Benas v. Title Guaranty Trust Company, a Corp.

• Decision Date: 02 December 1924
• Parties: GEORGE BENAS, Appellant, v. TITLE GUARANTY TRUST COMPANY, a Corporation, Respondent.
• Court: Missouri Court of Appeals

267 S.W. 28

216 Mo.App. 53

GEORGE BENAS, Appellant, v. TITLE GUARANTY TRUST COMPANY, a Corporation, Respondent.

Court of Appeals of Missouri, St. Louis

December 2, 1924

Appeal from the Circuit Court of the City of St. Louis.--Hon. Frank Landwehr, Judge.

AFFIRMED.

Judgment affirmed.

Thomas J. Hoolan and Montague Lyon, Jr. for appellant.

(1) The board of directors had no right or power to rescind the dividend declared. (a) The board of directors of a corporation can lawfully declare a dividend payable in stock of another corporation. 14 Corpus Juris, 811; Smith v Cotting, 120 N.E. 177; Equitable Life Assurance Society v. Union Pacific Railroad Co., 212 N.Y. 360; Continental Securities Co. v. Northern Securities Co., 66 N.J.Eq. 282. (b) A dividend may be made payable at a future time. Cogswell v. Second National Bank, 78 Conn. 75; Billingham v. Gleason Mfg. Co., 185 N.Y. 571; Beers v. Bridgeport Spring Co., 42 Conn 17; Northwestern Marble Co. v. Carlson, 116 Minn 438; Wallin v. Johnson City Lumber Co., 136 Tenn. 124; Tepfer v. Rival Gas Supply Co., 117 N.Y.S. 959. (c) The mere declaration of a dividend creates a debt against the corporation in favor of each stockholder. McLaren v. Planing Mill Co., 117 Mo.App. 40; Ball v. Cotton Press Co., 141 Mo.App. 42; George D. Hope Lumber Co. v. Stewart, 241 S.W. 675. (d) A dividend, when declared and written into the records of a corporation, cannot be revoked or rescinded without the consent of the stockholders. McLaren v. Planing Mill Co., 117 Mo.App. 49; 14 Corpus Juris, 816, sec. 1239; Union, etc., Trust Co. v. Taintor, 85 Conn. 452; 14 Corpus Juris, 812; Ford v. East Hempton Rubber Thread Co., 158 Mass. 84. (2) The dividend was not illegal. Upon an authorized reduction of the capital stock of a corporation, regularly effected, the amount of the corporate assets, over and above the amount of the capital stock as reduced and the debts, is equivalent to surplus profits, and may be treated as such by the corporation. Strong v. Brooklyn R. R. Co., 93 N.Y. 434; The Equitable Life Assurance Society v. Union Pacific R. R. Co., 212 N.Y. 360; 1 Cook on Corporations (7 Ed.), page 838, sec. 289; Continental Securities Co. v. Northern Securities Co., 66 N.J.Eq. 282; Cogswell v. Second National Bank, 78 Conn. 80; Jerome v. Cogswell, 204 U.S. 6; Smith v. Cotting, 20 N.E. 177; Allen v. Francisco Sugar Co., 193 F. 838. (3) Parol testimony was not admissible to contradict the facts evidenced by the books of account of the defendant or the sworn recitals in the statement of decrease of capital stock. (a) The records and books of a corporation become conclusive evidence against it when the entries have been duly made by the recording officer. Lipsett v. Hoosard, 158 Mich. 509; Gould v. Norfolk Lead Co., 9 Cush. 345; Petersborough Railroad v. Wood, 61 N.H. 408; Beasley v. Mutual Aid Assn., 94 Ark. 499; Railway Co. v. Bank, 62 Ark. 42; Dusenberry v. Development Co., 164 A.D. 575; Scheely v. N. Y. Steam Co., 121 N.Y.S. 619. (b) The law presumes that the recitals contained in the statement of decrease of capital stock are true. Stiller v. Atchison, 34 Okla. 45; Erwin v. K. C., F. S. & M. Ry. Co., 94 Mo.App. 97; Oswald v. Minneapolis Times Co., 65 Minn. 249; Newman v. Sexton, 156 Ill.App. 517; Indiana Refining Co. v. Buhram, 220 F. 429; State v. Hancock, 45 A. 851; Amherst Bank v. Root et al., 2 Metc. 544. (4) Even if parol testimony, in regard to the value of the assets of the defendant corporation, were admissible, the testimony offered by defendant for the purpose of contradicting its own books was of little or no probative value, being at best only the expressions of conclusions and opinions of a small minority of the board of directors of the defendant corporation. (5) The acts and conduct of defendant constituted a conversion in law of the plaintiff's property. George D. Hope Lumber Co. v. Stewart, 241 S.W. 681.

Wilfley, Williams, McIntyre, Hensley & Nelson for respondent.

(1) The action of respondent's board of directors on March 17, 1915, in attempting to authorize the distribution of the American Trust Company stock as a dividend, the effect of which would have been to impair the capital of respondent, did not bind the respondent, and was in direct violation of the Missouri statute covering the situation. Section 1132, R. S. 1909. (2) Even in the absence of statute it is the settled rule that a corporation cannot lawfully declare dividends in any manner that will impair its capital. 6 Fletcher Cyc. Corp., page 6082, and cases therein cited. (3) The action of the board of directors on April 14, 1915, in rescinding the illegal declaration of dividend on March 17, 1915, was proper, and removed any possible basis of a valid claim on behalf of appellant. 10 Cyc. 549; 2 Thompson on Corp., sec. 2135; Staats v. Biograph Company, 236 F. 454; Dock v. Cordage Company, 167 Pa. 370; Slader v. Coal Co., 25 Mo.App. 439; Ins. Co. v. Page, 173 B. Mon. 442; 6 Fletcher Cyc. Corp., page 6070; Albany Fertilizer & F. Imp. Co. v. Arnold, 103 Ga. 145. (4) Directors of a corporation cannot legally declare a dividend on the theory that some time in the future the company may have a surplus out of which the same can be paid. People v. Savings Union, 72 Cal. 199. (5) In determining the validity of a corporation dividend, parol evidence is admissible on the issue of actual value of the corporate assets, even though such parol evidence contradicts the value at which the assets are carried upon the books of the company. Siegman v. Electric Vehicle Co., 72 N.J.Eq. 403; Coleman v. Booth, 268 Mo. 64; 6 Fletcher Cyc. Corporations, pages 6084 and 6091; Whittaker v. Amwell Nat. Bank, 52 N.J.Eq. 400; American Steel and Wire Co. v. Eddy, 138 Mich. 403; Hyams v. Old Dominion Copper M. & S. Co., 82 N.J.Eq. 507.

SUTTON, C. Allen, P. J., and Becker and Daues, JJ., concur.

OPINION

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 $ 3200 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 had 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 twenty-six 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 twenty-six 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...