New-York tribune., 1899-07-20
FEDERAL STEEL MUST WAIT
JUDGE THOMAS PREVENTS THE PAY
MENT OF DIVIDENDS TO-DAY.
lNN APPEAL WILL BE TAKEN. BUT THE
DELAY MAY LAST UNTIL JANUARY
THE DIRECTORS ACTED
ILLEGALLY,

DELAY MAY LAST UNTIL JANUARY
THE DIRECTORS ACTED
ILLEGALLY.
n a decision handed down YESTERDAY ai'e'
aoon by Judge Thomas. In the uniteo o'
Circuit Court in Brooklyn. he contlnueu '"e
tntunctions granted by him on June oV' on ap
plication Of Louis Schaeffer. hoioei VI
ferred stock and Frederick T. Marqu
holder Of common stock, restraihihs t
eral Steel Company from paying DIVIDENDS on
either its preferred or its common s'ooA "N'''
the close of the present fiscal year
This decision will prevent the paying .
of a dividend of Ia per cent on the PieAe,
stock and IL per cent on the common s'o0N %
,he comnanv which were declared on June 10
by the Board OF Directors. Although an apie"'
will he taken from the decision OF Judge Thonas
10 the United States Circuit Court OF Appears
sitting In this borough. representative VI
Charles MacVeagh the counsel for the Federai
Steel Company, said last night that unoouo'euis
the company would now be unable 10 pay 'ne
dividends before next January.
The case has been rushed through with re-
markabe rapidty in order that decision fnish'
be rendered before to-day. at which time tne
company expected TO pay the DIVIDENDS 1t was
argued last Saturday: the briefs were hahoed III
on Tuesday and the decision was hanoeo oo"h
at 2 o'clock yesterday afternoon. Although the
case properly belongs in the Manhattan feoera1
district. It was argued In Brooklyn for conven-
fence The opinion Of Judge Thomas Is as ioi-
lows:
o1rEsTIONs DECIDED BY JUDGE THOMAS.
The questions for decision are these: FIRST
Nav the defendant corporation declare ana pay
quarterly dividends upon It's preferred eeooH nt
49, he
"some specific day or days for that purpose oe
fxed in its charter or bylaws? Second-May
dividends be declared upon the common STOCK
previous 10 the close OF the fiscal year,
The charter itself provides that the diVloehu
upon the common stock shall be declared s aIlsr
the close of the fiscal year. and thereo! a~ccoIus ~
with the general time fixed by the statute soon
To be noticed The provision is plain. and no at,
tempted construction can diminish It's simple anu
direct authority.
The solution OF the question relating to pre-
>erred stock is not difficult. The inquiry does
not relate 70 the capacity Of the directors TO de-
termine whether sufficient pronts appllcaoie W
dividends have been received. Ihat Is uncon- nn
troverted The directors have undertaken TO Sc
lect the months and the days when the dlVldenos
for the year 1899 shall be paid If the directors
have the ability TO do this they have capacity
pursuant TO their will TO vary the time OF pay
ment in different years. .,
But Il is considered that the statute (Sec ~
Corporation act, iv) requires that nxeo times
for making such payments shall be empooleo IL,
the charter or bylaws. and that in default or
such designation of certain days In either the
charter or bylaws the declaration and payment
Of dividends shall be made as provided oy the
statute during the month following the close or
the fiscal year. Section 41 provides:
THE directors OF every corporation created
under shis act shall in January each year un-
less some specific day days for that purpose
be fixed in its charter or bylaws. and In that
case then on the days so fixed, after reservins
over and above its capital stock paid IN as
working capital for said corporation such sum,
II any as shall have been fixed by the stock
holders. declare a dividend among its stockhold-
ers Of the whole OF its accumulated pronts eX-
ceeding the amount so reserved. ana pay she e
same TO such stockholders on demand provided
that the corporation may in its certihcate or IN
corporation or in its bylaws give the directors
power to fix the amount TO be reserved as
working capital .t..-.
POWERS OF THE CORPORATION.
One obvious intention of the statute is to pub
lish to stockholders. or proposed stockholders
the fact that the profits shall be divided at ap-
pointed time times. and that such time snail
be uniformly in the month of January, unless
the charter bylaws designate some specific
day or days for that purpose" Full power OF
selection is conferred upon the corporation but
such power is not confided to the varying dis
cretion of the directors. The corporation is linn
tied only in its method of establishing and pub
fishing such days. "Embody the days in the
charter or bylaws, that is the single QudNnca-
But the learned counsel for the defendant
urges % that Section No Al is not applicable
-
negative the power of the directors to declare
and pay dividends upon any days selected by
them; (3) that Section No Is (Revision of 1886
permits quarterly payment OF dividends upon
preferred stock; "a that the charter gives the
directors power at will to declare dividends on
the preferred stock Section No. AZ commands
that the whole" surplus profits, less the
amount reserved. shall be distributed to stock
holders Certainly II was not intended to limit
the payment TO the common stockholders
The second contention is equally untenable
The claim there is that the object of the
tion is to compel distribution in January. II
some profits then remain undivided. That may
be one purpose of the section. But does the
section intend that the directors may divide the
profits any days they prefer previous TO
January? What, then, is the of the words
unless some specific day or days" etc. ? Clearly
the section does not intend that the dstribu-
ton may be made on any days selected by the
Board of Directors and 81 not so made that the
surplus profits shall be distributed during the
month Of January. ION specific day or
days" fixed in the charter bylaws. Such a
construction renders the section shapeless and
meaningless. Nor does Section No. IS impair
the restraint imposed by Section No. AZ. Sec
tion No 1S permits payment Of dividends upon
preferred stock quarterly. semi-annually or an
nually. There Is no contrary contention.
ACTION OF DIRECTORS ILLEGAL
directors or the charter bylaws? Sec
ton No. AZ states that the designation Of DAYS
must be made in the charter or bylaws. The
two sections are entirely harmonious and help
full
The last contention is that the charter pro-
vides that the preferred stock shall be en-
titled, out Of any and all surplus net profits
whenever declared by the Board OF Directors
10 non-cumuative dividends at the rate Of but
not exceeding, . per cent per annum." etc. and
that this provision empowers the directors to
select the dividend days. 1t is papable that the
provision intends to declare the rights Of pre-
ferred stockholders. and not to endow the direc-
tors with power 10 declare dividends at their
pleasure. But assume otherwise who placed
the provision in the charter? rhe directors
May directors by inserting such a provision
nullify the commands of Section No Al? The
matter does not admit of discussion. 1t is final
ly objected that the directors cannot be re-
strained. since by their act found TO be illegal
the title of the dividend fund has vested in the