EVANS, Circuit Judge.
The three appeals, which were consolidated by order of the court, present identical questions. As holders of Certificates Series One, appellants, individually and for others similarly situated, intervened in the pending suit, which was brought to liquidate the property of the Chicago Railways Company. The original suit was instituted by a creditor. Following closely was a foreclosure suit begun by a trustee of one of the outstanding mortgages executed by said railways company. Receivers were appointed, the two suits were consolidated, and the status of the various securities was fixed. The contest has narrowed to one between the certificate holders and the bondholders, and is restricted to the net earnings of the railways company subsequent to 1917.
The trial court made complete and detailed findings of fact which are not assailed. The appeals'challenge the soundness of the conclusions of law, which the trial court made, and which were dependent for their support upon certain documents executed on the occasion of the reorganization of the street railway system in 1907, the details of which have been so fully stated in cases which have arisen [In re Babcock (C. C. A.) 26 F.(2d) 153; Thatcher v. Chicago Railways Co. (D. C.) 297 F. 466; Id. (C. C. A.) 4 F.(2d) 63; Babcock v. Chicago Railways Co., 325 Ill. 16, 155 N. E. 773; City of Chicago v. Harris Trust & Savings Bank (C. C. A.) 40 F.(2d) 612] that reference is made to these cases to avoid extended repetition of the essential facts. The situation which existed in 1907, when the companies were in receivership and the franchises had expired, may in part be gathered from a reading of Guaranty Trust Co. of N. Y. v. North Chicago St. R. Co. (C. C. A.) 130 F. 801; Blair v. City of Chicago, 201 U. S. 400, 26 S. Ct. 427, 50 L. Ed. 801; North Chicago St. R. Co. v. Chicago Union Traction Co. (C. C.) 150 F. 612; Guaranty Trust Co. of N. Y. v. Chicago Union Traction Co. (C. C.) 158 F. 913; Id. (C. C. A.) 158 F. 923.
It is perhaps sufficient to say that the plan entered into by the stockholders of the different street railway companies then operating in Chicago, bondholders of such companies, and the city of Chicago, approved by Judge Grosscup and Professor Gray, and the agreements, supply the sole basis for determining the status and the rights of the parties to this present controversy. In the reorganization, which followed the plan approved by the said city of Chicago, the creditors, and the railways company, provisions were made for the execution of mortgages, the payment of a percentage of the company’s net earnings to the city, and the issuance of stock, interests in which were evidenced by participating certificates classified into series 1, 2, 3, and 4. The status of these classes of' certificates was specifically defined and provision made for the control of the management of the company through an election by the certificate holders. For some ten years after the'plan went into effect, net earnings were distributed to the certificate holders. After 1917, such earnings were not distributed. It is to establish the contested right of these certificate holders to these net earnings of the company since 1917 that the present legal battle is waged.
Set forth below are excerpts taken from the ordinance, agreements, the certificates, and the mortgages, executed pursuant to the plan:
Chicago Railways Company Ordinance (1907):
“Section 2. The Company shall proceed at once to reconstruct portions of the track and roadbed constituting said system of street railways now maintained and operated by the Receivers * * * and put said entire street railway system, plant and equipment in first-class condition, in full compliance with * * * this ordinance and * * * ‘Exhibit B,’ * * * and to operate and maintain said system in accordance with the provisions of this ordinance and of said‘Exhibit B.’ * * *”
“Section 7. * * * The cost of such construction, * * * not exceeding the amount so certified, * * * may be represented by bonds or obligations to be held, negotiated or sold by the Company, bearing interest at a rate not exceeding five per cent per annum, payable semiannually, * * * maturing not earlier than twenty years after [945]*945the passage of this ordinance * * *. Such bonds * * * may be secured by a mortgage or deed of trust, which shall comply with all the provisions of this ordinance and the form of which shall be * * * subject to the approval of a Trust Company qualified to áet as depositary under the terms of this ordinance, * * * as containing * * * no provision unusual or unreasonable in character. The Company shall not at any time create any lien or encumbrance upon the property or rights conveyed by said mortgage or deed of trust or any part thereof superior to that securing said bonds and obligations.”
