Court Opinion

ID: 9808955
Source: CourtListenerOpinion
Date Created: 2023-08-31 20:56:12.819619+00
Date Added: 2024-06-11T12:22:21.750508
License: Public Domain

*814Clarkson, J.,
dissenting: This is an action for tbe dissolution of tlie defendant corporation, and for the distribution of its net assets among its stockholders, brought by certain owners of preferred and common stock. It is well settled that the right to exist as a corporation is derived from the State and that in the absence of statutory provision to the contrary, only the State which created the corporation can sue to dissolve it. Fletcher, Cyclopedia of the Law of Private Corporations (per. ed.), Vol. 16, sec. 8077, p. 858; Bass v. Navigation Co., 111 N. C., 439; Torrence v. Charlotte, 163 N. C., 562. See Lesley v. Mercantile Co., 179 N. C., 575; S. c., 578; C. S., 1182, ei seq. The Legislature has power to provide, by statute, for the dissolution of a corporation at the suit of an individual, and this action was instituted under the provisions of C. S., 1186.
It may be stated that equity, independently of statute, has no jurisdiction to decree the dissolution of a corporation. The only jurisdiction that a court can have to decree a dissolution, as in the instant case, must be derived from the statute under which the action for dissolution was brought. The pertinent provisions specified in the present statute require that stockholders must (a) own one-fifth or more in paid-up stock, and (b) these stockholders must show that for three years next preceding the filing of the petition the net earnings of the corporation have not been sufficient to pay in good faith an annual dividend of four per cent upon the paid stock of the corporation. It is alleged that the plaintiffs in the present action are now, and have been for more than two years prior to the commencement of the present action, owners of 200 shares of the common, and 690 shares of the preferred stock of said corporation. For three years next preceding the commencement of this action, the net earnings of the defendant corporation have not been sufficient to pay in good faith an annual dividend of four per cent upon, its paid-up common capital stock, but dividends of seven per cent have been paid regularly on the preferred stoch of said corporation from the date of its organization until 1 February, 1932.
The defendant, the Caldwell Cotton Mills Company, had paid-up capital stock of $349,500, divided into 2,495 shares of common stock, and 1,000 shares of preferred stock, making a total of 3,495 shares, each of the par value of $100.00. Unless, under the statute, the holders of preferred stock are entitled to join with holders of common stock, the plaintiffs have no right to bring this action for dissolution of the corporation, for they do not hold one-fifth of the common stock. It is their contention that they have a right not only to tack their preferred stock onto their common stock but also to pool dividends on the preferred stock with failure to pay dividends on common stock, so as to bring their action within the requirements of the statute that “the net earnings of *815tbe corporation have not been sufficient to pay in good faith an annual dividend of four per cent upon the paid stock of the corporation.”
The holders of the preferred stock, under the provisions of their contract with said corporation, as set forth in the certificate of preferred stock, are entitled to receive when as declared from the surplus or net profits of the company, dividends at the rate of seven per centum per annum, payable quarterly on the first days of February, May, August and November of each and every year, and the dividends on the preferred stock are cumulative, and are payable before any dividends on the common stock. Upon dissolution of the corporation, the holders of the preferred stock are entitled to be paid in full both the amount of their shares and the unpaid dividends accrued thereon, before any amount shall be paid to the holders of the common stock. The holders of the preferred stock are not entitled to voting powers or privileges.
It is alleged in the complaint: “That the contract between said corporation and the owners and holders of preferred stock therein as set forth in the certificate of preferred stock created and issued by the defendant is, in part, as follows: . . . The holders of the preferred stock of this company shall not be entitled to voting powers or privileges.” (Italics mine.) For the purpose of a demurrer, the above facts are admitted. The holders of preferred stock of a corporation are not creditors. Power Co. v. Mill Co., 154 N. C., 76; Cotton Mills v. Bank, 185 N. C., 7; Ellington v. Supply Co., 196 N. C., 784.
The difference between preferred stockholders and common stockholders is that the former are entitled to a certain preference — in the instant case to seven per cent cumulative dividends payable before any dividends on the common stock. This is a square-cut distinction between the two classes of stockholders, as long as the dividends on the preferred stock continue to be paid, for it is provided that the preferred stockholders have no voting powers or privileges. Even if the dividends are not paid, they are cumulative, and the preferred stockholder is still in a different class from the common stockholders, not only because of a lack of voting power but also because of still having a preferred claim over common stockholders for unpaid dividends.
While it is apparent that there may be conflicting interests between the holders of preferred stock and the holders of common stock, under the conditions and circumstances of the instant case, the preferred stockholders being interested in the continuance of the payment of their dividends while the common stockholders may be getting nothing, the statute provides the holders of common stock a remedy. One-fifth of the holders of the common stock may bring an action for dissolution. That this was the intention of the Legislature is indicated by the fact that a subsequent amendment (Public Laws, 1915, chap. 137) to the original *816statute (Public Laws, 1913, cbap. 147) provides for the insertion of a phrase “or whenever stockholders owning one-tenth or more in amount of the paid-up common stock of such corporation,” etc. It was the understanding of the 1915 Legislature that such was the intention of the 1913 Legislature.
This action was instituted under O. S., 1186. The contract under which the holders of preferred stock bought their stock from the corporation specifically provided that they were to have no voting powers or privileges. Their remedy for failure to pay dividends would not arise under this statute, but even if they were entitled to bring such an action they cannot qualify under its provisions, for they have received dividends within three years. “Defendant since its organization has paid dividends on its preferred stock according to the amount mentioned therein from the date of its issuance up to and including the dividend installment falling due 1 February, 1932, after which time it has paid no dividend on said preferred stock. This stipulation may be considered by the court on the motion to dismiss. This stipulation is not to be considered as an admission that the defendant earned any money wherewith to pay said dividends.”
It cannot be said that the interests of the two classes of stockholders may be merged by pooling the two classes of stock, for their interests are not the same. The holders of preferred stock are concerned with a continuance of their preferred dividends of seven per cent, the interest of the holders of common stock in conserving the assets of the corporation with a view to increased dividends later. The holders of the common. stock own the assets of the corporation after the holders of the preferred stock are paid.
Under the terms of the contract contained in the certificate of preferred stock, and under the provisions of C. S., 1186, the demurrer of the defendant should have been sustained, and the action of the lower court should be reversed.