of office, said that the provision did not apply, since the office of judge of a special municipal court is not a constitutional office, but one which may be created and abolished by the legislature at will (citing State ex rel. Martin v. Kalb (Wis.) supra); and moreover that it had long been held that the constitutional provision applies only to officers having a fixed salary from the state.

In Somers v. State (1894) 5 S. D. 584, 59 N. W. 962, which holds that a deputy superintendent of public instruction, appointed to hold office during the pleasure of the principal, does not hold office for a "term" within the constitutional inhibition against any change in the compensation of any public officer during his term of office, the court cited the Kalb Case (Wis.) and the Timme Case (Neb.) supra, as holding that a constitutional provision similar to that in the case at bar applied only to officers created by the Constitution, without affecting the power of the legislature with respect to offices created by it, but stated that, as this question was not presented in the argument, it would not notice the point or examine its tenability.

It has been held that under a constitutional provision that the salaries of public officers, except the circuit judges, shall not be increased after election or appointment, the salary of a judge of the superior court, which court, though authorized and permitted by the Constitution, is not created by it, but by the legislature, and is not a court of general jurisdiction in the sense in which that term is applied to circuit courts, does not come within the exemption allowed by the Constitution to the circuit judges.

Dunham v. Tilma (1916) 191 Mich. 688, 158 N. W. 216.

In Cotten v. Ellis (1860) 52 N. C. (7 Jones, L.) 545, where the state legislature had undertaken to abolish the salary of an office created by an act of Congress, the court stated that the salaries of all persons holding offices under the appointment of the state were within the control of the legislature, except those protected by the Constitution, and that the salary could be increased or reduced during the term of office, for it was presumed that officers accepted office with reference to this general power, of which the legislature had not devested itself.

And in Mills v. Deaton (1915) 170 N. C. 386, 87 S. E. 123, it was stated that the legislature could within reasonable limits diminish the emoluments of the office of sheriff by the transfer of a portion of its duties to another office, or by reducing the salary or fees, since the incumbent took the office subject to the power of the legislature to make such changes as the public good might require, but that there were offices created by the Constitution which were placed beyond the control of the legislature, so that that body could neither abolish the office nor reduce the compensation. It should be noted, however, that in neither of the North Carolina cases cited does anything appear as to what were the specific provisions of the Constitution in regard to the reduction or increase of the salaries of public officers, and the court in the Mills Case observed that while the office of sheriff is a constitutional one, yet the regulation of its fees is within the control of the legislature. G. S. G.

Ct. Rep. 46; 1 Greenl. Ev. § 275; Smith v. Cork & B. R. Co. 5 Ir. Rep. Eq. 65. The defendant under the facts here disclosed was estopped to deny the contract expressed in the preferred certificates.

1 Machen, Corp. § 534; 1 Cook, Corp. 7th ed. § 268, p. 770; 6 Fletcher, Cyc. Corp. pp. 6011, 6012; Banigan v. Bard, 134 U. S. 291, 33 L. ed. 932, 10 Sup. Ct. Rep. 565; Wilson v. Parvin, 56 C. C. A. 268, 119 Fed. 652; Ingraham v. National Salt Co. 65 C. C. A. 54, 130 Fed. 676; Toledo, St. L. & K. C. R. Co. v. Continental Trust Co. 36 C. C. A. 155, 95 Fed. 497; Kent v. Quicksilver Min. Co. 78 N. Y. 159, 4 Mor. Min. Rep. 47.

Defendant is concluded by the practical construction placed on its preferred certificates.

Continental Ins. Co. V. United States, 259 U. S. 156, 66 L. ed. 871, 42 Sup. Ct. Rep. 540.

The feature which distinguishes noncumulative from cumulative preferred stock is that the former's dividends are payable from the profits of a particular year.

1 Machen, Corp. § 551; 6 Fletcher, Cyc. Corp. p. 6249; Palmer, Company Prec. 11th ed. pt. 1, p. 812.

Where the subject-matter of an instrument relates to something which has received settled legal construction, that construction will be assumed to have been intended and the instrument itself as drawn in reference thereto.