“Section 20. * * * As against the City and any licensee of the City and any and all other persons having or claiming to have any interest or benefit under this ordinance, the lien securing said bonds and obligations shall at all times be deemed and recognized to be a first lien upon the entire street railway system hereby authorized, including all rights granted to the Company by this ordinance. * * * ”
Agreement of Reorganization and Adjustment:
“The Committee shall have full power, subject to the control of the Board of Directors of the Railways Company: * * * (d) To prescribe the form and terms of the new securities to be issued by the Railways Company; * * *
“(i) To construe this Agreement including the Plan. Any such construction by the Committee or any action under.any such construction made or taken in good faith shall be final and conclusive. Also to supply any defect or omission of or in the Plan or to reconcile inconsistencies in it in such manner and to such extent as shall be necessary or expedient to carry out the same properly and effectively. * * *
“The acceptance by any Depositor of the securities of the Railways Company shall estop such Depositor from questioning the conformity of said securities, in any particular, to the Plan or this Agreement, or the propriety or expediency of any act done or arrangement made by or on behalf of the Committee, or the Railways Company, in carrying the Plan into effect.”
Modified Plan of Reorganization and Adjustment (Excerpts from Article III):
“5. The said Consolidated Mortgage shall provide for a Sinking Fund of $250,000 per annum, if earned, commencing with the year ending August 1, 1908, which sum shall he applied, annually, solely to the redemption at par, or to the purchase of bonds of said Series C; and all such bonds! thus redeemed or purchased shall be canceled. Said Sinking Fund shall be cumulative. * * * When the full amount of said Sinking Fund payment shall have been made in any year and any accumulated deficiencies in respect of said payment shall have been met, any remainder of such earnings SHALL be applied, next, to the payment of $8 for such year, and of any unpaid accumulation for preceding years, in respect of each equal paA~t represented by Participation Certificates of Series 1. Next, so long as more than 50 per cent., par value, of said Bonds of Series C which may be issued by the Railways Company, are outstanding, the sum of $497,022.16 per annum, if earned, and, when not more than 50 per cent, of said Bonds are outstanding, the sum of $621,277.70, * * * if earned, shall be-distributed pro rata for the benefit of the holders of then outstanding Participation Certificates of said Series 2. The respective-sums of $497,022.16 and $621,277.70, per annum, above provided in respect of said Participation Certificates of Series 2, shall be non-cumulative. After payment in any year of said $497,022.16, or of said $621,277.70 (as-the ease may be), for distribution to the holders of said Participation Certificates Series 2, then any remaining surplus earnings shall! be used and applied solely as follows: Unless the Board of Directors, with the consent in writing of a majority of the then acting Trustees and Depositaries or of the sole Trustee- or Depositary under said Participation Certificate Agreement, shall resolve to apply the-same to meet the exigencies and financial requirements of the Railways Company, the-said remaining annual surplus earnings shall' constitute an additional annual Sinking Fund to be applied in such year to the redemption, at par or purchase and cancellation of Bonds-of said Series C until the entire issue thereof shall be discharged; and thereafter, if any" of the same shall have been issued as above provided, to the redemption at par, or purchase, of the above specified number of Bonds-of Series A and Series B. When all of said. Bonds of Series C and * * * Series A and Series B * * * shall have been redeemed, * * * and when all unpaid accumulations on Series 1 have been paid, then any unpaid accumulations in respect of said $8 per equal part represented by said Participation Certificates Series 2, for each year then past, commencing with the year ending; [946]*946August 1, 1908; shall he payable out of the earnings of future years.”
“4. The stockholders of the Railways Company will make the capital stock of the Railways Company, viz.........'....................$100,000
the subject of an issue of Participation Certificates, of which there shall be issued certificates representing in the aggregate ................... 265,100
equal parts as follows:
“(a) Series 1, entitled to priority in the distribution of dividends upon the said capital stock or of any dividends or income on or by reason of any other securities which may at any time become subject to the Agreement under which said Participation Certificates are issued, to the extent of $8 for each part represented by said certificates respectively, for each and every year commencing with the .year ending August 1, 1908, accumulative until paid.”
Deposit Agreement under which Participation Certificates were Issued:
“Whereas, it is provided in the Plan that Participation Certificates entitling the holder thereof to the share and interest therein and herein specified, of, in and to the capital stock of the Railways Company and the dividends which may be declared and paid thereon, * * * shall be issued, on the terms and conditions in the Plan set forth. * * *
“Subject to the provisions of this Agreement, the total interest in the capital * * * stock of the Chicago Railways Company, * * * and in the dividends or income from time to time to be paid thereon, shall be divided into Two hundred and sixty-five thousand one hundred (265,100) equal parts * * *
“It is provided in the Plan, and hereby expressly declared that the rights of the holders of said Participation Certificates shall be in all respects subject to the prior rights of the holders of Bonds and Collateral Notes to be at any time issued under the aforesaid First Mortgage, Consolidated Mortgage, and Collateral Note Agreement, in said Plan mentioned and provided for.
