of preferred holders. By necessary implication it approves the rule laid down in Bailey v. Hannibal & St. J. R. Co. supra. In Boardman v. Lake Shore & M. S. R. Co. 84 N. Y. 157, it was the company that sought to exclude a resolution which fixed the rights of preferred shares. The certificates that had been issued did not set those rights out as fully as they were stated in the resolution. The company there contended, as contended here, that all of the proceedings prior to the issuing of the certificates had become merged in the certificates, and that they constituted the contracts between the holders and the company, and that to introduce the resolution was an attempt to vary the terms of those contracts by extraneous proof. The court rejected the company's contention, and held the resolution competent, that it should be considered in connection with the terms of the certificates for the purpose of determining the rights of holders of preferred shares. Scott v. Baltimore & O. R. Co. 93 Md. 475, 49 Atl. 327, announces the same rule.

The inquiry is to ascertain what is the real contract between the interested parties. The phraseology of the certificates is not in harmony with the claim of either side. To put it in accord with that of appellants the word "for," used twice in connection with dividends on the common, should be "in," and with that of appellee the word "in," used in the phrase "declared in any calendar year," should be "for." Thus, the phraseology used agrees with article 11 in its reference to dividends on the common stock and disagrees with it in its reference to dividends on the preferred.

But

when the two, article and certificate. are read together, the discord is avoided and the contractual relation of all stockholders inter sese, and separately with the corporation, is the same on this subject, as it was intended by all that it should be. 6

that the terms of the contract are generally set forth in the certificate, but that those terms are not the only evidence of the contract, and that they must be read in connection with the charter and by-laws in force at the time the stock was issued, to ascertain the true terms of the contract, and that all of these enter into and form a part of it. The same is found in Cook, § 269. It is a misconception to say that the certificate discloses the whole contract, and that to look to charter, resolutions, or by-laws is an attempt to vary that contract. They are all to be consulted for the purpose of ascertaining what the contractual rights of the holders of preferred shares are. Article 11 fixes the relative rights of holders of preferred and common shares to dividends in respect of the calendar year within which profits were made, and not in respect of the year in which dividends were to be declared, and provides that after each class has received a dividend of 7 per cent for and in respect of the calendar year within which the profits were made, "then all further dividends declared with respect to such calendar year shall be divided equally and pro rata among all the shareholders." The record shows that the preferred shares had received 7 per cent dividends out of the profits earned in each calendar year beginning with 1909 to 1919, both inclusive, and that the common shares had also received dividends of 7 per cent from the profits of each of those years; and that there had been carried over undistributed surplus earnings for each of those years to an aggregate of more than $12,000,000. It was from these accumulated surplus earnings that the dividend declared by resolution of March 10, 1922, was to be taken and paid. Inasmuch as both classes of stock had each received 7 per cent dividends from the profits made in each of those years, we think it would have been a violation of the rights of the

holders of both preferred and com

-right to dividend.

mon shares to have distributed in dividends the remainder of the surplus earnings for those years otherwise than as the board directed by the resolution of March 10th.

It is further said that appellee was estopped to pass the resolution of March 10 declaring 2 per cent dividend on the common shares. Just how this estoppel is intended to be made out is not very clear. No action by the board contrary in purpose to that of the resolution of March 10 was ever undertaken. General representations as to the character of preferences to which holders of preferred shares were entitled, made by the company's officers in its application to list its stock. on the New York Stock Exchange, are said to be in accord with the phraseology found in the certificates for preferred shares. The representation was in substance a copy of that phraseology. Financial publications which investors are supposed to consult carried the same

Estoppel-repre

holders-effect.

general representation, presumably obtained from the application to the Stock Exchange. But appellants do not establish that they relied on those sentation as to representations nor rights of stockon the form of the certificate, when they purchased; and if they had it would not avail to support the plea, in view of the sources from which all must know the rights of stockholders spring, as we have already tried to point out. The holders of common shares are the persons chiefly interested in the question as to how dividends shall be apportioned between them and the holders of preferred. It is not claimed that the holders of common have said or done anything in recognition of the claims made by appellants.

There is in our judgment no facts on which the plea of estoppel can rest.

Affirmed.

Petition for writ of certiorari denied by the Supreme Court of the United States, October 15, 1923, 263 U. S. 703, 68 L. ed. —, Adv. Ops. p. 17, 44 Sup. Ct. Rep. 33.

a

This annotation assumes that stock certificate has been properly issued, so it is not concerned with the holder's right to the stock itself; nor does it cover the question of conflict between the provisions of a stock certificate and those of a statute under which the corporation operates.

