New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1883-10-03
STOCK DIVIDENDS VALID.
DECISION OF THE COURT OF APPEALS.

THE HATCH WILLIAMS SUITS AGAINST THE WESTERN
UNION COMPANY DISMISSED.
ALBANY, Oct. 2.-The Court of Appeals to-
day handed down decisions the of William s.
Williams aud Rufus Hatch against the Western Union
Telegraph Company, reversing the Judgment OF the
General Term OF the Superior Court and sustaining
the action OF the company in the consolidation With
the other telegraph companies and IN the issue OF stock
dividends TO the amount Of $l5,52659o This decision
sustains that given by Judge Truax at Special Term
The history of the litigation begins in the early part
Of 1881 when the consolidation fret PROF scted The
consideration for the sale OF the American Union Tee~
graph Company was 10000 shares and for the sale
OF the Atlantic and Pacific Telegraph Company
$4,000 shares of Western Union stock The Western
Union took steps 30 cause its capital stock to be in.
creased by addition to its then outstanding stock Of
S3S, 926,59O OF this amount, $15,526590 was to be
distr buted to then holding its shares, the
being intended 10 represent the cOmpanys investment
of earnings in purchase construction and equipment
Of additional lines wires and general plant since the frat
day of June 1866; the remaining S23,4OOOOO was to
be used for the purchase of the property and franchises
Of the other two companies.
Suits were brought by Mr.. Hatch and Mr.. Williams "a
stockholders OF the Western Union Company to restrain
the contamination II the consolidation agreements and
the issue of the stock dividends. On the motion iot
injunction at Chambers OF the Supreme Court Judge
SedgNYick sustained the Wow Of Mr. Williams,
and held that dividend could only DO
the motion for an injunction in the HaJch suit The two
suits finally came up Tor trial before Judge sedgwok at
Special Term lie held substantially the Court OF
Appeals does in the opinion given below This decision
was reversed at General Term. the opinion written by
judge Freedman beng cOucurred In by judges Armour
and Russell The argued before the Court OF
Appeals by A. P. Whitehead, Robert sewel and John
Sessions for the plaintiffs; by william NJ Evarts, Wager
swayne and A. j. VanderpOel fOf the Western Union
Telegraph Company.
THE OPINION OF THE COURT.
The opinion OF Judge Earle after stating the facts in
the case calls attention 10 the statutes under which the
telegraph companies organized and by the author
ity of which it was caimei mat the action complained
of was taken The acts chapter 2Gj of the laws Of
ls4s: chapter 90 of the 1881: chapter AL OF
ehapts 568 of the laws of 1870 and chapter 81 Of the
laws OF 1875. The opinion quotes fully this last statute
of the capital OF corporations ana then
That act furnishes ample authority for the increase of
the capital stock OF the Western Union Telegraph Com
pany articles of association OF that company were
moi mt In eyi ience and hence it does not appear
whether they provided for any increase OF It's capital
the contrary, it would be assumed that the increase
justified by the statutes; 4 stockhoIder coming into
court aud alleging that the increase OF sIOch was u-
thOrzcd by the articles of association in order TO main
tam his allegations would have the burden TO prove ana
ton and could not ask the court TO infer that power
conferred by articles OF association had been mpTop-
ery or illegally exercised IT the articles OF aSsocatlon
however, did not provide for an increase OF It's capital
accomplishing such increase, could proceed under the
not disputed that the steps which are required
by that to accomplish an increase OF stock. were
taken by directors The requisite notices were pub
ished There was the requisite consent OF the share
holders holding and owning threetOurths III amount Oh
the uopal stock aud the regulate action the Board OF
Directors so that upon the argument before 1t
net disputed by the learned counsel for the respondent
legal and lawful increase Of the capital stock the
Western Union Telegraph Company TO the sum Of
SsO,oO0OOO. The shares Of stock having thus ayee4
legally brought into existence the act Of $50 furnished
ample authority Tor the purchase ny Ihe Mcs5rh uo4
Telegraph COMPANY OF the property FRANCHISES anu
priyea of the otner two companies and paying there
objects and purposes Of the purchase were such rs were
T6ee three telegraph companies were not companies
owning precisely parable nesor lines running exactly DC
tween me same places, GUY eaGn CG,pSDy i,onaL 'oI
uace used can be so tortured a to forbid tine combine
lion OF these three companies the manner In which Il
was accomplished. Upon this point lhe OpulOn OF
Barrett Judge, in Hatch agt American Union telegraph
argument before the right 10 purchase the property
privileges and franchises OF the Two OlAer companies by
the Western Union Telegraph Company under The act OF
1870 was not much cnaue9sed Inc man contention.
