Case ID: ohio-cc-dec_21/html/0270-01.html
Source: Caselaw Access Project
Author: {"author": "GIFFEN, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

CORPORATIONS — ERROR—FRAUD —LIMITATIONS OF ACTIONS.
    [Hamilton (1st) Circuit Court,
    December 19, 1908.]
    Swing, Giffen and Smith, JJ.
    George H. Stearns v. John H. Hibben Dry Goods Co.
    
    1. Circuit Court Follows Decision of General Term of Superior upon Retrial, in Former Court.
    An appellate term of the superior court being abolished by legislative act and its jurisdiction transferred to the circuit court, a decision by such appellate term in a case afterward coming to the circuit court will be-followed by that court, unless clearly erroneous.
    2. Misrepresentation or Concealment Necessary to Found Action for Fraud.
    It appearing that neither misrepresentation was made by the board of directors of a corporation upon which a stockholder relied to his prejudice,, nor any concealment by them of facts not recorded in the minutes, an action by the stockholder for recovery on the ground of fraud and concealment will not lie.
    3. Trust Barred in Six Years.
    If a trust was created by a resolution adopted by a board of directors of a corporation declaring a dividend, January 10, 1898, it terminated on or before June 30, 1899, and an action thereon is barred by the six year-statute of limitation.
    
      4. Failure to Make Prerequisite Demand does not Prevent Running or Statute.
    Notwithstanding a demand by a stockholder for his pro rata share of a. stock dividend is necessary before the beginning of an action by him for the recovery of such dividend, failure to make such demand doe» not suspend the operation of the statute of limitations.
    Error to Cincinnati superior court.
    The Hibben Dry Goods Company having determined to increase its. capital stock from $100,000 to $200,000, it was further decided that a stock dividend of $25 per share should be distributed to the holders of the old stock who had borne the'burden of founding the business. This, was done and thereafter the new stock was sold. George H. Steams was a purchaser of a block of the new stock, and subsequently learning of the distribution of a stock dividend, he commenced this action for-recovery of his pro rata share thereof. In his petition he alleges;-
    “Plaintiff says that the defendant, the John H. Hibben Dry Goods. Company, is a corporation created and existing under the laws of Ohio for the purpose of buying and selling dry goods, notions and furnishings, and is engaged in said business in the city of Cincinnati. That by the terms of its articles of incorporation said company has an authorized capital stock of $350,000 common stock, and $150,000 preferred stock. That all of the preferred stock has been issued and is outstanding, but that of the authorized common stock only $282,000 has been issued, and said company has $68,000 of such common stock still unissued. ■
    “Plaintiff further says that prior to the first day of July, 1897, he subscribed for one hundred shares of the common stock of said company, and paid therefor to said company the sum of $10,000. and in consideration thereof said company issued to him its certificate of stock dated July 1, 1897, showing that plaintiff was the owner of one hundred shares of the capital common stock of said company; and plaintiff then became, and e„ver since has been, the owner and holder of said one hundred shares.
    “Plaintiff further says that on the sixth day of October, 1897, he likewise subscribed and paid $5,000 for fifty additional shares of the common'capital stock of said company, and received a certificate of that date showing likewise that he was the owner of said fifty additional shares; and plaintiff has ever since been, and now is, the owner and holder of said fifty shares of capital stock.
    
