dissenting.
I do not find myself in accord with the majority opinion and the decision, in consequence of which I respectfully dissent. I do not think that my views, which I *479think should control in the disposition of the case, could be properly comprehended without an analysis in detail of the questions involved, therefore a full presentation will be made herein in the same manner as would be done if this were a majority opinion.
This is a declaratory judgment action instituted pursuant to statute by Louise Kountze Squires, John C. Kirmse, and all shareholders of the preferred stock of The Balbach Company, similarly situated, plaintiffs, against The Balbach Company, The Engler Company, and Paul E. Engler, defendants, wherein the plaintiffs seek judgment declaring the amount per share that they as preferred stockholders should receive on dissolution of the defendant, The Balbach Company, a corporation, and to enjoin the defendants, on dissolution of the corporation, from the distribution of assets except in accordance with what shall be adjudged to be the rights of the named plaintiffs and the unnamed preferred stockholders.
The case was tried to the court and at the conclusion of the trial a judgment was rendered in which the rights of the preferred stockholders on voluntary dissolution, liquidation, and the winding up of the affairs of the corporation were declared. It was adjudged therein that the preferred stockholders were entitled to receive the par value of their stock, together with dividends thereon at the rate of $8 per annum computed from January 1, 1962, to the date of payment, less $2 per share already received, with costs taxed to the plaintiffs, except that any costs or expenses of the First National Bank of Omaha as trustee should be paid by the defendant corporation.
From this judgment the plaintiffs have appealed. As ground for reversal of the judgment they assert that it is contrary to the evidence and to the law.
It is pointed out here that the record does not disclose any opposition to liquidation or dissolution of the defendant corporation. The only basic question in*480volved is as to the proper allocation and distribution of the assets and' the respective rights of the stockholders on' liquidation among the holders of preferred and of common stock! There is little if any dispute as to.'controlling facts. The facts were stipulated and included in a bill of exceptions with reservations only as. to competency and materiality of some stipulated facts.
Background which is important in the determination of the questions involved is in substance as follows. The Balbach Company was incorporated June 21, 1919. Later the name was changed to The Engler Company but the corporate capacity remained the same. This is óf' no significance here. The parties have treated the' two as one and have referred to them as the corporation.
Article IV of the original articles of incorporation, to' the extent necessary to state here, was as follows:' “The amount of authorized capital stock of this corporation is the sum of Five Hundred Thousand Dollars ($500,000), divided into shares'of the par'value óf One Hundred Dollars ($100) each, which shall be fully paid when issued, and nonassessable. *' * * Two Thousand (2000) shares of said capital stock shall be common stock, and Three Thousand (3000) shares thereof shall be.preferred stock. The preferred stock shall be .preferred as to dividends and as to assets in case of liquidation, and shall be issued with such provisions as to payment of dividends thereon and the rate thereof and as to retirement, and with such , other provisions as may .be fixed and determined by resolution of the Board of Di-, rectors prior to its issuance.”. ' .
It is pointed out here that no rate of dividend is declared in this article as to dividends to be paid to holders of preferred stock in the event of liquidation and nothing is therein contained as to distribution of assets. This however'is of no consequence since in the stipulated facts the parties have stated that this subject is controlled by an amendment to Article IV dated December 7, 1920, and the contents of the. certificates- of stock issued to *481preferred stockholders after'the-effective date: of.-thef amendment. ■ - - r
Article IV, after amendment, to the extent necessary to state it here, is as'follows: “The authorized: capital-stock shall be Five Hundred Thousand Dollars' ($500,-000.00), divided into five thousand (5000) shares'of the-par value of One Hundred Dollars ($100:00) each; * * Two Thousand (2000) shares of said five thousand-(5000) shares shall be' common stock, and three thousand (3000) of said five thousand (5000) shares shall be preferred stock. Holders of preferred stock shall be paid cumulative dividends of eight'per cent (8%) per annum, payable quarterly, before any dividends shall-be paid holders of common stock. After dividends of eight per cent (8%) have been paid to holders of common stock, all further dividends shall apply equally- to preferred and common stock. In case of liquidation, holders of preferred stock shall be paid the par value. of their stock in full before any liquidation dividends; are paid to the holders of common stock.”
On the certificates of preferred' stock - involved the following appears: “The holders of the Preferred stock shall be entitled to equal voting rights with the holders of Common stock and shall be entitled to receive from the surplus or any profits of the Corporation when and as declared by the Board of Directors, dividends at the rate of eight per centum (8%) per annum * * *. The dividends on Preferred stock shall be cumulative, and shall be paid before any dividends are paid on the Common stock, and after dividends of eight per centum (8%) per annum have been paid on the Common stock, the Preferred and Common stock shall participate equally in all further dividends.
“In the event of the winding up or dissolution of the Corporation, whether voluntary or involuntary, the holders of the Preferred stock shall receive the par value of their shares with any unpaid dividends thereon, *482before any payments are made to holders of the Common stock.”
