King v. Paterson & Hudson River Railroad ( 1860 )

Haines, J.

It is a clear proposition, that a dividend declared of the earnings of a company becomes thereupon the individual property of the stockholder, to be received by him on demand. It is a severance from the common fund of the company of so much for the use and benefit of each corpora-tor, in his individual right, which may be demanded by him, and if refused, become the subject of an action for money had and received to his use.

“ After a dividend is declared, each party entitled has a right in severalty to his particular proportion. The interests of those entitled to dividends become not only several and distinct, but positively adverse to each other, so that one cannot be said to represent the others as to the dividends declared." Redfield on Railways 597, § 10.

This must be so of necessity as the only means of enforcing a right to bis share of the profits.

“Each stockholder, as to his share of the profh.-. declared, is in a position adverse to the corporation, as such, and to each of the other corporators, and hence his action will lie after demand duly made.” Redfield on R. 597, pl. 5.

In Le Roy v. The Globe Insurance Co., 2 Ed. Chancery 657, McCoun, V. C., held that a dividend declared became the individual right of the stockholder, and that its appropriation conferred upon it so much of the character of a trust fund that it could not be devoted to other objects, and he directed the receivers to pay it out of the assets.

This case is in equity, but it settles the principle of severance of the dividend from the common fund, and of its thereby becoming an individual right; and if that is the true principle there is no necessity of resorting to a court of equity to enforce it. .

The action of assumpsit is equitable enough to meet all the exigencies of the case.

The same principle is recognized in State v. Baltimore and Ohio R. R. Co., 6 Gill R. 363, and in City of Ohio v. Toledo R. R. Co., 6 Ohio R. 489.

But it is insisted that the money to meet these dividends was deposited with the registers of the company, and notice thereof given, and that the loss consequent upon the failure of the registers must fall upon the plaintiffs, who had neglected to apply in' time and receive the amount due to them.

The directors are the agents of the corporation, and in their official capacity agents of the stockholders also. They alone have the power to declare a dividend of the earnings of the corporation. Until it is so declared the stockholder has no certain and fixed individual right.

They may not only declare the amount of dividends, but also the time of their payment. No one will deny their right to fix the time of payment at a future day, so that it be reasonable and in good faith ; and they have the like power to appoint a place of payment, so that it be within a reasonably convenient distance from their place of business or from that of the stockholders.

Should the place of payment be so remote as to prejudice the stockholders it may suggest some fraudulent design; but in the absence of any such design the directors, in their resolution declaring a dividend, may impose the terms of the payment as to the time and place, and each stockholder who would claim his share of the dividend must claim and take it sub modo.

In these respects the directors act for him as a corporator and as his agents, and their acts become his, and as such corporator he is bound by what they do in declaring the amount of dividend and time and place of payment.

Hence they may select a banking-house of good credit and constitute it their registers, and may lawfully deposit the money there, giving notice nevertheless to each stockholder of such deposit.

If, after due notice, the stockholders neglect to draw the money within a reasonable time, and a loss is incurred by the failure of the registers, it must fall upon him for his neglect) and then he lias no right to call upon the other stockholders to contribute to reimburse him for what he has lost by his own negligence.

If the company had deposited the money in a bank of deposit, and given to the stockholder a check for the amount, and he had neglected to present the cheek within a reasonable time, and the bank had subsequently failed^ there would be no question but that the loss must fall on the negligent holder of the check

The deposit in a banking-house with authority to receive on demand, and signing the dividend book, which is but a mere receipt, is on the same principle with hire check, differing only in this, that the possession of the check is plenary evidence of notice of the time and place of payment. If that difference is met by due notice to the stockholder it is in substance the same.

In this ease the jury have found that notice of each dividend and its place of payment was published for at least keight days in the New York Times, a public newspaper circulating extensively in the city of New York) and further, that the plaintiffs were bankers in the city of New York and in the immediate vicinity of the branch office of the trust company; and further, that they did not ask for the dividends, although the registers continued in business and in good credit until the 24th day of August, being more than six months after the first dividend was declared, and more than fifty days after the last.

Advertisement in a gazette circulating daily in the vicinity of men of business is presumptive evidence of notice, to be overcome, nevertheless, by positive proof to the contrary.

The affidavits] and supplement to the case agreed upon by the parties, show that neither of the plaintiffs ever saw the advertisement, or had any notice or knowledge that the Ohio Life and Trust Company had been made the registers of the defendants, or that the money to pay dividends had been deposited there, until after the failure of that company. The loss cannot, therefore, be attributed to the negligence of the plaintiffs. They are not at fault for not demanding payment before they were informed of the place of deposit.

I think the plaintiffs are entitled to judgment on the verdict for the amount of damages found, with costs.

Van Dyke, J. The plaintiffs are the owners of 200 shares of the capital stock of the Paterson and Hudson River Railroad Company, the defendants in this suit. In January, 1857, the company declared a dividend of four per cent, on its capital stock, amounting, on the stock held by the plaintiffs, to the sum of $400. In July of that year another dividend was declared and made by the company, on their said stock, of four and a half per cent., amounting, on the stock held by the plaintiffs, to the sum of $450. The resolutions declaring these dividends were never rescinded nor reconsidered. On the contrary, the dividends were in fact paid to nearly all the stockholders except the plaintiffs. The plaintiffs not having received their dividends, demanded them of the company, in 1858 or 1859, and before the commencement of this suit; the payment thereof being refused, they commenced this action to recover them. Under these circumstances the plaintiffs will be entitled to recover, unless the defendants can show some good reasons to the contrary. The reasons that they give, and the defence that they make are, that the money to pay these dividends, and all or nearly all other dividends made at the times mentioned, was by the defendants placed in the hands and possession of their agents in the city of New York, to be by them paid to the respective stockholders at, the office of such agency, of which facts the defendants caused a notice to be inserted and published for some ten days, in each case, in the Times, a newspaper printed and circulating in the city of .New York, and in which city the plaintiffs at the time had an office, and were doing business as bankers; that the money to pay such dividends remained in the hands and possession of the said agents until the 24th day of August, 1857, when the said agents suspended business and failed, and have never since resumed payment.