      “By reason of his ownership of said 150 shares of common stock of the said, defendant, company plaintiff became, and ever since has been, entitled to share pro rata with all the other holders of common stock in any dividend or distribution of proceeds or assets made by the company.
    “But plaintiff says that notwithstanding the premises, the directors of said company, on or about the tenth day of January, 1898, finding that the company had on hand a surplus arising from the earnings of the company, without the knowledge or consent of the plaintiff, who is not, and never was, a member of the board of directors of said company, adopted a resolution directing the sum of $26,900 of said surplus be ‘divided among the stockholders holding stock prior to the last issue of stock to the $200,000 limit, ’ which included the plaintiff, all of whose stock was issued to him ‘prior to the last issue of stock to the $200,000 limit,’ and further ordering that ‘said amount, while belonging to said stockholders, and bearing 6 per cent interest, yet remain in said corporation or company as working capital, until such amount is voted free to the holders of said amount by the board of directors.’
    “And thereafter said directors on the thirtieth day of June, 1899, without the knowledge or consent of plaintiff, received from a committee a report that said amount of $26,900, amounting to $25 per share pro rata to each stockholder of record January 1, 1898, with 6 per cent interest to June 30, 1899, had been distributed to said stockholders, which said report was fraudulent and untrue, in that plaintiff was a stockholder of record to the extent of 150 shares prior to January 1, 1898, but no part of said $26,900 was distributed to him.
    “Plaintiff further says that as matter of fact no money other than the interest on the $26,900 mentioned in said orders was distributed to any of the stockholders, but that a stock dividend of 25 per cent of the common stock was by said directors made, and the certificate thereof issued to nearly all holders of the common stock at that time, each of such persons receiving a number of shares equal to 25 per cent of the shares previously held by him, and said defendant has regularly paid dividends upon the stock so issued to the holders thereof.
    “Plaintiff further says that instead of distributing said stock dividend of 25 per cent equally to all the common stockholders of said company, the defendant, by its said board of directors, wrongfully and fraudulently excluded this plaintiff from any participation in the same, and issued to plaintiff no shares of stock by way of dividend, and never paid him any dividends other than the regular cash dividends upon the original stock purchased by him as aforesaid, nor permitted him to share in the distribution of said surplus in any manner whatever.
    “Plaintiff further says that he had no.knowledge of the'.proceedings of said directors as to said 25 per cent stock dividend,' or of the issue of the certificates of said stock, or the payment of any dividend thereon, or of the fraudulent distribution of said surplus or any information whatever concerning the same, until the month of September in the year 1902, since which time plaintiff has frequently requested the president and directors of said company to correct tfie wrong so done him, and has demanded that they shall issue to him as they did to the other stockholders the 25 per cent additional stock on the 150 shares so as aforesaid held by him, and to pay the dividends upon such stock as have been paid to other holders of the same since the making of said stock dividend, with interest upon such dividends since the time they became due and payable, but plaintiff says that the defendant has refused, and still refuses, to take any steps or do anything towards issuing to him any additional stock as and for said dividend, or to make any payment of said dividend, or in any way compensate him for the same. ' •
    “Plaintiff further says that the defendant has on hand an ample surplus of earnings, and lawful power, by reason of the fact herein-before stated, to issue to the plaintiff a 25 per cent stock dividend upon the 150 shares of stock held by him.
    “Plaintiff further says that the defendant threatens to, and will, unless restrained by this ,court, sell and issue all the remaining unissued common stock of said company, which it is authorized to issue by virtue of its charter, and thereby deprive itself of power to issue to plaintiff the 37% shares to which he is entitled.
    “Wherefore, plaintiff prays that the defendant be restrained and enjoined by the order of this court from issuing any further or common stock until after it shall have issued to plaintiff the 37% shares aforesaid, or from taking any steps to deprive itself of the lawful power to issue the same and further that the defendant be required by mandatory order of this court to issue and deliver to plaintiff its certificate for 37% shares of common stock of the defendant company, and to pay to plaintiff the dividends or the interest on the same of the same amount as the dividends and interest paid the other common stockholders since the first day of January, 1898,. with interest upon such dividends from the date when they were declared. Plaintiff further prays that if, for any reason, it is found impracticable to order the issue of stock as aforésaid, that the court order an account to be taken to ascertain the value -of the said shares of stock to which plaintiff is entitled as aforesaid, and the amount of the dividends paid since the first day of January, 1898, with interest on each of said dividends from the time when due and payable, and that the court order and decree the payment of the aggregate shares, dividends and interest to the plaintiff by the defendant and for such other and further relief as the nature of the case and equity may require.”
    The defendant interposed a demurrer to the petition, setting up that the action was barred by the statute of limitations. Demurrer was overruled in 1906, and after trial the plaintiff was given a decree.
    On error to the general term of the superior court, and the judgment below reversed, it was held that the cause of action stated in the petition was barred by the statute of limitations, and that the trial court should have sustained the demurrer to the petition on that ground. The general term also found other errors in the record, and remanded the cause to special term for further proceedings.
    On retrial, in special term, the demurrer was sustained, and the plaintiff not desiring to plead further, judgment was entered for the defendant, to which error is now to this court.
    Peck, Schaffer & Peck, for plaintiff in error:
    A dividend being declared by a corporation immediately raises an obligation to pay each stockholder his pro rata share upon demand, without which an action cannot be maintained. Larwill v. Burke, 10 Circ. Dec. 579 (19 R. 449) ; Larwill v. Burke, 10 Circ. Dec. 605 (19 R. 513) ; Fuller v. Railway, 11 Dec. 574 (8 N. P. 605); State v. Railway, 6 Gill (Md.) 363; Bank of Louisville v. Gray, 84 Ky. 566 [2 S. W. Rep. 168]; Hagar v. Bank, 63 Me. 509; Kobogum v. Iron Co. 76 Mich. 498-[43 N. W. Rep. 602]; Bedford Co. v. Railway, 14 Lea (Tenn.) 525; Scott v. Railway, 52 Barb. (N. Y.) 45.
    The statute of limitations does not begin to run on a cause, requiring demand as a prerequisite, until after the demand is made. State v. Neivman, 2 Ohio St. 567; King v. Nichols, 16 Ohio St. 80; Keithler v. Foster, 22 Ohio St. 27; Townsend v. Eichelberger, 51 Ohio St. 213 [38 N. B. Rep. 207].
    Upon a dividend being made by any corporation, the ordinary practice and duty is to give notice to the stockholders; no notice being given to the plaintiff thereof, the action is not barred, but it is an action for relief on the ground of fraud in the misappropriation and distribution of a fund held in trust for the corporation. Western Re
      
