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and good faith to permit stockholders to in 1, 1901; that a like dividend was declared vite directors to enter into an engagement, for the three months beginning October 1, · and, after the directors had put themselves 1901, and ending January 1, 1902, and that in a position in which the contract could a like dividend was declared for the three be enforced against them, to permit the stock months beginning January 1, 1902, and endholders to deprive them of the benefits of it. ing April 1, 1902, -all of which dividends In my investigation no case has been found were paid by the company to the stockholdwhich will justify such a result. In the ers within the time fixed by the by-laws and proper application of a legal rule, it cannot before the meeting of May 19, 1902. This be necessary, in order to do justice to one provision in the act of 1902 was drafted in party, to do manifest injustice to the other. contemplation of the eighteenth section of Such inequity would condemn the application the corporation act of 1896, giving power of the rule, not the rule itself.

to create preferred stock, and prescribing On the ground which has been discussed, that “the holders thereof shall be entitled to upon the facts presented, the complainant's receive and the corporation shall be bound to case is without support in law. He made pay thereon, a fixed yearly dividend to be no inquiry, did not attend the meeting, and expressed in the certificate not exceeding now attempts to deprive the two-thirds of the eight per centum payable quarterly, half stockholders who did attend the May meet yearly or yearly, before any dividends shall ing of the benefit of a contract which they be set apart or paid on the common stock, then approved, and which, as has been held and such dividends may be made cumulain the Berger Case, the corporation had pow tive." The dividends on the preferred stock er to make. As was declared in that case were, by the amended certificate of incor(citing Ellerman v. Chicago Junction Co., 49 poration of the steel company and the byN. J. Eq. 217, 23 Atl. 287), individual stock laws, made payable quarterly, were cumulaholders cannot question, in judicial proceed tive, and to be paid before any dividend was ings, corporate acts of directors, if the same paid on the common stock. A dividend on are within the powers of the corporation, and the preferred stock might have been passed, in furtherance of its purposes, are not un and it was, therefore, intended by the act of lawful or against good morals, are done in 1902 to require, in compliance with section good faith and in the exercise of an honest 18, that, before its provisions could be taken judgment. Much less can a shareholder advantage of, the company must have paid challenge like action taken by a majority of a dividend at the rate of 7 per cent. for the his co-stockholders.

full year next preceding the meeting to retire The remaining grounds upon which the the preferred stock; and it was a compliance complainant rests his claim to relief relate to with that section whether the dividend was the act of 1902. This act, as this court ad paid quarterly, half-yearly, or at the end of judged in the Berger Case, is a restraining

the year.

The dividend required by the act, and required due observance of its pro eighteenth section is yearly dividend of 7 visions by the steel company as a condition per cent., and it was paid in four quarterly precedent to the right to enter into the con payments. version scheme. The first alleged infirmity The vice chancellor held, in construing this relied upon by the complainant is that divi- legislation, that, the dividend had been dends were not made in conformity with the paid annually, there must have been two requirement of the act of 1902, which is a dividends of 7 per cent. each, covering two supplement to the general corporation act. previous years, to make the payment conThe language of the act with respect to this tinuous; that, if the dividends were paid condition is: "Every corporation organized half-yearly, there must have been three pay. under this act

that shall have is ments of 34 per cent. each, covering 18 sued preferred stock entitling the holders months, in order to make the payment conthereof to receive dividends at a rate exceed tinuous; that, if paid quarterly, as in this ing five per centum per annum, and that case, there must have been five payments of shall have continuously declared and paid 194 per cent. each, covering 15 months, to dividends at such rate, on such preferred satisfy the statute; and so, if the dividends stock, for the period of at least one year had been paid monthly, there must have been next preceding the meeting." The amended 13 dividends covering a period of 13 months. certificate of incorporation of the company The mere statement of this view is destrucprovided that "the holders of the preferred tive of it. Thus interpreted, the law would stock shall be entitled to receive, when and provide no fixed, determinate, uniform time as declared, yearly dividends at the rate of during which dividends must be paid, but seven per cent. per annum, payable quar would leave it optional with the corporation terly on dates to be fixed by the by-laws." to get the benefit of the law by making diviIt is admitted that a dividend of 134 per cent. dends so payable that a period either of 2 was declared by the company for the three years or only 13 months need be covered. months beginning on the 1st of April, 1901, As to a corporation making dividends payaand ending on the 1st of July, 1901; that a like ble annually, one rule would prevail, while dividend was declared for the three months to a corporation paying quarterly a different beginning July 1, 1901, and ending October rule would apply. The very essence of a