It does not appear that these agents were ever at any previous time selected to pay the dividends declared by the defendants. Nor does it appear that the plaintiffs ever had any notice or knowledge in fact that the dividends were made or deposited in the hands of the agents mentioned for the purpose of payment, nor does it appear that they ever consented or agreed to such agency, or agreed to look .> them for the payment of the money or dividends due them.

Do these things amount to such a defence as to defeat the claim of the plaintiffs? I think they do not. If the plaintiffs are to be bound by the arrangements of the defendants for the payment of these dividends, they were at least entitled to have notice of them. They have had no such notice, or if they have there is no evidence of it. It cannot be inferred. It must be proved by the defence.

It cannot be assumed, or maintained as a legal proposition, that every stockholder in a company either knows or is bound to know all the doings and proceedings of the officers of such company at the time or times when the acts are done. It is true that the interests of the stockholders may be legally affected by the action of a company through its officers, but as between the stockholders and the company itself, touching any claim which they have against it when in a solvent condition, they stand in the same position to it as a stranger, and except as to reports and the like, which may be made to the stockholders exclusively, they are about as ignorant of its affairs as he. No notice, therefore, of the making of these dividends, or of the placing them in the hands of this agency for payment, can be legally inferred from the mere fact of the plaintiffs being stockholders.

The only other evidence in the case from which notice can possibly be inferred, is the fact that the defendants caused it to be published in a newspaper in the city of New York; but it does not appear that such notice had ever before been published in that particular newspaper, either with or without the knowledge of the plaintiffs, nor does it appear that they ever saw either the notice or the paper having it in. And we cannot lawfully hold that any person is bound to know, at the peril of his legal rights, all that is in all the newspapers published in his vicinity, or in any one of them, when he may be surrounded by dozens of different ones, unless it may be some notice or advertisement that is published in obedience to some positive Jaw or legal order, and which the law has made conclusive of his rights, whether he ever knows it or not. Such is not the case here. But it appears affirmatively, by the state of the case or special verdict, that these plaintiffs never had any notice or knowledge, in any form or at any time previous to the failure of the agents, of the existence of this agency or of the making of the dividends in question.

It might be a sufficient answer, therefore, to this defence, to say that the necessary knowledge is not in any way brought home to the plaintiffs. But suppose they did know it, were they legally bound to go to this agency or to look to it to get their money? And could the company compel them to do so? It was no agency of theirs; 'they had nothing to do with its selection, and never consented to its appointment. They may have had abundance of reasons for preferring to let the agency alone, and to look directly to the company for their money at some convenient time, and the company had no power to prevent them. With the company they had a right to wait until the statute might possibly bar the claim, and they could not be compelled by the company, without their consent and at the peril of losing their claim, to present it at any other place short of that time.

If, indeed, the plaintiff had gone to the company, and had taken its check on its agency for these dividends, and had then held it an unreasonable length of time, during which the agents had failed and the money become lost, the case might have been different; but in such case two important facts would have intervened — first, it would have been an admission of notice of the agency on their part; and secondly, it would have been an assent on their part to the agency, and an agreement to some extent to look to them for pay, and besides, the question of the due presentment of a check, as such, might have been raised; but these things did not occur, and we need not trouble ourselves with their consideration.

We come back, then, to a few plain facts. • The defendants owed the plantiffs money. Without their knowledge or consent, the defendants placed their funds in the hands of a third party for the purpose of paying the debt without giving the plaintiffs any notice of such arrangement. The money was allowed to remain with such agents, a part of it a little over seven months, and a part of it a little over one month, when the agents failed and the money was lost, and the question is, which of the parties is to lose it? As before remarked, they were not the agents of the plaintiffs. They were not selected by them, nor with their knowledge or consent, and they should not be responsible for their defalcations, misfortunes, or-faults. On the contrary, they were the agents of the defendants, selected by them, and intrusted by them, and' they only must sustain the loss occasioned by their failure.

If a party owes me money he cannot compel me against my will to recognize another person as my debtor, although there may be money in his hands to pay me. If my debtor does not pay me when it is due, I can sue him and recover it without regard to the person whom he has appointed to pay me; and if such agent fails with the money in his hands it is the loss of my debtor, and not mine, whether the time be long or short that the money has been in the hands of such agent, and whether I have had notice of it or not.

How soon after a dividend is made payable at an agency, if at all, must a stockholder, to save himself from risk, go and demand it? Has the law settled the question ? Is if five days, thirty days, three months, or a year? Where is the point of time beyond which he dare not wait? No one can tell, for no one knows.

In the case before us the money was all the time within the control of the defendants themselves; they could have withdrawn if, and repossessed themselves of it at any hour if it were not safe, but they took the responsibility of leaving it where they had taken the responsibility of placing it, and if it- is gone it is their loss, and not the plaintiffs’.

I think, therefore, that in any aspect in which we can view the case, the plaintiffs are entitled to a verdict for the amount due them, and that the Circuit Court be advised accordingly.