Richter & Co. v. Light

• Decision Date: 29 March 1922
• Citation: 97 Conn. 364,116 A. 600
• Parties: RICHTER & CO. v. LIGHT.
• Court: Connecticut Supreme Court

116 A. 600

97 Conn. 364

RICHTER & CO. v. LIGHT.

Supreme Court of Errors of Connecticut.

March 29, 1922

Case Reserved from Court of Common Pleas, Hartford County; Edwin C. Dickenson, Judge.

Action by Ferdinand Richter and Company against John H. Light trustee. Reserved for advice as to whether demurrer to complaint should be sustained. Advised that demurrer should be overruled.

The complaint alleges that on October 21, 1919, the directors of the Stanley Rule & Level Company, a corporation organized under a special act of the General Assembly of this state and located in New Britain, declared a dividend on its capital stock to be paid on January 1, 1920, to stockholders of record on December 26, 1919; and an extra dividend to be paid in part on December 29, 1919, and in part on January 1, 1920 to stockholders of record on December 26, 1919. On October 21, 1919, the defendant was the owner of 70 shares of the capital stock of this corporation which then stood in his name on its books. On December 16, 17, and 19, 1919, the defendant sold these shares to the plaintiffs, who have been engaged in the business of buying and selling stocks, bonds and other securities; but the certificates were not delivered by the defendant in time to be transferred to the plaintiffs on the books of the corporation, which were closed for transfer of stock from December 26, 1919, to January 1, 1920, and therefore the transfers to the plaintiffs were not actually made until after the latter date. The defendant received all the dividends payable on these 70 shares of stock on December 29, 1919, and on January 1, 1920, and refuses to pay or account for them to the plaintiffs.

The defendant demurred to this complaint because (1) it appears that the dividends which the plaintiffs seek to recover were declared before they bought the defendant's stock, and there was no special agreement that they should belong to the transferees; and (2) that when the dividends were declared they became thereby the defendant's individual property and the subsequent transfer of the stock to the plaintiffs carried with it no right to the dividends; (3) that the plaintiffs were not stockholders of record at the time fixed for the payment of the dividends, and it does not appear that the legal title to the stock had vested in them at that time.

Edward M. Day, of Hartford, for plaintiffs.

John H. Light, of Norwalk, for defendant.

BURPEE, J.

The declaration of a dividend by the board of directors of a corporation severs from its assets a portion to be distributed among its stockholders in proportion to their respective holdings. Thereupon the share of each stockholder vests in him as an individual. Cogswell v. Second National Bank, 78 Conn. 75, 81, 60 A. 1059; Jerome v. Cogswell, 204 U.S. 1, 27 Sup.Ct. 241, 51 L.Ed. 343. It makes no difference when the assets were accumulated. Phelps v. Farmers' & Mechanics' Bank, 26 Conn. 269; Beers v. Bridgeport Spring Co., 42 Conn. 17; 5 Thompson on Corporations (2d Ed.) 127, 128; 14 Corpus Juris, 818.

Unless otherwise provided by statute, by the corporate charter, or by other governing instrument or contract, the authority to declare a dividend is in the board of directors only; and, unless they act fraudulently, unreasonably, or with unjust discrimination, their discretion will not be interfered with by the courts. 14 Corpus Juris, 807, 808, 813; 6 Fletcher, Cyc. Law of Corporations, 6073; 2 Cook on Corporations (7th Ed.) 1588; 5 Thompson on Corporations (2d Ed.) 95, 103.

To determine whether and when a dividend shall be declared rests within their discretion; and, if declared, they have the power to fix the amount, time, place, manner, and means of payment, whether it shall be in stock, cash or property, with only such limitations as reason and good faith with the stockholders may require. 14 Corpus Juris, 808, 810; 6 Fletcher, 6115, 6116.

As they may determine and declare the amount of the dividend and its conditions and terms, they may prescribe the day when the division shall be made and take effect, and specify that it shall be paid to stockholders of record on its books on that day.

In the case of Cogswell v. Second National Bank, 78 Conn. 75, 81, 60 A. 1059, it appears that the stockholders in May, 1900, voted to reduce its capital stock and to set aside a part of the assets of the bank to be collected for the benefit of stockholders of record at the date of the certificate of approval of the reduction by the United States Comptroller of the Currency. This certificate was subsequently issued, and dated on June 9th. On June 27th the directors passed a vote in form declaring a dividend from the surplus assets of the bank to be distributed to stockholders of record on June 9th. This court held that the dividend thus declared on June 27th became vested in the stockholders of record on June 9th, and that they or their assigns were entitled to whatever might be distributed. In Second Universalist Church v. Colegrove, 74 Conn. 79, 82, 49 A. 902, the directors, on a day prior to January 8th, declared a dividend to stockholders of record at the close of business January 8th, and ordered its books closed for transfer of stock at 3 p. m. of that day. The specified stockholders on January 8th were held to be entitled to receive the payment of dividends declared before that day.

The power of the directors to declare a dividend which shall vest in the stockholders of record on the day when their resolution is passed implies and includes the power to declare a dividend which shall vest in the stockholders of record on another day. Before the declaration, the assets of the corporation belong to the corporation, and the stockholders as individuals have no legal right to any share therein. It is the declaration of the dividend that sets apart a portion of the assets to be distributed as dividends, and vests in each stockholder individually the legal title to his proportion of them. Spooner v. Phillips, 62 Conn. 62, 70, 24 A. 524, 16 L.R.A. 461; Cogswell v. Second National Bank, 78 Conn. 75, 81, 60 A. 1059; 14 Corpus Juris, 799; 6 Fletcher, 6061. The division made by their declaration creates debts in favor of certain individuals, and it is wise for the directors to define to whom these debts shall be due and when they shall be payable. Thereby the rights of all persons will become fixed and absolute. And thereupon the title will vest in each individual as one " of the payees so named." Cogswell v. Second National Bank, 78 Conn. 75, 81, 60 A. 1059.

It is a matter within common...