Court Opinion

ID: 8179549
Source: CourtListenerOpinion
Date Created: 2022-09-09 22:25:42.574136+00
Date Added: 2024-06-11T16:40:07.439762
License: Public Domain

'MilleR, Judge,

dissenting :

In my opinion the judgment below in favor of the defendant was clearly right and ought to be affirmed. I do not .think that the strictest construction of the contract sued on justifies reversal in favor of plaintiff.
The contract and the facts and circumstances plainly show ■that defendant desired to acquire control of plaintiff’s •stock, and thereby of the company also, the business of which -was then in a state of suspension because of legislation making it illegal to operate its plant, with the purpose of establishing a new enterprise. In this new enterprise he proposed •to admit plaintiff, to make him superintendent and to give Mm the option to buy back his stock at the price given for *768it. This looked good to the plaintiff, so he said. He thus-became interested in the proposed new enterprise, for the advantages involved in it, and preferred to remain in the company and maintain his old associations therein. After-defendant’s first proposal but one obstacle remained in plaintiff’s way; he wanted to realize the full value of his-stock whether the new enterprise succeeded or not, and whether he stayed in or not. In other words, he wanted to-reserve the same advantages and rights he would have had in the distribution of the assets of the company as if he had not parted with his stock. In addition to the par value of his stock he also wanted to share afterwards in any and all dividends which might thereafter be declared -out of the prior-earnings, either by the old or the new organization proposed. This was agreed to by defendant; and these were the rights-which the contract sued on was intended to preserve to him. If, as the opinion of the court indicates, the contract was-intended to secure payment to plaintiff of the one-fiftieth, part of the $144,000.00, covering cash, on hand, special deposits, liberty bonds, and treasury certificates, the amount, of those assets was known to both parties, and plaintiff's-supposed interest therein on that basis was capable of exact-ascertainment, and a promise to pay the exact sum so ascertained. But this was not the contract; the contract was for dividends that might thereafter be declared on his stock out of the earnings made prior to the date of the agreement. The view of the court seems to be that this was not the contract, but that it was to pay plaintiff one-fiftieth of the $144,-000.00, if the new enterprise did not materialize and the company should be obliged to liquidate and distribute its assets. It seems to me that this is a very unreconable view of the contract and the attending facts and circumstances. The record shows that the company’s assets over all liabilities, except stock liabilities, was about $50,000.00. This surplus as much represented earnings as the other investments. It included accounts receivable, and other real estate, aggregating about $22,532.60. When defendant bought plaintiff’s' forty shares of stock, his purchase, represented plaintiff’s-' *769right to one-fiftieth of the whole stock liability, which was $200,000.00. If he did not get this, what did he get? But for the agreement hjs purchase would have taken with it the right to all dividends subsequently declared on this stock, hut by the contract he bound himself to pay these dividends to the plaintiff; this and nothing more, for the contract in terms calls for “dividends on said forty shares of stock which may in the future be declared and paid out of earnings prior to the date of this agreement.” Now, if the assets of the company turn out to exceed stock liability and other liabilities as shown by the surplus on hand, sufficient earnings would remain on which dividends on the stock purchased may be declared, and to all such dividends the plaintiff would be entitled when declared.
The word “dividends” called for in the contract must be referred for its definition to the statute, and to mean sueh sums as by section 39 of chapter 53 of the Code, the board of directors is from time to time authorized to declare out of the net profits. When the defendant shall have paid to the plaintiff such dividends, he will have satisfied fully the obligation of his contract. In Drewry-Hughes Company v. Throckmorton, 120 Va. 859, the Supreme Court of Virginia says: “It is fundamental in the law of corporations that the directors have no authority to declare a dividend upon any of its stock, common or preferred, unless the dividends are earned.” The word “dividends” used in an agreement must, so our decisions say, be understood in its ordinary sense. Findley v. Findley, 11 Gratt. 434; Snodgrass v. Wolf, 11 W. Va. 158; Williams v. Oil Company, 52 W. Va. 181; Gas Company v. Oil Company, 56 W. Va. 402.
Some illustrations as to how contracts.of this character are construed elsewhere may be pertinent. In California,, for example, the plaintiff assigned two shares of stock in a mining company and said in the assignment, “I authorize the transfer to him (defendant) of all dividends made after the morning of the twenty-third of September.” Both parties expected a dividend on Monday the twenty-second. The trustees, however, did not in fact declare the dividend until be*770tween noon and one o ’clock on Tuesday. It was held that the dividend thus declared belonged to the seller. Brewster v. Lathrop, 15 Cal. 21. In Hyatt v. Allen, 56 N. Y. 553, 15 Am. Rep. 449, the syllabus says: “Plaintiff sold to defendant stock in a corporation, reserving ‘all profits and dividends of and upon such stock’ up to January then next. No dividend was declared till April. In an action to recover the dividend then declared it was found as a fact that part of it was earned prior to Januai'y. Held, that nevertheless the plaintiff was not entitled to recover any portion of the dividend.” In North Carolina, it was held that where a stockholder sells stock, reserving dividends to be declared at a specific date, he retains the right to cash dividends only, not to stock dividends, of that date. Lancaster Trust Company v. Mason, 136 Am. St. Rep. 851, 68 S. E. 235. To the same effect is Charlottesville Woolen Mills v. Kaufman, 93 Va. 673. In the case of Marble v. Van Wert National Bank, 2 O. C. D. 265, the suit was by the bank to recover back a certain portion of dividends declared on fifty shares ef its stock, standing on its books in the name of one Cassard, which Marble had prior to the dividend sold and transferred to Cassard. Marble procured the bank to pay him this money on the representation that it was verbally agreed between him and Cassard at the time of his sale and transfer of the stock, that he should have such share of the dividend. Cassard after-wards sued the bank and compelled it to credit his account with the whole of the dividend. The bank then sued Marble to recover the money so paid him, and he .pleaded the alleged verbal agreement in defense. The court held that the sale and transfer of a certificate of stock in such corporation transfers to and vests in the vendee that portion of the entire assets of the corporation which the certifiicate bears to the entire stock of the corporation, and that no valid reservation of any portion of a future dividend can be made at the time of such sale and transfer. This holding was based on the proposition that in a private corporation the legal title to all corporate property, whether of original capital or of increase arising from the corporate business, is in the corpo*771ration and so remains until by a corporate act a portion or the entire assets are divided among the stockholders. An elaborate brief on the questions involved was filed by counsel for defendant in error, from which the court quoted at length, and which cites many decisions upon the subject.