By that amendment, adopted in 1879, sec-, to the former amendment. They knew that tion 6 of article 6 of the Constitution was the Governor had exercised the power of made to read as follows:

"There shall be the existing Supreme Court, with general jurisdiction in law and equity, subject to such appellate jurisdiction of the Court of Appeals as now is or may be prescribed by law; and it shall be composed of the justices now in office, with one additional justice to be elected as hereinafter provided, who shall be continued during their respective terms, and of their successors. Existing judicial districts of the state are continued until changed pursuant to this section. Five of the justices shall reside in the district in which is the city of New York, and five in the Second judicial district and four in each of the other districts."

appointment thereunder, and hence must be deemed to have sanctioned the exercise of that power when they adopted an amendment identical in phraseology, except that it related to two county judges instead of one justice of the Supreme Court. If they had desired to negative the power of immediate appointment as to an original vacancy, they would have changed the language so as unmistakably to indicate such intention.

deemed vacant from and after the date of its creation until it should be filled by election or appointment. It further provided as follows:

the next general election provision is made for "Whenever more than three months prior to an additional incumbent of an office then existing, such office shall be deemed vacant as to such additional incumbent from and after the the same shall be filled by election or appointtime when such provision shall take effect until ment." Section 2.

The legislative construction of the constitutional Immediately after this amendment took amendment under which Judge effect Gov. Cornell requested the opinion of Cooke was appointed is further evidenced the Attorney General as to the manner of by chapter 4 of the Laws of 1880 enacted This filling the office of the additional Justice of on the 5th of February in that year. the Supreme Court thereby provided for. statute provided that when a new office is The Attorney General at that time was Ham-created more than three months prior to the ilton Ward, afterward a justice of the Su- next general election, the same should be preme Court, of recognized ability, and one of the original members of the Appellate Division of the Fourth Department. In a carefully written opinion, dated January 17, 1880, he advised the Governor that there was a vacancy in the office of justice of the Su preme Court in the Second Judicial District, created by the constitutional amendment of 1879, and that under the provisions of section 9 of article 6 of the Constitution, the vacancy might be filled by appointment from the Governor, to continue until and including the last day of December, 1880. Gov. Cornell thereupon appointed Erastus Cooke, who entered upon the discharge of the duties of the office and continued to discharge them, without question or objection in any quarter, until he was succeeded by Justice Edgar M. Cullen on the 1st of January, 1881. Judge Cooke was recognized as a justice of the Supreme Court by the executive, legislative, judicial and administrative departments of the state government. The Governor ap"When a new office or an additional incumpointed him, the Legislature made the req- bent of an existing office shall be created, such uisite appropriation for his salary, the comp-office shall for the purposes of an appointment troller paid him, and the General Term and Court of Appeals reviewed his decisions.

"Where a particular construction has been generally accepted as correct and especially when this has occurred contemporaneously with the adoption of the Constitution and by those who had opportunity to understand the intention of the instrument, it is not to be denied that a strong presumption exists that the construction rightly interprets the intention." Cooley's Constitutional Limitations (7th Ed.) 102.

The language of the constitutional amendment providing for two additional county judges in Kings county is so nearly identical with that of the amendment providing for an additional Supreme Court justice in the Second district, under which Judge Cooke was appointed, that it is impossible to distinguish between them in principle. When the people voted upon the latter amendment, it is to be presumed that they knew of the

While, of course, the legislative declaration that a vacancy existed in a constitutional office could not create such a vacancy, the existence of which must depend upon the language of the Constitution itself, nevertheless this statute is instructive as showing what the Legislature deemed to be the fundamental law. It remained upon the statute book unchanged until repealed by the Public Officers' Law (Laws of 1909, c. 51) in 1909; but it was then substantially re-enacted in the following language:

or election, be deemed vacant from the date of its creation, until it shall be filled by election or appointment." Public Officers' Law (Consol. Laws, c. 47, § 30, subd. 7).

It thus appears that when the people voted upon the constitutional amendment providing for two additional county judges in Kings county, there was upon the statute book, and had been for more than 30 years, a law which authorized the Governor to treat a newly created constitutional office as vacant from the time of its creation and to fill it by appointment.

