PRENTIS, P. This is an appeal from a decree denying the relief prayed for in the bill and dismissing it. The question raised is whether or not the holders of the preferred 5 per cent. stock of the Southern Railway Company are entitled to participate equally with the holders of the common stock in the surplus net profits in any one fiscal year in excess of 5 per cent. dividends on both classes of stock.
The opinion of the learned trial judge, Hon. Beverey T. Crump, so carefully states the facts, the issues raised, and the proper conclusions to be drawn therefrom, that little if anything more can be profitably said. We reproduce it as stating such proper conclusion and sufficient reasons therefor:
"The properties of the system of railroads formerly operating under the name of the Richmond & Danville Railroad Company were sold in the year 1894 in a foreclosure suit pending in the Circuit Court of the United States for the Eastern District of Virginia. By an Act of the General Assembly passed on February, 1894 [Laws 1893-94, c. 302], the purchasers at this sale had been authorized to organize themselves and their associates into a new corporation under the name of Southern Railway Company. What took place was practically a reorganization into the Southern Railway Company of the former corporations operating the property. The act directed that the purchasers of the property should file with the secretary of the commonwealth a certificate and plan of organization setting out the details of the stock issuance and other matters relative to the organization and operation of the new corporation. These documents having been executed and filed, the corporation issued $60,-000, 000 of preferred stock and $120,000, 000 of common stock, all of the par value of $100 per share.
"In the year 1924 the net earnings of the Southern Railway Company amounted to upwards of $17,000, 000. During the year 1925, the directors, after setting aside out of the earnings a 5 per cent. dividend on the preferred stock, proceeded to declare dividends upon the common stock in quarterly payments, the first three amounting to 11/4 per cent., and the last quarterly dividend amounting to 13/4 per cent., making a total dividend for the year of 51/2 per cent. on the common stock. Thereupon this suit was instituted by the complainants as holders of preferred stock on behalf of themselves and other like stockholders. The prayer of the bill is that the court enjoin the defendant, Southern Railway Company, from declaring out of its surplus earnings in any one year a greater dividend upon the common stock than 5 per cent., unless the preferred stockholders are given participation in any surplus of dividends over 5 per cent. declared upon the common stock.
"The contention of the plaintiffs is that, as holders of preferred stock, they should have a right to participate ratably in all excess dividends declared by the board of directors out of the profits of any one year, after the board has satisfied a 5 per cent. preference which attaches to their stock and has paid the com-mon stock a like dividend of 5 per cent.; in other words, that the preferred stock is what is ordinarily called participating stock. The defendant's claim, on the other hand, is that, after the preferred stock has received its five per cent, dividend in any one year from the net profits in that year, then the board of directors has no right to declare a further dividend on the preferred stock in addition to the five per cent. dividend, but that the surplus net profit remaining after the payment of the five per cent. preferred dividend is subject to such dividend payment in favor of the common stockholders as the board of directors may declare. Defendant therefore claims that the preferred stock is nonparticipating stock.
[I] "In considering a question of this character, it is fundamental that the court should. look first to the documents constituting the contract under which the preferred and common stock, respectively, were issued.
"In this case the enabling act or charter of February, 1804, contained. the following with reference to the issuance of stock:
" 'Said new corporation may issue its capital stock of one or more classes or kinds, and in one or more series or grades, with such preferences, conditions and voting power as shall be provided in said plan of organization; and, from time to time, it may increase or decrease the amount of any class or kind or grade of such stock as shall be provided in said plan of reorganization, or with the approval of a majority in amount of the stockholders given at a meeting of stockholders called for that purpose, unless and except as otherwise expressly provided in certificates representing stock previously issued. The shares of each class of stock shall be of such par amount, and shall entitle the holders to such vote, respectively, as shall be determined in the said plan of reorganization, or by the stockholders in like manner.' [Section 5].
"In the plan of reorganization executed under the charter, provision is made for the issuance of preferred and common stock as follows:
" 'The said purchasers and the Southern Railway Company have fixed the capital stock of the corporation at $180,000, 000, divided into 1, 800, 000 shares of the par value of $100 each, of which 600, 000 shares are preferred stock and the remainder are common stock, reserving the right to increase such capital stock up to, but not exceeding, the limit authorized by the said Act of Assembly of the commonwealth of Virginia approved February 20, 1894, and to increase or decrease the amount of any class or kind or grade of its capital stock, and also reserving any and all right to redeem and purchase at par any and all preferred stock, or any kind, class or grade thereof.
" 'The preferred stock is entitled to the following preferences, and to none other, viz.:
" 'In each and every fiscal year after the 1st day of July, 1895, to receive noncumulative dividends at and up to the rate of 5 per cent. per annum in preference and priority to the payment of any dividend on the common stock in such fiscal year, but only from the net profits of the company as such shall be fixed and determined by the board of directors, and only when and as such board shall declare dividends therefrom; but, notwithstanding the preference hereby declared, if, after providing for the payment of dividends for any fiscal year on the
preferred stock outstanding in such year, there shall remain a surplus of net profits of such year, the board of directors may declare and pay dividends upon any other stock of the company for such year, out of such surplus net profits.'
"Ordinarily the shares of the general stock of a corporation, which is the division of its capital into units, all stand upon the same footing. Equal participation in the organization and control of the corporation and also in any distribution of the funds of the corporation, whether it be of earnings or of corporate assets, are rights ordinarily attaching to each share of stock. Where there is a deviation from this rule or fundamental feature by giving greater or prior rights and preferences to one class of stock over another class, the character and degree of the prior right or preference is to be ascertained from the language in which it is stated in the charter or organization documents which contain the evidence of the contract between the holders of the different classes of stock.
"The certificates of the preferred stock and also of the common stock issued in this instance contain on their face the following sentence:
" 'The common stock is subject to the prior rights of the holders of preferred stock at any time outstanding according to the preferences thereof.'
"Thereupon, in each certificate, follows so much of the language as above transcribed as commences with 'the preferred stock is entitled to the following preferences, and to none other, viz.'
"Immediately following, the certificates contain these two additional sentences, taken from the plan of organization:
" 'Such preferred stock is authorized to the amount of $60,000, 000, and, without the consent of the holders of a majority of such preferred stock then outstanding, the company can neither increase such authorized amount thereof nor put upon its property any mortgage to secure bonds for more than the aggregate principal sum of $120,000, 000, in addition to prior liens thereon, assumed, extended, or renewed, or any substitutions therefor, against which a like amount of bonds shall be reserved out of such amount of $120,000, 000. Southern Railway Company may at any time exercise any charter right to redeem the preferred stock in cash at par.'
"The certificates therefore carried quite a full statement of the contract.
"In order to see what are the distinguishing characteristics of the preferred stock which differentiate that stock from the common stock, we must have recourse to the terms of the contract appearing in the provisions of the charter and the plan of organization above transcribed. These distinguishing features are the following:
"First. The preferred stock is fixed at 600.-000 shares—that is, $60,000, 000—and this original issue shall be kept at that amount, without increasing it otherwise than with the consent of a majority of the holders of that stock.
"Second. The...
