Jones v. . Terre Haute Richmond R.R. Co.

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 198 [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 199 It is unnecessary to decide whether the closing of the stock and transfer books of the defendant on the 30th day of November, 1856, and continuing them so closed for fifteen days thereafter, precluded the conversion of the plaintiff's bonds into stock of the company during that time. Assuming, but not conceding that it did, the fact is wholly immaterial. The dividends in question were not declared until the seventeenth day of December, and the books having been re-opened on the day previous, the conversion thereupon became operative in any view of the case. This result or effect was recognized and declared by the defendant's transmission, on that day, by mail to the plaintiff, of the certificate for the eighty shares of stock, to which he had become entitled on the surrender of his bonds. He was, therefore, a stockholder, owning the said shares, on the day the dividend was declared. There was no classification of stockholders, distinguishing those who held stock under and by virtue of an original subscription to the capital, from such of them as had become holders thereof by conversion of bonds given in exchange for it. All of them stood in the same relation to the company without any preference as between each other. They were the parties beneficially interested in the property belonging to it, whether resulting from the capital contributed or the profits that had accrued from its business or otherwise; but, until a division of such profits was made, and a dividend thereof was declared to be payable as the result of such division, no right to any part thereof was vested in any individual stockholder as his own separate property. This principle is recognized *Page 201 by the charter of the defendant. It declares, that semi-annual dividends of so much of the profits as the corporation may deem expedient, shall be made on the first Mondays of December and July annually, unless the directors shall fix a different day, which shall be paid to the stockholders as soon thereafter as such payment can be made. This provision not only shows that the amount of profits to be divided, and the time of such division are left to the discretion of the directors; but it clearly contemplates that such dividends, when made, shall be payable to those parties who are stockholders at the time of making them. No discrimination or distinction of any kind whatever between them is made. The ownership of the stock necessarily carries with it the right to all the advantages and benefits incident thereto. It follows, that the plaintiff, as the owner of the stock which he had acquired by virtue and in consequence of the surrender of his bonds, when the dividends in question were declared, was entitled to participation ratably with the other stockholders in the division of the profits which were then divided, unless the facts to which I shall now refer deprived him of that right, or qualified it in any degree. It appears, that the defendant's board of directors, on the 15th day of January, 1856, passed a resolution that thereafter the fiscal year (which had previously terminated on the thirty-first day of December), should terminate on the thirtieth of November, and that the dividends should be declared on the business of their road for the six months ending May thirty-first and November thirtieth; and the judge who tried the issues, in his finding of facts, has found that the plaintiff was aware of that resolution before he sent his bonds to the company for conversion into stock. He also found, that the dividends declared on the 17th day of December, 1856, as above mentioned, were declared on the stock, business and affairs of the defendant as the same stood on the thirtieth day of November in that year; and that the extra stock dividend was declared from earnings from business up to November 30, 1856. It is claimed, on behalf of the defendant, that those facts, in connection *Page 202 with the fact that the stock and transfer books of the defendant were closed on the last mentioned day, and continued so closed for fifteen days thereafter, entitled those parties only, who were stockholders at the end of the fiscal year, to a dividend of the profits then accrued. I am unable to give such effect to those facts. That resolution was very proper for the government of the directors in making an annual statement of the business of the company, and determining when it was expedient to declare dividends out of the profits resulting from its business; and, for the purpose of ascertaining the amount thereof, to fix a day on which the estimate of those profits, as shown by its books, should be made. Having adopted such estimate as the means of determining what sum it was expedient to distribute among the stockholders, it may be considered to have been a very proper regulation that no stock should be transferred on its books for a limited time, so that a ratable apportionment of the amount to be distributed could be made among those who appeared to be the owners of the stock, on the day the dividend was declared. Such a regulation would be useful to prevent the confusion and embarrassments that would follow frequent transfers during the time the apportionment was being made, provided the dividends were, in fact, declared during the time the books were closed; and it may be, that sharp-sighted directors, of peculiar and extraordinary financial skill and ability could see a necessity and propriety of closing the books for a certain and definite time, and, nevertheless, as was done by the defendant, postpone the making of the dividends for two days after they were re-opened, during which time, a transfer to an unlimited extent could be made, but, I confess, that the efficacy or utility of such action is not apparent to me. It is also claimed, on behalf of the defendant, that the allowance of the plaintiff's claim would be unjust and a wrong to those who were stockholders on the thirtieth November, as they would thus be obliged to share the profits made up to that time, with him who had run none of the *Page 203 risks of the business during the six months ending on that day. I am unable to see any injustice in such a proceeding or action. The same result would have followed if the conversion had been made on the twenty-ninth of November, and the plaintiff thereby became a stockholder on that day. It may moreover, be said, that if the defendant had sustained losses after the plaintiff became a stockholder, to an amount that would have rendered his stock worth much less than the bonds given in exchange therefor, he would have been obliged to bear the loss himself. It is sufficient, however, to say that such considerations cannot affect the plaintiff's legal rights. They are to be ascertained and determined by the terms of the bonds entitling him to the stock, and not by the consequences resulting from the acceptance of it; and there is nothing in the facts to which I have referred that justified or allowed the defendant to exclude the plaintiff from a participation, proportionate to such stock, with the other stockholders in the profits to be divided on the day the dividends were declared. The resolution declaring them, on a fair, and as I think, the only construction that can be claimed to be given to it, included the plaintiff among the stockholders entitled to the cash dividends. It was in that respect general, making no discrimination or difference between any of the stockholders. The only limitation or restriction, imposed in reference thereto, related to the earnings from or out of which they were declared, but it made no designation in terms of the holders of the stock at the time the books were closed, or on any day before the passage of the resolution, as the parties entitled thereto; and it may be inferred, from the fact that the stock dividends were made payable to those only, who were such holders at the close of the fiscal year, that there was no limitation as to the cash dividend intended. The judge who tried the case, therefore, correctly decided that the plaintiff could recover it, and the judgment entered in accordance therewith was right, and that in affirmance thereof by the General Term, should be affirmed, with costs of the appeals to the plaintiff. The judgments, so far as they *Page 204 disallowed the stock dividends, were erroneous, and must be reversed, and a new trial in reference to the claim therefor is ordered with costs to abide the event.