Court Opinion

ID: 3601519
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:47:51.605692+00
Date Added: 2024-06-11T13:46:50.947733
License: Public Domain

It was, unquestionably, the purpose of the plaintiff to convert his bonds into the stock of the company before the 30th of November, 1856. If he had accomplished this purpose it cannot, I think, be doubted but that he would have been entitled to participate in the cash and stock dividends subsequently declared upon the stock and business of the company for the six months ending on the day named. If, in this, he would have gained any substantial advantage to himself beyond that enjoyed by any other of the stockholders, there could have been no just ground of complaint for his right to do, as he intended to have done, was nominated in the bond. The money which the holders of bonds loaned to the company was doubtless employed to enlarge its business and enhance the value of its stock, and it was the privilege of the plaintiff at any time to change his position as a creditor to that of a stockholder in the company upon the surrender of his bonds according to their tenor and effect. Contrary to his expectations, the plaintiff's bonds did not reach the office of the company for conversion into stock until the 3d day of December, 1856, after the transfer books had been closed, preparatory to making the usual semi-annual dividends; and of this the plaintiff was immediately advised. On the sixteenth of December a certificate of eighty shares of the defendant's stock, dated on the third, was forwarded to the plaintiff by mail, and on the 17th of December, 1856, the directors of the company declared a cash dividend of seven per cent and an extra dividend of twenty per cent, payable in the stock of the company, "on the stock, business and affairs of the company as the same stood and were on the said 30th day of November, 1856."
The question whether the plaintiff was legally entitled to both or either of the dividends thus declared is not free from difficulty, and mainly depends, I think, upon the power of *Page 205 
the directors of the company in declaring a dividend to discriminate between its stockholders for any reason whatever, and it is not important to consider whether the plaintiff is to be regarded as a stockholder on the 3d or on the 16th of December, 1856, for, in either case, he was a stockholder before the dividend was actually declared. No such power of discrimination is conferred by the charter of the company; and if it can be said to exist at all, it must rest upon general principles of law. It is certainly true, as a general rule, that a stockholder in a corporation has an interest, in proportion to his stock, in all the corporate property, and has a right to share in any surplus of profits arising from its use and employment in the business of the company; and this legal right does not depend upon the question whether he is a stockholder of long standing or of recent date. The moment a person becomes a stockholder in a corporation all the incidents of interest orquasi ownership in the corporate property attach. Where stock is transferred from one person to another, no question could be made as to the right of the stock to participate in any subsequent dividend; and I do not discover that there can be any difference between stock obtained by the conversion of bonds and stock which has long existed and transferred on the books of the company immediately before the declaration of a dividend. It was, as before said, the right of the plaintiff to convert his bonds into stock whenever he elected to so do; and when stock for his bonds was issued to him he was equal in right, to the amount of his stock, with every other of his associate stockholders, and I am unable to discover any principle by which the directors had authority to make any discrimination between them. If such a rule should be approved it might result in very great disasters to holders of corporate stock. Unless in some way restrained by legislation the power to discriminate would rest in the discretion of the directors and be liable to very great favoritism and abuse.
The circumstance that the directors have adopted some particular day as the close of the corporate fiscal year, or that special days are adopted for declaring dividends, or that it is *Page 206 
found convenient to close the transfer books for any purpose does not, in any way, impair the legal rights of a stockholder to share in dividends subsequently declared, although the closing the books would, to some extent, embarrass the transfer of stock. (Jones v. Terre Haute and Richmond R.R. Co., 20 Barb., 353;Luling v. The Atlantic Mutual Ins. Co., 45 id., 510, 514;Phelps v. The Farmers' Bk., 26 Conn., 269; March v.Eastern R. Co., 43 N.H., 515; Foote, appellant, 22 Pick., 299, 304; Grange v. Bassett, 98 Mass., 462; Rider v. TheAlton, etc., R.R. Co., 13 Ill., 516, 520; Reese v. Bk. ofMontgomery Co., 31 Penn. State, 78.)
As has been said, before a dividend is declared, all the property of the corporation belongs, in fact, jointly to all the stockholders, the legal title being in the corporate body and its affairs managed by the directors as trustees for the stockholders. After a dividend is declared, each stockholder has a right in severalty to his particular proportion; and this right cannot, I think, be abridged by any discrimination of the directors in any form whatever (Coles v. Bk. of England, 10 Ad.  Ell., 439; Feistel v. King's College, Cambridge, 10 Beav., 491; City of Ohio v. Clev. and Toledo R.R., 6 Ohio St., 489; Carpenter v. N.Y. and N.H.R.R., 5 Abb. Pr., 277;King v. Patterson and H.R.R.R., 29 N.J. [5 Dutch.], 82;Brown v. Lehigh Coal and Nav. Co., 9 Penn. St., 270;Granger v. Bassett, 98 Mass., 462), and an action may be maintained against the company for a refusal to pay after demand.
It is sufficient in this case that the bonds of the plaintiff had been converted into stock before the dividends in question were declared, and, I think, the plaintiff was entitled to recover both, and judgment should be rendered accordingly.