12
The Green Bag
by the receiver. The preferred stock holders claimed priority. The court said : If this stock is preferred stock, pure and simple, the contention of the creditors is right. The law is perfectly well settled that as between creditors and ordinary preferred stockholders, the latter, as owners of the property of an insol vent corporation, are, upon a distribution its assets, entitled to nothing until its creditors are first fully paid. There is a palpable difference between the relation of a stockholder and a creditor to the corporate property. Stock, whether preferred or common, is capital; and generally speaking, a certificate of stock merely evidences the amount which the holder has contributed to or ventured in the enterprise. Such a certificate, representing nothing more than the extent of his ownership in the capital, cannot well be treated as indicating that he is, by virtue of it alone, also to the same extent a creditor who may compete with other creditors in the distribution of the fund arising from a conversion of the corporation's assets into money. He cannot, if he is simply an ordinary preferred stockholder, in the nature of things, so far as third persons are concerned, be at one and the same time and by force of the same certificate, both part owner of the property and creditor of the company for that portion of its capital which stands in his name. His certifi cate, therefore, in such circumstances, merely measures the quantum of his ownership. As this chance of gain throws on the stockholder, as respects creditors, the entire risk of the loss of his contribution to the capital, it is a fixed char acteristic of capital stock that no part of it can be withdrawn for the purpose of repaying the principal of the capital until the debts of the corporation are satisfied. Whether this char acteristic may be modified by statute will be considered later on. To be strictly accurate, we ought to say there is a sense in which a shareholder is a creditor. In that sense every corporation includes its capital stock amongst its liabilities, but it is a liability which is post poned to every other liability. And as to the matured and unpaid dividends due on preferred stock, the relation of creditor undoubtedly exists. But, after all, is this particular stock, techni cally speaking, ordinary preferred stock, and subject, consequently, to the legal incidents and characteristics of that species of property? If you call it preferred stock, and it is what you call it, then the law is perfectly clear that
it has no priority over the contesting creditors. If you call ii preferred stock, and it is not pre ferred stock, then, obviously, it is not governed by the principles applicable to preferred stock, but by those relating to the thing that it really is. The mere naming of it does not make it that which it is named, if, in fact, it is something else. Its properties and qualities determine what it is. If the statute calls it what its properties and qualities show that it is not, surely it does not thereby become that which it is misnamed, and cease to be what it essentially is. Calling stock preferred stock does not per se define the rights in such stock, but these depend on the statute or contract under which it was issued. Elkins v. Cam. &A.R. Co., 36 N. J. Eq. 233. As said by the Supreme Court of Ohio: To call a thing a wrong name does not change its nature. A mortgage creditor, although denominated a preferred stock holder, is a mortgage creditor nevertheless; and interest is not changed into a dividend by calling it a dividend. Nothing is more common in the construction of statutes and contracts than for the Court to correct such self-evident misnomers by supplying the proper words. To use the lan guage of the Court in Corcoran v. Powers, 6 Ohio St. 19. "The question in such cases is, not what did the parties call it, but what do the facts and circumstances require the Court to call it." Burt v. Rattle, 31 Ohio St. 116. Courts are not influenced by mere names. They look beyond these and give to the subject dealt with the char acter — the status — which its properties denote it possesses. The qualities and properties of a thing are its essentials — they define and mark what it is — the name is purely accidental — it is no part of the thing named. If, then, the thing which the statute contemplates possesses the characteristics and qualities of preferred stock — and possesses none other — it is preferred stock; but if, on the other hand, it possesses characteristics and qualities that are entirely foreign to preferred stock as strictly defined, and that are descriptive of something else, then the thing is obviously either not ordinary preferred stock, or not preferred stock at all, even though it be called preferred stock, and have in addition to its own qualities some of the characteristics that do pertain to preferred stock. Precisely because preferred stock has no lien on the com pany's property and cannot be repaid in advance of general creditors, it is necessarily true that a security which is, by express and emphatic legis lative enactment, entitled to just such a lien and just such priority, is not preferred stock techni cally speaking, though called by that name and
