year in which there were any net earnings; but that the dividends upon the preferred stock were not cumulative, it appearing by the by-laws to be the intention that all the net earnings be paid in dividends in each year. If provision has been made for the payment of a dividend to the holders of the common stock after the payment of the preferred dividend, it is held that arrears of common dividends must be paid next after the arrears of preferred dividends, and before any further preferred dividends can be declared.5 When arrears of dividends are recoverable, the shareholder is entitled to interest also thereon.

1 Boardman v. Lake Shore Co. etc. R. R. Co. 84 N. Y. 157; Adams v. Fort Plain Bank, 36 N. Y. 255; Dana v. Fiedler, 12 N. Y. 40; 62 Am. Dec. 130; Prouty v. Michigan etc. R. R. Co. 1 Hun, 655; Taft v. Hartford etc. R. R. Co. 8 R. I. 310; 5 Am. Rep. 575; Elkins v. Camden etc. R. R. Co. 36 N. J. Eq. 233; Lockhart v. Van Alstyne, 31 Mich. 76; 18 Am. Rep. 156; Henry v. Great Northern R'y Co 1 De Gex & J. 606, 637; S. C. 3 Jur. N. S. 1133; S. C. 4 Kay & J. 1; Sturge v. Eastern etc. R'y Co. 7 De Gex, M. & G. 158; Matthews v. Great Northern etc. Ry Co. 28 Law J. Ch. 375; Crawford v. North Eastern R'y Co. 3 Jur. N. S. 1093; Stevens v. South Devon R'y Co. 9 Hare, 313; Coey v. Belfast etc. R'y Co. I. R. 2 C. L. 112; Smith v. Cork etc. R'y Co. Ir. Law 3 Eq. 355; Coates v. Nottingham etc. R'y Co. 30 Beav. 86; Webb v. Earle, Law R. 20 Eq. 556; Corry v. Londonderry etc. R'y Co, 29 Beav. 263; Lindley on Partnership (2nd ed.), 781. Contra, Belfast etc. R. R. Co. v. Belfast, 77 Me. 445.

2 Adams v. Fort Plain Bank, 36 N. Y. 255; Dana v. Fiedler, 12 N. Y. 41; 62 Am. Dec. 130; Prouty v. Michigan etc. R. R. Co. 1 Hun, 655.

3 Elkins v. Camden etc. R. R. Co. 36 N. J. Eq. 233.

4 Hazeltine v. Belfast etc. R. R. Co. (1887), 79 Me. 411; 1 Am. Rep. 330. 5 Allen v. Londonderry etc. R'y Co. 25 Week. R. 524; Cook on Stock & Stockh. § 272.

6 Boardman v. Lake Shore etc. R. R. Co. 84 N. Y. 157.

§ 290. Of arrears of dividends upon preferred stock-The English statute.-In England since the passage of the Companies' Clauses Act of 1863, if in any year "there are not profits available for the payment of the full amount of preferential dividend or interest for that year, no part of the

deficiency shall be made good out of the profits of any subsequent year, or out of any other funds of the company. But it has been held under that act, that preference shareholders who have allowed the surplus profits of one year to be applied in payment of dividends to ordinary shareholders, instead of in payment of dividends to them, are not prevented from claiming arrears against the profits of future years. So, also, if the management has paid out, as dividends, for several years, money which should have been set aside for repairs, until the property was worn out, and then appropriated the whole net earnings of one year to repairs, paying the preferred shareholders nothing, it is held that the arrears for that year may be recovered out of the profits of any subsequent year.3

1 26 & 27 Vict. ch. 118, § 14.

2 Matthews v. Great Northern R'y Co. 23 Law J. Ch. 375; Smith v. Cork etc. R'y Co. Irish Law R. 3 Eq. 356.

3 Dent v. London Tramways Co. 16 Ch. Div. 314.

§ 291. Dividends upon interest-bearing stock. Interest-bearing stock, the nature of which has been treated above,' is entitled to interest only out of the profits of the business, and any contract to pay it whether there be profits or no is ultra vires and wholly void; and the directors and officers of the company, in complying with such a contract, become jointly and severally liable to refund the amount of the dividend to the company; but an agreement to pay interest on fully paid stock until the railway shall be constructed and put in operation, is a valid contract.*

1 Vide supra, § 69.

2 Troy etc. R. R. Co. v. Tibbits, 18 Barb. 297; Barnard v. Vermont etc. R. R. Co. 89 Mass. 512; Cunningham v. State, 78 Mass. 411; Waterman v.

BEACH ON RAILWAYS-29

Troy etc. R. R. Co. 74 Mass. 433; Wright v. Vermont etc. R. R. Co. C6 Mass. 63; Richardson v. Vermont etc. R. R Co. 44 Vt. 613; Rutland R. R. C. v. Tarell, 35 Vt. 543; Pittsburgh etc. R. R. Co. v. Allegheny, C3 Pa. S. 126; Miller v. Pittsburgh etc. R. K Co. 4) Pa. St. 257; 80 Am. Dec. 570; McLaughlin v. Detroit etc. R. R. Co. 8 Mich. 100; Evansville etc. R. K. Co. v. Evansville, 15 Ind. 395; Painesville etc. R. R. Co. v. King, 17 Ohio St. 34; City of Ohio v. Cleveland etc. R. R. Co. 6 Ohio St. 489; Lockhart v. Van Alstyne, 31 Mich. 76; 15 Am. Rep. 156; In re National ets. Co. 10 Ch. Div. 118; McDougall v. Jersey cte. Co. 2 II. & M. 528; Salisbury v. Metropolitan R'y Co. 38 Law J. Ch. N. S 249. Cf. Bardwell v. Sheffield etc Co. Law R. 14 Eq. 517.