By interpretation of these quotations from the articles of incorporation and. the memorandum statement appearing on the stock certificates, certain information becomes apparent and conclusive. Each share of preferred stock was entitled to a preferred dividend of 8 per cent. Thereafter, if sufficient funds :were available, each share of common stock was entitled to an 8 per cent dividend. If there was an excess over these two, then it was proper to make distribution of additional dividends equally and proportionately to the shares of preferred and common stock. The stock of preferred holders is described as preferred stock, but in truth it is, by the terms of these instruments, preferred and participating. After its right of preference and a subordinate preference to common stock is satisfied, it stands as to dividends on an equal footing with the common stock. The distributions to be made on liquidation are. denominated dividends. There is no affirmative declaration of the right of the holders of common stock superior to the rights of preferred stockholders as to dividends on liquidation, or on distribution of assets, or surplus assets other than dividends, and there is no declaration negativing the right of preferred stockholders to participate in surpluses to be distributed as dividends or otherwise.
What happened with reference to operation and appropriation of dividends prior to 1936 is not disclosed. However from 1936 to 1952, except the year 1945, dividends were paid equally on each of the shares of preferred and of common stock. They were equal for the two classes but were not always the same from year to year. For the year 1945 a dividend of 4 per cent was paid on the common. For the years from 1953 to and including' a part of 1961, the rate changed from nothing'to 4 per cent, this although there was a retained earnings balance of $90,415.03 in 1945, which had been *483increased to $495,069.62 in 1953, with an increase which, amounted to a total of $944,125.69 in 1961. .
It is this balance which the defendants herein insist should on liquidation be distributed to the holders of the common stock. On the other hand the plaintiffs insist that the distribution should be made to the holders of the preferred and of the common stock in accordance with their interpretation of the declared rights o-f the parties on liquidation.
In an approach to a determination of this question it is pointed out that what appears to be a uniform rule to be applied in the liquidation of corporations is that, except in the case of ambiguity, the rights of participation depend on the corporation’s memorandum and the articles of incorporation. See, In re Espuela Land & Cattle Co., (1909) 2 Ch. D. 187; In re National Telephone Co., (1914) 1 Ch. D. 755; Continental Insurance Co. v. United States, 259 U. S. 156, 42 S. Ct. 540, 66 L. Ed. 871; Sternbergh v. Brock, 225 Pa. 279, 74 A. 166, 133 Am. S. R. 877, 24 L. R. A. N. S. 1078; Mohawk Carpet Mills v. Delaware Rayon Co., 35 Del. Ch. 51, 110 A. 2d 305; Scottish Insurance Corp. v. Wilsons, (1949) 1 All E. L. R. 1068.
In the decisions the term “memorandum” is employed generally to describe the documentary records properly enacted by a corporation having controlling effect in the exercise of its corporate and fiscal functions. That is the sense in which it is employed in this opinion.
From the cases cited it appears that there are at least four rules which have been generally announced in certain jurisdictions relating to the distribution of assets on liquidation of ■ corporations. One of these of course is that the articles of incorporation and memorandum are controlling as to both dividends and assets in the absence of ambiguity.
Another is that where the distribution is of dividends the declaration as to distribution of dividends between or among preferred and common stockholders, so long *484as'trie distribution is of dividends, is controlled by the memorandum arid articles;
The third is that if on liquidation there aré assets as distinguished from dividends to be distributed, in the absence of direction, the distribution shall be share and share alike' to preferred and common stock based upon number and par 'value of the stock.
The fourth is that in case there is no special provision beyond a statement of what the preferred stockholders shall be paid.' beforé ultimate distribution of ¡the assets remaining thereafter means that all that remains shall be paid share and share alike to the holders of thé common stock. This fourth appéars to embody the theory on which the defendants rely iri the presentation of their case. This theory, they contend is sustained by Mohawk Carpet Mills v. Delaware Rayon Co., supra, a case decided by the Court of Chancery in and for New Castle County, Delaware. No other case has been cited directly supporting or bearing on this subject.
The defendants, pursuing this fourth theory, substantially say that there was no specific statement in the memorandum or articles of incorporation declaring entitlement to be in the Class A stockholders, who were in a situation like the preferred stockholders in the case at bar, hence they were not entitled on liquidation to participate in that which had accumulated before liquidation and which could have theretofore been distributed share and share alike among the holders of the shares of the two classes of stock. In other words, they say that since there was specific provision for dividends over and above regular dividends payable to the holders of shares of Class A or preferred, and there being no provision for distribution of assets on liquidation, the Class B or common stock was entitled to all of this remainder. This contention amounts to an assertion that this failure to mention the Class A stockholders in this connection is an effective prohibition of their participation. Thus that case being in fact like the one here on *485the basis of the reasoning there, common, stockholders here are entitled to all and. the plaintiffs, nothing- on liquidation. That was a- case having three . classes of capital stock, with two only involved, but the rule applying there would be applicable here.