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law is that it is uniform and universal with quarterly dividends of 134 per cent. each to in the territory to which it relates. It must make the act of 1902 available. apply in the same way to every one. It can The cases as to publications in newspapers, not be varied at the will of the corporation. cited and relied on by the vice chancellor as The construction adopted in the court below his only authority, are not in point. Our is clearly erroneous, and gives a meaning to Jaws require publication of notice of sale “at the word "continuous” which is wholly un least four weeks successively, once a week, warranted. It, of course, must not be given next preceding the time of sale.” It has its strictest meaning, which would require a been uniformly and properly held to require never-ceasing payment of dividends, like the a publication for four full weeks once a continuous flow of water. Applied to divi week, and that the publication must begin dends, it means, "during one year," which four weeks next before the day of sale, and is equivalent to the words of the act "for the that four full weeks must elapse between the period of at least one year.” The act does first publication and the day of sale. The not prescribe that 7 per cent. dividends shall statute requires that there shall be four have been continuously declared and paid for weeks' notice of sale, and, if sale can be the period of at least one year next preced made after four weekly publications, it might ing the meeting, but that dividends at the be made after the expiration of only 22 days. rate of 7 per cent. shall be paid. The force A publication has no relation to a previously of the word "continuously' evidently is that elapsed period. It is a publication only on dividends at the rate of 7 per cent. must be the very day it is made, while a dividend paid for a continuous period of one year, so relates to and is for a time previously run. that, where dividends are paid quarterly, a All that the act of 1902 requires with respect quarterly dividend cannot be passed without to payment of dividends is that the provision losing the benefit of the act. The payment of section 18 of the general corporation law of dividends is to be for the period of one shall be complied with. year. The dividends are to be paid out of The other objections urged as to the want surplus over and above the amount of the of conformity by the defendant corporation capital stock and outstanding indebtedness, with the requirements of the act of 1902 and are to be made for the “period.” When have been duly considered, and are deemed a dividend is made, it is made as a dividend to be witnout merit. There is no ground prefor the period of three months then previ sented by the case or agitated in the briefs ously elapsed. A dividend for a future period of counsel which will justify the interposihas not been known in the business history tion of a court of equity to arrest the proof corporations. When a dividend is paid, posed action of the defendants. it is paid for the period then elapsed. In The decree below should be reversed, and this case a dividend at the rate of 7 per cent. the injunction dissolved, with costs in this was paid for the first quarter, and a like court and in the court below, dividend for the second, third, and fourth quarters of the year next preceding the meeting of the stockholders. If that was not a

(97 Me. 185) payment continuously at the rate of 7 per KENNEBEC WATER DIST. V. CITY OF cent. for one year next preceding the meet

WATERVILLE et al. ing, for what year was it a continuous pay (Supreme Judicial Court of Maine.

Dec. 27, ment? The meaning of the draftsman of

1902.) this provision inay be further elucidated by WATER COMPANY - EMINENT DOMAIN -IN

STRUCTIONS TO APPRAISERS-FRANCHISE dropping out of it the words "for the period

-VALUATION-DAMAGES--EVIDENCE. of at least one year next preceding the meet

An act incorporating the plaintiff district auing." The act will then read: “A corporation thorized it to acquire, by the exercise of the that shall have continuously declared and right of eminent domain, the entire, plant, paid dividends at the rate of seven per cent.

property and franchises, rights and privileges

now held by the Maine Water Company withon such preferred stock.” This language is in said district and the towns of Benton and ambiguous. It might be construed to mean Winslow." The act further provides that apa corporation that had paid three consecutive praisers appointed by the court. “shall, upon

hearing, fix the valuation of said plant, propdividends at the rate of 7 per cent. that would

erty and franchises at what they are fairly and be a continuous payment. It might also be equitably worth, so that said Maine Water held to mean a corporation that had con Company shall receive just compensation for tinuously declared and paid dividends dur

all the same,”. but that, "before a commission

is issued to the appraisers, either party may ing the entire period of its corporate exist ask for instructions to the appraisers." Both ence. To exclude this uncertainty, the words parties having asked for instructions, and the were added, "for the period of at least one questions of law arising thereon having been

reported to the law court, the court is of opin. year next preceding the meeting." The divi

ion that the appraisers should be instructed in dend was required to extend over the entire accordance with the following principles: preceding year, and the failure to pay the 1. The plaintiff, if it takes anything, must dividend for any one of the quarters would

take all the property held by the Maine Water

Company in the Kennebec water district and break the continuity, and require the com

in Benton and Winslow, whether specifically pany thereafter to make four consecutive named in the act or not. This includes the

real estate or other property, if any, not connected with the water system; it includes the plant or physical system; and it includes all franchises, rights, and privileges held by the water company, exercised or capable of being exercised.

