Edwards v. Wabash Ry. Co.

• Decision Date: 18 February 1920
• Docket Number: 138.
• Citation: 264 F. 610
• Parties: EDWARDS, Internal Revenue Collector, v. WABASH RY. CO.
• Court: U.S. Court of Appeals — Second Circuit

264 F. 610

EDWARDS, Internal Revenue Collector, v. WABASH RY. CO.

No. 138.

United States Court of Appeals, Second Circuit.

February 18, 1920

Francis G. Caffey, U.S. Atty., of New York City (Vincent H. Rothwell Asst. U.S. Atty., of New York City, of counsel), for plaintiff in error.

Winslow S. Pierce, Lawrence Green, and F. C. Nicodemus, Jr., all of New York City, for defendant in error.

This cause comes here on writ of error to the United States District Court for the Southern District of New York. The defendant in error is hereinafter called plaintiff, and the plaintiff in error is hereinafter called defendant.

The plaintiff sues to recover the amount of stamp taxes demanded under the War Revenue Act of 1917 (40 Stat. 300), which it paid under protest. The plaintiff is a corporation organized under the laws of the state of Indiana. The amount of the original capital stock is fixed at $143,460,000, and the number of shares into which the capital is to be divided is fixed at 1,434,600 shares, of the par value of $100 each. Of such capital stock, 462,000 shares, it is provided in the certificate of incorporation, shall be issued as 5 per cent profit-sharing preferred stock A, 499,700 shares shall be issued as 5 per cent. convertible preferred stock B, and 472,900 shares shall be issued as common stock.

The certificate of incorporation also provided that the 'five per cent. profit-sharing preferred stock A shall be entitled to receive preferential dividends in each fiscal year up to the amount of five per cent. before any dividends shall be paid upon any other stock of this corporation, but such dividends on the five per cent. profit-sharing preferred stock A shall be noncumulative. After the payment or the setting apart in any one fiscal year of five per cent dividends upon the five per cent. convertible preferred stock B and upon the common stock of this corporation, the five per cent. profit-sharing preferred stock A shall be entitled to receive additional dividends at the same rate per cent. as any further or additional dividends which may be declared in that year upon such common stock. The five per cent. profit-sharing preferred stock A shall, at the option of this corporation, be redeemable as an entirety at any time after December 1, 1920, upon twelve weeks' notice, at the price of one hundred and ten per cent. (110%) of its par value. In the event of any liquidation, dissolution or winding up (whether voluntary or involuntary) of this corporation, the holders of the five per cent. profit-sharing preferred stock A shall be entitled to be paid in full, out of the assets of this corporation, the par amount of their stock and all dividends thereon declared and unpaid, before any amount shall be paid out of said assets to the holders of any stock of this corporation; but after payment in full to the holders of the five per cent. convertible preferred stock B and common stock of this corporation of the par amount of their stock and all dividends thereon declared and unpaid, holders of all classes of stock of this corporation, without priority or distinction as between the different classes thereof, shall be entitled to participate pro rata in the remaining assets of this corporation.'

'The five per cent. convertible preferred stock B shall be entitled to receive preferential dividends in each fiscal year up to the amount of five per cent. after payment of the full five per cent. dividends on the five per cent. profit-sharing preferred stock A, but before any dividends shall be paid upon the common stock of this corporation. Said dividends shall be noncumulative, and the five per cent. convertible preferred stock B shall not be entitled to any other or further dividends in any fiscal year. The holders of the five per cent. convertible preferred stock B may at any time after August 1, 1918, and up to thirty days prior to any date fixed for the redemption of the entire issue of five per cent. profit-sharing preferred stock A, convert the same into, and exchange the same for, five per cent. profit-sharing preferred stock A and common stock of this corporation. For the purpose of such conversion this corporation shall have power, from time to time, to issue such amounts of its five per cent. profit-sharing preferred stock A and common stock in addition to the amounts hereby specifically authorized as may be necessary. Such conversion shall be at the rate of fifty dollars ($50) par value of five per cent. profit-sharing preferred stock A and fifty dollars ($50) par value of common stock for each one hundred dollars ($100) par value of five per cent. convertible preferred stock B, with a proper adjustment of declared and unpaid dividends. The five per cent. convertible preferred stock B shall, at the option of this corporation, be redeemable as an entirety at any time after December 1, 1920, upon twelve weeks' notice, at the price of one hundred and ten (110%) per cent. of its par value. In the event of any liquidation, dissolution or winding up (whether voluntary or involuntary) of this corporation, the holders of the five per cent. convertible preferred stock B shall be entitled to be paid in full, out of the assets of this corporation, the par amount of their stock and all dividends thereon declared and unpaid, before any amount shall be paid out of said assets to the holders of the common stock; but after payment in full to the holders of the common stock of the par amount of their common stock and all dividends thereon declared and unpaid, holders of all classes of stock of this corporation, without priority or distinction as between the different classes thereof, shall be entitled to participate pro rata in the remaining assets of this corporation.'