Furthermore, it is to be observed that the action of the judiciary in recognition of the appointment of Judge Cooke was in effect a judicial decision by every judge who participated in the review of his cases to the effect that his appointment was valid. The constitutional amendment of 1879 provided for an additional Supreme Court justice in

"There shall be elected by the two branches of Legislature, in concurrence, during the present session, and in the month of June in each succeeding year, an officer to be styled auditor of accounts, who shall continue in office one year and until a successor be duly chosen and qualified."

of four. Unless the additional office was es- In July, 1864, the Legislature of New tablished when that amendment took effect, Hampshire passed an act (Laws 1864, c. every judicial act of Mr. Justice Cooke was 287a) to go into effect immediately, providabsolutely void; for there could be no such ing that: thing as an office de facto. "There can be no officer de facto when there is no office to fill." Matter of Quinn, 152 N. Y. 89, 46 N. E. 175. The justices of the General Term when they assigned Judge Cooke to hold the various terms of the court which he held in the several counties of the second district thereby decided that he was de jure a justice of the Supreme Court. The same judges when they affirmed or reversed his orders or judgments in each case rendered a decision to the same effect; and so of the chief judge and associate judges of the Court of Appeals. We have therefore a series of judicial decisions extending over the greater part of a year, all of which directly and necessarily affirm the validity of Judge Cooke's title.

The precedent furnished by the Cooke Case seems to me so powerful and conclusive an

argument in favor of the validity of the

appointments in question that I cannot understand why it was ignored in the courts below. The fact that the additional justices provided for by the Constitution of 1894 were not similarly appointed is not a precedent the other way, because that Constitution manifestly contemplated a complete new scheme for the judiciary which should not go into effect until the 1st of January, 1896. Besides, the negative failure to act can never have the same significance as affirmative action, considered as a precedent.

But as has already been intimated, and independently of any precedent based on practical construction, the courts of most of the states in which the question has arisen have held that the creation of an original vacancy is involved in and coincident with the

creation of an office.

In Pennsylvania the Constitution provides that the Governor may fill any vacancy that may happen in any judicial or other elective office which he is or may be authorized to fill.

The statute contained the following provision as to vacancies:

"In case of any vacancy in said office, by death, resignation or otherwise, a successor shall Provided that if such vacancy shall happen durbe appointed according to the above provisions: ing the recess of the Legislature, such successor, may be appointed by the Governor, with the advice and consent of the council, and shall hold his office until a successor be chosen by the Legislature and qualified."

No auditor was elected during the current session of the Legislature as the act prescribed, and the question arose whether an auditor could then be appointed by the Governor

with the sanction of the council. This ques

tion was submitted to the justices of the Su

preme Court, as may be done in New Hampshire, and they answered it in the affirmative. Opinion of Justices, Matter of State Auditor,

45 N. H. 590.

"There is now a vacancy in said office unquestionably," they said in their opinion, "because the office has been created and the law creating it is in force and the office is not filled, but is space, a place unfilled, and when applied to an vacant. The term 'vacancy' means an empty office, it means the state of being destitute of an incumbent or a want of the proper officer, to officiate in such office. If a place is

empty now, there is a vacancy, and it matters not whether it has once been filled, or whether it has always been empty. And so of an office."

A leading case which has perhaps been most frequently cited to the same effect is Stocking v. State, 7 Ind. 326. The Constitution of Indiana authorized the Governor to the judge of any court. fill by appointment a vacancy in the office of The Legislature in the exercise of its constitutional power so to do created a new judicial circuit, but made no provision for the appointment of the new circuit judge by the Governor. The Supreme Court of Indiana held that a vacancy in that office which the Governor could fill "flowed as a natural consequence" from the action of the Legislature in doing what it had the right to do, namely, establish a new circuit.

"There is no technical nor peculiar meaning to the word 'vacant,' as used in the Constitution. It means empty, unoccupied; as applied to an office, without an incumbent. There is no basis for the distinction urged that it applies only to offices vacated by death, resignation, or otherwise. An existing office without an incumbent is vacant, whether it be a new or an old one. A new house is as vacant as one tenanted

In 1878 the county of Luzerne was divided pursuant to statute and the county of Lackawanna was erected therefrom. Upon the day when the establishment of this new county was proclaimed the Governor appointed a county surveyor; and in a quo warranto suit to test his title to the office the question was presented to the Supreme Court whether at the time of such appointment the office of surveyor of Lackawanna county was vacant within the import of the Constitution. The court held that it was, saying that the word "vacancy" aptly and fitly describes the condition of an office when for years which was abandoned yesterday. it is first created and has been filled by no * * The emergency which created the office incumbent. "The need to strain and torture would imply that the vacancy in the office of terms," said Mr. Justice Woodward, "would judge * should be filled immediately." He in the opposite direction." Walsh v. In defining the meaning of "vacancy" as Commonwealth ex rel. Evans, 89 Pa. 419, used in the state Constitution, the Supreme 426, 33 Am. Rep. 771. Court of Tennessee, in State ex rel. Rambo

The importance of practical construction as evidence of the existence of constitutional power was vigorously emphasized by the Supreme Court of Missouri in State ex rel. Henderson v. Court of Boone Co., 50 Mo. 317, 11 Am. Rep. 415, in upholding the validity of an act of the Legislature establish- EQUITABLE LIFE ASSUR. SOCIETY OF ing a probate court.

