OPINION
Country House, Inc. appeals from a judgment by the trial court awarding Jerold Murphy $13,375. The court found Murphy was an original investor of 25% of the cash contributed to incorporate Country House, and was therefore entitled to 25% оf the excess profits declared and distributed by Country House during the fiscal years of 1976 through 1980 inclusive. We reverse and remand for entry of judgment for Murphy in the amount of $5,944, representing a ¼ interest.
FACTS
In 1963, Murphy, together with Kenneth H. Johnson, Donald F. Wоlf, and Myron W. Scullen, incorporated Country House, Inc. in Minnesota and authorized 1000 shares at a par value of $100 per share, and designated Murphy, Kenneth Johnson, Wolf and Scullen as incorporators and directors. Cоuntry House is a wholesale milk and dairy products dealer.
The minutes of the initial Board of Directors meeting, July 20, 1963, reflect that each of the four original incorporators and directors paid $5,000 into the corporаtion
Between 1963 and 1972, all four original incorporators worked as full time employees of the corporation and received wages. During that time, Country House also paid additional “compеnsation” or “bonuses” to the original four — twice in 1964, once in 1965, and once in 1969. The minutes show that the Board authorized payment of bonuses when fiscal reports indicated sufficient corporate earnings for the year. Only the minutes of a 1969 Board meeting classify these additional payments as “bonuses” for exceptionally good work done.
In 1972, Murphy terminated his employment with the corporation. At that time, he offered to sell his stock for one-fourth of the actual value of the corporate assets. The Board, however, offered to purchase his stock at a value of one-ninth of the corporation’s book value. Murphy retained his shаres and the parties stipulated at the time of trial he held a one-ninth interest in the corporation.
At trial, Gregory Johnson testified on cross-examination that from 1975 through 1980, the corporation paid the following bonuses:
September, 1975, Kenneth Johnson, Mike Seullen and Don Wolf each received $4,000 in bonuses. September, 1976, Kenneth Johnson, Myron Seullen, Don Wolf each received $7,000 in bonus. September, ’77, the same three each recеived $8,000. September, ’78, each, the same three, received $1500. September, 1979, they all received zero. September, 1980, Kenneth Johnson, Gregory Johnson, for the first time, Myron Seullen, Don Wolf each received $1,000 bonus, which as stated here, included in their 1980 wages.
Gregory Johnson also testified that beginning in 1980, the corporation included bonuses as wages for tax purposes on its records. The Board has never declared any dividends.
The trial court found:
That, between the fiscal years 1963 and 1971, inclusive, the excess profits of the Corporation were distributed annually in equal one-quarter bonuses referred to as ‘bonuses’ to the four original incor-porators; however, between thе fiscal years 1972 and 1974, inclusive, the Corporation had no excess profits to so distribute.
That between the fiscal years 1975 and 1978, inclusive, the excess profits of the Corporation were distributed annually in equal one-third sharеs to the aforesaid three incorporators, excluding Plaintiff; however, in fiscal 1979 the Corporation had no excess profits to distribute and in fiscal 1980 Defendant Corporation distributed its excess profits in equal one-quаrter shares to the aforesaid three in-corporators, excluding plaintiff, and to Gregory W, Johnson.
That the distributions, through fiscal 1975, were distributed exclusively to the original incorporators in direct proportion to their initial cash investment in the
company.
That the amount of excess profits distributed during each of the fiscal years at issue were as follows:
1976 - $ 21,000
1977 - 24,000
1978 - 4,500
1979 - -0-
1980 - 4,000
The trial judge also held, as a conclusion of law, “[t]hat the annual distribution of excess profits from Defendant Corporation during the years at issue was in the nature of a return on the initial capital investment of the original incorporators to be shared on an equal basis.” The judge then decreed that Murphy was entitlеd to one-quarter share of the excess profits declared and distributed during the fiscal years of 1976, 1977, 1978, 1979, and 1980, and that his share equalled $13,375.
Country House argues that (1) the evidence fails to justify the findings of fact,
ISSUES
1. Did the trial court correctly сonclude that the bonuses constituted a distribution of excess profits in the nature of a return on the initial capital investment of the four original incorporators to be shared on an equal basis?
2. Does the record support the trial court’s findings of fact?
ANALYSIS
1. “Bonuses” as Dividends
A. This case centers on properly classifying the corporate “bonuses” paid between 1975 through 1980. The general rule of law permits corporations to pay bonuses to employees who performed services beyond those required in their respective employment contracts.
See Hartung v. Billmeier,
Under these facts, the trial judge held, as a conclusion of law, that an incorporator is entitled to a return on initial capital investment distributed ratably according to each incorporator’s original cash contribution. The trial court’s judgment entitling plaintiff tо a one-quarter share was based on an erroneous legal concept.
Courts generally classify a recurrent payment to the stockholders of a corporation on their stock (investment) as a dividend.
Hellmich v. Hellman,
Our Supreme Court, in determining whether a specific set of facts includes a dividend, stated:
In determining whether a transaction constitutes a “dividend,” consideration must be given to the context in which the term “dividend” is used; the consequences that turn upon the answer to the question; and the facts of the particular case_ Ordinarily the object of a dividend is to enable the shareholders to enjoy the fruits of the corporate operatiоn.
Stephenson v. Plastics Corp. of America,
Using a similar analysis, a Florida appellate court noted that:
[A] distribution may be treated as a dividend although the corporation has taken no formal action to designate it as such. The devices avаilable to disguise dividends are as numerous as the ways in which a corporation can disburse its funds. It has been universally recognized that the mere fact that the distributions are not called “dividends” by the board of directors of the сorporation does not detract from such distributions being dividends within the meaning of the law. This is so regardless of the fact that the distributions are made in proportions other than the stockholders’ respective holdings.
Alliegro v. Pan American Bank,
In a similar case, a Michigan appellate court looked at the entire course of conduct between four shareholders.
Erdman v. Yolles,
The reasoning of the above cases applies here. The trial court reviewed the parties’ conduct and made an erroneous finding that the “bоnuses” constituted returns on the incorporators’ initial investment. However, in terms of Hellmich, the payments constituted dividends. Although the Board neither classified the payments as dividends nor distributed the monies ratably according to each shareholder’s interest, it effectively paid dividends to some of its shareholders during its years of surplus profits.
B. The next step involves computing the amount to which Murphy is entitled. A corporation must distribute dividends ratably according tо each stockholder’s interest.
Sherman v. Pepin Pickling Co.,
In its findings of fact, the trial court correctly found that the corporation distributed $53,500 of its excess profits between 1976 and 1980, inclusive. Plaintiff’s share, one-ninth of $53,500, equals $5,944.
2. Findings of fact
The сorporation challenges four of the trial court’s findings of fact. Where a court sitting without a jury makes findings of fact, an appellate court will not set aside those findings unless clearly erroneous. Minn.R.Civ.P. 52.01;
In Re Estate of Boysen,
DECISION
Reversed and remanded for entry of judgment for plaintiff of $5,944.