Wheeler v. Northwestern Sleigh Co.

• Decision Date: 05 August 1889
• Citation: 39 F. 347
• Parties: WHEELER v. NORTHWESTERN SLEIGH CO.
• Court: U.S. District Court — Eastern District of Wisconsin

39 F. 347

WHEELER v. NORTHWESTERN SLEIGH CO.

United States Circuit Court, E.D. Wisconsin.

August 5, 1889

W. J Turner, for plaintiff.

J. V. &amp Chas. Quarles and J. G. Flanders, for defendant.

Before GRESHAM and JENKINS, JJ.

JENKINS J.

At the trial a special verdict was taken, upon which both parties moved the court for judgment. The plaintiff sues to recover a certain dividend declared by the defendant upon stock in its company at the time owned by the plaintiff. This dividend was declared on the 1st day of March, 1886, and was payable by the terms of the resolution on May 1st and July 1st next thereafter. The defense is that after the declaring of the dividend, and before it was payable, the plaintiff sold the dividend to Chapman & Goss, to whom it was paid by the defendant.

The facts established by the evidence and the special verdict are these: Soon after the dividend was declared, the plaintiff authorized one H. S. Benjamin to sell his stock at par, but did not empower him to dispose of the dividend declared. To the contrary, in his instruction the dividend was expressly reserved. The plaintiff retained possession of the stock. Benjamin, on March 12th, contracted with Chapman & Goss, then and previously stockholders in the company, and connected with its management, to sell them the plaintiff's stock at its par value, representing that the dividend declared would, and agreeing that it should, go with the stock. From the amount of stock offered them, Chapman & Goss supposed that it was the stock once owned by the plaintiff, but were told by Benjamin, and believed, that the stock was then owned by Benjamin's wife. They were not informed of the plaintiff's instructions to Benjamin, and did not know that Benjamin was the agent of the plaintiff. At the time of the contract of sale, Benjamin did not, as Chapman & Goss knew, have possession of the stock, and did not receive it from the plaintiff until March 15, the date of its transfer to the purchasers. It was sent to the agent by the plaintiff pursuant to advice that he had sold it at par. Benjamin delivered the stock to Chapman & Goss, who paid therefor the par value upon the faith of Benjamin's representation that the dividend would, and his agreement that it should, go with the stock. There was no formal assignment or transfer of dividend. The plaintiff received from Benjamin the avails of the stock in ignorance of Benjamin's representation and agreement, and still retains the same. The defendant, after demand by the plaintiff, paid the dividend to Chapman & Goss upon receiving indemnity. It does not appear when, if at all the plaintiff had information of the representation and agreement of Benjamin. So far as the record discloses, no communication upon the subject at any time passed between the purchasers of the stock and the plaintiff. The latter had notice about May 1st, when he applied for payment, that Chapman & Goss claimed the dividend, but was not advised of the nature of their claim. At the trial Benjamin denied the representation and agreement alleged, insisting that he merely expressed to Chapman & Goss an opinion upon the question whether, as matter of law, the dividend would follow the stock. His contention in that respect is settled adversely to him by the special verdict. Chapman & Goss have never tendered to the plaintiff the stock, or demanded return of the money paid, nor has the plaintiff tendered back the money, or demanded the stock.

It is insisted for the defendant (1) that, as matter of law, the dividend passed with the stock; (2) if otherwise, that the plaintiff is bound by the representation and agreement of his agent; (3) that the plaintiff, by retention of the avails of the bargain, has ratified the contract made by his agent.

1. Stockholders are, as to the property of the corporation, quasi partners, holding per my et per tout. The earnings of the corporation are part of the corporate property, held by the same tenure, and, until separated from the general mass, the interest of the stockholder therein passes with a transfer of the stock; and this, irrespective of the time during which earnings have accrued. By the declaration of a dividend, however, the earnings, to the extent declared, are separated from the general mass of property, and appropriated to the then stockholders, who become creditors of the corporation for the amount of the dividend. The relationship of the stockholder to the corporation, as to the amount of the dividend, is thus changed from one of partnership ownership to that of creditor.

He thereafter stands to the corporation in a dual relation,-- with respect to his stock, as partner and part owner of the corporate property; with respect to the dividend, as creditor upon a par with other creditors of the corporation. The severance of the earnings from the general mass of corporate property, and the promise to pay, arising from the declaration of the dividend, works this change. The earnings represented by the dividend, although the fruit of the general property of the company, are no longer represented by the stock, but become a debt of the company to the individual who at the time of the declaration of dividend was the owner of the stock. That the dividend is payable at a future date can work on distinction in the right. The debt exists from the time of the declaration of dividend, although payment is postponed for the convenience of the company. The right became fixed and absolute by the declaration. This right could, of course, be transferred with the stock by special agreement, but not otherwise. The dividend would not pass as an incident of the stock. Brundage v. Brundage, 60 N.Y. 544; Hill v. Newichawanick Co., 8 Hun, 459, affirmed 71 N.Y. 593; Boardman v. Railway Co., 84 N.Y. 178. So a legatee of shares is not entitled to a dividend thereon declared before, but payable after, the death of the testator. The dividend forms part of the corpus of the estate, and passes to the executor. De Gendre v. Kent, L.R. 4 Eq. 283. The dividends are earnings growing out of the stock, but when declared are immediately separated from it, and exist independently of it. They are happily likened in the case last cited to fallen fruit, which does not pass with the sale or gift of the tree. The cases of Clive v. Clive, Kay, 600, and Burroughs v. Railroad Co., 67 N.C. 376, relied upon by the defendant, are not availing. The former case was ruled upon the peculiar terms of the corporate articles of the company, providing that the shareholder should not receive any dividends after the period at which he ceased to be proprietor of the shares, but that dividends on such shares should continue in suspense until some other person should become proprietor of them. In the latter case, the resolution declaring a dividend payable on two future dates provided that the transfer books should be closed 30 days prior to each such date. The court lay stress upon the language of the resolution, and construe it as an express declaration that the dividend was payable, not to present shareholders, but to those who should be shareholders upon the books at the maturity of the dividend, since otherwise the closing of the books would be a useless ceremony. In this view the decision may be upheld, although much of the argument of the opinion is opposed to the current of authority.

2. It is, of course, correct to say that if a principal puts his agent in a position to impose upon an innocent third person by apparently pursuing his authority, he shall be bound by his acts. It is, however, equally true that one dealing with an agent must look to the extent and scope of his agency, and that an implied or ostensible agency is never construed to extend beyond the obvious purpose for which it is apparently created. Here the plaintiff had authorized his agent to sell his shares in the defendant company. He was bound by all such acts of his agent as were within the apparent authority arising from possession of the stock. But that possession did not clothe the agent with apparent authority to sell other property; did not authorize the disposition of a previously declared dividend. The ostensible, as well as actual, authority was limited to disposition of the stock, and that alone. The purchasers had no right to assume that the agent, because the possessor of the stock, was also authorized to sell the dividend, that was no part of and did not pass as an incident to the stock. As to that they dealt with the agent at their peril. Supposing the agent to be acting for himself or his wife, and not for the plaintiff, they were bound to the greater caution to ascertain if there had been a transfer of the dividend by the...