Baltimore & O.R. Co. v. State

• Court: Maryland Supreme Court
• Writing for the Court: ALVEY, J., delivered the opinion of the Court.
• Citation: Baltimore & O.R. Co. v. State, 36 Md. 519 (Md. 1872)
• Decision Date: 21 June 1872
• Parties: THE BALTIMORE AND OHIO RAILROAD COMPANY v. THE STATE OF MARYLAND.

36 Md. 519

THE BALTIMORE AND OHIO RAILROAD COMPANY v. THE STATE OF MARYLAND.

Court of Appeals of Maryland

June 21, 1872

APPEAL from the Superior Court of Baltimore City.

The case is stated in the opinion of the Court.

The cause was argued before BARTOL, C.J., STEWART, BOWIE, GRASON MILLER and ALVEY, J.

Charles J. M. Gwinn, John H. B. Latrobe and Reverdy Johnson, for the appellant.

Is the State a creditor entitled to interest, or a stockholder entitled to dividend, to be paid in the currency that is paid to other stockholders?

The Acts of 1835, ch. 395, 1836, ch. 261, and 1838, ch. 386 constitute, in this connection, a contract between the State and the company, the proper construction of which must turn upon the intention of the parties, apparent upon its face. Under the first of these Acts, the State, on making its subscription, became a stockholder, and nothing more. The mode provided, by the sale of currency bonds abroad, to enable the State to pay up its subscriptions, was independent of the subscription itself. The guarantee pledged the property of the company to pay the dividend of six per cent out of the profits of the work, and without reference to the mode adopted by the State to procure the funds needed to meet its subscription.

The Act of 1836, ch. 281, made no alteration in this particular. Its main object was to increase the company's tolls, so as to enhance the profits out of which the perpetual dividend was to be paid.

Under the Act of 1835, the dividend on the preferred stock was to be paid out of the profits from tolls, then authorized. If these were not sufficient, the dividend might not be paid, in whole or in part. To obviate any probable difficulty here the increase of the tolls under the Act of 1836, ch. 261, was specifically pledged. At this time the State still relied upon obtaining money abroad wherewith to pay its several subscriptions to works of internal improvement.

Upon these two Acts, the liability of the company is for semi-annual dividends on stock, and not for interest on a debt.

It is true, that what is called a perpetual dividend in the Act of 1835, is called, in the Act of 1836, a payment of interest on account of money, if any, which shall be paid to the company under the Act of 1835. But any doubt, as to whether dividend or interest was meant by the Legislature, is removed by the declaration in the Act of 1835, that the payment is to be made "out of the profits of the work." Had interest been meant, these words would have been omitted--when the charge would have been on the property generally, as well as on the income or profits of the road; whereas, the use of the words "out of the profits" restricts it to these alone.

Now, the Act of 1836, ch. 261, adds to these profits by an increase of tolls, which are pledged specifically to the guarantee of the interest--thus showing, beyond question, that, in the eye of the Legislature, interest was as inseparably connected with profits as dividends were; or, in other words, that wherever the word "interest" was used in any part of said Act, it was as a word equivalent to "dividends." No change having been made by the Act of 1836, ch. 261, was the Act of 1835, ch. 395, affected in this regard by the Act of 1838, ch. 386? This was the Act to provide the ways and means to meet the State's subscription of $3,000,000.

The State, in the first instance, had relied upon obtaining money abroad by the sale of its six per cent. currency bonds, issued under the Act of 1835, ch. 395. Failing in this, the company had purchased them from the State, and they were on deposit in the Union Bank of Maryland. If the company had sold them at the prescribed limit of $120 for $100, its connection with them would have ceased altogether: the holders would have looked to the State, and it alone, for their interest; and all that would have been incumbent on the company would have been to pay the six per cent. preferred dividends, as they fell due, into the State's Treasury, to swell the means out of which this interest, in common with the State's other obligations, would have been paid in currency.