2. The Maine Water Company is a quasi public, or public service, corporation, and is entitled to charge reasonable rates for its services, and no more.

3. The basis of all calculation as to the reasonableness of rates to be charged by a public service corporation is the fair value of the property used by it for the convenience of the public.

4. At the same time, the public have the right to demand that the rates shall be no higher than the services are worth to them, not in the aggregate, but as individuals.

5. Summarized, these elemental principles are the right of the company to derive a fair income, based upon the fair value of the property at the time it is being used for the public, taking into account the cost of maintenance or depreciation, and current operating expenses, and the right of the public to have no more exacted than the services in themselves are worth.

6. The reasonableness of the rate may also be affected, for a time, by the degree of hazard to which the original enterprise was paturally subjected; that is, such hazard only as may have been justly contemplated by those who made the original investment, but not unforeseen or emergent risks. And such allowance may be made as is demanded by an ample and fair public policy. If allowance be sought on account of this element, it would be permissible at the same time to inquire to what extent the company has already received income at rates in excess of what would otherwise be reasonable, and thus has already received compensation for this hazard.

7. The franchises granted to the Waterville Water Company by chapter 141, Priv. & Sp. Laws 1881, as amended by chapter 59, Priv. & Sp. Laws 1887, and chapter 14, Priv. & Sp. Laws 1891, and to the Maine Water Company by chapter 352, Priv, & Sp. Laws 1893, are not exclusive. Neither are they perpetual and irrevocable. They are subject to legislative repeal. In fixing the value of the franchises, both of these consideratious are entitled to their just weight. If the business of the company is now practically exclusive, in that it has no competitor, that fact, also, may and should be considered by the appraisers when they fix the value of the property of the company as a going concern.

8. In determining the present value of the company's plant, the actual construction cost thereof, with proper allowances for depreciation, is legal and competent evidence, but it is not conclusive or controlling.

9. The 'request that “under no circumstances can the value of the plant be held to exceed the cost of producing at the present time a plant of equal capacity and modern design” should not be given. Among other things, it leaves out of account the fact that it is the plant of a going concern, and seeks to substitute one of the elements of value for the measure of value itself.

10. The actual rates which may have been charged heretofore, and the actual earnings, are both admissible and material in determining the value of the plant. The value of the evidence, however, will depend upon whether the appraisers shall find that the rates charged have been reasonable.

11. The quality of water furnished and of the service rendered, and the fitness of the plant and of the source of water supply to meet reasonable requirements in the present and future, are material upon the question of present value.

12. The appraisers should regard the fran. chises of the company as entitling it to continue business as a going concern, but subject to all proper legal duties governing public service companies.

13. Faithfulness or unfaithfulness shown by the water company in the past in the performance of public duty to furnish pure water at reasonable rates is not a proper matter for consideration. It is the franchise as it now exists which is to be taken and paid for.

14. The liability of the company to legal forfeiture of its franchises on account of past uufaithfulness and misbehavior is not to be considered. 15. If the water company and its predecessors have actually received more than reasonable rates hitherto, the excess cannot be deducted from the amount to which the company would otherwise be entitled.

16. No compensation can be allowed to the Maine Water Company for incidental damages to its other property having no physical connection with or contiguity to that taken, and having no relations with it except those which grow out of common ownership, nor for the impairment of the economy and efficiency of administration which are obtained by the combination of many water systems under one management.

17. The real estate or other outside property not directly connected with the water system should be appraised at its fair market value, not at forced sale, but at what it is fairly worth to the seller, under considerations permitting a prudent and beneficial sale thereof.

18. The appraisers may properly consider what the existing system can be reproduced for. But the cost of reproduction will not be conclusive. It will be evidence having some tendency to prove present value. The inquiry along the line of reproduction should be limited to the replacing of the present system by one substantially like it. 19. In estimating even the structure value of the plant, allowance should be made for the fact, if proved, that the company's water system is a going concern, with a profitable business established, and with a present income assured and now being earned.

20. So far as the water system is practically exclusive, the element of good will should not be considered.

21. In fixing structure value, while considering the fact that the system is a going concern, the appraisers should also consider, among other things, the present efficiency of the system, the length of time necessary to construct the same de novo, and the time and cost needed after construction to develop such new system to the level of the present one in respect to business and income, and the added net income and profits, if any, which by its acquirement would accrue to a purchaser during the time required for such new construction, and for such development of business and income. But these are to be considered "among other things." They are not controlling. Their weight and value must depend upon the varying circumstances of each particular case.

