struction. The plan provided for contemplates the issue of three kinds of securities with which the old indebtedness was to be settled for; viz:

Ist. $70,000,000, prior lien, 31⁄2 per cent. gold bonds, due 1925. 2nd. $63,000,000, fifty year 4 per cent. gold bonds.

3rd. $40,000,000, 4 per cent. non-cumulative preferred stock. 4th. $35,000,000, common stock.

Each of these several securities and the purposes of their creation, and how they are to be applied, etc., are carefully described in the plan. It is also provided that no additional mortgage shall be put upon the property and no increase in the amount of the preferred stock, except with the consent of both classes of stock, voting separately. Is it within the bounds of reason to suppose that if it was intended that this large amount of preferred stock was to have the right, to the great injury of the common stock, to share in the surplus of net profits remaining after it has received its 4 per cent. dividend, that these careful business men would not have had it definitely so expressed in the plan? There is nothing in the condition of the law that could have warranted the omission. Whatever courts may hold eventually as to the right of ordinary preferred stock to share in the residue of net earnings after its preferred dividend has been received, the maintenance of that right in the absence of anything in the contract creating such preferred stock, so far as we are informed, has not yet been taken by any court. No decision holding this has been furnished us by the very able and industrious counsel who argued this case for the appellant, and we have found none ourselves. It is true that some of the text writers do intimate that such may be the law, but the cases cited are those where there is express provision for the participation in the surplus, and fall far short of sustaining the proposition by which the appellants here seek to impose the additional quality upon the preferred stock. One of these cases is Bailey v. Hannibal, etc., Railway Co., 17 Wallace 96. There it was expressly provided that after the preferred dividend the stock should be entitled to "an equal dividend with said other shares," etc. A like provision is to be found in the other case cited. Allen v. Londonderry, etc., R. R. Co., 25 W. R. 524.

So that there is no room here for the argument that in declaring the rights of the preferred stock it was not necessary to state particularly that it should have such attributes, because of the reason that under well-settled principles of the law it is entitled proprio vigore to such participation. And although it were conceded that the right of the preferred stockholder, after he has received his preferred dividend, to participate in the surplus net earnings can be supported by cogent reasoning, yet in a case like this where so much exactness of detail is observable in the plan, where the interests involved are so great, and where the proposition of law has not been definitely settled but lies in the mind of each person as he may reason out the matter for himself, it would be most unreasonable to assume that

when the schedule for the issue of $40,000,000 of preferred stock was included in the plan, everything was not then put there that the parties intended should be there. It was necessary, in the highest degree, that each class of new issues should be properly described. The description of the new mortgages and the total amounts they were to cover was carefully complete. As to the common stock, it was not necessary that its characteristics should be stated for they were definitely fixed by law. But it was supremely necessary in reference to the preferred stock, to make such description of it as would clearly inform its holders of just what rights would attach to its ownership. It was necessary to state that it was to be non-cumulative and entitled to a preference dividend not exceeding 4 per cent.; otherwise it would have stood on the same footing as the common stock. The holders of practically all the shares of capital stock deposited their securities and accepted the new stock, whereby they "assented to" the issue of the preferred stock and are not now in a position to object to the validity thereof. It is clear that the new stock was issued, not under any statute specially authorizing such issue, but solely under the general power of the corporation to issue such stock as all of its stockholders shall direct to be issued, that is by the express agreement of all of its stockholders. To construe this express contract, as set out in the certificate, when read in connection with the resolutions of the directors of April 11th, 1899, and the other papers referred to directly and indirectly in the resolutions, as being incomplete and fragmentary, so that its true meaning cannot be ascertained without reading into its provisions that are, at least, doubtful in law and certainly not sustained by any proof in the case, would do violence to the principles applicable to the construction of written instruments, as have already been herein set forth.