Wallis v. Smith, L. R. 21 Ch. Div. 254, 52 L. J. Ch. N. S. 145, 47 L. T. N. S. 389, 31 Week. Rep. 214-C. A.; Bainbridge v. Smith, L. R. 41 Ch. Div. 462, 60 L. T. N. S. 879, 37 Week. Rep. 594-C. A.; Cooper v. Griffin [1892] 1 Q. B. 740; New York, L. E. & W. R. Co. v. Nickals. 119 U. S. 296, 30 L. ed. 363, 7 Sup. Ct. Rep. 209; Elkins v. Camden & A. R. Co. 36 N. J. Eq. 233; Dent v. London Tramwavs Co. L. R. 16 Ch. Div. 344. 50 L. J. Ch. N. S. 190, 44 L. T. N. S. 91.

Mr. Henry S. Mitchell for appellee. Lewis, Circuit Judge, delivered the opinion of the court:

This suit was instituted by appellants, two preferred stockholders in appellee company, to enjoin the carrying out of a resolution passed by its board of directors on March 10, 1922, declaring a dividend of $2 per share on both the common and preferred stock, payable out of

the accumulated surplus earnings of the years ending December 31, 1909, to 1919, inclusive, both dividends to be paid April 15, 1922. The part of the resolution to which objection was made and injunctive order sought was the dividend declared and directed to be paid on the common stock; the contention being that inasmuch as a dividend of 7 per cent on the preferred stock had not been declared theretofore in 1922, the common stock was not entitled to receive a dividend until that was done. This insistence is based wholly on the phraseology found in the certificates for the preferred shares issued to appellants, and in all certificates theretofore issued for preferred shares, reading thus: "This preferred stock is entitled to a preference of 7 per centum, noncumulative, in dividends declared in any calendar year before any dividends are paid upon the common stock of the said company and after dividends have been. paid upon the common stock to a like amount of 7 per centum for any calendar year then both classes of stock shall participate without distinction or preference in any further dividends for such year."

Appellee, in justification of its action in passing the resolution, relies on article 11 of its articles of consolidation, by which four railway companies were consolidated in 1888 into and under the name of appellee company, which article reads thus: "That if and whenever any dividend shall be declared upon the capital stock of the consolidated corporation, hereby formed, out of the profits of its business, the holders of the preferred stock of such corporation shall be entitled to receive for and in respect of the calendar year within which such profits were made and for and in respect of each and every calendar year out of the profits of which any such dividend shall be declared, semiannual dividends of not exceeding 3 per centum each upon such preferred stock, before the holders of any shares of common stock shall

be entitled to receive any dividends whatever for or in respect of the profits of such calendar year; but the right of the holders of such preferred stock to such dividends shall not be cumulative. That is to say if the aforesaid dividends of 7 per cent upon the preferred stock shall not be actually declared by the directors, as earned for and in respect of any calendar year, no right shall exist in favor of the holders thereof to have said dividends afterwards added to the dividend declared for in respect of another calendar year. That, after the declaration of dividends as aforesaid, amounting to 7 per cent in all, of any calendar year, to the holders of shares of preferred stock, then the directors of said consolidated corporation shall be at liberty, in their discretion, to declare in favor of the holders of shares of its common stock, not exceeding two semiannual dividends of 3 per cent each for and in respect of such calendar year; and that, after the holders of such common stock shall have received dividends for and in respect of any calendar year, equal to 7 per cent upon the shares held by them, respectively, then all further dividends declared with respect to such calendar year shall be divided equally and pro rata among all the shareholders of said consolidated corporation, whether the stock held by them be common or preferred."

The trial court held that the article just quoted, notwithstanding the excerpt above from the certificate, was controlling, that it authorized the board to pass the resolution, and dismissed the bill of complaint. The issue thus presented on appeal from that order raises the inquiry, Do the terms used in the certificates issued to appellants conclusively determine their rights as preferred stockholders? Or are those terms restrained, or avoided, if need be, by article 11?

