Star Publishing Company v. Ball
| Decision Date | 16 February 1922 |
| Docket Number | 23,706 |
| Citation | 134 N.E. 285,192 Ind. 158 |
| Parties | Star Publishing Company v. Ball |
| Court | Indiana Supreme Court |
Rehearing Denied June 1, 1922.
From Marion Superior Court (A30); Linn D. Hay, Judge.
Action by Frank C. Ball against the Star Publishing Company. From the judgment rendered, defendant appeals, and plaintiff assigns cross-error.
Affirmed.
James W. Noel and Charles W. Miller, for appellant.
F Winter, for appellee.
Appellee is the owner by mesne assignments of 1,775 shares of the preferred stock in appellant corporation. Appellant tried to redeem this stock. Appellee brought this suit to cancel its proceedings in that behalf, and to enjoin such redemption, and the sale of bonds incident thereto. He also asked for an accounting, and that appellant be required to declare and pay dividends on his stock. He obtained what he asked, except that he claims that the court should have given him $ 62,125 in dividends instead of $ 39,050. The court found the facts specially and stated seven conclusions of law thereon. Appellant excepted to each conclusion and assigns error. Appellee excepted to the sixth conclusion (dividends) and assigns cross-error.
On October 11, 1904, George F. McCulloch was the owner of three newspaper publishing companies: the Indianapolis Star Company, the Muncie Star Company, and the Terre Haute Star Company, Indiana corporations with an authorized capital stock respectively of $ 500,000, $ 250,000, and $ 300,000 par value. On that date he entered into a written agreement with Daniel G. Reid and John C. Shaffer to sell all the property of the three companies, in consideration that they would form a new publishing company, having $ 500,000 par value preferred stock, $ 500,000 par value common stock, and would give him $ 200,000 cash, all the preferred stock in the new corporation, and $ 100,000 of mortgage bonds of an authorized issue of $ 650,000. This agreement further provided that the preferred stock should be five per cent. noncumulative but should participate after five per cent. had been paid on the common stock, preferred stock not to have voting power; bonds to bear five per cent. payable semi-annually, to run not to exceed fifteen years from date of execution. Pursuant to this agreement, on October 25, 1904, appellant herein was organized under the manufacturing and mining act, and shortly thereafter took over all the property of the three publishing companies. The property taken over was free from debts, except $ 200,000 mortgage bonds against the property of the first company, which bonds were to be redeemed by $ 200,000 of the authorized issue of $ 650,000 mortgage bonds of the new company.
Since October 9, 1911, John C. Shaffer has been the owner of all of the common stock of appellant, and also at that time acquired all the notes of the company held by Daniel G. Reid, and $ 550,000 par value of the authorized issue of $ 650,000 par value mortgage bonds. That is to say, he has had absolute control of the business policies of the corporations, there being two other nominal directors, to each of whom he transferred one share of stock. In 1917 he undertook to redeem the preferred stock of the company, whereupon appellee brought this suit.
The first question presented is whether the stock is redeemable during the existence of this corporation, whose term is fifty years. So far as this question is concerned, the terms of the articles of incorporation are the same as the terms of the certificates.
The certificates provide:
"Equal non-cumulative dividends shall be paid on all outstanding shares of such preferred stock, from the date of their issue, at the rate of five (5) per centum per annum, payable quarterly on the first days of June, September, December and March, in each year, when earned and declared out of the funds of the company available therefor, and no dividends shall be paid upon any of the shares of said common stock, or upon any shares of preferred stock, not authorized by the articles of association of the company, to which reference is made for authority for the issue of this stock and the nature and extent of its preference, until full payment has been made of all dividends declared upon the outstanding shares of preferred stock authorized by such articles of association; and in addition to said non-cumulative dividends at the rate of five (5) per centum per annum, after a non-cumulative dividend of five (5) per centum shall have been paid in or for any one year to the holders of common stock, the same further pro rata dividends shall be paid on all outstanding shares of preferred stock as shall be paid in or for such year to the holders of common stock; and, in any application which shall be made of the funds or other assets of the company to the redemption or repayment of its shares of capital stock, all outstanding shares of such preferred stock shall be fully redeemed or repaid at not exceeding the par value thereof, and all unpaid declared dividends, in priority to the redemption or repayment, in whole or in part, of any of the shares of the common stock of said company, or of the preferred stock of said company, not authorized by said articles of association." (Our italics.)