Is there anything in the language employed in the certificate which would require a different construction than that we have given to it? The contract as set forth in the certificate of the preferred stockholder, is: "The holders of preferred stock to the amount now issued and such additional amounts as may be lawfully issued from time to time by the President and Directors of the Company, pursuant to the resolutions of the stockholders duly adopted April 11th, 1899, are entitled to receive in each year, out of the surplus net profits of the company for the current year such yearly dividend (non-cumulative), as the Board of Directors of said Railroad Company may declare, up to, but not exceeding, four per centum, before any dividends shall be set apart or paid upon the common stock." The certificate of the original preferred stock, issued under the acts of 1835 and 1868, provided that the preferred stockholder should have a "perpetual dividend of six per centum per annum and no more," and it is insisted that the omission of the words "no more" is significant, as indicating the intention of the parties. But the case of the original preferred stock is different from the one with

which we are now dealing. The pre-existing preferred stock was issued to conform to the requirements of the statutes of 1868 and 1835. Both of the statutes contained the words "no more," and it was perhaps proper that they should be there, so that the intention of the legislature should be clearly expressed. Here the preferred stock was issued with the assent of all the stockholders and to carry out a plan of reorganization. It was the intention of all the parties that the new preferred stock should be issued to carry out the plan of reorganization and that it should have such preferences, rights and attributes as were contemplated by the plan. There was no necessity, therefore, for the use of the words "no more," because by the plan and the resolutions of the company, passed April 10th, 1899, the preferred stock was to be "entitled to receive non-cumulative dividends at the rate of four per centum per annum before the payment of any dividend on the common stock, but shall have no lien upon the property of the company." The omission of the words "no more," therefore, we do not think is a matter of any significance whatever. The words of the plan, referring to the preferred stock, are as follows:

"$40,000,000 4 per cent. non-cumulative preferred stock per annum before the payment of any dividend on the common stock." If these be compared with the words contained in the certificate of the stock there will be found a slight difference. In the latter certificate it is provided that the preferred stock is entitled to receive out of the surplus such yearly dividend (non-cumulative) as the board may declare "up to, but not exceeding four per centum before any dividends shall be set apart or paid upon the common stock." Why were the words "not exceeding" thus inserted? What is their significance? If it was only to indicate that the 4 per cent. was the largest amount that could be received before the common stock was entitled to a share of the earnings, the words "up to" would have been quite sufficient and the other words would have been surplusage. But we cannot neglect these words, for in construing a contract it is not to be presumed that words are lightly used, but each word should be given due weight. "A word not plainly inserted by accident or mistake is never to be thrown out entirely while there is a plain and natural construction which can be given to it not manifestly destructive of the general intent of the sentence." Philadelphia v. River Front R. Co., 133 Pa. St. 134.

If it be conceded that the purpose of the certificate was to express what share of the net earnings the preferred stock was to be entitled to, it is possible to give the words "not exceeding" some force, but not otherwise. The certificate would then mean, that it was to receive 4 per cent. and nothing exceeding that proportion: the said amount to be received before any dividends be allowed to the common stock. Upon the hypothesis of the appellant that the whole purpose of the certificate was to declare what the preferred stock was entitled to, before the common stock would be entitled to receive anything, the words "not exceeding" perform no function

whatever. The certificate states what the preferred stock "will be entitled to receive;" and that is, "not exceeding four per cent." That is the measure of its rights, and if so, how is it possible to hold that having received that amount before the common stock received anything, it shall yet receive afterward, an additional sum? According to the fair meaning of these words, it seems to be clear that a proper construction of them and the only one that will harmonize them all is that the preferred stock should be non-cumulative and should receive 4 per cent. and no more, out of the net earnings; but should be entitled to receive that before any dividends are set apart for the common stockholders,

It follows that the decrees must be affirmed in both cases."

Section 7.-Overissue of Stock. Watered Stock.

CLARK v. TURNER.

1884. 73 Ga. I.

The Grangers' Life and Health Insurance Company brought suit against J. W. Turner and Abner Echols for $250.00, as an assessment of ten per cent. on a stock subscription of $2,500.00, on which $250.00 was paid and a note given for the balance of $2,250.00, dated August 10, 1875, payable on demand without interest, "in part consideration for twenty-five shares of the capital stock of said company, subscribed for by John W. Turner, subject to the conditions and regulations in the constitution of said company in regard to stock notes."

