Revloc Supply Co. v. Troxell

Opinion by Mr. Justice Walling, The Revloc Supply Company, plaintiff, was a Pennsylvania corporation engaged in the conduct of a store at Revloc, Cambria County, of which W. H. Troxell, the defendant, was general manager. Plaintiff’s capital stock was fifty thousand dollars, divided into shares of fifty dollars each. On September 30, 1917, plaintiff entered into a written contract with defendant for the sale to him of one hundred shares of the capital stock at its par value, which was duly received and paid for. The contract contains, inter alia, provisions as follows: “That the Revloc Supply Company will sell to the said W. H. Troxell one hundred (100) shares of its capital stock of the par value of Fifty ($50.00) Dollars per share, and will issue, or cause to be issued, to the said W. H. Troxell a proper certificate or certificates therefor ; whereupon the said W. H. Troxell will pay, or cause to be paid upon the delivery of said stock, the sum of Five Thousand Dollars ($5,000.00) in cash, or in an equivalent satisfactory to the treasurer of the said company. “That upon the termination of the relation of employer and employee existing between the said Revloc Supply Company and W. H. Troxell, for any cause, the Revloc Supply Company shall, within thirty days, purchase the said one hundred (100) shares of the capital stock at par value, being the sum of Five Thousand Dollars ($5,000.00), which stock the said W. H. Troxell *427 agrees to sell. Until such time as the said Revloc Supply Company shall have exercised its rights and purchased said stock, as herein provided, the said W. H. Troxell shall have and receive all the income, dividends and accretions thereof...... “The right to purchase herein granted, shall be construed to include any shares issued to the said W. H. Troxell as dividends, upon the same terms and conditions as apply to the original issue.” In November, 1922, plaintiff accepted defendant’s resignation as superintendent and he ceased to be in its employ. Prior thereto plaintiff declared and paid two cash dividends of six per. cent each, and in addition had accumulated undivided net earnings or surplus amounting to $37,709.43. On the termination of defendant’s employment, plaintiff duly tendered him the par value of his stock, being $5,000, and demanded a retransfer of the same; defendant refused this on the ground that in addition to the par value he was entitled to his pro rata share of the surplus, to wit, $3,770.94. Thereupon plaintiff filed this bill to compel a retransfer of the stock; to which an answer and replication were filed and testimony taken. The trial court made findings of facts and legal conclusions sustaining defendant’s contention. In due course a final decree was entered dismissing the bill; from which plaintiff brought this appeal. The case turns on the above quoted clauses of the contract, which in our opinion were properly construed by the trial court. The contract must be treated as a whole (9 Cyc. 579) and, if defendant is entitled to his share of the net earnings, failure to pay or tender the same is fatal to plaintiff’s case (Girard Mammoth C. Co. v. Raven Run C. Co., 275 Pa. 439), for he who seeks equity must do equity: Datz v. Phillips, 137 Pa. 203; Kutz’s Est., 259 Pa. 548. These principles are not controverted, but it is contended for appellant that the surplus belongs to the corporation and not to the stock *428 holders, and that defendant was entitled only to the two dividends already paid. This ignores the fact that the contract not only gives defendant the “dividends,” bnt the “income” and “accretions” of the stock during his ownership thereof. A contract should be so construed, if possible, as to give effect to every word: 9 Cyc. 580. The words “income” and “accretions” are not synonymous with “dividends” and we cannot assume they were used in vain. The trial court pertinently says: “The word ‘accretions’ is one that has been used by the courts and by writers in relation to stock as indicating net earnings. Eeferring first, however, to the definition of the word ‘accretions’ as defined in Webster’s Unabridged Dictionary, we find that it is synonymous with the word accrue; that it means an increase by natural growth; that it comes from the Latin noun accretio, meaning to increase; that in law it means ‘the adhering of property to something else by which the owner of one thing becomes possessed of a right to another.’ ” Then after citing authorities the trial court says: “Prom all of the above it is apparent that the word ‘accretions’ has a distinct meaning and means additions to the assets of the company by way of net earnings or natural increase from the' business of the company.” Assuming as we must that the word accretions signifies something in addition to dividends, it would seem to embrace the surplus earnings of the corporation. Had the surplus been absorbed by cash or stock dividends, defendant would have received his share and he cannot be deprived thereof by the neglect of the corporate officers to declare the dividends. If so, then, as the matter of dividends rests primarily in the discretion of the directors (McLean et al. v. Plate Glass Co., 159 Pa. 112), had none been declared, defendant would have lost the use of his investment for over five years, although the corporate assets nearly doubled during that time. The contention that surplus earnings cannot be considered until declared as dividends would seem to deprive the *429 word “accretions” of all meaning in the contract. We deem it unnecessary to consider the definition of the word “income” as used here. True, the corporation is an entity separate from its stockholders (Goetz’s Est., 236 Pa. 630; Bridge Co. v. Traction Co., 196 Pa. 25; Bidwell v. P. O. & E. L. Pass. R. R. Co., 114 Pa. 535) and is the legal owner of its property, yet in equity, which looks at the substance (S. G. V. Co. v. S. G. V. Co., 264 Pa. 265; Kendall v. Klapperthal Co., 202 Pa. 596, 607), the corporate property belongs to the stockholders each of whom has an interest in the earnings of the corporation. That the legal title to the undivided surplus was in the corporation did not prevent it being an accretion to the corporate stock. We cannot overlook the fact that plaintiff is here asking specific performance of a contract on terms that would enable it to retain nearly four thousand dollars which in good conscience belongs to the defendant. A reasonable construction of the contract does not lead to such result, nor is equity required to so decree. The retransfer of the stock would entitle plaintiff to its pro rata share of the undivided surplus (Corgan v. George F. Lee Coal Co., 218 Pa. 386; and see Rose v. Barclay, 191 Pa. 594); for it defendant should be compensated. The decree is affirmed and appeal dismissed at the costs of appellant.