.“Among other things, said Consolidated Mortgage embodies provisions limiting the application of the net earnings of the Railways Company to dividends on its stock and thereby the distribution of such dividends to and among the holders of Participation Certificates issued hereunder * * *.
“The Depositaries, from time to time, shall be entitled to receive and to collect all dividends or other income that may be declared or become payable on or by reason of all of the deposited securities. * * *
“Until the first day of August,’ 1912, and, to the full extent thereafter which may be permitted by law, until all the Consolidated Mortgage Bonds of the Railways Company which may be issued pursuant to the provisions of the Plan shall be fully paid and discharged, the Depositaries, or a majority of them, shall be entitled, subject to the provisions hereinafter contained, (1) to vote upon the said capital stock of Chicago Railways Company hereby transferred, and any and ah other shares of stock which may at any tunc be held hereunder * * *.
“No plan or any modification thereof shall be operative, unless and until * * approved by Peter S. Grosscup, and by John C. Gray * * *.
“The Railways Company agrees to aecep: said ordinance '* * * as in this agreement provided * * *.”
First Mortgage (Article III) :
“Sec. 1. As a material and substantial part of the security for the bonds issued and to be issued hereunder, and as a material portion of the consideration and of the conditions for the purchase and acceptance of said bonds by the holders hereof, * * * and that the rights and benefits granted to the Railways Company in and by the Ordinance, will be protected against forfeiture or impairment, or the danger thereof, and to the end that the value of the property hereby mortgaged and pledged may be fully conserved, it is hereby covenanted and agreed that (three persons) * * * and their * * * successors designated * * * as hereinafter provided, be and they are hereby constituted a Finance Committee, with the powers, duties and immunities hereinafter expressed.”
“Sec. 4 (e) * * * ascertainment of the amount properly available for or applicable to the payment of dividends upon the capital stock of the Railways Company, or otherwise distributable to those having an interest in said stock, or the dividends thereon, or the income therefrom,. after making the payments to the City of Chicago and of interest charges and the several deposits mentioned in the Ordinance, shall not be concluded or fixed by any act, consent or acquiescence of or on behalf of, the Railways Company, in any instance, except as may in writing be directed or approved by the Finance Committee * * *.
[947]*947“(b) No distribution of the earnings or income of the Railways Company, or of any part thereof, * * *' shall be made until any such proposed distribution shall have been first approved by the Finance Committee.”
Consolidated Mortgage (Article III, § 1):
“ * * * Said sum of $250,000 per annum shall be applied as above provided, and any accrued deficiency or deficiencies in respect thereof shall be discharged, in all eases, before the application of any part of said earnings to the payment of dividends upon the shares of the capital stock of the Railways Company.
“After the above annual payment of $250,000 shall have been made in full, and any such deficiency or deficiencies in respect thereof, shall have been discharged, the Railways Company MAY, out of its said net earnings applicable to the payment of dividends upon its capital stock, pay or distribute as such dividends in each year (1) a sum not to exceed $246,400, cumulative, commencing with the year ending August 1, 1908, * * * etc.”
The question presented may be stated thus: Under the contracts which fixed and determined the rights of the parties thereto, are the certificate holders (represented by appellants) entitled to payment in cash, or be given a lien on property or certain retired bonds of the railways company, equal to or greater than the lien of the bondholders, to an amount which represents the undistributed net earnings of the company since 1917? If the question be answered in the negative, we need not inquire into the relative position of the various certificates.
Questions arising out of this troublesome and vexatious ease have been so 'frequently presented and decided by the courts that we shall, without discussion, state the conclusions which we have reached, and thereby narrow the contested issues presented by this appeal.
1. The plan of reorganization adopted by the parties, ratified by the city of Chicago and approved by Judge Grosscup and Professor Gray, which grew out of the involved situation following the termination of the street car franchises in 1907 and the receivership of the operating company, determines the rights of the parties and the status of the various security holders. While the facts which occurred prior-to the adoption of this plan may be viewed as a background upon which the documents must be read and construed, it is the agreements to which we must look to ascertain the rights of both bondholders and certificate holders.
2. In determining the relative position of certificate holders and bondholders, it is necessary to look to and construe as one document the ordinance, the plan of reorganization, the agreement of the parties, the language of the mortgage, and the terms of the certificates.
3. The status of the certificate holders is not exactly that of a stockholder. Babcock v. C. Ry. Co., 325 Ill. 16, 155 N. E. 773; In re Babcock (C. C. A.) 26 F.(2d) 153. In some respects they occupied the positions of cestuis que trust, and the trustees were the individuals to whom all of the stock ($100,000) was issued when the company was organized and who under the plan remained the sole stockholders during the existence of the company. These stockholders may in a sense be called trustees for the certificate holders, but with equal propriety. they could be called trustees for the city of Chicago, its citizens, the users of the street cars, and also those who advanced money to the railways company.
