Patterson v. Mills
| Decision Date | 01 February 1939 |
| Docket Number | No. 740.,740. |
| Citation | 200 S.E. 906,214 N.C. 800 |
| Court | North Carolina Supreme Court |
| Parties | PATTERSON et al. v. DURHAM HOSIERY MILLS et al. |
Appeals from Superior Court, Durham County; M. T. Spears, Judge.
Action by Rufus L. Patterson and others, trustees under the will of Mrs. Lucy L. Morehead, on behalf of themselves and all others similarly situated, against the Durham Hosiery Mills, A. H. Carr, and others, directors, to restrain declaration for payment of dividends on corporate stock until payment or discharge of accrued dividends on preferred stock and on stock of nonassenting stockholders wherein other preferred stockholders inter-vened. From a judgment making permanent the temporary restraining order heretofore issued, the defendants appeal, assigning errors. Affirmed.
The plaintiffs, as trustees, are the holders and owners of 112 shares of six per cent cumulative preferred stock in the defendant corporation. This stock was issued under the provisions of the charter of the Company containing the 1929 amendment, which is as follows:
These provisions of the Certificate of Incorporation were printed on the back of each certificate of the six per cent cumulative preferred stock and became a part thereof.
Prior to the proposed rearrangement of its capital structure in 1937, the defendant company had issued and outstanding three classes of stock, to-wit: six per cent cumulative preferred stock; common Class A stock, and common Class B stock, all issued pursuant to its charter, as amended in 1929.
In 1937, the Board of Directors adopted a resolution recommending a plan for the rearrangement of the capital stock structure of the corporation to be embodied in an amendment to its Certificate of Incorporation. The proposed plan of rearrangement contained in the resolution of the Board of Directors provided that the Company offered to purchase from the holders of the six per cent cumulative preferred stock of the.Company one-third of their stock at the price of $30 per share; that the Company issue a new Class A six per cent cumulative preferred stock, and that this be distributed to the holders of the old six per cent cumulative preferred stock of the Company, share for share, in exchange for their unsold stock; that the Company also distribute to the holders of the old six per cent cumulative preferred stock two shares of its non-par value Class B stock for each share of the old preferred stock sold to the Company in complete satisfaction of all dividends accrued and unpaid upon the old preferred stock.
At the meeting of the stockholders, called for the purpose September 30, 1937, the resolution adopted by the Board of Directors was ratified by more than three-fourths in interest of the preferred stock issued and outstanding, as provided in the Certificate of Incorporation.
About 98% of the holders of the preferred stock entered into the proposed arrangement, but the plaintiffs and some others like situated declined to accede to the arrangement, on the ground that it violated their vested rights with reference to accrued and accumulated dividends on their preferred stock; and brought this action to enjoin the consummation of the plan and to have it declared null and void in so far as it might affect their aforesaid rights; asking that the declaration and payment of dividends on any class of stock prior to the payment of the said accrued and unpaid dividends be declared in violation of said property rights; that an order be entered directing the defendants to pay and otherwise discharge the unpaid dividends above mentioned before the declaration and/or payment of dividends of any other class of stock of defendant corporation; that the defendants be enjoined and restrained from declaring and paying dividends out of surplus or net profits of the corporation, or otherwise, to any class of stock existing at the time of the institution of the action or thereafter issued prior to the payment, discharge, and satisfaction of the accrued and unpaid dividends on the six per cent preferred stock of the plaintiffs and other nonassenting shareholders.
A restraining order was issued on March 31, 1938, returnable on April 15, 1938, which by consent was heard before Judge Spears on April 16, 1938; whereupon, Judge Spears entered an order finding certain facts and continuing the restraining order theretofore issued until the final determination of the action. From this the defendants appealed, and at the Spring Term, 1938, of this Court, the Court being equally divided, judgment of the Superior Court stood affirmed without becoming a precedent and the questions of law sought to be presented were undecided.
The cause came on for a final hearing before Judge Marshall T. Spears, at the September Term, 1938, of Durham County Court, and was heard by consent upon the motion of the plaintiffs to make the restraining order theretofore issued perpetual. The cause was heard by consent without the intervention of a jury, and Judge Spears, finding appropriate facts, entered judgment that "the restraining order heretofore issued in this cause be and it is hereby made permanent, and the defendants are permanently enjoined from declaring and/or paying dividends on any stock of the defendant corporation until the accrued dividends on $38.50 per share of 112 shares of the six per cent preferred stock of the...
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