75 N.J. Eq. 539 | N.J. | 1909
The opinion of the court was delivered by
The contest in this case is over the right of the board of directors of the defendant company to declare a dividend on its preferred stock out of a fund known as “Reserve for additional working capital.”
By the defendant’s certificate of incorporation its preferred stock is entitled to non-cumulative dividends not exceeding seven per cent, per annum, payable out of any and all surplus net profits; and the common stock is entitled to dividends out of the surplus net profits remaining after payment of the dividends on the preferred stock.
The fund known as “Reserve for additional working capital” amounts to $2,459,896, and was accumulated from the surplus net profits for the years 1900, 1902, 1903, 1904 and 1906. Of this amount $1,593,750 was obtained by scaling down the divi- . dends on the preferred stock below seven per cent, in four of these years.
The complainant is a holder of common stock of the defendant company. His contention in the court below, and here, was, and is, that the dividends on preferred stock for any fiscal year must be paid out of the profits made during that year; that the profits of any given year which are not distributed in dividends declared in that year belong to the common stockholders, and when distributed must be paid to them to the exclusion of the holders of preferred stock. The defendants claim is that it may pay dividends on its preferred stock out of any and all surplus net profits, without regard to the period during which they were earned. The learned vice-chancellor who heard the cause adopts in Ms opinion the contention of the defendant upon this point.
Except to the extent indicated, we are in entire accord with the views contained in the opinion of the learned vice-chancellor, and conclude that the decree under review must be affirmed.