Court Opinion

ID: 6579975
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:37:30.011508+00
Date Added: 2024-06-11T15:57:14.404737
License: Public Domain

Pabdee, J.
When the defendant corporation, by the legal votes of its directors, declared the. dividends in question from profits theretofore earned and received, made the same payable without interest at such time as might be directed by the board, and ordered the' amount to be placed pro rata to the credit of the stockholders upon its books, the share of each stockholder in the several amounts was thereby severed from the common funds of the corporation and became his individual property. Thenceforth the company owed him a debt, *25payment of which at a proper time he might demand, and upon refusal, enforce by the aid of a court of equity."; King v. Paterson & Hudson River R. R. Co., 29 N. Jer. (Law,) 504; Redfield on Railways (1st ed.), 240, 597; LeRoy v. Globe Ins. Co., 2 Edwards’ Cha. R., 657. The proviso as to the time of payment does not absolve the company from all obligation to him; there remain all the essential elements of a debt, certain in amount, and certain to be paid upon a day not yet appointed, but which it is the duty of the debtor at some time to name. The legal effect of the vote is that the'' debt is to be paid within a reasraableTimSl The corporation, having declared* that it had received for and owed to each stockholder a certain sum of money, and having set the same apart from its own funds for his sole and separate use, cannot thereafter nullify its votes or repudiate its obligations by declining to pay the dividend or to name any time when it would pay it.
The interests ©f each stockholder, s© far forth as the share of the profits set to him as a dividend is concerned, become not only several and distinct from, but positively adverse to, those of every other stockholder and of the corporation itself, and the directors cease to represent him in relation thereto ■ and cannot dispose of or deal with the same in any manner without his authority or consent. As between the corporation and the ’ petitioning shareholders, therefore, the vote of July 18th, 1872, could in no manner affect their right to dividends theretofore declared and placed to their credit, unless they gave actual or constructive assent thereto. As the result of the vote, that which previously stood upon the books of the corporation as a debt due from it to the stockholders, assumed the form of an addition to its surplus fund. An intending purchaser of stock who should examine these books for the purpose of learning the financial condition of the company might be misled as to the amount of its assets and consequently as to the value of its shares, and each stockholder who assents to this change in the statement of the corporation accounts in reference to himself, might under *26certain circumstances be estopped from asserting his right to any portion of the surplus fund as a dividend declared.
The finding of the court is, that if the corporation is compelled to pay, within a comparatively short time, the whole amount of unpaid dividends, it will be required to contract its business and encumber its property to such an extent as would seriously injure, and perhaps destroy, its credit and business. While there is not sufficient force in this fact to
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induce us to deny all relief to the petitioning minority of shareholders, it requires us to be cautious as to the maimer in which relief shall be granted. We must keep in mind the financial condition of the company at the time of declaration of the dividends and the language of the votes respecting the payment thereof.
These dividends are based upon profits actually earned and received; these profits came from time to time into the treasury of the corporation in the form of money; this money has been expended for such purchases of additional real estate, machinery and materials, as in the judgment of the directors would promote the best interests of the company; and in that form of investment these profits now exist. The directors in the exercise of their discretion made an estimate as to the amount of the surplus profits of the corporation, looking at the assets as they actually existed, and upon a balance thus drawn declared, as they had a right to do, the dividends in question.
In Scott v. Eagle Fire Ins. Co., 7 Paige, 203, Chancellor Walworth says, that if directors “ without reasonable cause refuse to ■ divide what is actually surplus profits, the stockholders are not without remedy if they apply to the proper tribunal before the corporation has become insolvent.” In Pratt v. Pratt & others, 83 Conn., 456, our own court said that joint stock companies “ must have applied to them principles making them accountable like all trustees, or the grievance would be intolerable, since otherwise a majority of the stockholders, acting through the directors, who would thus cease to be in fact what the law considers them, the agents of the whole body of stockholders, and would become the *27private agents of the majority, might set the minority at defiance and manage the affairs for their own supposed benefit and the benefit of the majority who appointed them.”
Therefore, as there can be such a condition of things as will justify a court of .eqqity in compelling directors to declare a dividend contrary to their judgment, of course circumstances may justify the court in compelling them to pay dividends which they have voluntarily declared.
One of the dividends in question was declared and credited to the stockholders more than seven years since, another more than six, a third more than five; the rust of interest meanwhile consuming them; and yet the respondent majority still refuses to indicate any time of payment even in the distant future; practically claiming the right to retain them as long as they can profitably use borrowed money for which they pay no interest. In this they have failed to meet the reasonable expectations, or recognize the equitable rights of the minority.
By an usage or custom which is as well established as! if it stood upon legislative enactment, corporations steadily earning profits are expected to divide a portion of the same. Most of them make a division at least annually. A division declared imports payment thereof within a reasonable time. Indeed, in the mind of the purchaser of shares, investment and dividends are as closely associated as are seed time and harvest in the thoughts of the husbandman. And this unwritten law of the commercial world influences us somewhat in the determination of the case at bar.
One of the petitioners has sold his stock, reserving the declared dividends, and has no further or other interest in the prosperity or even existence of the corporation.
We think that the majority cannot equitably compel the minority'to loan money to the corporation without interest in the form of dividends declared and withheld, beyond the earliest time when they can be paid without serious injury to the company. And in saying this we are not unmindful of the fact that during the time these dividends have been retained the directors have declared and paid to such persons *28as'have continued to be shareholders, other dividends from their profits to a percentage larger than the ordinary rate of interest upon money loaned. This indeed indicates successful management thus far. This success however should not cause..-us to overlook the rights of the stockholders in reference to other dividends declared and unpaid. They have .thus long borne the risks attendant upon the business; they are entitled to reap the profits.
But the finding does not present the details of the present investments of the corporation with sufficient particularity to enable this court safely to name a day for the payment of the declared dividends to the petitioning stockholders. We therefore advise the Superior Court to ascertain, upon further hearing to be had for that purpose, at what time or times the same can be paid without serious injury to the corporation, and to decree accordingly. We also advise the Superior Court to decree that the corporation shall, by its duly authorized agents, restore the dividends so declared by its directors and received by it from the credit of the stockholders, to the condition they were in when credited to the stockholders ■ prior to the vote of July 13th, 1872.
In this opinion the other judges concurred.