was the stock dividend dlsulpuuAS upward OF
G15OOO,OO0 Of stock among the stockholders OF the
aDd IN Violation Of law and nctRer was or moi j. the
principal for determination upon this appeal
WAS THE STOCK DIVIDEND Illegal
"The stock dividend claimed TO De IN violation OF
chapter IS part ], title 4, section Of the Revised
Statutes This dividend condemned by the General
Term OF the supreme Court a violation OF that
ton. Our attepton has been called OIer law for
bidding or cOndemnng a stock dividend, and in their
allegations against the counsel FOR the plaintiff rely
manly upon that section. After reading numerous
upinonf that have been submitted 10 Us and giving care
subject unable 10 perceive tuat that section has
any bearing whatever upon the question We are 10 Ie
1926 Of the laws Of entitled an Act pre-
vent fraudulent bankruptcies Of incorporated compa-
mics 10 facilitate proceedings against them, and FOR other
purpOses 1t was lot part OF the original revision. but
was into tle Revised Statutes by Chapter
20 of the laws OF careful reading OF the sccuOn
that has reference ouy TO properly capital OF
corporation and nor to It's share capital Inc mrs. clause
PROHIBITS dividend Of PT0PeTy except re S rocdT9! 5
any corporation shall not divide, withdraw, or iuany
way pay stockholders, or any OF thcIn any part Of
capital stock without the consent OF the Lcgs
Tdese provisions were intended TO prevent the DIVISION
withdrawal reduction OF the property
OF corporation below the sum limited In us charCer or
increase above that sum- The purpose was TO prevent
depletion OF the property OF the cooperation ana
THEREBY cndang ring lis sOlyency All the other proy
sOns Of the section show very clearly that s1c was the
intention Careful provision was maze lAat me wAole
amount Of capital stock should pc pia ID, 9hu netce
there prohibition against receiving note or other
evidence Of de6tln payment OF any iHsanent a;,Haly
called in and reluel 10 De pau dhV ~ Cl@e Ius ue
violated any Of the PROVISIONS u lhe secgA Jsey
its creditors iu the event OF dissolution the full
amount OF tue capital stock Of the company 50 divided
Ali these provisions show that 1t the purpose Of
the Legislature by means Of them 10 create properly
CAPITAL Tor corporation, ana then to Keep that intact
90 as 10 the sOyeucy OF the corporation am us
responsibility to creditors. The capital stock IN
ths section docs not share stock but II mea9s the
property OF the corporation cOh'IOuttu ny
ifs stockholders, otherwise obtained by 1t
TO the extent required by the charter.
while the term capital stock Is frequently used IN
loose and indefinite In this section ana IN legal
phrase generally it meaus that and no more By loss or
misconduct OF the managing officers OF "a
Corporation its capital stock may no reduced
below tue amount limited by MS carer, Dut
whatever property it has up TO that limit must ne re-
aTded az It's capital stock When the property exceeds
tnat limit then the excess is surplus eucn SURPLUS Dc
onRs TO the corporation and Is portion OF It's property
ard IN general may be regarded al portion Oh
ts capital but in strictly legal sense l. Is not pOr'
ton OF its capital and Is always regarded as surplus
profits.
SURPLUS MAY BE DIVIDED AS STOCK DIVIDENDS
Tbe very section considering contempatcs that