The certificates of stock contained the following: 'The holders of the five per cent. convertible preferred stock B may at any time after August 1, 1918, and up to thirty days prior to any date fixed for the redemption of the entire issue of five per cent. profit-sharing preferred stock A, convert the same into and exchange the same for five per cent. profit-sharing preferred stock A and common stock at the rate of fifty dollars ($50) par value of five per cent. profit-sharing preferred stock A and fifty dollars ($50) par value of common stock for each one hundred dollars ($100) par value of five per cent. convertible preferred stock B, with a proper adjustment of declared and unpaid dividends. In the event of any liquidation, dissolution or winding up (whether voluntary or involuntary) of the company: (1) The holders of the five per cent. profit-sharing preferred stock A shall be entitled to be paid in full out of the assets of the company the par amount of their stock and all dividends thereon declared and unpaid before any amount shall be paid out of said assets to the holders of any other stock of the company; (2) the holders of the five per cent. convertible preferred stock B shall then be entitled to be paid in full out of the assets of the company the par amount of their stock and all dividends thereon declared and unpaid before any amount shall be paid out of said assets to the holders of the common stock; (3) the holders of the common stock shall then be entitled to be paid in full out of the assets of the company the par amount of their stock and all dividends thereon declared and unpaid; and (4) thereafter the holders of all classes of stock of the company, without priority or distinction as between the different classes thereof, shall be entitled to participate pro rata in the remaining assets of the company. Holders of all shares of stock of the company have equal voting rights share for share alike. Reference is hereby made to the certificate of incorporation of the company, to all the provisions of which this certificate and the rights of the holder of stock represented hereby are subject, for a statement of the rights and privileges of and the limitations upon the various classes of the company's stock and of the obligations of the company with respect thereto and for its provisions generally as if herein set forth in full. The holder hereof by the acceptance of this certificate assents to all of the provisions of said certificate of incorporation and consents to and authorizes such action as may be necessary to carry the same into effect.'

The plaintiff prior to October 3, 1917, issued its capital stock in the par amount of $138,486,312.71, of which $46,200,000 was classified as five per cent. profit-sharing preferred stock A, $48,725,578.18 was classified as five per cent. convertible preferred stock B, and $43,559,743.43 was classified as common stock. Thereafter and on March 27, 1918, the board of directors adopted the following resolution:

'Resolved, that the proper officers of this company be and they are hereby authorized and directed to execute certificates for five per cent. profit-sharing preferred stock A and common stock of this company and to deliver and cause the same to be delivered in proper proportions, with a proper adjustment of declared and unpaid dividends, to holders of certificates for shares of this company's five per cent. convertible preferred stock B, who, at any time after August 1, 1918, and up to thirty days prior to any date fixed for the redemption of the entire issue of five per cent. profit-sharing preferred stock A, shall surrender the same for conversion into and exchange for five per cent. profit-sharing preferred stock A and common stock on the terms provided and set forth in this company's certificate of incorporation and in the certificates for its five per cent. convertible preferred stock B.'

The plaintiff, between August 2, 1918, and October 30, 1918 executed and delivered certificates representing...