A railroad company having a large defi ciency issued preferred stock to raise money to pay its floating debt ; it was held that it could pay dividends on such stock out of net earnings since its issue; Cotting v. R. Co., 54 Conn. 156, 5 Atl. 851.
Undeclared dividends (arrears of net earn ings) pass with the transfer of preferred stock to the transferee ; Cook, St. & Stockh. § 275 ; Manning v. Min. Co., 24 Hun (N. Y.) 360.
In the absence of anything to the contrary, preferred stock shares equally with common, upon a dissolution of the corporation; L. R. 5 Eq. 510; otherwise, if provided by the charter, a statute, or by the contract; L. R. 20 Eq. 59 ; that the holder has priority as to dividends but not as to assets, unless ex pressly provided, was held in Jones v. R. R., 67 N. H. 234, 30 Atl. 614, 68 Am. St. Rep. 650.
Preferred stock is ordinarily understood to mean such as is entitled to preference in div idends ; Scott v. R. Co., 93 Md. 475, 49 Ad. 327.
If there is no eontract to the contrary, the weight of authority clearly favors the pre ferred stockholder's right to share with com mon stock in profits after the-latter have re ceived a dividend equal to the stipulated pre ferred dividend. It made no difference that for years the preferred had had only 5 per cent. and the entire residue of the profits had gone to the common stock; Sternbergh v. Brock, 225 Pa. 279, 74 Atl. 166, 24 L. R. A. (N. S.) 1078, 133 Am. St. Rep. 877.
Where there is a provision for cumulative dividends on preferred stock and a redemp tion clause, the stock can be redeemed only on payment of all arrears and of par of the stock ; Sterling v. H. F. Watson Co., 241 Pa. 105, 88 Atl. 297.
),% here the memorandum of association pro vided that preference shares should receive "out of the net profits of each year" a divi dend of 10 per cent., it was held that they were not entitled to cumulative dividends ; [1896] 2 Ch. 203.
Where preferred stockholders are entitled to "dividends of 8 per cent. per annum and to be preferred as to capital as well as divi dends," they have no further interest in ac cumulated surplus earnings ; Niles v. Mfg. Co., 196 Fed. 994.
In the absence of anything to the contrary, dividends will be taken to be cumulative; Westchester & P. R. Co. v. Jackson, 77 Pa. 321; Boardman v. R. Co., 84 N. Y. 157 ; L. R. 3 Eq. 356.
Profits for the year mean the surplus re ceipts after paying expenses and restoring the capital to the position it was at the be ginning of the fiscal year ; L. R. 16 Ch. 344.
Net earnings are what are left after paying current expenses and interest on debts and everything else which the stockholders, pre ferred and common, as a body corporate, are liable to pay ; Warren v. King, 108 U. S. 389, 2 Sup. Ct. 789, 27 L. Ed. 769.
Ordinarily the directors will not be justi fied in accumulating a reserve fund to liqui date a funded debt when it matures, to the exclusion of all right of preferred stockhold ers to • their dividends ; Hazeltine v. R. Co., 79 Me. 411, 10 Atl. 328, 1 Am. St. Rep. 330.
Preferred stock may be issued without the right to vote ; Miller v. Ratterman, 47 Ohio St. 141, 24 N. E. 496.
Where preferred stock, entitled to a cumu lative dividend, was bequeathed in trust to pay the income to a person for life, and no dividends had been declared during the peri od of the life tenancy, it was held that the life tenant's executor was not entitled to have the shares retained so as to have the arrears paid out of future preferential dividends ; f19131 2 Ch. 697. Dividends do not "accrue" until they are declared; see Allen v. Armstrong, 58 App. Div. 427, 68 N. Y. Supp. 1079. But if directors refuse to perform their legal duty to the preferred stock, equity will compel them to do so ; Hazeltine v. R. Co., 79 Me. 411, 10 Atl. 328, 1 Am. St. Rep. 330.
The face value of preferred stock is in the nature of a debt and the interest thereon becomes a debt as soon as there are profits with which to pay it ; Storrow v. Mfg, Ass'n, 87 Fed. 612, 31 C. C. A. 139. Courts will not permit a corporation to assess preferred stockholders by refusing to pay dividends when net profits and the character of the business permit ; id. A general guarantee of dividends is only in the event that they are earned ; Miller v. Ratterman, 47 Ohio St. 141, 24 N. E. 496. Certificates of indebted ness to preferred stockholders, obligating pay ment of fixed dividends, earned or not, are illegal ; National Salt Co. v. Ingraham, 122 Fed. 40, 58 C. C. A. 356. Preferred stock is in the nature of a debt and the interest be comes a debt as soon as there are profits ; Storrow v. Mfg. Ass'n, 87 Fed. 612, 31 C. C. A. 139. If profits clearly warrant a dividend the court will compel it ; id.