      serve Bank v. Mclntire, 40 Ohio St. 528; Carlisle v. Foster, 10 Ohio St-198. '
    A party being a stockholder does not infer notice of the making of dividends. King v. Badlway, 29 N. J. Law '82.
    Omission to disclose what it has become a particular duty to do, is fraudulent concealment. Kelley v. Nealley, 76 Me. 71; Manufacturers' Sat. Bank v. Perry, 144 Mass. 313 [11 N. E. Rep. 81] ; Atlantic Bank v. Harris, 118 Mass. 147 ;■ St. Bornes v. Levee, 20 La. Ann. 381; Philadelphia, W. & B. By. v. Cowell, 28 Pa. St. 329 [70 Am. Dec. 128].
    The statute of limitations applies “in the case of a continuing and subsisting trust.” Where the directors of a company set aside a fund to be subsequently distributed, it constitutes a trust fund in the hands of the company. Le Blanc, Éx parte; 14 Hun/-8; affirmed, Le. Blanc, Ex parte, 75 N. Y. 598; LeBoy v. Insurance Co. 2 Edw. Ch. 657; Hunt v. O’Shea, 69 N. H. 600 [45 Atl. Rep. 480]; Hagar v. Bank, 63 Me. 509.
    W. A. DeCamp, for defendant in error:
    The action is one upon a contract not in writing, and the relation of stockholder to a corporation, with respect to a dividend, is that of debtor and creditor. After dividend has been declared the corporation owes the stockholder his pro rata share as a debt, and if it is not paid, the stockholder has a right of action in assumpsit for its recovery, and such a right is barred within six years, under Sec. 4981 Rev. Stat. Clark & Marshall, Corporations Secs. 517c, 522; Jackson v. Plankroad Co. 31 N. J. Law 277; Ellis v. Proprietors of Essex & Merrimack Bridge, 19 Mass. 243; Chaffee v. Bailway, 55 Vt. 110; Cook, Stockholders Secs. 527, 529, 542; Thompson, Corporations Sec. 2173; Winchester & L. Tpk. Co. v. Wickliffe, 100 Ky. 531 [38 S. W. Rep. 866; 66 Am. St. Rep. 356]; Hunt v. O’Shea, 69 N. H. 600 [45 Atl. Rep. 480]; Kane v. Bloodgood, 7 Johns Ch. (N. Y.) 90; Bills v. Mining Co. 106 Cal. 9 [39 Pac. Rep. 43].
    The fact that a claimant was not aware that he had a right to bring suit does not extend the time. State v. Standard Oil Co. 49 Ohio St. 137 [30 N. E. Rep. 279; 15 L. R. A. 145; 34 Am. St. Rep. 541]; Howk v. Mmnick, 19 Ohio St. 462 [2 Am. Rep. 413];. Williams v. Coal Co. 37 Ohio St. 583.
    Mere refernce to fraudulent transactions in a petition, does not, of necessity, - give character to an action as one grounded upon fraud. Maas v. Miller, 58 Ohio St. 483; Mosher v. Butler, 31 Ohio St. 188; Evans v. Alberts, 6 Dec. Re. 820 (8 Am. L. Rec. 350).
    