Appellee's authorized and issued capital is in the proportion of two thirds common to one third preferred, and the shares representing

it are $100 each. In December, 1919, one of the appellants purchased from a member of the New York Stock Exchange 500 shares, and the other at about the same time and in the same way purchased 800 shares. They each purchased a right theretofore enjoyed by its vendor and his predecessors in interest, a right to participate thereafter in the privileges and benefits of the corporation pro rata with other stockholders, as those rights were determined by its articles of incorporation or association, or other agreement binding upon all stockholders. The issuance to them of new certificates on surrender of the old ones held by their vendor was an express acceptance by the corporation of each of the appellants

Corporationsas a effect of issuing shares of stock. stockholder in the corporation. The certificates, however, were not the things purchased; they only represented the right which was purchased. 1 Cook, Corp. 4th ed. § 12; Richardson v. Shaw, 209 U. S. 365, 62 L. ed. 835, 28 Sup. Ct. Rep. 512, 14 Ann. Cas. 981. It is said in Cecil Nat. Bank v. Watsontown Bank, 105 U. S. 217, 222, 26 L. ed. 1039, 1042: "This legal relation and proprietary interest, on which it is based, are quite independent of the certificate of ownership, which is mere evidence of title. The complete fact of title may very well exist without it. All that is necessary, when the transfer is required by law to be made upon the books of the corporation, is that the fact should be appropriately recorded in some suitable register or stock list, or otherwise formally entered upon its books. For this purpose the account in a stock ledger, showing the name of the stockholders, the number and amount of the shares belonging to each, and the source of their title, whether by original subscription and payment or by derivation from others, is quite suitable, and fully meets the requirements of the law."

It is a question for corporators or stockholders upon the incorpo

1

ration of the company to decide whether a part of the stock shall be preferred stock, and, if so, what preference rights the holders of it shall have over the rights of the holders of preferred stock, and as long as their agreement in that respect is not against public policy or in contravention of the laws of the state which grants the corporate charter, the preference rights may be whatever all agree they shall be. Such agreements primarily and almost exclusively affect rights only of stockholders among themselves. Morawetz, Priv. Corp. 2d ed. §§ 316, 1047; 1 Cook, Corp. 4th ed. § 268; Belfast & M. L. R. Co. v. Belfast, 77 Me. 445, 1 Atl. 362. It is conceded in appellants' brief that officers of a corporation exceed their authority in the issuance of preferred shares if they act contrary to the basic agreement, and that they may be enjoined from doing so; but it is argued that if authority in this respect is exceeded and the certificates which they put out represent that the holder has greater or less or different preference rights than the articles of association give to him, the corporation is bound to him according to the terms of the certificate, and that it represents the contract obligations of the corporation rights of stock- to the holder. This,

-what controls

holders.

of course, ignores substantial rights of the holders of stock of every other class, and violates the fundamental agreement between all stockholders. We think Bailey v. Hannibal & St. J. R. Co. 17 Wall. 96, 21 L. ed. 611, is a complete refutation of the claim. There the railroad company issued to the holders of its mortgage bonds a circular which set forth a plan for extricating the company from its financial difficulties. The plan proposed to the bondholders that they exchange their bonds in part for other bonds and in part for preferred stock; "the preferred stock to be 7 per cent, and not cumulative, but to share with the common stock any surplus which may be earned over

and above 7 per cent, upon both, in any one year." All of the bondholders subscribed to the plan. The company's board of directors appointed a committee to carry out the plan. For that purpose the committee reported an "indenture" to be executed by the company and the bondholders or the trustees of the mortgage. This indenture was referred to a stockholders' meeting, which "instructed the board to procure and adopt, on behalf of the corporation, such certificates in relation to the preferred stock, to be issued under said agreement, as may be necessary to carry the same into effect, and cause the same to be executed in behalf of this corporation in such manner as they may think best." The indenture made no reference to the plan, but it undertook to describe the preferences to be given to preferred stock. In doing so it did not show that common as well as preferred was to receive 7 per cent in dividends before any remaining surplus could be divided between them, but rather that they should share equally after the preferred only had received 7 per cent. The certificates issued for the preferred made no reference to the original plan, but stated that they were issued in adjustment of the bonds of the company, with the rights set forth in and subject to the terms and conditions of the indenture. The court held that the original plan must be considered with the certificates for the purpose of determining the rights of holders of preferred shares, and that, although the plan was admitted in evidence without objection, still objections could not have availed even if they had been made.

We find nothing to the contrary in Warren v. King, 108 U. S. 389, 27 L. ed. 769, 2 Sup. Ct. Rep. 789. There the terms of a prior written instrument specifically fixing preference rights were put into the certificates for preferred shares; hence when that appeared, it was not necessary to consider anything but the