Opinion ID: 2113062
Heading Depth: 1
Heading Rank: 3

Heading: Dividend Preference Statutorily Optional

Text: Shintom's complaint alleged that title 8, section 151(c) of the Delaware Code mandates that the holders of preferred stock must receive dividend rights in some circumstances, and that because Audiovox Delaware's preferred shares do not pay dividends under any circumstance, they are void as a matter of law. The relevant language of section 151(c) reads as follows: The holders of preferred or special stock of any class or of any series thereof shall be entitled to receive dividends at such rates, on such conditions and at such times as shall be stated in the certificate of incorporation or in the resolution or resolutions providing for the issue of such stock adopted by the board of directors as hereinabove provided, payable in preference to, or in such relation to, the dividends payable on any other class or classes or of any other series of stock, and cumulative or noncumulative as shall be so stated and expressed. When dividends upon the preferred and special stocks, if any, to the extent of the preference.... [9] Shintom argues that the use of the word shall in section 151(c) means that the holders of preferred stock are entitled as a matter of law to dividend rights  that is, to the right to receive at least some dividends in some circumstances. According to Shintom, the statute does not require that the holders of preferred shares receive dividends at any particular time or in any particular amount or, indeed, that they ever actually receive them, only that they have at least the right to receive dividends in some circumstances. In support of its argument, Shintom contrasts the use of the words may in section 151(a) with the use of the word shall in section 151(c). Shintom's argument is contrary to the unambiguous meaning of the word shall as it is used in the context of section 151(c), and it is also inconsistent with the enabling scheme of the Delaware General Corporation Law statute. When sections 151(a) and (c) are read in pari materia, the use of the terms shall and may within the statutory framework make it clear that preferred stock need not confer dividend rights. Section 151(c) does not mandate that all preferred stock confer a right to payment of dividends. Instead, it confirms  consistent with the enabling language of section 151(a)  that a corporation may determine to issue preferred stock that may have a contractually determined dividend right as one of its preferences. If preferred stock is issued, however, section 151(c) provides that the holders of such stock shall only be entitled to receive dividends at the rate and under the conditions stated in the certificate of incorporation or applicable resolution(s). Seventy-five years ago, the Court of Chancery reached the same conclusion in a case where the preferences at issue were set forth in a corporation's bylaws. [10] In Gaskill, the Court of Chancery held that the holders of preferred shares must refer exclusively to the certificate of incorporation to ascertain their rights: The statute, by providing that the preferred stock which corporations created under it may issue shall possess such preferences as are stated in the certificate of incorporation, by obvious inference must be taken to mean that unless the preferences are stated in the certificate of incorporation, they shall not exist. [11] In reaching that conclusion, the Court of Chancery relied upon a New Jersey court's interpretation of the statute that served as the model for the Delaware provision. [12] We find the ratio decidendi in Gaskill to be persuasive. Section 151(c) provides that the holders of preferred shares shall be entitled to receive dividends at such rates, on such conditions and at such times as shall be stated in the certificate of incorporation or applicable resolution(s). That is equivalent to stating that such shares shall have no other preferences. [13] We reach that conclusion by applying the same general principle of statutory construction that was invoked in Gaskill: the expression of one thing is the exclusion of another ( expression unius est exclusio alteruis ). [14] The unambiguous language of section 151(c) makes the mandatory shall nature of a preferred stockholder's entitlement to receive dividends expressly contingent upon those rights,  if any,  being set forth in the certificate of incorporation or applicable resolution(s).