner as they may think best."
Under this authority, the indenture was accordingly executed by
Mr. W. H. Swift and others, trustees for the bondholders, on the
one part, and the company on the other, and the directors, on the
26th June, 1863, prepared and adopted a form of certificate thus:
[
Footnote 1]
"
NUMBER] STATE OF MISSOURI [SHARES"
"
Hannibal & St. Joseph Railroad Company"
"
PREFERRED STOCK] SHARES $100 EACH [SEVEN PERCENT"
"Issued in adjustment of the bonds of said company, . . . and
subject to the terms and conditions of an indenture
between said corporation and W. H. Swift and others, trustees,
dated April 1st, 1863,
and with the rights set forth
therein, and may be transferred upon the books of the company
and new certificates issued, and may be used, with the bonds of
said company bearing date April 1, 1863, in the purchase of its
lands, as provided in said indenture."
"The Hannibal & St. Joseph Railroad Company hereby certifies
that, in consideration of the surrender and placing in trust of
bonds and coupons in pursuance of said indenture, __________ is
entitled to ___ shares of the preferred stock of said corporation,
and to receive all the net earnings of said company which may be
divided pursuant to said indenture in each year, up to $7 per
share, and to share in any surplus beyond $7 per share which may be
divided upon the common stock."
"WITNESS the seal of the corporation and the signatures of the
transfer agent and of one of the directors, at Boston, Mass., the
___ day of _______, A.D. 186_."
"__________________________"
"Transfer Agent"
Certificates were made out accordingly in this form, and
Page 84 U. S. 100
given to the bondholders, who received them without any
expressed exception to their tenor.
In January, 1870, the company had so far retrieved its disasters
as to declare a dividend of 7 percent on the preferred stock.
Having yet a surplus, it made a dividend of 3 1/2 percent of it to
the common or unpreferred stock, to the exclusion of the preferred
stock, and was about to make another dividend of 3 1/2 percent in
the same way.
Hereupon one Bailey, owner of several shares of the preferred
stock, filed a bill, annexing the indenture and form of
certificate, but not the plan, as exhibits to enjoin this further
dividend on the unpreferred stock and to have it appropriated to
the preferred stock.
The defendants answered the bill, annexing the plan and form of
certificate, but not the indenture, as exhibits and contending that
on a true construction of the documents in the case no such
appropriation ought to be made, and on the hearing they introduced,
against the objection of the plaintiff, the evidence of persons who
had prepared the indenture that it was drawn with the purpose of
giving effect to the plan and that from the commencement of the
transaction to its conclusion parties concerned understood the
transaction as they, the defendants, alleged it when rightly
construed to be.
The court dismissed the bill and the complainant appealed.
Page 84 U. S. 102
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
Certificates of stock, described in the bill of complaint as
common or unpreferred stock, amounting to $3,000,000 were issued by
the respondents, divided into shares of one hundred dollars each,
which constituted their capital stock. Pecuniary obligations were
contracted by the company in constructing the road much beyond
their means of payment, which consisted of three classes of bonds
issued by
Page 84 U. S. 103
the company at different times, in aid of the construction and
equipment of the road, and which were secured by three several
mortgages, and were known as land bonds, convertible bonds, and
second mortgage bonds. Embarrassment necessarily ensued, as the
stock of the company had become of no value in the market, and as
the respondents were unable to pay the interest on their bonds or
to make any dividends, they issued to the holders of the bonds a
circular or plan for extricating the company from their
difficulties and for improving their securities. By that plan they
proposed to the several holders of the bonds that they should
exchange the same in part for other bonds and in part for preferred
stock of such a nature that its holders should have the right to
receive "7 percent, not cumulative, but to share with the common
stock any surplus which may be carried over and above 7 percent
upon both in anyone year." Measures were adopted to send that
circular to all the holders of the bonds, and it appears that a
large majority of the bondholders approved and accepted the terms
and conditions of the proposed arrangement, and as evidence thereof
signed an instrument by which they agreed to surrender the mortgage
bonds which they held, and receive, in exchange therefor, new bonds
and preferred stock in accordance with the provisions of the plan
for extricating the company from its present difficulties and for
improving their securities; that the respondents thereupon
appointed a committee with power to carry it into effect; that the
committee prepared an indenture to accomplish that end; that they
subsequently, by order of the directors, submitted the same to a
meeting of the stockholders convened for that purpose, and that the
stockholders did then and there accept and ratify the action of the
directors and of the committee and ordered that the indenture
should be duly executed and delivered. Authority was also conferred
upon the directors, at the same meeting, to adopt, in behalf of the
company, such certificates in relation to the preferred stock to be
issued under the agreement "as may be necessary to carry the same
into effect," and to cause the same to be executed,
Page 84 U. S. 104
in behalf of the company, as they may think best. They, the
directors, accordingly prepared and adopted, in behalf of the
company, the form in which all of the certificates of the preferred
stock were for a time issued by the respondents, which contains the
recital that the holder
"shall be entitled to receive all the net earnings of said
company which may be divided pursuant to said indenture in each
year, up to $7 per share, and to share in any surplus beyond $7 per
share which may be divided upon the common stock."