Now it is the contention of appellant that because of the italicized words "redemption," "repayment," "redeemed," "repaid," this preferred stock is redeemable at the option of the company.
Our statute on the subject of preferred stock provides: "It shall be subject to redemption at not less than par at such time or times and upon such terms and conditions as shall be expressed in the certificates thereof," etc. § 5096 Burns 1914, Acts 1903 p. 220. (Our italics.)
It will be observed that the language of the certificate is: "In any application which shall be made of the funds or other assets of the company to the redemption or repayment of its shares of capital stock, all outstanding shares of such preferred stock shall be fully redeemed or repaid at not exceeding the par value thereof, and all unpaid declared dividends, in priority to the redemption or repayment, in whole or in part, of any of the shares of the common stock of said company, or of the preferred stock of said company, not authorized by said articles of association."
It may be conceded that the words "redemption" and "repayment" are inapt words, but they mean, in the context of this certificate, no more than the manner of application of the funds and assets of the company to the payment of the capital stock on the final dissolution of the corporation, or any intermediate dissolution because of insolvency. The language in the certificate, together with the language in the statute, directing that the time for redemption shall be fixed, does not warrant the construction that appellant corporation had the right to redeem its preferred stock at its option.
Appellant contends that a corporation has the inherent right to redeem its capital stock, and to sustain this contention authorities are cited in which it is shown that there was express statutory provision for such retirement, or that there was purchase and retirement by agreement. In the absence of express statutory authority from the state, a corporation has no right to increase or reduce the amount of its capital stock, unless such increase or reduction is authorized by its charter. 1 Cook, Corporations (7th ed.) § 281; 10 Cyc 538; McCann v. First National Bank (1887), 112 Ind. 354, 359, 14 N.E. 251; Ferris v. Ludlow (1856), 7 Ind. 517; Scovill v. Thayer (1881), 105 U.S. 143, 149, 26 L.Ed. 968.
Appellant further contends that if the language of the certificate and the statute construed together does not authorize redemption and retirement at the option of the appellant, then there is such ambiguity in the certificate as would authorize parol evidence. Appellant offered the preliminary conversations and negotiations which led to the execution of the contract with McCulloch. The court correctly excluded this evidence. The contract expressed in this certificate and in the articles of incorporation is like any other contract, not subject to parol modification by any preliminary negotiations or conversations concerning the same.
Appellant also contends that under § 5092 Burns 1914, 1 R. S. 1852 p. 358, the common stockholders had the power by vote to reduce the capital stock of this corporation by retiring all of the preferred stock without the consent of such preferred stockholders. This is § 12 of an act of 1852 (1 R. S. 1852 p. 358), which has to do entirely with common stock in manufacturing and mining companies. It cannot be carried over to modify or affect the rights of preferred stockholders in such companies under the act of 1893, Acts 1893 p. 162, in the manner attempted here, at least--if at all.
The trial court required appellant to pay a five per cent. preferred dividend in each of the years 1916, 1917 and 1918, and a participating dividend of three and one-half per cent. in each of the years 1916 and 1918. Now appellant contends that this is error, for the reason that no more than eight per cent. on preferred stock in any one year is allowed by the statute. The language of § 5096 Burns 1914, Acts 1903 p. 220, is: "Said company shall be bound to pay thereon such quarterly, semiannual or annual sum or dividends as may be expressed in the certificates, but not to exceed in all eight per cent. per annum, before any dividend shall be set aside or paid on the common stock of such company," etc.
Appellant's exact contention is that this provision is analogous to the usury statute and was intended to be a limitation upon the amount of interest paid on preferred stock in any one year. This contention fails at the very start, for...
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