Olsen v. Homestead Land & Improvement Co.

CAIRES, Chief Justice. In this case the following question is certified for our decision: “The Homestead Land and Improvement Company, in pursuance of an agreement among its stockholders to divide amongthemselves a part *371 of the land belonging to it, by its general warranty deed conveyed to J. W. Moore, one of its shareholders, a certain portion of said lands. The deed expressed a consideration of $2 and other valuable considerations, but in fact no consideration was paid nor stock cancelled. At the date of the deed the paramount title to about two-thirds of the land conveyed to Moore was and hath continuously since been in a third party, who was then and is now in actual possession thereof, and claiming it under the superior title. “The appellant, J. B. Olsen, who by mesne conveyances holds the land under Moore, in a suit against the appellee for damages on its warranty, offered to prove, as evidence of the measure of damages, the value of the land conveyed to Moore at the time his deed was executed. Should the testimony have been admitted?” In our opinion the testimony should not have been admitted. In legal contemplation, a corporation is an artificial person, and is distinct from its shareholders. Throughout its existence it remains the same, while the personnel of its shareholders may change at any time. A shareholder and the corporation may contract the one with the other. “The right which a shareholder in a corporation has, by reason of his ownership of shares, is a right to participate, according to the amount of his stock, in the surplus profits of the corporation on a division, and ultimately, on its dissolution, in the assets remaining after the payment of its debts.” Plimpton v. Bigelow, 93 N. Y., 592. When, as in this case, the corporation and its stockholders have agreed that a portion of the assets of the concern may be ' divided among the shareholders, and a division has been ordered, the corporation has no further interest in the money or property so directed to be divided, and no duty in connection with, it, except in case of money to pay, and in case of property, to transfer to the stockholders their respective shares in the dividend. The property in this case which it was agreed should be withdrawn from the capital stock and distributed among the shareholders being land, a conveyance by the corporation was necessary in order to transfer to the shareholders the legal title of the parcels respectively set apart to them. The consideration for the conveyances was merely the duty which the corporation owed to its stockholders to give effect to the agreement to withdraw and to divide among them a portion of the corporate property. 29ot only did it receive nothing for the conveyances, but its capital stock was lessened by the amount of the value of the property conveyed. That the corporation under the circumstances might, by order of its directors and at the request of the stockholders, have covenanted, in the event of the failure of title either in whole or in part of any of the parcels conveyed to the shareholders, to indemnify such shareholder or shareholders against loss by reason of the failure of title, may be conceded. This would probably have been accomplished by expressing the value *372 of the land as the consideration of the deed. But it seems to ns that the consideration actually expressed excludes the idea that the corporation intended to do more than merely to pass the legal title, so as to give effect to a partition which the shareholders had agreed upon among themselves. From the fact that a corporation has determined to release a portion of assets for division among its shareholders, no presumption arises that it intended to make good the title of the property so relinquished. Such action would result in an additional impairment of its capital stock, which fact ought to raise the contrary presumption that no such covenant was intended. After a partial division of assets the shares may pass into new hands, and to require the corporation to make good the title to the property so divided might work an injustice to such holders. Delivered December 10, 1894.