Johnson v. Beneficial Loan Soc.

• Decision Date: 03 August 1940
• Docket Number: No. 54 Civil.,54 Civil.
• Citation: 34 F. Supp. 392
• Parties: JOHNSON et al. v. BENEFICIAL LOAN SOC. et al.
• Court: U.S. District Court — District of Delaware

34 F. Supp. 392

JOHNSON et al. v. BENEFICIAL LOAN SOC. et al.

No. 54 Civil.

District Court, D. Delaware.

August 3, 1940.

Hastings, Stockly & Layton, of Wilmington, Del., for plaintiffs.

Richards, Layton & Finger, of Wilmington, Del., for defendant Beneficial Loan Soc.

NIELDS, District Judge.

Beneficial Loan Society, one of the defendants, moves to dismiss the action because the amount in controversy does not exceed $3,000, exclusive of interest and costs.

Plaintiffs, Julia A. Johnson and Allan Wilbur Johnson, are citizens of New York. Plaintiff, Florence Johnson Wadleigh, is a citizen of Massachusetts. Beneficial Loan Society is a corporation of Delaware. The individual defendants are residents of Philadelphia, New Jersey, Maryland or California, who have never been served with process and may be disregarded in the consideration of this motion.

The complaint alleges inter alia:

(10) That the complainants are now and have been since April 6, 1923, the owners and holders as joint tenants with the right of survivorship and not as tenants in common of two (2) $1,000 certificates of indebtedness, dated January 1, 1914, and maturing twenty-five (25) years after date, bearing interest at the rate of six (6%) percent per annum, payable quarterly, issued by defendant.

(12) That the said certificates of indebtedness held by the complainants herein are a part of an issue of $8,000,000 in principal amount of certificates of indebtedness or bonds, issued by defendant on or about January 1, 1914, and from time to time thereafter of like tenor and effect, except as to the respective denominations thereof.

(13) That defendant issued, with each of said bonds, a profit sharing certificate, in words and figures as follows:

"For value received, Beneficial Loan Society hereby promises and obligates itself to pay the recorded owner hereof, and of its certificate of indebtedness or debenture bond corresponding number `Series B' dated January 1, 1914, said bond of the par value of _____ Dollars by check on its bank depository in the City of New York, N. Y., (in addition to the payment of quarterly interest coupons attached to the said certificate of indebtedness or debenture bond) a participation, in the current net profits of the corporation, which shall at all times equal its pro-rata share of one-third of the total net profits of the corporation from the date of the issue and registration with all certificates of profit sharing issued after providing for all expenses, interest, losses, and casualties, amortization fund and setting aside a suitable surplus as authorized by the charter and by-laws of the corporation and resolutions of the directors, now or hereafter adopted, provided that annually or semi-annually the directors may in their discretion, during the fifteen years next ensuing the date of said bond issues, distribute pro-rata among the owners of all certificates of indebtedness and profit sharing a sum in excess of, but not less than, one-third of the net profits as above, including current income on loans and investments and any increase in value of securities owned, and they shall have authority, when and if the total distribution to the certificate owners in any year shall equal 6% profit sharing (plus the interest at 6%) to withhold any additional profit sharing beyond 6% until any sums previously paid or advanced on profit sharing above one-third of the net profits shall have been equalized on a one-third basis, after which the profit sharings shall be disbursed annually, or semi-annually on a basis of approximately one-third of the net profits, as above provided, which represents an additional recompense for money borrowed for the purposes of its authorized business of making loans, investments, etc.; but such profit sharing paid hereunder shall not exceed 8% in any one year.

"Nothing herein contained shall be taken or construed as a guarantee of profits or payments of any definite amount (excepting the quarterly interest coupons annexed to the corresponding certificates of indebtedness) but the provisions in regard to the payments (in addition to such interest), of the annual or semiannual equivalent of an average approximately one-third of the net profits from date (not over 8% in any year) is hereby guaranteed pro rata to each certificate of indebtedness outstanding, if accompanied by a certificate of profit sharing.

"It is understood that this certificate of profit sharing shall be surrendered and accompanied by its corresponding certificate of indebtedness whenever the latter is transferred on the books of the corporation or the Registrar, and that the profit sharing provided is a privilege accruing to the owner of said certificates of indebtedness, his, her, or their heirs, administrators, executors or assigns, and the payment to the registered owner of said certificate of indebtedness or fixed by the directors, shall be a full acquittance of the corporation for all claims under this certificate of profit sharing, which is subject to all the conditions which are set out at length in the by-laws."

(14) That complainants became the owners on or about April 6, 1923, and have been the owners ever since, of two (2) profit sharing Certificates issued as aforesaid.

(15) That from the time of the issue of the said bonds until 1929, defendant was engaged in operating small loan offices throughout the various states where the law permitted the existence and operation of small loan offices and they charged interest rates from thirty-six percent (36%) to forty-two percent (42%) per annum. The business of defendant increased yearly from 1914 to 1929. Every year defendant opened offices in new territories. At the end of 1928 defendant operated some eighty odd small loan offices and received a net return from the operation of the said small loan offices of from twenty-eight percent (28%) to thirty percent (30%) on its capital of twelve million ($12,000,000) dollars. The net profits received by the defendant from the small loan business was approximately three million four hundred eighty thousand ($3,480,000) dollars per annum.

(16) Said bonds of defendant were not secured by any mortgage but were a direct obligation of defendant and chargeable against its entire assets. Said profit sharing certificates did not contain a guarantee of profits but entitled the owner and holder thereof to one-third (1/3) of the profits of defendant but not in excess of eight (8%) per cent in any one year....