Lancaster Trust Co. v. Mason

• Decision Date: 27 May 1910
• Citation: 68 S.E. 235,152 N.C. 660
• Parties: LANCASTER TRUST CO. v. MASON.
• Court: North Carolina Supreme Court

68 S.E. 235

152 N.C. 660

LANCASTER TRUST CO. v. MASON.

Supreme Court of North Carolina

May 27, 1910

On rehearing.

Former judgment (65 S.E. 1015) modified, and judgment of trial court reversed, and new trial granted.

A "stock dividend" is not in the ordinary sense a dividend; a "dividend" being a distribution of the profits to stockholders as the income from their investment while a "stock dividend" is merely an increase in the number of shares, such increase representing the same property that was represented by the smaller number of shares (citing Words and Phrases, vol. 7, p. 6664).

A corporation on December 16th declared a 4 per cent semiannual dividend and a 6 per cent. extra dividend and a 50 per cent. stock dividend, payable to the stockholders of record on January 2d following. After the dividends were declared, but before they were due, plaintiff, a stockholder sold four shares to defendant, the parties agreeing that the seller should receive the "January dividend," and the amount of the regular semiannual dividend due in January was added to a sight draft attached to the certificates of stock sent to a bank to be delivered upon payment therefor. Neither party had heard of extra cash dividend nor of stock dividend declared. Held, that the "January dividend" reserved included only the cash dividends, and the buyer was entitled to the increased stock represented by the so-called "stock dividend."--Id.

BROWN J.

When we considered this cause at last term, we concluded that under the terms of the contract of sale of the stock in the Durham Cotton Manufacturing Company the reservation of the "January dividend" by plaintiff entitled it not only to the regular 4 per cent. and extra 6 per cent. cash dividend declared and payable then, but also to the value of the so-called "50 per cent. stock dividend" which was declared at same time as the regular and extra cash dividends. Upon a careful review of the correspondence between the parties and a further consideration of the case, we are led to the conclusion that the words "allowing the January dividend to us," used in plaintiff's letter of December 23, 1907, were intended to refer to dividends payable in cash only, and do not embrace the so-called "stock dividend" of 50 per cent.

That was not strictly or in the usual sense of the word a dividend. It was simply an increase in the capital stock by dividing the capital of the corporation into a larger number of shares and allotting them to each stockholder in proportion to the number of shares he owned before the increase. This is not infrequent in these days when "watering stock" is no uncommon occurrence; not that we mean to intimate that such has been the case here. Therefore it has been held that, where the word "dividend" is used without qualification or explanation, it signifies dividends payable in money. 14 Cyc 554, and cases cited; Black, Law Dict.; 3 Words & Phrases, pp. 2143, 2144; Smith v. Hooper, 95 Md. 16, 51 A. 844, 54 A. 95. This appears to us to be more consistent with the relationship which exists between the stockholders and the corporation. The distinction between the title of a corporation and the interest of its stockholders in the corporate property is familiar and well settled. Van Allen v. Assessors, 3 Wall. 573, 18 L.Ed. 229; Pullen v. Corp. Com'n (at this term), 68 S.E. 155. The ownership of that property is in the corporation, and not in the holders of shares of stock. The certificates of shares of stock denote the interest of each stockholder, which consists in the right to his proportionate part of the profits when declared as dividends, and to a like proportion upon its dissolution, after its debts are paid. Therefore the value of the shares of stock is...