It appears to be well settled that a stockholder's rights with regard to dividends or otherwise are not to be determined conclusively or exclusively by the provisions of his certificate of stock, but that, in connection with such provisions, other evidence in writing may properly be considered, such as provisions of the articles of incorporation, of the by-laws, of agreements as the result of which the

stock has been issued, or resolutions voted prior to the issue of the certifi cate.

United States.-Bailey v. Hannibal & St. J. R. Co. (1873) 17 Wall. 96, 21 L. ed. 611, affirming (1871) 1 Dill. 174, Fed. Cas. No. 736; St. John v. Erie R. Co. (1872) 10 Blatchf. 271, Fed. Cas. No. 12,226, affirmed in (1875) 22 Wall. 136, 22 L. ed. 743; CONTINENTAL INS. Co. v. MINNEAPOLIS, ST. P. & S. STE. M. R. Co. (reported herewith) ante, 1320, affirming (1922) 283 Fed. 276.

Maine. Bates v. Androscoggin & K. R. Co. (1860) 49 Me. 491.

Maryland. Scott v. Baltimore & 0. R. Co. (1901) 93 Md. 475, 49 Atl. 327.

Massachusetts. Barnard v. Vermont & M. R. Co. (1863) 7 Allen, 512.

New Jersey.-Mellon v. Mississippi Wire Glass Co. (1910) 77 N. J. Eq. 498, 78 Atl. 7 ́ New Yor Shore & M. S. R. Co. (1881) 84 N. Y. 157; Beveridge v. New York Elev. R. Co. (1889) 112 N. Y. 1, 2 L.R.A. 648, 19 N. E. 489; Rogers v. New York & T. Land Co. (1892) 134 N. Y. 197, 32 N. E. 27; Prouty v. Michigan Southern & N. I. R. Co. (1874) 4 Thomp. & C. 230, 1 Hun, 655; People ex rel. Content v. Metropolitan Elev. R. Co. (1881) 26 Hun, 82; Harkness v. Manhattan R. Co. (1886) 22 Jones & S. 174, affirmed in (1887) 23 Jones & S. 532, which is affirmed in (1889) 113 N. Y. 627, 20 N. E. 877; Re Seneca Oil Co. (1912) 153 App. Div. 594, 138 N. Y. Supp. 78, affirmed in (1913) 208 N. Y. 545, 101 N. E. 1121; Hastings v. International Paper Co. (1919) 187 App. Div. 404, 175 N. Y. Supp. 815.

Boardman V. Lake

Ohio.-Ohio College of Dental Surgery v. Rosenthal (1887) 45 Ohio St. 183, 12 N. E. 665.

Virginia.-Drewry-Hughes Co. v. Throckmorton (1917) 120 Va. 859, 92 S. E. 818.

In Boardman v. Lake Shore & M. S. R. Co. (N. Y.) supra, objection was made to the admission in evidence of books of minutes of the corporation containing certain resolutions authorizing the issue of preferred stock to be known as "construction stock," upon the ground that all proceedings prior to the issuing of the stock certificate became merged in the same, and the certificate became the contract between the corporation and the stockholders, which could not be varied by the other testimony. The court held that this evidence was properly admitted, and that such evidence was frequently resorted to in cases relating to the power to create preferred or guaranteed stock, or the right to receive dividends upon such stocks-citing Stevens v. South Devon R. Co. (1851) 9 Hare, 313, 68 Eng. Reprint, 524, 21 L. J. Ch. N. S. 816, 12 Eng. L. & Eq. Rep. 229; Sturge v. Eastern Union R. Co. (1855) 7 DeG. M. & G. 158, 44 Eng. Reprint, 62, 31 Eng. L. & Eq. Rep. 406; Crawford v. North Eastern R. Co. (1856) 3 Jur. N. S. (Eng.) 1093; Hen