22. In addition to structure values, the appraisers should allow just compensation for all the franchises, rights, and privileges to be taken.

23. The value of the franchise depends upon its net earning power, resent and prospective, developed and capable of development, at reasonable rates; and the value to be assessed is the value to the seller, and not to the buyer.

24. In considering prospective development of the use of a franchise, consideration must also be had of the fact that further investment may be necessary to develop the use, and of the further fact that at any stage of development the owner of the franchise will be entitled to

charge only reasonable rates under the condi of fixing this actual cost the companies are tions then existing.

directed to produce before the appraisers all 25. Subject to all the foregoing limitations, the owner is entitled to any appreciation due to

book accounts and documents containing ennatural causes.

tries which bear on the subject. 26. The fact that the franchises are to be (3) Under no circumstances can the value taken iu no respect impairs their value for the

of the plant of the companies be held to expurposes of appraisal. 27. As to the property to be taken, both

ceed the cost of producing at the present plant and franchises are to be appraised, hav time a plant of equal capacity and modern ing in view their value as property in itself, design. and their value as a source of income. There are these elements of value, but only one value

(4) The Waterville Water Company and of one entire property is to be appraised in the

the Maine Water Company are public servend. These elements necessarily shade into ice corporations, and, as such, have the right each other,

to charge reasonable rates only. What would 28. The capitalization of income, even at reasonable rates, cannot be adopted as a sufficient

be reasonable rates can be determined only or satisfactory test of present value. But while after and by means of a valuation of the not a test, present and probable future earn companies' property. Accordingly, the actual ings at reasonable rates are properly to be con

rates which may have been charged by the sidered in determining the present value of the system.

companies, and their actual earnings, have 29. The appraisers should be instructed to re no bearing on the value either of the comceive and consider all evidence offered, so far

panies' plant or property, or of their franas admissible under the general rules of law, which is pertinent under the rules stated in the

cbises, and are immaterial. requests of the parties, so far as they have (5) The selling value of the capital stock been approved, and as limited or explained, in in the companies has no bearing on the valuathe opinion of the court.

tion of the companies' plant, property, or (Official.)

franchises, and is immaterial. Report from supreme judicial court, Ken

(6) The quality of the water furnished by nebec county.

the companies, and of the service rendered Actio by the Kennebec water district

by them, and the fitness of their plant to against the city of Waterville and others. meet the reasonable requirements of conCase reported. Instructions to appraisers sumers in the present and the future, are given.

material questions in fixing the valuation of On report. Instructions to appraisers given the companies' plant and property. by the court to determine the valuation of (7) The franchises of the Waterville Waproperty of the Maine Water Company, and ter Company are fixed by chapter 141, Priv. acquired by the plaintiff by the exercise of & Sp. Laws 1881, as amended by chapter 59, the right of eminent domain.

Priv. & Sp. Laws 1887, and chapter 14, Priv. In this court below, the parties, in accord

& Sp. Laws 1891. ance with the provisions of the act of the (8) The franchises of the Maine Water legislature authorizing the water district to Company material to these proceedings are take over the property, filed written requests those of the Waterville Water Company, and for instructions which they desired, and con those granted by Priv. & Sp. Laws 1893, c. tended ought to be given by the court to 352, and no others. the appraisers, to guide them in determining (9) The appraisers shall regard the franthe valuation of the property to be taken chises of the companies as entitling them to over. The case was then reported; the bill, continue business as a going concern, but answer, replication, and docket entries maks subject to all proper legal rules governing ing part of the case, with a stipulation that public service companies; it being further all legislation of Maine relating to the Maine understood that said franchises are in no Water Company and the Waterville Water way exclusive. The franchises shall not be Company is to be referred to by either party otherwise appraised or valued. in argument.

(10) Upon the question of the value of the The Kennebec water district requested the companies' franchises, the question of the court to instruct the appraisers as follows: fitness of the source of supply granted by

(1) The appraisers are directed to state these franchises with reference to the reaseparately in their report what part of the sonable requirements of the consumers in amount fixed by them as the valuation of the the present and the future is material and plant, property, and franchises of the Water competent. ville Water Company and the Maine Water (11) In fixing the value of the companies' Company is fixed as the value of the plant franchises, the appraisers may give such reand property, and what part is fixed as the gard as is demanded by ample and fair public value of the franchises, and further to state policy to the past investment, risks, and servwhat property and what franchises they have ices of the companies, and to the reasonably considered in fixing these values.

just expectations which those who made the (2) Upon the question of the value of the investment had in mind when so investing companies' plant and property, the actual and also to the faithfulness or unfaithfulness cost of said plant and property, together with shown by the companies in the performance proper allowances for depreciation, is legal of their public duty and obligation to fur: and competent evidence; and for the purpose nish pure water at reasonable rates.