The articles of association of a railroad should be entitled, in priority over the common corporation provided that the preferred stock stock, to dividends at such rate, not exceeding 4 per cent., payable out of the net profits, as shall be declared by the board of directors, and shall be entitled to no other or further share of the profits. After the regular dividend had been declared and paid upon the preferred stock, the board of directors declared an extra dividend out of the surplus, accumulated by the purchase and sale at a profit of stocks of other railroad The general rule is asserted in a later Mis- companies which had been acquired as an insouri case in which the court says: vestment and by the retirement of its own con

vertible bonds by the issue of stock, one share | cle.

It is also conceded that the amount

at par for $175 in bonds. Held, that the pre- carried to the credit of profit and loss as ferred stockholders were not entitled to share above stated need not be retained by the dein the extra dividend declared; the profits accumulated in excess of the charter capital stock fendant but may be distributed among its constituting a surplus of profits out of which stockholders. It is, however, insisted that dividends may be declared on the common stock. this balance does not represent profits which, [Ed. Note.-For other cases, see Corporations, under the foregoing article, may be distributCent. Dig. 88 581-583, 593-603; Dec. Dig. 156.*] ed exclusively amongst holders of conmon stock, but that it represents, to the extent of

Appeal from Supreme Court, Appellate Di- the two items above mentioned, an increase vision, First Department.

of or accretion to capital which must be disAction by the Equitable Life Assurance tributed as capital amongst all the stockholdSociety of the United States against the ers, including those holding preferred stock. Union Pacific Railroad Company. From an Thus arises the question which we are reorder of the Appellate Division (162 App. quired to decide. If this is a distribution, Div. 81, 147 N. Y. Supp. 382) affirming an even though unusual in amount, of accumulatorder granting defendant's motion to dis-ed gains or profits of a character which the miss the complaint, plaintiff appeals. Af-directors of a going corporation may at any

firmed.

Charles W. Pierson, of New York City, for appellant. John G. Milburn, of New York City, for respondent.

HISCOCK, J. This action was brought by the plaintiff as the holder of a large amount of the preferred stock issued by defendant to restrain the distribution by the latter of about $80,000,000 as a dividend among its common stockholders. The material facts set forth in the complaint which asks this relief are as follows:

time in their discretion divide amongst the stockholders as returns or income on their investment, the plaintiff has no ground for complaint. It elected to take stock having a preferred but limited right to dividends and profits. It chose the right to returns on its investment which made up in certainty for what they lacked in possible quantity, and there is no inequity in holding it to its choice. If, on the other hand, all or part of the gains which it is proposed to distribute are accretions to and have somehow become permanent capital and been withdrawn from availability for dividends, it will be assumed that they must be distributed amongst all the stockholders.

At the times involved the defendant had a large outstanding issue both of preferred and common stock. Prior to January 8, 1914, When a corporation is organized, it secures it had carried to the credit of its profit and capital by the issue of shares of capital stock. loss account large amounts based on valu- The fund or property thus secured answers ations which are not questioned, and at that the twofold purpose of furnishing means for date the credit balance of this account was carrying on the operations of the corporation more than $80,000,000. Of this amount up-and also security for the payment of creditors. wards of $15,000,000 had accrued through This capital stock is carried as a liability and the retirement of defendant's convertible universally, so far as I am aware, at its par bonds with common stock on a basis of one amount. It is thus carried as a liability be share of stock at par for $175 par value of cause this is the proper bookkeeping entry. bonds, and upwards of $58,000,000 had ac- But, aside from this, such entry also serves crued as gain or profit on the sale of stocks to emphasize the duty of the corporation to of other corporations purchased and held by keep its capital stock unimpaired for the proor for the benefit of the defendant. On the tection of those dealing with it. If the operadate above mentioned the defendant declared tions of the corporation result in gains, such the extraordinary dividend in issue payable gains are carried to the credit, not of the in cash and property to its common stock-capital stock account, but of some other acholders and chargeable against said balance count as surplus or profit and loss. Of course so standing to the credit of its profit and loss account. The plaintiff holds its preferred stock under a clause in the defendant's articles of association which reads as follows: "Such preferred stock shall be entitled, in preference and priority over the common stock of said corporation, to dividends in each and every fiscal year, at such rate, not exceeding four per cent. per annum, payable out of net profits, as shall be declared by the board of directors. Such dividends are to be noncumulative, and the preferred stock is entitled to no other or further share of the profits."

they may be capitalized by the issue of stock against them, and sometimes in the cases of certain corporations like banks or insurance corporations, where a certain ratio between assets and liabilities other than to capital stock is required, such surplus or profits may be counted and maintained as capital, although not formally capitalized.

