ON PETITION FOR REHEARING
Counsel for Jennie V. Wallace, respondent herein, has filed a petition for a rehearing on the ground, among other things, that "the plaintiff below stated no cause of action in its petition." Other grounds are set up, apparently intended to state the same thing in different language. We held in the original opinion that the plaintiff, the appellant herein, had not proven the allegations in its petition, and by reason of that fact, the judgment of the lower court was sustained in so far as it had any relation thereto; respondent has all that she asked for in that respect, and we are at a total loss to know why the grounds for rehearing above mentioned and others of like import are set up. Upon examining the brief filed with the petition for rehearing, however, we find the contention made that the appellant, not being a party to the contract with Linthicum, could not base any defense thereon; that in any event an affirmative plea of payment should have been set up, and the heirs of Linthicum should have been made parties to the suit. We fail, however, to find any such objection in the briefs of counsel filed in this court upon the original hearing of this case. No such objection was at any time raised at the trial; the case was tried upon the theory that the proper issues were raised and the proper parties before the court, and the objection now made comes too late. 4 C.J. 629, 631. We might insert the query, however, if it is true that a corporation cannot, in a suit brought by a former stockholder to recover a dividend on stock, defend on the ground that pursuant to a contract between the stockholder and a third party the dividend or stock was transferred, and that the payment or delivery was made accordingly, how a corporation could ever set up any defense of such transfer even though made in writing, duly filed with the company? It would seem that in so far as the right of setting up such defense is concerned, it would make no difference whether such transfer is made in writing or orally. In Wheeler v.
Sleigh Co., 39 Fed. 347, cited to us, the very defense now mentioned was set up; in fact the transfer of a dividend was claimed to have been made orally, through an agent. The case was decided upon the ground that no such contract was shown, but there was no intimation that the defense was not a proper one.
On March 25, 1911, the Allith-Manufacturing Company declared a dividend. This dividend — a point not perhaps clearly stated in the original opinion — was a stock dividend. The point tried in the lower court was as to whether this stock dividend was transferred along with and as a part of the stock then — in January, 1912 — held by respondent in the company. The sale was made by an agent, the husband of respondent. The transfer of the stock was effected through a written power of attorney, but, as shown in the original opinion, such power of attorney was a mere incidence in the transaction, was made merely to effect the transfer on the books of the company, and in no manner measures the power of the agent. But it is urged by counsel that "this novel idea of a transfer of a dividend by parol" ought not to prevail; that it would invite the most flagrant abuses in dealing with corporate stock," and would make Wyoming "the Mecca of the stock-swindlers, the looters of the mails and safety-deposit boxes." But we fear no such results. The case does not involve the ordinary sale of dividends, but the question as to whether, under the facts and circumstances of this case, a stock dividend, passed as an incident to the sale of stock. As already stated in the very case cited by counsel, that of Wheeler v. Sleigh Co., supra, the defense set up was an oral transfer of a dividend as incident to the sale of stock, without intimation on the part of the court of any terrible consequences that might ensue if proof of such transfer should be made. In Brewster v. Lathrop,15 Cal. 21, a transfer of stock was made "with all the dividends made after the morning of the twenty-third of September." A dividend was declared on the afternoon of that day. Both parties had expected a dividend
to be declared on September 22nd, and it was held that it could be shown by oral evidence that the dividend was not in fact transferred, notwithstanding the express language in the written contract to the contrary. In Cook v. Monroe, 45 Neb. 349, the court said:
"A stockholder may sell or transfer his shares of stock with or without gains or accrued dividends, and a dividend which has been declared may be made the subject of a contract, or a contract may be entered into regarding it, in the same manner and to the same extent, and as valid and binding as one in reference to any other kind of personal property."
See also 14 C.J. 820; Fletcher, Cyc. of Corporations, Sec. 3703.
Counsel claim that we have overlooked the rule heretofore many times stated by the court that we will not disturb the finding of the trial court where the evidence is conflicting. The original opinion, however, shows that we had that principle in mind. This is not a case where the evidence is conflicting. All of it, including the testimony on behalf of respondent, unerringly and irresistably leads to the only possible conclusion that the stock dividend was considered an incident to, and a part of, the stock transferred. Even if this were not true, there would still be grave doubt that a respondent could recover on this item. It is no doubt true, as a general rule, that in the absence of an agreement to the contrary, a cash dividend declared prior to the transfer of ownership belongs to the transferor. 14 C.J. 820. But we are not at present prepared to hold that this is true in case of a stock dividend, previously declared, but not in fact issued or at least in some manner specially set apart to the stockholders. Ordinarily a dividend declared in stock is to be deemed capital and not income. The interest of stockholders in a corporation remains unchanged upon the latter declaring a stock dividend. Gibbons v. Mahon,136 U.S. 558; De Koven v. Alsop, 205 Ill. 309,
66 L.R.A. 587; Lancaster v. Trust Co., 152 N.C. 660; Kaufman v. Charlottesville Woolen Mills, 93 Va. 673,25 S.E. 1003. If then a stock dividend is declared, but not issued, what is it that represents such capital of the corporation? Is it not, necessarily, at least in the absence of special circumstances, the stock actually issued and outstanding? And if that is so, would not a transfer of such stock carry with it, in the absence of an agreement, everything actually represented by it? In Lancaster v. Trust Co., supra, the parties did not know that a stock dividend had been declared. A special agreement was made upon transfer of stock, reserving "January dividends." It was held that notwithstanding such agreement, a "January stock-dividend" previously declared belonged to the vendee of the stock. In Kaufman v. Woolen Mills, supra, the seller reserved "dividends" to be declared in January subsequent to the transfer. It was held that a stock-dividend declared in that month belonged, nevertheless, to the vendee of such stock. In Gibbons v. Mahon, and De Koven v. Alsop, supra, it was held that as between remainder-man and life tenant — the latter receiving the income from stock — a stock-dividend belongs to the former. In the City of Ohio v. R. Co., 6 O. St. 490, the court appears to hold that a transfer of stock carries with it all "stock-dividends unpaid at the time of the transfer," except "where it is separate and set apart from the principal by actual payments or by being carried, when due, to the credit of the owner of the principal in his account with the debtor." We need not, however, decide this point, since the evidence, in our opinion, clearly and unmistakably shows that the stock-dividend was intended to be transferred along with the stock.
A rehearing must accordingly be denied.
Rehearing Denied.
POTTER, Ch. J., and RINER, District Judge, concur.