Adams v. Delta & Pine Land Co.

Whitfield, C. J., delivered the opinion of the court. We have given this case the most patient and careful examination, and we have reached the conclusion that on the case made by this record the judgment of the court below cannot be upheld. What was done by the directors amounted in effect to nothing else than a promise for a future dividend. The notes, as dealt with on the facts in this record, constitute merely pledges on the part of the corporation that dividends of the amount therein named would be paid at maturity. The schedules exhibited are called “dividend schedules” throughout the entire examination of the witnesses. As such they are manifestly void,' for the reason that they are not set apart from the profits; but they actually represent the corpus of the property of the corporation. It is too well settled to require the citation of authority that dividends must be set apart out of the profits earned. Indeed; learned counsel for appellee does not here deny this doctrine; but he insists that what was done was, not the awarding of dividends, but a distribution in solido of the property of the corporation in the form of notes. There are two answers to this contention. The first is that the entire record shows beyond controversy that these notes were intended to be, and were, dealt with as dividend notes; second, the action of the directors shows clearly that the corporation practically retained the title to these notes and the control over them. That action is as follows: “Chicago, 111., April 4th, 1901. The directors of the Delta & Pine Land Company held a meeting in Chicago, 111., at 209-212 Clark street, and it was agreed to make a dividend of notes and cash, ten per cent., viz., nine per cent account of notes and one per cent cash. It was agreed that the notes should be guaranteed by the company and all expenses of collection paid by it. The notes to be held by the party getting them until paid or until foreclosed. The party holding the notes to bid in the land, if he so desires, when sold, or receive the cash from the company in full, with interest. [826] William Watson, secretary.” It will thus be seen that the corporation was to bear the expense of collection and that the corporation was to do the foreclosing. If these notes had been intended to be absolutely parted with, so that the endorsees of the notes could deal with them absolutely at their own pleasure, without reference to any limitation or restriction as above set out, it was very easy so to have endorsed them. But it is perfectly obvious, from this order and from the nature of the transaction at large, that the whole purpose and scope of the endorsement of the notes was simply to pledge the amount therein contained as the measure of future dividends to be paid at maturity or until foreclosed; the foreclosure proceedings to be conducted, not by the owners, but by the corporation, and at the expense of the corporation. Many considerations show that no title can pass, in any just legal sense, under this sort of arrangement and this sort of guaranty by the corporation of the notes. It is not insisted that any actual fraud is shown by the testimony to have been intended; but it is impossible to escape the necessary conclusion that what was done amounted to a fraud upon the public revenues. If a corporation, 'owning notes for land in this state which it has sold, can escape the payment of taxes on such land notes, taxes which would, if so paid, go into the treasury of this state, which affords to that corporation the protection of the law, by the easy paper process of dividing that value up amongst the stockholders, in the shape of notes whose amounts shall measure the interests of each, and thus make these notes payable at the domicile of the respective holders, it would not be long until corporations of every kind would follow suit, and there would be no estimating the damage to the tax revenues of this state. The arrangement contemplated as shown by the facts of This case, manifestly had no other purpose than to escape the payment of taxes to this state on these notes for land situated in this state, protected by the [827] laws of this state, by the simple paper scheme of appraising the value of the land as sold by notes, and assigning these notes to the non-resident stockholders. To sanction an arrangement like this would be a death blow to the collection of a very-large part of the taxes due the state from corporations which seek and receive the protection accorded by the laws of this state. Under the facts in this record, the title to these notes did not pass to these endorsees, they did not own the notes absolutely, and they held them practically as mere pledges for the payment of future dividends. Wherefore the judgment is reversed, and the cause remanded.