In the absence of some such special consideration, I think we may take notice that it is the ordinary rule of corporate manageIt is conceded that the plaintiff has re- ment established by decisions, statutes, and ceived all of the dividends and "profits" to business usages that the surplus of these which it is entitled under the foregoing arti- gains or profits, beyond what may be neces•For other cases see same topic and section NUMBER in Dec. Dig. & Am. Dig. Key-No. Series & Rep'r Indexes

sary to keep good the liability to capital stock which has been issued, may, in the discretion of a board of directors, be distributed amongst its stockholders as dividends and returns on their investment. Such being the general rule, it is incumbent on the plaintiff to show that there is something so peculiar in the two transactions being considered that the profits resulting therefrom are of a different nature in respect of this subject than those ordinarily realized in corporate business, and I think it has failed to do this.

The other transaction which produced a large item in the profit and loss account was the purchase and sale at an advance of various stocks. Ordinarily the profits made by a corporation on the purchase and sale of property would so clearly belong to a fund applicable to the payment of dividends that there would be no debate about it. The plaintiff in this case, however, says in substance that the defendant was not organized to deal in stocks, and therefore the preferred shareholders could not have had such profits in mind when they agreed to take 4 per cent. I shall not attempt to discuss whether dividends in full of their share of the profits, there might be an accretion to or increment and therefore, further, "an accretion realized of capital of a going corporation under such from such traffic is not profits within the concircumstances and of such a character that templation of the instrument (defendant's it would become permanent capital and might charter), but belongs to capital." It seems to not be distributed as dividends. That ques- me that this reasoning involves a misintertion, for the purposes now concerning us, pretation of the charter and a decided non doubtless would be surrounded with some sequitur. The language by which these stockuncertainty and difficulties. It is sufficient holders relinquished all other claims to profits for this appeal to consider the transactions in consideration of preferential dividends was before us and see, as I think we must, that broad and comprehensive. They were to be there is nothing about them which impresses "entitled to no other or further share of the their results with any other character than profits." There is no limitation on this exthat of ordinary current profits which the clusion from any farther participation in directors may in their discretion divide whatever was profits; nothing to suggest that among the stockholders entitled to dividends. one item of profits was to be differentiated It is said, because in the retirement of its from another by the nature of the transaction convertible bonds defendant sold and issued which produced it. The contract was that its capital stock at $175 per share of $100 par whatever in the way of profits went into the value, that this entire sum was paid in as profit and loss account should be subject to a capital and must be held and distributed as payment of certain dividends on preferred such. That is not my interpretation of the stock before common stock received any, and transaction under the allegations of the com- that was the end of the rights of the former plaint. The amount at par value paid for class of stock, so far as profits were concerned. each share of stock undoubtedly became cap- The result of the transaction in question was ital which the corporation was required to a profit and the distribution of it is subject preserve and maintain as against its liability to this agreement. This seems so clear that on the outstanding share of stock which had it is difficult by discussion to make it more so. been issued for it. Just as undoubtedly the The proposition that these profits because reextra $75 paid per share represented the sulting from what was perhaps an unusual amount of accumulated profits or surplus transaction are not profits, but are an accrewhich it was supposed would be apportion- tion which "belongs to capital," notwithstandable to each share of new stock after pay-ing the painstaking argument of counsel, does ment and issue as aforesaid. In other words, not seem to have any foundation on which to as I think we must assume, the payment rest except earnest assertion. of this premium was not for permanent capital but for the purpose of equalizing as between new and old stockholders their respective rights in accumulated profits, which, so far as we know, were current distributable in the discretion of the direcand distributable in dividends. When paid in, this premium became part of such accumulation of profits and surplus and distributable as such. It was credited to profit and loss and not to capital.

It is unnecessary to decide what would be the rule of distribution in the case stated by plaintiff by way of illustration, where stockholders on the organization of a bank subscribe for stock at double its par value for the express purpose of creating a permanent surplus or capital with the intent of affording a greater security to creditors and attracting depositors. That case is utterly dif

No case has been cited which in my opinion sustains the proposition that these gains must be treated as an accretion to capital and distributed as such, rather than as profits

tors in dividends. The case Matter of Bridgewater Navigation Co., reported (in Chancery Division and on appeal therefrom in the Court of Appeal) L. R. 39, Ch. Div. 1, and (on appeal to House of Lords) 14 App. Cas. 520, and (on a further appeal) L. R. 1891, 2 Ch. D. 317, is especially relied on by the appellant, but in my judgment it is entirely distinguishable from the present case and does not at all sustain appellant's position.

The Bridgewater Navigation Company issued both common and preferred shares. One of the articles of association provided that, subject to certain possible deductions, the “en