The unique practice of issuing all the stock to three individuals, who in turn issued thousands of certificates to the holders of the four different series, suggests that such certificate holders occupied an unusual position. It does not, however, as counsel for appellants argue, justify the conclusion that the framers of the plan intended to give to the certificate holders a status higher than that of the stockholders. It is to the stockholders that the certificate holders trace their title. How then may we ascribe to a certificate holder a higher position than, the stockholder? As between the certificate holder and the mortgagee, such doubt, as might otherwise exist, is removed because the various instruments constituting the plan expressly provide that the lien of the certificate holders be subservient to the lien of the mortgagee (Ordinance, § 20), and the lien of the mortgage covers the earnings of the railways company.
4. It was within the power of the railways company to provide that all earnings, after the payment of certain sums to retire bonds and to pay interest and fixed charges, might be subject to the first lien of certificate holders.
5. The railways company was a public utility whose revenues were wholly dependent upon its use by the public. The extent and character of its service to the public was not [948]*948a matter solely for it to decide, and the necessity for improvements and extensions depended largely upon the needs of á large growing city. Their necessity was not for the public utility alone to determine. During the life of the contract, the Illinois commerce commission came into existence, and the act creating it gave such commission authority to' make and enforce certain regulations governing the operation and financing of the utility. Since the creation of the Illinois commerce commission, the improvements upon, and extensions to, the street ear system were made only upon order of that commission. The railways company increased its fares for rides in excess of the contract price upon authorization of that commission. The net earnings here in question are traceable to the increased fares charged pursuant to the order of the .commission. Without such increased fares there would have been no undistributed earnings over which the bondholders and certificate holders could contest. It is a legitimate conclusion, to be drawn from the record, that the increased fares would not have been ordered or later sustained by the court but for their necessity to provide funds from which improvements and extensions (here sought to be subjected to a lien) were made, and which extensions and improvements made possible better service to the users.
6. The certificate holders are estopped from now questioning the validity of any order of the commerce commission.
7. The certificate holders have not been guilty of any laches which prevent them from asserting their claims to the undistributed net earnings which have accumulated since 1917.
8. Under the law of Illinois, except in instances not here involved, the lien of a mortgagee does not extend to the earnings and income of the mortgaged property until legal proceedings are taken (usually by foreclosure and the appointment of a receiver), even though the mortgage covers the property and the earnings and income thereof. In the Matter of Wakey (C. C. A.) 50 F.(2d) 869, 75 A. L. R. 1521.
9. In the absence of an express provision, binding upon creditors, giving the stockholders a lien upon the net income and earnings of a corporation, such stockholders are not entitled, as a matter of right, to the distribution of net earnings through dividends. Undistributed net earnings reinvested oy the company’s officers in the company’s property covered by a mortgage are subject to the lien of the mortgage.
In the light of these propositions, which somewhat narrow the controverted issues, we can turn our attention to the agreements to ascertain the extent of the right of the certificate holders to the undistributed net income of the railways company. The aggregate amount of such earnings with interest is approximately $10,000,000, most, if not all of which, have found their way into improvements, etc., on the railways plan or in paying off indebtedness incurred while making improvements.
The question thus presented naturally resolves itself into more limited issues. To illustrate: The mortgagee’s claim to the income, after the maturity of the mortgage and after the commencement of foreclosure proceedings and the appointment of a receiver, is stronger than it is to the income earned before the default and before the mortgagee took legal action to subject such earnings to the lien of the mortgage. Concerning the mortgagee’s right to the income earned after the maturity of the mortgage and subsequent to the appointment of a receiver, we have no doubt. The certificate holders’ lien on the net income necessarily terminated with the contracts which gave it existence. In fact, two of the appellants do not make any claim to such earnings. Moreover, the court, in the foreclosure decree affirmed on appeal [City of Chicago v. Harris Trust & Sav. Bank (C. C. A.) 40 F.(2d) 612], so held.
As to the asserted lien on earnings acquired prior to the maturity of the mortgage, two pertinent questions arise: (a) The control of net earnings by the finance committee (section 4, art. III, first mortgage), and (b) the disposition of such net earnings as found their way into the property of the company, now that the property is to be distributed among all the security holders in accordance with their respective rights.