.The effect of this, if applied here, would-require it to be said here that on liquidation , of a corporation having common stock and preferred participating: stock and there is nothing specifically declaratory of the rights of common or the preferred and participating stockholders, either in the memorandum or articles, the accumulated assets would become divisible only among the holders of common'stock..
The only case to which attention has been called which supports this view is Mohawk Carpet Mills v. Delaware Rayon Co., supra.
The general rule on liquidation of assets which finds support in the cases to which attention , has been called is as pointed out in The Equitable Life Assurance Society v. Union P. R. R. Co., 212 N. Y. 360, 106 N. E. 92, L. R. A. 1915D 1052, that if there are accretions which have become part of the dividends they are required to be distributed among the. stockholders, common and preferred share and share alike. This attitude conforms- to the attitude of the United States Supreme Court -contained in the opinion in Continental Insurance Co. v. United States, supra.
From this examination it appears that this- rule is and should be controlling in the disposition, of the subject presented by the record here, unless the memorandum and articles of incorporation required that it be done in a specific manner, that is, as applied to this case the liquidation distribution should be carried out on the same basis as would be employed in the ¡distribution of dividends of a going concern. As pointed out liquidation was not required in a specific manner.
The rule which the defendants seek, .to have applied and which was apparently applied in Mohawk Carpet *486Mills v. Delaware Rayon Co., supra, cannot be regarded as having controlling significance here. The circumstances, reason, and other cited authority will not so permit.
The circumstances and acts involved are closely paralleled by those in Continental Insurance Co. v. United States, supra, in which the United States Supreme Court in its opinion considered the questions presented and equitably declared the rights of parties in a situation such as this and adjudicated accordingly.
- In the opinion in that case it was said: “The failure of the board to exercise it, (to exercise certain powers not necessary to mention here) and the application of the earnings to surplus determine such earnings- to be assets as of the time of the compulsory winding up and liquidation of the corporation. The power to declare dividends nohexercised can have no more effect upon the rights - of the preferred stockholders to share in the existing assets of the corporation when liquidated than the failure of the company to convert preferred stock into common, or to redeem the preferred stock at par. The proper interpretation of the agreement is that, after the declaration of dividends for any current year, the undivided earnings are to be regarded as capital assets and to be distributed on liquidation, unless the board of directors has meantime applied them as dividends. If the argument of appellants were carried to its logical result, all the net earnings of the Reading Company in twenty-five ■ years no matter how invested or applied to increasing the earning capital, must in a liquidation be treated as undistributed profits to go entirely to the common stock -without any action of the board of directors. This is impossible.”
In the opinion the general rule of the other cases cited as to the distribution on liquidation is reiterated, that is, that everything thereafter must be regarded- as capital assets and on liquidation distributed as such; Thus, by the failure of the board of directors to declare divi*487dends. before liquidation, as would have been proper, they allowed profits to become a part of the assets and remain so up to the time of liquidation. This deprived the holders of either preferred stock with participation rights or common stockholders from claiming the right to dividends as such and left to them only the right to participation in capital assets. In that connection it was said in declaring the claim of the common stockholders invalid who were contending as are the defendants in this case: “Our conclusion that the claim on behalf of the common stockholders is invalid is based on the construction of the words of the agreement itself and hardly needs authority to sustain it. It is, however, in accord with the general common-law rule that stockholders common and preferred share alike in the assets of a liquidating corporation, if the preference is only as to dividends.”
Attention has not been directed to any authority which is in conflict with the pronouncements of the United States Supreme Court in the case cited except Mohawk Carpet Mills v. Delaware Rayon Co., supra, which fails to respond' to the principles regarded as conclusive in Continental Insurance Co. v. United States, supra, and to no reasoning in the rules in the other cases cited. Also there is no memorandum or articles to the contrary.
In Continental Insurance Co. v. United States, supra, the court observed that the power to declare dividends, which was not exercised, could not be resorted to to increase the rights of the holders of the preferred stock on liquidation. Equitably it appears that a proper corollary to that declaration would ! be that likewise the rights of the common stockholders cannot properly be impaired by a resort to failure to properly declare dividends before liquidation.
It appears that reasonably and equitably the conclusions which flow from Continental Insurance Co. v. *488United States, supra, should be allowed to control in all-of the interpretative aspects-of this case.
( The effect of this .is to' say and to adjudge that on liquidation the plaintiffs were and are entitled to receive the equal of the par value of their stock; that the holders -of common stock were and are entitled to receive •the par value of their stock; that after this the preferred stockholders were and are entitled to receive their preferred dividend; that after , this the holders of common stock-were and are entitled to receive a dividend equal to that, payable to the holders of preferred stock; and that after this the preferred and the common stockholders were .and are entitled to share equally in the balance of the assets on the:basis of the number of shares held, less an amount sufficient to compensate the common stockholders -for the difference between what they had received on previously declared dividends and the previously declared dividends paid to the holders of preferred stock.
The judgment of the district court should be reversed and the cause remanded with directions to. proceed with liquidation in accordance with what it is urged should be the proper judgment in this case. -,
Spencer, J., concurring in this dissent.