Court Opinion

ID: 5201791
Source: CourtListenerOpinion
Date Created: 2022-01-06 15:53:50.550726+00
Date Added: 2024-06-11T08:27:12.797995
License: Public Domain

Scott, J. :
The dividends over which this controversy has arisen may be divided into two classes, those declared and -partly paid out of capital, and those declared out of surplus, the payment of which did not, however, impair the capital. The dividend which plaintiff seeks to recover falls within the former class. Nothing is better settled than that dividends should be paid out of surplus and profits, and cannot be lawfully paid out of capital contributed by the shareholders for the purpose of carrying on the company’s business and for the protection of its creditors. (2 Thomp. Corp. § 2126; Morawetz Corp. [2d ed.] § 453.)
To pay a dividend otherwise is forbidden by the Penal Code (§ 594), and the Insurance Law (§83*) authorizes dividends to policyholders to be paid only out of the surplus of the company. To require the defendant to pay plaintiff the premium declared iipon his policy fov the year 1905, which, if paid, would necessarily be paid out of capital and not out of surplus, would be to compel the officers of defendant to do an illegal act. Of course, no such judgment can l)e made. As to the right of the defendant to recover from other policyholders dividends which have been paid them out of capital we cannot now pronounce any judgment as the parties to be affected are not before the court. Concerning- the dividends heretofore paid to plaintiff which it is now sought to charge against him as a liability, a different question arises. It does not appear that the payment of these dividends impaired the capital of the *738company. The only ground of objection to them is that they were not formally declared by the board of directors, or even by the executive" committee, Ueither the charter nor bydaws provide specifically by whom dividend's' shall be declared, and in the absence of any specific provision on the subject we suppose that the discretion of determining how much of the surplus" and profits earned by the company should be divided among, the policyholders, is a matter peculiarly for the board of directors.
Perhaps, if. the company refused to pay such a dividend it might have defended a claim for the. dividend upon the ground that it had never been declared by competent authority. _ But having paid it to plaintiff, who, as a policyholder, stood in a position analogous.to that of a creditor, without notice of any infirmity in the manner of declaration, we think -that the payment must be considered as a voluntary payment by the defendant, and that it may not now be recovered.
The acquiescence of the company in the unauthorized act of its officers implies ratification. If the company could not recover .back the, dividends, we know of no principle that will permit'it to charge them as .a liability against the policy to be collected .thereafter,
. • There must be judgment without costs: i^rszi,,that the plaintiff is not entitled to recover from defendant the sum of fifty dollars and sixty cents, declared as a. dividend upon his policy in the year 1905, but hot paid; and, second,, that the defendant is not entitled to recover from plaintiff, to be charged as a lien upon his policy, the siim paid him in the years 1901 to 1904, both inclusive, as dividends irpon. his- said policy.
Pattebsob, P. J., Ibobaham, Laugheih and Clabke, JJ., concurred.
Judgment ordered as directed in. opinion, without costs. Settle' order on notice.

This section has been amended by Laws of 1906, chap. 326.— [Rep.