      Equitable as Well as legal causes of action, áre barred by the same statute of limitations. Carpenter v. Canal Co. 35 Ohio St. 307; Loffland y. Bush, 26 Ohio St. 559; Zieverinh v: Kemper, 50 Ohio St. 208 [34 N. E. Rep. 250] ; Combs v: Watson, 32 Ohio St. 228; Longwórth v. Hunt, 11 Ohio St. 194; Yearly v. Long, 40 Ohio St/ 34. " ■
    . ,. The exact point involved in' this casé was decided adversely to this plaintiff in error by the’ decision of thé general'term rendered in 1907 by unanimous court. This second writ of- error in the same ease is brought before this court because the legislature abolished the general term in the spring of 1908; and conferred upon this court the power to review the special term,decision. If this present petition in error raising- a point already decided by the general term had come before the general term the second- time, the judgment below would undoubtedly have been affirmed; and while this court, of course, is not bound by a decision of the general term, nor bound by the decisions of other circuit courts in the state, yet for the sake of harmony in the decisions this court might well take into consideration the fact that the former appellate court Which reviewed special term decisions had pronounced its judgment upon this point of law. In other words, this ease coming by successive appeals'to different tribunals, each of which was authorized to review the special term decision, the point which was adjudged in the first appeal should receive' the same construction on the second appeal for the sake of consistency and harmony of decision, if for no other reason.
   GIFFEN, J.

The ruling of the superior court in general term upon a demurrer should, when the case is transferred to this court, be followed unless clearly erroneous..

The petition discloses no misrepresentation by the' board of directors upon which the plaintiff relied to his prejudice, nor the concealment by them of any fact not recorded in the minutes, which, on demand, were open to inspection by the plaintiff as a stockholder.

Whatever be the- nature of the trust created by the resolution of the board of directors.on January 10, 1898, it terminated on or before June 30, 1899, more than six years before the commencement of the action.

Although a demand was necessary before beginning the action, the failure to make demand did not suspend the operation of the statute of limitations. Howk v. Minnick, 19 Ohio St. 462 [2 Am. Rep. 413]; Douglas v. Corry, 46 Ohio St. 349 [21 N. E. Rep. 440; 15 Am. St. Rep. 604]; Townsend v. Eichelberger, 51 Ohio St. 213 [38 N. E. Rep. 207].

Judgment affirmed.

Swing and Smith, JJ., concur.