(a) Whether the certificate holder was entitled, under paragraph 4, article 3, of the plan, to an annual distribution of the net earnings as a matter of absolute right, was a question determined adversely to the certificate holder in Thatcher v. Chicago Rys. Co. (C. C. A.) 4 F.(2d) 63. Appellees argue that such decision is binding on the parties now before us. Appellants deny this decision is res adjudieata, and they argue further and at length that the previous decision is erroneous in its fact assumptions and in the propositions of law upon, which it is based. We need not, and do not, decide whether this ease is binding on us. It is certainly entitled to [949]*949great weight, for it clearly attempted to fix the status of certificate holders and mortgagees in regard to these undistributed earnings. We' have again approached the question from the somewhat different angle of the individual counsel representing the -various certificate holders, but our conclusion is the same as was reached in the Thatcher Case.
Sections 1 and 4 of article III of the first mortgage seem decisive. Those provisions seem consistent) with the whole plan to rebuild, extend, and improve an inadequate street car system that it might meet the requirements of a rapidly growing metropolis. They wisely guarded against the unforeseen and unforeseeable conditions such as arose when the World’ War upset all businesses. Not only was the finance committee within its unquestionable rights when it ceased to direct the payment of dividends in 1917-1918 at a time when the revenues of the railways company were insufficient even to pay interest charges, but the members of the committee exercised their discretion wisely and in a manner which must meet the approval of disinterested observers who appreciate the fact that a public utility is under obligation to the public as fully, if not more so, than to its security holders.
But it by no means follows that, because the certificate holders were not entitled to a decree compelling distribution of earnings through dividends, they are not entitled to some protection (payments" in cash or lien on the property) to the extent of such undistributed earnings now that the property is to be divided among the security holders.
Appellants’ contention is builded upon paragraph 5, article III, of the modified plan of reorganization, and, in support thereof, attention is called to the word “shall” as used therein. That the word “shall” is not to be confused with the word “may” must readily be conceded. But the framers of the plan used the word “may” when referring to the declaration of dividends in another part of the agreement (article III, § 1, depositors agreement, under which certificates were issued), and its use therein is likewise significant. Moreover, the repeated provision in the various documents to the effect that the mortgages should be a prior lien upon the property, as well as the provision giving the mortgagees a lien on the earnings and income, is most persuasive. Sections 7 and 20, City Ordinance. Stronger language could hardly be found than in section 20 of said'ordinance, which reads: “As against the City and any licensee of the City and any and all other persons having or claiming to have any interest or benefit under this ordinance, the lien securing said bonds and obligations shall at all times be deemed and recognized to be a first lien upon the entire street railway system hereby authorized, including all rights granted to the Company by this ordinance.” Construing all of the agreements together, the conclusion seems unavoidable that the framers of the plan, when using the word “shall” in paragraph 5, article III, of the modified plan of reorganization, were addressing themselves to the subject of the payment of declared dividends rather than to an attempted creation of -a lien on earnings, which had not reached the declared dividend state. This clause 5 squarely fixed the relative positions of the four classes of certificates. It gave series 1 priority over series 2, 3, and 4 up to $8 per year. It required payment of up to $8 per year if and when dividends were declared. It did not, however, govern the declaration of dividends because the declaration of the dividends was specifically covered by article III, § 4, of the first mortgage. Neither did it create, nor attempt to create, a lien in favor of certificate holders upon undistributed earnings which had not been declared as dividends.
In reaching this conclusion, we have accepted the legal proposition that it was within the power of the corporation to create two classes of security holders, giving one a first lien upon the property and the other a first lien upon the income. Our inquiry has necessarily been directed to an investigation of the facts to ascertain whether the corporation, which had the power to- thus protect each security holder, did in fact give to the certificate holder a first lien upon all the net earnings. In reaching the conclusion here announced, we have been influenced by the fact that the certificate holders’ claims are derived through the common stock of the company; that each document expressly recognized the first lien of the mortgages upon the property; and it would require clear and express language (here absent) to create a lien in favor .of stockholders (or of others whose rights are derived from stock) to a first or any other lien upon undistributed earnings of the corporation.
We have not ignored the argument advanced by the appellants to the effect that the payment of dividends out of earnings for the first ten years following the execution of the contract constituted a construction of the contract favorable to the position of the certificate holders. This argument loses much [950]*950of its persuasiveness in the light of the disclosed facts. Had there been no change in the economic conditions of the country resulting from the World War, had the Illinois commerce commission not promulgated rules and regulations governing the operation of utilities, doubtless dividends would have been continuously declared. But the reduced earnings, the orders of the Illinois commerce commission respecting extensions and improvements, made the passing of the dividends necessary in 1937 and 1918. Such being the situation, we are at a lossi to understand how the previous declaration of dividends should be held to be an implied construction of the plan, particularly as against the bondholders who were not bound by the acts of the finance committee in declaring dividends.
The decree is affirmed.