City Bank Farmers' Trust Co. v. Hewitt Realty Co.

• Decision Date: 15 July 1931
• Citation: 177 N.E. 309,257 N.Y. 62
• Parties: CITY BANK FARMERS' TRUST CO. v. HEWITT REALTY CO. et al.
• Court: New York Court of Appeals Court of Appeals

257 N.Y. 62

177 N.E. 309

CITY BANK FARMERS' TRUST CO.

v.HEWITT REALTY CO. et al.

Court of Appeals of New York.

July 15, 1931.

Action by the City Bank Farmers' Trust Company, as executor of and trustee under the last will and testament of Peter Cooper Hewitt, deceased, against the Hewitt Realty Company and others. Judgment dismissing the complaint upon the merits was affirmed by the Appellate Division (231 App. Div. 702, 245 N. Y. S. 782), and plaintiff appeals.

Affirmed.

Appeal from Supreme Court, Appellate Division, First department.

Charles A. Collin, John L. Wells, and Thomas L. Hughes, all of New York City, for appellant.

Albert S. Wright, Ellwood Thomas, both of New York City, for respondents.

POUND, J.

Plaintiff, a stockholder of defendant corporation, holding 100 shares of stock in trust as part of a trust created by the will of Peter Cooper Hewitt, seeks by this action to compel declaration of dividends by the individual defendants, directors of the corporation.

The Hewitt Realty Company was organized in 1905, under the laws of the state of New York, ‘to invest in real property, improved and unimproved, situated in the State of New York and in other States of the United States and in foreign countries; and in the stocks, bonds and other securities and obligations of other corporations, and of individuals, and in personal property generally of whatsoever nature; to acquire such real and personal property by purchase, lease, gift, devise, bequest, appointment or other lawful manner; to hold, manage, lease, mortgage, pledge and sell the same, and to improve and develop real estate by erecting buildings thereon and by carrying on agriculture, forestry, mining and quarrying thereon and to conduct all lawful business incidental thereto.’ Its authorized capital stock was 600 shares of the par value of $10 each, all of which was issued to Sarah Amelia Hewitt in exchange for real property in New York City and Bar Harbor, Me., actually worth $255,050. A New Jersey corporation, known as the Ringwood Company, was organized at the same time and for the same purposes and in the same way. Mrs. Hewitt transferred the Hewitt stock to the Ringwood Company. Upon her death in 1912 the Ringwood stock was divided among her six children, who afterwards acquired the Hewitt stock as a stock dividend. Peter Cooper Hewitt, the plaintiff's testator, was one of the children. He had married a second wife, Maryon J. Hewitt. They had a daughter, Ann Cooper Hewitt. He died August 25, 1921, leaving a will. By the terms of the will the plaintiff, as trustee of the trust fund above mentioned, is entitled to receive the dividends declared on 100 shares of stock in the Hewitt Realty Company. One-third of the income of the trust fund is to be applied by the plaintiff as such trustee to the use of the surviving wife, Maryon (since remarried and now Maryon McCarter), and the remaining two-thirds of said income is to be applied by the trustee to the use of their daughter, the said Ann Cooper Hewitt, the sole surviving issue of said Peter Cooper Hewitt.

Maryon McCarter and Ann Cooper Hewitt can receive nothing but income from the trust fund, and it is contended that unless dividends are declared they will have no income therefrom. The corpus goes elsewhere when they die. The board of directors is controlled by the Hewitt family. It has acquired real estate, large in extent and valuable in amount, which it does not sell.

The situation of all the other life beneficiaries in respect to dividends is identical. Mrs. Maryon (Hewitt) McCarter and her daughter deem themselves aggrieved, although the others are content. During his lifetime Peter Cooper Hewitt was a director of the corporation and as such up to 1918 approved the policy and transactions of the board. The corporation has made no new purchases of property since the death of Peter Cooper Hewitt. It declared and paid dividends at the rate of 5 3/4 per cent. on its capital stock of $6,000 in the year 1906 and at the rate of 6 per cent. in each of the years from 1909 to 1922, inclusive, but has paid no dividends since 1922. The company started out with a capital of $6,000 and a book surplus of $249,050, which might have been reallized on and divided among the stockholders when the real estate was sold if such was the purpose of the corporation, but dividends are declared on the shares of stock and not on surplus.

The balance sheet of the company's affairs as of October 1, 1929, as claimed by plaintiff, shows that it had real estate of the value of $1,735,000 incumbered, under lease, and paying a substantial rental; cash $43,484.96; mortgages and accounts $516,803.79; making a total of $2,295,288.75. It had a substantial book excess of assets over liabilities. The trial court has found that, although its net profits from 1924 have been from $60,000 to $100,000 a year, its readily liquid assets do not exceed the reasonable requirements of the company to enable it to meet its future needs and to provide a reserve against contingencies which are reasonably apt to arise in the near future, for payment of mortgages and improvement and repairs of real property.

The policy of the directors of the company of not paying dividends has been based on their belief that all substantial indebtedness of the company should be liquidated before dividends are declared. This policy was recognized by the plaintiff in a letter to the corporation dated May 12, 1924, when it said: ‘W...