Nor is this view of the subject changed by the provision in the 9th section, that the company shall guarantee to pay six per cent., &c., "until the clear annual profits of the said railroad shall be more than sufficient to discharge the interest which it, (the company,) shall be liable to pay to the State of Maryland. The "interest" here is, of course, the "six per centum," previously mentioned, to be paid "out of the profits of the work;" and what these profits are, is placed beyond a doubt, as already said, by the subsequent reference to them as "the profits of the work, as declared from time to time."

Under no obligation, then, with regard to the interest on the currency bonds, and bound only to pay a dividend on the stock which the sale of the bonds was to enable the State to pay for, what obligation was imposed by the Act of 1838, ch. 386, providing ways and means to meet the State's subscription? If there was nothing in the previous legislation which made the company responsible for the interest, why should it assume that responsibility now? Did it assume it? The Act speaks for itself. It was a new contract between the State and the company. What obligations did it impose? One only--that of paying the interest and attendant charges on the sterling bonds " for three years from their date"-- giving security to that effect.

The company agreed to exchange their currency bonds for sterling ones in the proportions mentioned in the Act, and to pay the interest on the latter for three years, and no longer.

If the company was under no obligation to pay the interest upon the currency bonds when it received them from the commissioners, neither was it under any obligation to pay the interest on the bonds substituted for them, beyond the terms of the agreement under which the substitution took place.

So far as the payment of the interest on the sterling bonds and the attendant expenses for the three years, mentioned in the Act of 1838, is concerned, it may be admitted that it was to be irrespective of "the profits of the work;" and, for that time, the Act of 1838 superseded the provision which made the dividends or interest dependent upon that fund; but, at the expiration of the three years, the relations of the parties in this respect returned to what they were under the Act of 1835, ch. 395, sec. 9; nor have they since been changed.

So far from the subscription of the State, under the Act of 1835, chap. 395, being understood by the parties to be a loan, creating the relation in any manner of debtor and creditor, the 6th section authorizes the appointment of directors to represent this very stock--a stock which the State has since disposed of to numerous parties, who, without the right to a special representation, which was peculiar to the State, have now fallen into the body of stockholders represented by a general ticket. Further, in the 8th section, the State--presumed to use words understandingly--provides that no instalment shall be paid by the treasurer of the Western Shore on the State stock until an equal proportional payment shall be actually made by the " other stockholders on their shares of the capital stock of the company." In the 9th section itself, the State speaks of the distribution of the profits after paying the six per cent. dividend " to the other stockholders;" and again, " the other stockholders " are spoken of in the same connection at the close of the section, where it is said, that " any excess of dividends on the capital stock" shall be distributed among them.

It may be admitted that "dividend" and "interest" are used in the several Acts of Assembly, here referred to, convertibly; still there is, in fact, a difference between them. In some cases, "dividends" would be peculiarly appropriate, as "dividends on stock;" and in another, "interest" would be the proper word, as "interest on a loan." There is but one way in which their proper meaning, in any particular case, can be settled, and that is, by reference to the subject-matter, in connection with which they are used. Henry vs. The Great Northern Railway Co., 1 De Gex & Jones, 637.

If a debt is created, "interest" describes its income. If a stock is subscribed for, "dividend" is the proper word for that purpose.

If a debt is created, it carries interest, which is chargeable on the estate of the debtor as well as on his income. If a stock is subscribed for, its profits alone are chargeable. If then we find that, whether this income is called "interest" or "dividends," it is, in so many words, chargeable upon profits only by the instrument in which it is stipulated to be paid, the conclusion seems irresistible that a subscription to stock, and not a loan creating a debt, was intended by the contracting parties, and this conclusion is confirmed, if it needs confirmation, when we find the party claiming the ""dividend" or the "interest," styling itself, again and again, a ""stockholder," and ranking itself among "the other stockholders."

There being then no words, in any of the Acts, referring to the State's subscription as a loan; but, on the contrary, finding these Acts speaking of the State, reïteratedly, as "a stockholder," the fact that its "interest," or ""dividends," call it as we may, was expressly confined to the only source from which income was to be looked for by a stockholder, proves to demonstration that it was the relation of a stockholder, and not that of a creditor, in any sense of the word, that the State was made to occupy under the Act of 1835, and the subsequent Acts in pari materia.

If the State is to be regarded as a creditor, entitled...