3 In re National etc. Co. 10 Ch. Div. 118.

4 Rutland etc. R. R. Co. v Thrall, 35 Vt. 535; Miller v. Pittsburgh etc. R. R. Co. 40 Pa. St. 237; 80 Am. Dec. 570; Racine County Bank v. Ayers, 12 Wis. 512; Milwaukee etc. R. R. Co. v. Field, 12 Wis. 340.

§ 292. Dividends upon special

1

stock.-The nature of special stock has been heretofo:e considered. The guaranty of dividends upon special stock is an absolute one and in no wise conditional upon the profits of the enterprise.2 Where there are no profits, the dividends upon special stock must be paid out of any property which is owned by the company, for the holders of stock of this kind are regarded as creditors of the corporation with respect to the guarantied dividends.3

1 Vide supra, § 68.

2 Williams v. Parker, 136 Mass. 204; Allen v. Herrick, 81 Mass. 274. See also Cook on Stock & Stockh. § 275.

§ 293. Discrimination between shareholders of the same class, illegal.-There are cases in which the corporate management has attempted in declaring dividends to discriminate between large and small shareholders; or between shareholders whose subscriptions were fully paid, and those in arrears;2 but it is well settled that such a discrimination is unlawful, and that the several holders of the same class of shares are entitled to share in equal proportion in any dividends declared thereon; and a court of

4

equity may restrain discrimination of this character * A preference between shareholders of the same class is not to be justified on the ground that the fund set apart for the payment of the dividend proved inadequate to pay all of the stockholders without infringing upon the capital stock of the company 5 A shareholder to whose stock a pro rata of the dividend has not been apportioned may maintain assumpsit against the corporation on the inplied contract that the distribution of dividends shall be equally made, or le may maintain an action for damages against the company for paying dividends to shareholders ranking pari passu with himself and omitting to declare a dividend on his shares."

1 Jones v. Terre Haute etc. R. R. Co. 57 N. Y. 196; State v. Baltmore, etc. R. R. Co. 6 Gill, 363.

2 Reese v. Eank, 31 Pa. St 78; Oakbank Oil Co. v. Crun, Law R. 8 App. C. 65.

3 Jones v. Terre Haute etc. R. R. Co. 57 N. Y. 196; S. C. 29 Barb. 353; Howell v. Chica o etc. R. R. Co. 1 Barb. 378; State v. Baltimore etc. R. R. C. G Gill, 263; Ryder v. Alton etc. R. R. Co. 13 Ill. 516; Coey v. Belfast etc. Ry Co. I. R. 2 C. L. 112; Harrison v. Mexican R'y Co. Law R. 19 Eq. 3.3. C. Miller v. Ill nois Central R. R. Co. 24 Barb. 312.

4 Luling v. Atlantic Mutual Ins. Co. 45 Barb. 510. Cf. Harrison v. Mexican Ry Co. Law R. 19 Eq. 358.

5 Stoddard v. Shetucket Foundry Co. 34 Conn. 542; Beers v. Eridgeport Spring Co. 42 Conn. 17.

6 Jackson v. Newark Plankroad Co. 31 N. J. Law, 277. Eut see State v. Baltimore etc. R. R. Co. 6 Gill, 363, where it is held that the shareholder cannot maintain assumpsit, but must proceed by bill in equity.

7 Coey v. Beifast etc. R'y Co. I. R. 2 C. L. 112.

§ 294. The same subject continued-Remedy of the shareholder. -When a dividend has been declared and payment has been made to the other shareholders, the company cannot plead to an action by a shareholder who has not received his portion that the dividend was illegally declared, not having been earned, and that it cannot be paid without infringing upon the capital stock. A shareholder

from whom a dividend has been illegally withheld, and who is unable to collect his judgment against the company, may resort to the other shareholders to recover, as for money had and received, the proportion of the dividends received by them to which he was entitled, and which he would have received, had his shares participated in the fund distributed; but he cannot maintain an action against them in the first instance.2 Mere possession of the certificate of stock, or even a special property therein by a person not their owner, is not sufficient ground upon which to base an action for dividends.3 An un egistered transferee cannot enforce the payment of a dividend at law, but must bring his bill in equity. Each shareholder can only sue for himself; he cannot bring an action in behalf of the other stockholders.5 Proceedings to enforce the payment of dividends should as a general rule be instituted against the corporation itself, and not against its officers."

1 Stoddard v. Shetucket etc. Co. 34 Conn. 542.

2

eckham v. Van Wagenen, 83 N. Y. 40; 38 Am. Rep. 392.

3 Dow v. Gould ctc. Mining Co. 31 Cal. 629.

4 Cleveland etc. R. R. Co. v. Robbins, 35 Ohio St. 483; Chambersburgh Insurance Co. v. Smith, 11 Pa. St. 120; Northrup v. Curtis, 5 Conn. 246,

5 Carlisle v. Southeastern R'y Co. 13 Beav. 295.

6 Smith v. Poor, 40 Me. 415; S. C. 3 Ware, 148; 63 Am. Dec. 672.

$295.

A dividend declared is a debt due absolutely and may be assigned.-Until a dividend be declared, the stockholder has but a contingent interest in the surplus earnings of the company, and does not occupy the position of a creditor of the company. But after it has been declared, it becomes a debt due absolutely to the shareholder.2