Marquand v. Federal Steel Co.

The questions for decision are these: (1) May the defendant corporation declare and pay quarterly dividends upon its preferred stock upon days selected by the directors, or must “some specific day or days for that purpose” be fixed in its charter or by-laws? (2) May dividends be declared upon the common stock previous' to. the close of the fiscal year? The charter itself provides that the dividend upon the common stock shall be declared “after the close of any fiscal year,” and thereby accords with the general time fixed by the statute soon to be noticed. The provision is plain, and no attempted construction can diminish its simple and direct authority. The solution of the question relating-to the preferred stock is not difficult. The inquiry does not relate to the capacity of the directors to determine whether sufficient profits applicable to dividends have been received. That is uncontroverted. The directors have undertaken to select the months and days-when the dividends for the year 1899 shall be paid. If the directors have the ability to do this, they have capacity pursuant to their will to vary the time of payment in different years. But it is considered that the statute (section 47, Corporation Act N. J.) requires that fixed times for making such payments shall be embodied in the charter or by-laws, and that in default of such designation of certain days in- either the charter or by-laws the declaration and payment of dividends shall be made, as provided by the statute, during the month following the close of the fiscal year. Section 47 provides:

“Tie directors of every corporation created under this act shall in January in each year, unless some specific day or days for that purpose be fixed in its charter or by laws, and in that case, then on the days so fixed, after reserving over and above its capital stock paid in, as a working capital for said corporation, such sum, if any, as shall have been fixed by the stockholders, declare a dividend among its stockholders of the whole of its accumulated profits exceeding the amount so reserved, and pay the same to such stockholders on demand: provided that the corporation may in its certificate of incorporation or in its by laws give the directors power to fix the amount to be reserved as a working capital.”

One obvious intendment of the statute is to.publish to'stockholders or proposed stockholders the fact that the profits shall be divided at appointed time or times, and that such time shall be uniformly in the months of January, unless the charter or by-laws designate “some specific day or days for that purpose.” Full power of selection is conferred upon the corporation, but such power is not confided to the varying discretion of the directors. The corporation is limited only in its method of establishing and publishing such days. “Embody the days in the charter or by-laws,” — that is the single qualification of power. But the learned counsel for the defendant urges (1) that section 47 is not applicable to preferred stock; (2) that the section does not negative the power of the directors to declare and *727pay dividends upon any days selected by them; (3) that section 18 (Revision 1896) permits quarterly payment of dividends upon preferred stock; (4) that the charter gives the directors power at will to declare dividends on the preferred stock. Section 47 commands that the “whole” surplus profits, less the amount reserved, shall be distributed to stockholders. Certainly it was not intended to limit the payment, to the common stockholders. The second contention is equally untenable. The claim there is that the object of the section is to compel a distribution in January, if some profits then remain undivided. Thai may be one purpose of the section. But does the section intend that the directors may divide the profits on any days they prefer previous to January? What, then, is the use of the words “unless some specific day or days,” etc.? Clearly, the section does not Intend that the distribution may be made on any days selected by the board of directors, and, if not so made, that the surplus profits shall be distributed during the month of January, or “on some specific day or (lays” fixed in the charter or bylaws. Such a construction renders the section shapeless and meaningless. TSTor does section 18 impair the restraint imposed by section 47. Section 18 permits payment of dividends upon preferred stock quarterly, semiannually, or annually. There is no contrary contention. But who shall fix the dividend days, — the directors or the charter or by-laws? Hection 47 states that tbe designation of di?,vs must, be made in the charter or by-laws. The two sections are entirely harmonious and helpful. The last contention is that the charter provides that “the preferred slock shall be entitled, out of any and ail surplus net profits, whenever declared by the board of directors, to noncumulative dividends at the rate of, but not exceeding, six per cent, per annum,” etc., and that this provision empowers the directors to select the dividend days. It is palpable that the provision intends to declare the rights of preferred stockholders, and not to endow the directors with power to declare dividends at their pleasure. But assume otherwise; who placed the provision in the charier? The incorporators. May incorporators, by inserting such, a provision, nullify the commands of section 47? The matter does not admit of discussion. It is finally objected that the directors cannot be restrained, since by their act, found to be illegal, the title of the dividend fund has vested in the stockholders according to their respective holdings. But shareholders acquire interests in dividends when lawfully declared. This court will not withhold its hand to prevent unlawful action on the part, of directors until it can ascertain and bring within the influence of its decree the proposed beneficiaries of tbe wrongful act. It will be sufficient to enjoin a shareholder when he shall venture to participate in the unauthorized act of the directors, by seeking to obtain some portion of the fund attempted to be divided. It results from tbe foregoing view that the injunction must be continued.