ry v. Great Northern R. Co. (1857) 5 Jur. N. S. 1117, 1133, 1 DeG. & J. 606, 44 Eng. Reprint, 858, 27 L. J. Ch. N. S. 1, 6 Week. Rep. 87; Matthews v. Great Northern R. Co. (1859) 5 Jur. N. S. (Eng.) 284, 28 L. J. Ch. N. S. 375, 7 Week. Rep. 233; Corry v. Londonderry & E. R. Co. (1860) 29 Beav. 263, 54 Eng. Reprint, 628, 30 L. J. Ch. N. S. 290, 7 Jur. N. S. 508, 4 L. T. N. S. 131, 9 Week. Rep. 301; Harrison v. Mexican R. Co. (1875) L. R. 19 Eq. Cas. 358, 44 L. J. Ch. N. S. (Eng.) 403, 32 L. T. N. S. 82, 23 Week. Rep. 403; Kent v. Quicksilver Min. Co. (1879) 78 N. Y. 159, 4 Mor. Min. Rep. 47. The court said: "The resolutions, the book of minutes, annual reports, and other proceedings were competent, for the purpose of showing the real character of the transaction and as a part of the same. . . . We think that the whole proceeding relating to the issue of the stock may be taken in connection as constituting one and an entire transaction. The resolutions were competent evidence to show authority to issue the stock, the proposal and other proceedings to carry out the purpose of the resolutions, and the certificate as evidence of what stock was actually issued, and, in part, the terms upon which it was so issued. Altogether these papers evince what the intention was. Without the certificate, the shareholder would be entitled to the shares which had been paid for, and the dividends and the certificate did not circumscribe or limit his rights in this respect, but render them more definite and specific. We think, therefore, that the evidence objected to cannot be considered as extrinsic evidence to vary, modify, or explain the written contract, or any uncertainty or ambiguity relating to such contract."

In Bailey v. Hannibal & St. J. R. Co. (1873) 17 Wall. (U. S.) 96, 21 L. ed. 611, affirming (1871) 1 Dill. 174, Fed. Cas. No. 736, it was shown that preferred stock was issued as the result of the acceptance by all former bondholders of a plan or circular adopted by the directors, which contained a provision that was inconsistent with a provision of an indenture to which the

stock certifiate referred, and that the indenture was drawn up to carry out the provision of the plan. The court held that all the documents should be considered together to determine the question as to the stockholders' rights, particularly as it was conceded that all were parts of a single transaction; and that it was clear from the circular that the common stock was to have a 7 per cent dividend, as well as the preferred, before the two classes of stock should share the rest of the surplus earnings for the year.

In St. John v. Erie R. Co. (1872) 10 Blatchf. 271, Fed. Cas. No. 12,226, affirmed in (1875) 22 Wall. (U.S.) 136, 22 L. ed. 743, a contract which had been entered into between shareholders of a prior eorporation, its mortgage bondholders, and its unsecured creditors, in accordance with which the latter took preferred stock in a new corporation, was interpreted along with the preferred stock certificate, the articles of incorporation having recited the contract, and the statute authorizing the new corporation having used the language of the contract.

The Supreme Court said that the question at issue depended for its solution wholly upon the construction given to the contract and the statute.

In the reported case (CONTINENTAL INS. Co. v. MINNEAPOLIS, ST. P. & S. STE. M. R. Co. ante, 1320) affirming (1922) 283 Fed. 276, it will be observed that the language of the stock certificate could not be taken entirely by itself, to determine the contract, inasmuch as the words "for" and "in" were used in such a way that the certificate as it stood failed to support clearly either the contention of the petitioning preferred stockholders or that of the corporation and its directors. By comparing the certificate with the provision of the articles of consolidation the contract becomes clear. The opinion below explains more fully just what is meant by article 11, and that its provisions are not only more comprehensive than those of the certificate, but in some respects are also directly antagonistic to the latter and should prevail over the lat

ter.

In Bates v. Androscoggin & K. R. Co. (1860) 49 Me. 491, preferred stock certificates were construed in connection with a certain "plan" for issuance of new stock adopted by directors and ratified by stockholders.

In Scott v. Baltimore & O. R. Co. (1901) 93 Md. 475, 49 Atl. 327, the court considered a provision of a reorganization plan authorizing the issuance of 4 per cent noncumulative preferred stock, and a resolution which provided that the preferred stock was to be entitled to receive noncumulative dividends at the rate of 4 per centum per annum before the payment of any dividend on the common stock, in determining the meaning of a certificate entitling such stock to receive out of the surplus such yearly dividend (noncumulative) as the board might declare, "up to, but not exceeding, 4 per centum, before any dividends shall be set apart or paid upon the common stock."

