Edwards v. Int'l Pavement Co.

• Decision Date: 28 May 1917
• Citation: 116 N.E. 266,227 Mass. 206
• Parties: EDWARDS v. INTERNATIONAL PAVEMENT CO. et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

227 Mass. 206

116 N.E. 266

EDWARDS

v.INTERNATIONAL PAVEMENT CO. et al.

Supreme Judicial Court of Massachusetts, Suffolk.

May 28, 1917.

Case Reserved from Supreme Judicial Court, Suffolk County.

Bill by Francis M. Edwards, administrator of the estate of Jabex Baxter Upham, against the International Pavement Company and others. Reservation on exceptions to master's findings. Exceptions overruled, report confirmed, and decree directed.Tyler, Corneau & Eames and Wm. H. Garland, all of Boston, for complainant.

R. G. Dodge and R. S. Wilkins, both of Boston, for defendants.

DE COURCY, J.

The plaintiff is administrator with the will annexed, of the estate in this commonwealth of Jabez Baxter Upham, late of New York. He holds five unregistered $1,000 first income bonds of the International Pavement Company, which were acquired by his testator prior to January 1, 1893. In this bill against the said company (herein called the defendant) and the members of its board of directors he prays among other things for an accounting of the receipts of the company, and for payment to him of the proportion of the net income to which he shall appear to be entitled. In view of the master's findings in favor of the individual defendants, it is unnecessary to recite the allegations and prayers with reference to them. The real controversy before the master was whether, on any of the interest dates beginning July 1, 1893, and ending July 1, 1915, there was in the treasury of the company ‘net income’ which should have been applied to the payment of interest on said bonds.

These bonds are part of a series of the par value of $400,000, dated January 1, 1889, and issued for the purpose of refunding certain outstanding obligations of the corporation. No interest ever has been paid on any of them. The material provisions of the income bond are as follows:

‘The International Pavement Company hereby promises to pay to the bearer hereof or in case of registration, to the registered holder hereof, the sum of one thousand dollars of the lawful money of the United States of America on the first day of January A. D. 1939, and the company further promises to apply its net income as hereinafter described, in payment of interest on said sum of one thousand dollars at a rate not exceeding five per cent. per annum in any one year upon the terms and conditions and in the manner herein set forth; said interest shall be payable semi-annually on the first days of January andJuly in each year if on such days net income as hereinafter described shall have accumulated in cash in the treasury of the company sufficiently to pay two and one half per cent. on the principal of all of this series of first income bonds. Interest hereon shall not be or become cumulative, that is to say, the company shall at no time be under obligation to pay any interest hereon for any periods for which the payments of interest have been passed. * * * The words ‘net income’aforesaid, shall be construed to mean the net cash remaining in the treasury of the company after deducting a sum sufficient for the payment of all liabilities and expenses thereof, including all such amounts as the directors of the company shall authorize to be applied or paid for the purchase of any real or personal property, choses in action, rights or services that in the opinion of the directors, may be necessary or convenient for the business of the company the intention being that the company shall in no wise be limited in the improvement or extension of its business by the issue of these bonds.'

The master has tabulated the amount of cash in the treasury of the corporation (including bank deposits, loans, and stock which by agreement of the parties are to be regarded as cash) on each of the interest dates from July 1, 1893, to July 1, 1915. On many of the dates the amount was in excess of interest requirements. He construed the provisions in the bond with respect to payment of income as follows:

‘From cash in the treasury are to be deducted all direct liabilities of the corporation presently due whether incurred for operating expenses or for the increase of the capital assets of the corporation (such capital assets being in the opinion of the directors necessary or convenient for the business of the corporation), also such sum as under the existing conditions is reasonably sufficient to provide for the payment of direct liabilities presently existing, payment upon which is to be made in the future, and liabilities contingent on the failure of persons or corporations primarily liable to perform their obligations, or conditional on the performance of contractual obligations by parties contracting with the respondent corporation. No deduction is to be made on account of money appropriated or promised by the corporation for the payment of which it is not legally bound directly, contingently or conditionally. No deduction is to be made for operating expenses not already incurred, nor to make good losses on account of capital.’

After deducting from the cash in the treasury the outstanding direct liabilities, he finds there were but fourteen interest dates on which there was on hand the amount of cash which would be required to pay 2 1/2 per cent. on the outstanding first income bonds. And he further finds that after making reasonable provision for the contingent and conditional liabilities outstanding on those dates, the cash in the treasury would have been enough to pay the interest on said bonds on only January 1, 1910, and January 1, 1911.

The International Pavement Company was organized under the laws of Connecticut in 1880, and has a usual place of business in Boston. The purposes for which the corporation was formed are stated in its articles of association as follows:

‘To purchase, own, use and sell any letters patent, inventions or rights under patents pertaining to the manufacture of artificial blocks for payment or other purposes, the making or vending of such productions and the sale of rights under such patents for royalties or otherwise; and to buy, sell, own and deal in any real or personal property necessary or convenient for the prosecution of said business, and generally to do all things incidental to said business and to the proper management thereof.’

As found by the master, the company was engaged in the business of issuing licenses under certain patents and contracts which it owns for the use of asphalt for block pavements and tiles at a stipulated price or royalty for each block made or laid; and the number of corporations so licensed by the defendant company at no one time exceeded seven. This has been practically the sole business of the company, though before 1884 it carried on the manufacture of asphalt blocks itself and the laying of pavement, and in 1913 and 1914 it again manufactured blocks. The asphalt which is used in the manufacture of blocks by the processes of which the defendant corporation has the patents, comes from a pitch lake in the island of Trinidad. The defendant covenants to supply or cause to be supplied to its licensees the asphalt required by them. Its right to obtain such asphalt is under a thirty-eight year contract made in 1892 with the Trinidad Asphalt Company, which agreement is still in force with the new Trinidad Lake Asphalt Company, Limited. This contract contained the following provision, in which the words ‘party of the first part’ refer to the Trinidad Asphalt Company, the words ‘party of the second part’ to the defendant corporation, and the words ‘party...