(12) Competent evidence may be received considered by said appraisers, and just comby the appraisers, tending to prove or re pensation therefor should be included in fute the allegations contained in paragraph their award. 13 of plaintiff's bill; and, in case said allega (4) That the real estate or other outside tions are found to be true in whole or in property not directly connected with the part, said facts are to be considered as bear water system, so far as included in the taking on the value of the companies' fran ing contemplated by this act, should be apchises.

praised at its fair market value, not at (13) Competent evidence may be received forced sale, but at what it is fa'rly worth by the appraisers, tending to prove or re to the seller, under conditions permitting a fute the allegations contained in paragraph prudent and beneficial sale thereof, 14 of plaintiff's bill; and, in case it is found (5) That as to the remaining property conthat said companies have actually received stituting the water system to be taken, and more than reasonable rates for the services the franchises, rights, and privileges conrendered since operations begun, then the nected therewith, neither the total construcamount of such excess shall be deducted tion cost of the entire water system, measfrom the amount to which the companies ured at the date selected for valuation, nor would otherwise be entitled.

such construction cost less wear and tear (14) The appraisers may view the prem and depreciation, nor such construction cost, ises, so far as they see fit.

thus reduced, and afterwards increased by (15) They shall procure a stenographer to any adjudged percentage or bonus of profit be in attendance, who shall take notes of all thereon, can constitute the legal criterion of testimony, and furnish transcripts thereof. the total values to be awarded under the

(16) They shall make a report showing terms of this act. their doings and findings under each branch (6) That neither can the reproduction cost of the instructions above given, and also thereof, at the date thus selected, either new the date as of which the valuation was or in its then condition, constitute the legal fixed.

criterion of said total values. The defendants requested the court to (7) That the cost, at the date thus selectinstruct the appraisers as follows:

ed, of replacing said entire water system by (1) If the court shall be of the opinion that a new one, differently constructed, but equal either party at this stage of the case is or even superior in efficiency to the one now entitled to instructions under the eighth sec existing, is not the legal criterion of said tion of the act above mentioned, the defend total values. ants respectfully ask the court for the fol (8) That in order to determine even the lowing instructions to said appraisers; the structure value of said water system, and to defendants understanding that preliminary award just compensation to said Maine Warequests for instructions are authorized by ter Company therefor, under the terms of said eighth section, and that they will be this act, a proper sum must be allowed by asked for on the part of the plaintiff, and the appraisers, in their sound judgment, sepnot deeming it right that requests should be arately or otherwise, in addition to its value presented and considered by the court on as otherwise established, for the fact, if the one part, and not on the other.

proved, that such water system is not mere(2) That by the terms of chapter 200 of ly an aggregate of materials fitted for use, the Private and Special Laws of 1899, every without actual business, service, connections, item of property within the limits of the takers, or income, but a going concern, with Kennebec water district, and of the towns a profitable business and good will already of Benton and Winslow, included in the established, and with a present income aswater system of the Maine Water Company sured and now being earned. at the date selected for appraisal, or then (9) That in determ ing the amount thus used usable in connection therewith, to be added to measure adequately even the whether specifically enumerated in said act structure value of said water system, the or not, together with all real estate within appraisers should consider, among other said district then held by said Maine Water things, the present efficiency of said system, Company, is to be taken from said water the length of time necessary to construct company, and every such item, and every the same de novo, the time and cost needed, valuable contract, right, privilege, or fran after construction, to develop such new syschise exercised or capable of being exercised tem to the level of the present one in respect within the territory above named, must be to business and income, and the added net inconsidered and allowed for by the apprais comes and profits, if any, which, by its acers, separately or otherwise.

quirement as such going concern, would ac(3) That any increase of pecuniary obliga crue to a purchaser during the time required tion or burden or duty, or any damage to or for such new construction, and for such deimpairment of the value of its remaining velopment of business and income. property or franchises, in any way resulting (10) That in addition to the items to be to said Maine Water Company by reason of valued under request 4, and all the structure the exercise of the right of eminent domain values of said water system to be detercontemplated by said act of 1899, should be mined in accordance with requests 8 and 9,

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