Benas v. Title Guaranty Trust Co.

• Decision Date: 24 December 1924
• Docket Number: No. 18741.,18741.
• Citation: 267 S.W. 28
• Parties: BENAS v. TITLE GUARANTY TRUST CO.
• Court: Missouri Court of Appeals

267 S.W. 28

BENAS v. TITLE GUARANTY TRUST CO.

No. 18741.

St. Louis Court of Appeals. Missouri.

December 24, 1924.

Appeal from St. Louis Circuit Court; Frank Landwehr, Judge.

Action by George Benas against the Title Guaranty Trust Company. Judgment for defendant, and plaintiff appeals. Affirmed.

Thomas J. Hoolan and Montague Lyon, Jr., both of St. Louis, for appellant.

Wilfley, Williams, McIntyre, Hensley & Nelson, of St. Louis, for respondent.

SUTTON, C.

This is an action at law. A jury was waived and trial was had before the court, resulting in a judgment in favor of defendant. Plaintiff appeals.

Appellant, a stockholder in respondent company, sued to recover a money judgment for $3,200 against respondent for that it had failed and refused to distribute to him his share of a dividend declared by the respondent.

On March. 17, 1915, the board of directors of respondent passed the following resolution, to wit:

"Whereas, a meeting of the stockholders of the Title Guaranty Trust Company is to be held. April 13, 1915, for the purpose of reducing the capital stock from $2,500,000 to $1,000,000; and

"Whereas, it is deemed best to declare a dividend of American Trust Company stock to holders of Title Guaranty Trust Company stock, provided the capital stock is reduced as proposed, from $2,500,000 to $1,000,000:

"Now, therefore, it is resolved, that a dividend consisting of the shares of the American. Trust Company stock be declared and be distributed after the 13th day of April, 1915, provided the stock of said Title Guaranty Trust Company has been reduced from $2,500,000 to $1,000,000."

Thereafter, on April 13, 1915, the stockholders passed an appropriate resolution for reducing the capital stock from $2,500,000 to $1,000,000. This reduction in capital stock became effective under the Missouri statute on the 20th day of April, 1915, being the date upon which a duly certified copy of a statement of the proceedings for such reduction was filed in the office of the bank commissioner of the state of Missouri.

Prior to the reduction of the capital stock, the actual value of the total assets of the respondent did not exceed the sum of $2,196,534.69. Among these assets was all the outstanding stock of the American Trust Company of the actual value of $1,147,000. The total liabilities of respondent were $2,887,182.94, consisting of capital stock liability of $2,500,000 and indebtedness of $387,182.94. Respondent bad no surplus, but there existed a deficit of at least $690,648.25. After the reduction of the capital stock, the surplus did not exceed the sum of $809,351.75, and the distribution of the American Trust Company stock as a dividend to respondent's stockholders would have impaired its capital in at least the sum of $337,648.25.

On April 14, 1915, which was six days before the reduction in capital stock became effective, the board of directors of the respondent company passed the following resolution:

"Whereas, a resolution was adopted at the meeting of the board of date March 17, 1915, looking to a distribution of the stock of the American Trust Company after April 13, 1915; and

"Whereas, it is the sense of the board that the time is not now propitious for such distribution, and that it will not be to the interest of the company or its stockholders that such distribution be made:

"Therefore, be it resolved, that no action be taken upon said resolution, that no stock dividend be declared at this time, and said resolution be and the same is hereby rescinded."

None of the stock of the American Trust Company was distributed to respondent's stockholders,

Appellant, as one of the stockholders, made demand upon respondent to deliver to him 26 shares of the American Trust Company stock, which it is conceded was his share of the dividend as declared by the board; but said demand was refused, and appellant brought this suit to recover the value of said 26 shares.

The appellant contends that the declaration of the dividend made on the 13th day of March, 1915, was valid and conclusive, and that its subsequent rescission by the board of directors was unauthorized, and that he is entitled as a matter of law to recover the value of his share of the dividend declared; whereas, the respondent contends that the declaration was ultra vires and void because it undertook to distribute capital in the guise of a dividend, and that the subsequent rescission of the declaration by the board was proper and removed any possible basis of a valid claim by appellant against respondent on account of said declaration.

That under the statutes of this state, it is beyond the power of a corporation such as respondent to declare and distribute dividends out of its capital cannot be questioned. Sections 1132, 1137, 1138, and 1139, R. S. 1909; sections 11825, 11826, 11827, and 11828, R.S. 1919.

Independent of statutory provision, however, it is a fundamental rule that a corporation has no power to make dividends out of capital, but may lawfully declare dividends only out of surplus or profits over and above its capital. It is a corollary to this rule that if a dividend is declared the distribution of which would impair the capital of the corporation, such ultra vires declaration may be subsequently reconsidered and rescinded. Coleman v. Booth, 268 Mo. 64, loc. cit. 85, 186 S. W. 1021; Slayden v. Seip Coal Co., 25 Mo. App. 439, loc. cit. 445; 6 Fletch Cyc. of Corporations, 6082; Lexington Life, Fire & Marine Ins. Co. v. Page, 17 B. Mon. (Ky.) 412, loc. cit. 442, 66 Am. Dec. 165; Albany Fertilizer & Farm Imp. Co. v. Arnold, 103 Ga. 145, loc. cit. 149, 29 S. E. 695; Siegman v. Electric Vehicle Co., 72 N. J. Eq. 403, 65 A. 910; Staats v. Biograph Co., 236 F. 454, loc. cit. 458, 149 C. C. A. 506, L. R. A. 1917B, 728; People v. Savings Union, 72 Cal. 199, 13 P. 498; 5 Thompson on Corporations, §§ 5311 and 5312; 10 Cyc. 549.

All this in no way contravenes the familiar rule that a lawful declaration of a dividend out of existing surplus or profits available for that purpose creates a debt against the corporation and in favor of each stockholder for his share of the dividend, and that such declaration" may not be rescinded by any subsequent action of the corporation without the consent of the stockholder concerned, as a debtor may not rescind his debt without the consent of his stockholders, creditor. McLaran v. Planing Mill Co., 117 Mo. App. 40, 93 S. W. 819; Ball v. Cotton Press Co., 141 Mo. App. 26, loc. cit. 42, 121 S. W. 798; Hope Lumber Co. v. Stewart (Mo. App.) 241 S. W. 675. Nor is the rule questioned that a surplus arising from a lawful reduction of the capital stock is available for dividend purposes and may be lawfully distributed as such. Strong v. Brooklyn R. Co., 93 N. Y. 434; Equitable Life Assurance Society v. Union Pacific It. Co., 212 N. Y. 360, 106 N. E. 92, L. R. A. 1915D, 1052; Continental Securities Co. v. Northern Securities Co., 66 N. J. Eq. 282, 57 A. 876; Cogswell v. Second National Bank, 78 Conn. 80, 60 A. 1059; Jerome v. Cogswell, 204 U. S. 6, 27 S. Ct. 241, 51 L. Ed. 343; Smith v. Cotting, 231 Mass. 42, 120 N. E. 177; Allen v. Francisco Sugar Co., 193 F. 838, 114 C. C. A. 453.

In this case the court found upon very substantial evidence that prior to the...