Court Opinion

ID: 3422956
Source: CourtListenerOpinion
Date Created: 2016-07-05 19:50:35.386088+00
Date Added: 2024-06-11T13:54:05.126777
License: Public Domain

DISSENTING OPINION.
I was not a member of the court at the time the opinion herein was filed, but upon consideration of appellee's petition for a rehearing, I believe it should be granted, and I therefore dissent from the action of the court in overruling the petition.
This was not an action to collect a dividend but was one seeking redemption of preferred stock in accordance with the provisions of appellant's charter (articles of incorporation) and in accordance with the provisions in the contract (stock certificate) between appellant and appellee. The law specifically provides, with reference to preferred stock and the redemption thereof, that, "such preferred shares may be redeemed or acquired by the corporation on such terms and in such manner and at such times as may be provided in the original or amended articles of incorporation." § 15, Acts 1923 p. 530, § 4836 Burns 1926. The act of 1923 also provides that a corporation in its certificate issued to preferred stockholders "may provide that in the event . . . such corporation shall fail to comply with any of the conditions and stipulations set forth in such certificate, then . . . the holders of three-fourths in amount of such preferred shares may require the liquidation of such corporation . . . ." § 15a, Acts 1923 p. 531, § 4837 Burns 1926.
Both the articles of association and the preferred stock certificate provide, in the language of the 1923 act, that the preferred stock holder shall be entitled to certain semi-annual dividends and that failure to pay preferred stock dividends for ninety days "after the same shall have become DUE" shall cause all of the preferred stock to become due and payable.
The opinion of the court fails to distinguish between *Page 178 
a dividend which is due and one which is payable. The dividend here was certainly due, according to the terms of both the articles of incorporation and the preferred stock certificate, although it could not be payable because of the statute which provides that "no corporation shall declare or distribute any dividend . . . except from the profits . . . ." § 23, Acts 1921 p. 99, § 4846 Burns 1926.
The contract here does not call for the unlawful payment of a dividend not yet earned, but it does call for redemption and liquidation of the company at the option of the preferred stockholders if the company does not accumulate earnings from which to pay dividends and does not pay them within a specified time.
The cases cited in the main opinion to the point that a receiver will not be appointed "except in cases where it is clearly made to appear that the objects of the corporation have become impossible or when its affairs have been so managed, or from other cause, that failure or ruin is inevitable," are not in point here where both parties, relying upon an express statute, have written into the very being of the corporation, (its articles of association), and into an express contract, (its preferred stock certificate), a positive agreement that if the company fails to pay the stipulated return on the preferred stockholders investment the preferred stockholders may compel a liquidation.
It is true that the relation between a preferred stockholder and a corporation is not that of creditor and debtor. A preferred stockholder's rights are those of a common stockholder, except as they may be limited or enlarged by statute or contract. Grover
v. Cavanagh (1907), 40 Ind. App. 340, 347, 82 N.E. 104. These rights depend upon the terms and construction of the contract with the corporation, so long as the contract is not prohibited by law, 14 C.J. 411, 415, and a corporation *Page 179 
may issue its preferred stock under an agreement to redeem the same at a certain time or on certain conditions, provided it can be done without prejudice to creditors of the corporation and provided there is no fraud upon other stockholders. 14 C.J. 507.
Investors are entitled to protection as well as promoters and in addition to the fact that the clear and unmistakable terms of the company's charter and its preferred stock contract entitles appellee to the relief sought, I believe that modern business conditions wherein preferred stock is held largely by persons not actively connected with the companies' business or management, require a different rule than that stated in the main opinion. The court holds that "the contract before us may be fairly justified by the articles of incorporation" yet nullifies the contract as being "contrary to public policy." The authority referred to, 1 Cook, Corporations (8th ed.) § 271, states that, "A contract that dividends shall be paid on the preferred stock whether any profits are made or not would be contrary to public policy and void," but as I have pointed out, that is not the situation which exists here.
I know of no public policy which prevents the incorporators of a company from safeguarding the investment of the preferred stockholders to any legal extent they may desire in their articles of association and preferred stock certificate especially in view of the fact that the act of 1923, above referred to, expressly provides that they may do so.
The rule laid down in the main opinion will allow redemption and liquidation clauses to be applicable only where there are earnings and will deprive preferred stockholders of remedies and protection which they may reasonably assume they have, from the clear language of articles of incorporation and stock certificates.
Gemmill, C.J., concurs in the foregoing opinion. *Page 180