Defendant, Turner, pleaded the general issue and a special plea, to the effect that the plaintiff was incorporated under a declaration

See People ex rel. Cantrell v. St. Louis &c. R. Co. (1898) 176 Ill. 512, 45 N. E. 824, 52 N. E. 292; Field v. Lamson &c. Mfg. Co. (1894) 162 Mass. 388, 38 N. E. 1126, (see note 27 L. R. A. 136); Warren v. King (1882) 108 U. S. 389, 2 Sup. Ct. 789, 27 L. ed. 769; Hamlin v. Toledo &c. R. Co. (1897) 78 Fed. 664, 24 C. C. A. 271, 36 L. R. A. 826 (valuable opinion per Lurton, J.).

In the case first cited, Magruder, J. said: "In estimating the liabilities of the Belleville and Eldorado Railroad Company, certain indebtedness, which is in the nature of preferred stock, is charged up as a liability, in the accounts produced, to show that the obligations of appellee are such as to re lieve it from the duty of operating the passenger train asked for. This is manifestly improper, because guaranteed or preferred stock is but a dividend and not a debt, and the holder of a certificate for such stock can have no action against the company as for a debt, but his right is to a dividend."

Where there is provision for preferential dividend, but no provision for division of capital, on winding up, preferred and ordinary shareholders share equally and assets must be distributed without regard to their rights in respect of dividend. In re London India Rubber Co. (1868) L. R. 5 Eq. Cas. 519, per Malins, V. C. Cf. In re Bangor &c. Slab Co. (1875) L. R. 20 Eq. Cas. 59, per Malins, V. C.-Eds.

of incorporation filed in the office of the probate court of the county of Mobile, Ala.; that under this declaration, the capital stock of the company was limited to $100,000.00; that a general statement that it desired to have the privilege of increasing the capital had been decided by the courts of Alabama not to be sufficient to give any right of increase under the laws of that state; that the entire amount of capital was subscribed for, but afterward, nevertheless, the plaintiff represented to this defendant and others that it had the right to increase its capital to $200,000.00, and obtained from him a subscription to $2,500.00 of the stock of the company; that he paid the ten per cent. required, and gave the note in suit for the balance, with Echols as security; that this subscription was ultra vires and void, and the note given therefor was not collectable.

Plaintiff having assigned its property to Clark, he was made the party plaintiff in its stead. The case was submitted to the presiding judge without a jury. The plaintiff introduced the note sued on, having on it a credit of $25.00 for a dividend, January, 1877, and showed the assessment of ten per cent. on subscribers; also that there was an outstanding judgment against the company for $2,000.00 principal, recovered by one Mrs. Deppish on a policy issued on her husband's life after the date of Turner's subscription, and that a return of nulla bona had been made on the fi. fa.; also that the company had assigned to Clark. A witness testified that Turner had been appointed a trustee of the company, and he thought had acted as such. Under the constitution of the company, the president and secretary of the company, with the approval of the board of directors, could establish branch departments in different states and appoint a board of trustees for such branch departments, and they, in turn, should annually elect a board of directors of the branch; each trustee was also empowered to receive applications for insurance.

The charter and constitution of the company were before the court. He found for the defendants on the pleas of the general issue and the invalidity of the subscription. Plaintiff moved for a new trial, on the ground that the finding was contrary to law and evidence. The motion was overruled, and plaintiff excepted.

JACKSON, CHIEF JUSTICE.

This suit was brought by the Grangers' Life and Health Insurance Company of the United States of America, a corporation created by virtue of the laws of the state of Alabama, against John W. Turner, for the recovery of a ten per cent. instalment called for on a promissory note for stock therein. The defendant set up by plea that the corporation was permitted by the laws of Alabama to issue stock only to the amount of one hundred thousand dollars, which had been exhausted by the issue of stock to that amount prior to his subscription, and therefore the issue of more stock was ultra vires and void, and if he paid his subscription, he would get nothing therefor. The entire case, on law and facts, was submitted to the