Certificates of preferred stock were issued in that form until
the legislature passed the act authorizing the company to convert
their bonds secured by mortgage into preferred stock, when the
certificates issued in that form were recalled and a new form was
adopted, but inasmuch as it contains the same provision in respect
to the right of the holder to participate in the yearly net
earnings of the company it need not be reproduced, except to say
that the certificates in the second form, as well as in the first,
purport, on their face, to be issued subject to the terms and
conditions of the indenture between the company and the trustees,
which the stockholders directed should be executed and delivered to
carry the plan sent to the bondholders into effect. Pursuant to
that order it was executed, and it contains the following
provision:
"That said preferred stock shall be entitled to a dividend of 7
1/2 percent from the net earnings of said road in each year,
whenever a dividend of said net earnings shall be made, before any
dividend shall be declared upon other unpreferred shares of said
corporation, and to an equal dividend with said other shares of the
net earnings of the company beyond said 7 percent, but shall at no
time be entitled to an accumulated dividend in any subsequent
division of said net earnings."
Eight hundred shares of the preferred stock are owned by the
complainant, and he filed the bill of complaint claiming that by
the true construction of the indenture the preferred stock is
entitled, not only to a dividend of 7 percent from the net earnings
of the road in each year, before any dividend is declared in favor
of the unpreferred stock, but also to an equal dividend with the
unpreferred
Page 84 U. S. 105
stock in the net earnings of the same year beyond the amount
required to discharge the dividend of 7 percent secured to the
preferred stock.
Shares of the preferred stock, it is conceded, are entitled to a
dividend of 7 percent from the net earnings of the road in each
year whenever a dividend of net earnings is made, before any
dividend can be claimed for the shares of the unpreferred stock, as
that is a matter of priority created by the indenture, but it is
insisted by the respondents that the priority does not extend
beyond the 7 percent, that when that priority is satisfied the
preferred stock is not entitled to any further dividend in that
year until the unpreferred stock shall receive a 7 percent dividend
from the net earnings of the road in the same year.
Ten and a half percent net having been earned by the road in one
year, the directors, adopting the views of the respondents, made a
dividend of 7 percent upon the preferred stock, and having
satisfied that priority, they made a dividend of 3 1/2 percent from
the residue of the net earnings beyond the 7 percent upon the
unpreferred stock, and the complainant insisting that the fund of 3
1/2 percent was to be shared equally between the preferred and the
unpreferred stock, filed the present bill of complaint and prayed
for an injunction to restrain the company from paying any such
dividend upon the unpreferred stock. Proofs were taken and the
parties having been heard the court entered a decree for the
respondents, dismissing the bill of complaint.
Evidence was introduced showing that all the parties understood
the transaction, from its commencement to its final consummation,
as it is understood by the respondents, but it is insisted by the
complainant that such evidence is inadmissible, as its tendency is
to explain and qualify what is in writing, and the court is
inclined to concur with the complainant in that proposition. Such
evidence cannot be admitted in the case except for the purpose of
connecting the several written instruments together, and of showing
that
Page 84 U. S. 106
they are all parts of one transaction; nor is it admitted that
the evidence is necessary in this case, even for that purpose, as
the instruments themselves contain the most persuasive evidence to
establish that fact, and inasmuch as it appears that they were all
introduced, either by the complainant or by the respondents,
without objection, they are properly before the court. Such being
the fact it is quite clear that they must all be regarded as
instruments
in pari materia, and that as such they are the
proper subjects of consideration in order to ascertain and
determine what is the true nature of the transaction and the true
construction of the contract between the parties. All of these
writings were executed as means to the same end, which was to
enable the company to find relief from the impending dangers and
great embarrassments with which they and all interested in their
affairs were surrounded. They could command nothing, nor were the
bondholders in much better condition, as a foreclosure would not,
in all probability, accomplish much except to sacrifice the
interests of all concerned. Everything connected with the
enterprise was in jeopardy except the interest of the state, whose
loan of $3,000,000 was secured by a first mortgage, covering the
franchise, roadbed, and all the rolling stock of the company, whose
lands, franchise, roadbed, and other property were also encumbered
by the other three mortgages before mentioned, amounting to
$8,000,000.
No attempt was made to negotiate with the state, but the relief
sought was obtained by the arrangement with the holders of the
bonds issued by the company, and which were secured by the three
mortgages aforesaid which were subject to the mortgage given to the
state, as follows:
(1) Holders of bonds under the first of the three mortgages were
to surrender 30 percent of their bonds and all their unpaid
coupons, and to accept preferred stock for the amount.