In Barnard v. Vermont & M. R. Co. (1863) 7 Allen (Mass.) 512, the court considered surrounding circumstances, to determine whether the corporation was financially able to pay an interest dividend or any part thereof, the stock certificate providing for payment of such a dividend, which was in arrears, and setting out a vote of the stockholders instructing the directors to declare same, which was to be payable at a certain date on the understanding that, if the corporation was unable to pay it fully at that time, it should then pay what it could.

In Mellon v. Mississippi Wire Glass Co. (1910) 77 N. J. Eq. 498, 78 Atl. 710, where preferred stockholders sought to compel a corporation to establish a deficiency or sinking fund for their protection, the court held that no implied contract to establish such a fund could be found by taking into consideration with the stock certificates the corporation's contract with another concern, which it took over by issuing the preferred stock to the owners of such concern, and its amended certificate of incorporation providing for the issuance of the preferred stock. The court admitted that there were verbal variations in the

documents which might (or might not) be important if the preferred stockholders had sought to reform the contract or correct errors, but held that, in accepting the stock certificates without objection, any such variations were ratified.

In Beveridge v. New York Elev. R. Co. (1889) 112 N. Y. 1, 2 L.R.A. 648, 19 N. E. 489, an agreement between the corporation and its lessee was shown to establish the fact that no guaranty of dividends to the stockholders was intended, but merely a payment to the corporation, where the stock certificate stated that the lessee had agreed to pay the corporation an amount equal to 10 per cent per annum on the corporation's capital stock. To the same effect is Harkness v. Manhattan R. Co. (1886) 22 Jones & S. (N. Y.) 174, affirmed in (1887) 23 Jones & S. 532, which is affirmed in (1889) 113 N. Y. 627, 20 N. E. 877, where the identical lease was relied upon, its provision regarding the lessee's payment of the 10 per cent to the lessor corporation being set out in full, as also People ex ́rel. Content v. Metropolitan Elev. R. Co. (1881) 26 Hun (N. Y.) 82, construing the same lease similarly.

The principle was also applied in Rogers v. New York & T. Land Co. (1892) 134 N. Y. 197, 32 N. E. 28, to establish a trust in lands in favor of holders of scrip certificates of a corporation who had taken the certificates in exchange for bonds of a prior corporation, the directors relying on certificates as the "origin and boundary" of the scrip holders' rights, while some of the latter contended successfully that the report of a purchasing committee, setting out a plan of operations of which the issuance of scrip was a part, should control, the certificates being held to be "mere instruments of convenience to aid in carrying out the prior contract made by the bondholders with each other."

In Prouty v. Michigan Southern & N. I. R. Co. (1874) 4 Thomp. & C. (N. Y.) 230, 1 Hun, 655, holding that a preferred stockholder's right to 10 per cent dividends guaranteed by his certificate was not limited to payment out of net earnings in particular 31 A.L.R.-84.

years, but that they should be paid subsequently, when the net earnings were realized, the court reached its conclusion by taking into consideration circumstances existing at the time the stock was issued, to determine the purpose and meaning of the language used in the certificate.

In a proceeding for dissolution of a corporation it has been held that preferred stock certificates which provided for a preference only as to dividends did not express the agreement pursuant to which such stock was issued, the actual agreement having been that such stock should be given a preference as to distribution of assets also. Re Seneca Oil Co. (1912) 153 App. Div. 594, 138 N. Y. Supp. 78, affirmed in (1913) 208 N. Y. 545, 101 N. E. 1121.

In Hastings v. International Paper Co. (1919) 187 App. Div. 404, 175 N. Y. Supp. 815, provisions of articles of incorporation were considered as well as those of a stock certificate, where a preferred stockholder sought to compel the declaration of deferred dividends which had accumulated on preferred stock, it being held that "neither the certificate of stock nor the articles of incorporation deprived the directors of the defendant company of their usual or ordinary powers and duties respecting the management of the corporation and the declaration of dividends."

In Ohio College of Dental Surgery v. Rosenthal (1887) 45 Ohio St. 183, 12 N. E. 665, the court took into consideration evidence that the college was not conducted for profit, that its only property consisted of its real estate, which was leased to another association at a nominal rent, that no interest was ever paid to shareholders, and that interest would necessarily have to be paid out of capital, if at all, —in refusing to allow interest to a shareholder whose certificate showed that he was entitled to one share "drawing an interest of 6 per cent." In Drewry-Hughes Co. v. Throckmorton (1917) 120 Va. 859, 92 S. E. 818, provisions of a corporation's charter in reference to cumulative dividends on preferred stock and dis