Booth v. Union Fibre Company
| Decision Date | 21 March 1919 |
| Docket Number | 21,064 |
| Parties | MARY E. BOOTH v. UNION FIBRE COMPANY |
| Court | Minnesota Supreme Court |
After the former appeal, reported in 137 Minn. 7, 162 N.W. 677, the case was tried before Callaghan, J., who made findings and dismissed the action. From the judgment entered pursuant to the order for judgment, plaintiff appealed. Affirmed.
Corporation -- preferred stock with cumulative dividends -- agreement to redeem.
1. The defendant, a manufacturing corporation under the laws of Minnesota, issued to the plaintiff certain stock designated preferred stock upon which it agreed to pay specified cumulative dividends before anything was paid on the common stock. All dividends paid, after the dividends on the preferred, were paid on all stock without preference. In the event of liquidation, the preferred stock was first paid. It then participated in the assets, if any, after the payment of the common. The preferred stock carried all the rights powers and privileges of the common stock including voting privileges. The defendant had the option to redeem on a fixed basis after five and within ten years, and agreed to redeem at the end of ten; and the by-laws provided for the creation out of the profits of a sinking fund to meet the redemption. It is held that the transaction was not a loan but was the issuance of preferred stock.
Corporation -- no enforcement of agreement when corporation is insolvent.
2. Such an agreement to redeem, no sinking fund having been created and there having been no profits out of which to create one will not be enforced at a time when the corporation is insolvent, and its capital stock depleted, and the necessary effect of a redemption will be to imperil creditors, though the corporation is not in liquidation, and though no creditor is a party.
Webber & Lees, for appellant.
Brown, Abbott & Somsen, for respondent.
The plaintiff brings this action to compel the defendant to redeem certain of its preferred stock and to pay accumulated dividends upon it. This is its second appearance in this court. When here before the sufficiency of the complaint was sustained. Booth v. Union Fibre Co. 137 Minn. 7, 162 N.W. 677. Upon the trial in the district court there were findings for the defendant. The plaintiff appeals from the judgment.
1. The defendant is organized under the laws of Minnesota as a manufacturing corporation. In 1906 it issued to the plaintiff so-called preferred stock. On the former appeal the contention of the plaintiff was, and it is now, that the transaction constituted a loan. The defendant then claimed and now claims that the transaction made the plaintiff a preferred stockholder. We did not determine whether the transaction was a loan or the issuance of preferred stock; but we held that, whatever it was, there was, under the allegations of the complaint, an obligation resting on the defendant, the rights of creditors not being affected, to redeem the stock.
Upon the facts now before us it is clear that the transaction was not a loan. The articles provided for a capitalization of $500,000 of which $200,000 was preferred stock and $300,000 common. The articles and by-laws provided in substance that the preferred stock should have the rights, powers and privileges, including voting rights, of the common stock. All dividends paid, after the payment of the dividends guaranteed on the preferred stock, were paid on all stock without preference; that is, the preferred stock participated equally with the common stock. In the event of liquidation, the preferred stock was to be first paid. The common stock was next paid. If there remained a surplus it was to be distributed ratably among preferred and common stock. A fixed 6 per cent dividend was guaranteed on the preferred stock before anything was paid on the common. An option was given the defendant to redeem at any time between April 1, 1911, and March 31, 1916, on a fixed basis. The defendant agreed to redeem, on a basis hereinafter mentioned, on April 1, 1916, and there was a provision for the creation out of profits of a sinking fund to meet the anticipated redemption.
The features which we have noted definitely characterize the transaction. There was not a loan. The plaintiff contributed to the capital. She was not a lender. The stock was preferred stock. Smith v. Southern Foundry Co. 166 Ky. 208, 179 S.W. 205; Hewitt v. Linnhaven Orchard Co. (Ore.) 174 P. 616; In re Fechheimer Fishel Co. 212 F. 357, 129 C.C.A. 33; Ellsworth v. Lyons, 181 F. 55, 104 C.C.A. 1; Weaver Power Co. v. Elk, etc., Co. 154 N.C. 76, 69 S.E. 747; Cass v. Realty, etc., Co. 148 A.D. 96, 132 N.Y.S. 1074; Kain v. Angle, 111 Va. 415, 69 S.E. 355; Hamlin v. Toledo, etc., R. Co. 78 F. 664, 24 C.C.A. 271, 36 L.R.A. 826; Hilson Co. v. State Board, 82 N.J. Law, 80 A. 929; 10 Cyc. 568; 6 Words & Phrases, 5500; 3 Words & Ph. (2d Series) 1136; 1 Cook, Corp. § 267, et seq.; 1 Morawetz, Priv. Corp. § 456, et seq.; 2 Clarke & M. Priv. Corp. § 413, et seq.
2. Section 26 of the by-laws provides:
Section 28 of the...
To continue reading
Request your trial