(2) Persons holding bonds under the second mortgage were to
surrender 40 percent of their bonds and all their unpaid coupons,
and they were to accept preferred stock as stipulated in the
indenture.
(3) Those holding bonds under the third mortgage were to
surrender the whole of their bonds
Page 84 U. S. 107
and unpaid coupons, and were to accept preferred stock for both
bonds and coupons.
Priority was thus secured by the bondholders over the
unpreferred stock amounting to a lien, as against the holders of
the latter stock, for a yearly dividend of 7 percent, if the net
earnings of the road were sufficient for that purpose, as conceded
by both parties. Prior stockholders yielded them that preference,
but they insist that no just construction of the contract will give
them any more in anyone year until the net earnings of the road
will also give to the holders of the unpreferred stock a dividend
for the same amount, and the court is inclined to adopt the same
conclusion.
Test the question by the circular addressed to the bondholders,
which they all signed as the preliminary step to the arrangement,
and the inquiry is too clear for argument, as the statement is that
the preferred stock shall "be 7 percent, not cumulative, but to
share with the common stock any surplus which may be carried over
and above 7 percent upon both in anyone year," which means, as
plainly as language can express the idea, that the preferred stock
shall share in the surplus arising from the net earnings of the
company, in anyone year, beyond what is necessary to pay a dividend
to the whole stock, preferred and unpreferred, of 7 percent Nothing
more favorable could be expected by the bondholders, as they signed
the circular and agreed to surrender the number of bonds set
against their respective names and to receive in exchange therefor
new bonds and preferred stock in accordance with the provisions of
the plan for extricating the company from their present
difficulties and for improving their securities, showing that their
attention had been called to the plan and that they were satisfied
with its terms and conditions. [
Footnote 2] Beyond doubt the directors understood the
matter in the same way, as they invested the committee, which they
appointed, with the power to make such expenditures as to them
should seem discreet to carry
Page 84 U. S. 108
out the plan, which was sent to all the bondholders for their
approval.
Suppose that is so, still it is insisted that the indenture is
the only evidence of the contract between the parties, but it is
too late to advance that proposition, as all the other instruments
are before the court without objection, and several of them were
introduced by the complainant as exhibits to the bill of complaint.
Seasonable objections, however, could not have availed the
complainant if they had been made, as it is well settled law that
several writings executed between the same parties substantially at
the same time and relating to the same subject matter may be read
together as forming parts of one transaction, nor is it necessary
that the instruments should in terms refer to each other if in
point of fact they are parts of a single transaction. [
Footnote 3] Until it appears that the
several writings are parts of a single transaction, either from the
writings themselves or by extrinsic evidence, the case is not
brought within the rule, as it may be that the same parties may
have had more than one transaction in one day of the same general
nature. Doubt upon that subject, however, cannot arise in this
case, as the due relation of the several writings to each other is
conceded by both parties. [
Footnote
4]
Standing alone it may be admitted that the indenture furnishes
some support to the views of the complainant, but it is clear that
all ambiguity disappears when it is read in connection with the
writings which preceded and followed it in respect to the same
subject matter. Ample justification for that remark is found in the
plan which preceded it and which was approved and signed by all the
bondholders, and in the form prepared for the certificate of the
preferred stock which was adopted subsequently to the execution of
the indenture, and which was accepted by all the holders of the
Page 84 U. S. 109
preferred stock as a complete fulfillment of the arrangement
between them and the company. Holders of preferred stock, as there
provided, are entitled to receive all the net earnings of the
company which may be divided pursuant to the indenture in each year
up to $7 per share, and to share in any surplus beyond $7 per share
which may be divided upon the common stock, which in substance and
legal effect is the same regulation as that contained in the
circular or plan, and all the other writings upon the subject which
were given in evidence at the final hearing. [
Footnote 5]
Viewed in any reasonable light the court is of the opinion that
the decision of the circuit court is correct, and that there is no
error in the record.
Decree affirmed.
[
Footnote 1]
Prior certificates in the same form, only conditioned upon the
procuring of legislation supposed to be requisite, had been issued,
and the legislation having been obtained were recalled and
superseded by new ones in the form given in the text.
[
Footnote 2]
Sturge v. Railway, 7 De Gex, Macnaghten & Gordon
158.
[
Footnote 3]
Cornell v. Todd, 2 Denio 133;
Jackson v.
Dunsbagh, 1 Johnson's Cases 91;
Stow v. Tiftt, 15
Johnson 463;
Railroad v. Crocker, 29 Vt. 542;
Sturge
v. Railway, 7 De Gex, Macnaghten & Gordon 158;
Jackson
v. McKenny, 3 Wendell 233;
Hull v. Adams, 1 Hill
601.
[
Footnote 4]
Cornell v. Todd, 2 Denio 133.
[
Footnote 5]
Bailey v. Hannibal & St. Joseph Railroad Co.,
Dillon 176.
