79 N.J. Eq. 604 | N.J. | 1912
The opinion of the court was delivered by
The first question that arises is a legal one. The corporation was organized under the General Corporation act of 1875, and the complainants insist that it is a manufacturing corporation within the meaning of section 52 of that act, and for that reason required, after reserving as a working capital a sum to be specified by the directors not exceeding one-half the capital stock, to declare a dividend of the whole accumulated profits. The defendants claim that, because the corporation had objects other than the manufacture and sale of goods and because a considerable
The unanimous assent of the stockholders to the by-laws of 1900 was an assent only of the persons owning the legal title to the stock. This is all that is necessary, for, under the statute, they alone have the right to vote, and trustees are expressly authorized to represent the stock held in trust and to vote thereon as a stockholder. (Section 39 of the act of 1875, Revision 184,. which is now a part of section 37 of the act of 1896, C. S. 1622.) The evidence, however, goes further. The complainants received dividends for years without objection, and must be held themselves to have waived any right to object so long as the directors acted honestly and fairly. The action of the stockholders in assenting to this by-law was, of course, not the act of the directors, but of the stockholders as such. Not only was there this tacit approval of the conduct of the directors, but even when this bill was filed, the complainants did not rely on the act of 1875 and ask for a distribution of all accumulated profits in excess of the working capital permitted by that act. They very properly limited their prayer for relief to a distribution of profits not needed for the legitimate purposes of the companj^s business. The proofs make clear the reason for this limitation; the business has grown so that more capital is necessarily employed. The complainants evidently had this in mind, and for their own advantage, as well as that of the other stockholders, refrained from asking a dis
This brings us to the question of fact in the case; the propriety of the court of chancery ordering the declaration of the additional dividend. The rule of law that governs was clearly stated in this court by M'r. Justice Garrison in Laurel Springs Land Co. v. Fougeray, 50 N. J. Eq. (5 Dick.) 756. After stating the power of the court to order the directors to make a dividend of unused profits when they improperly refused to do so, he adds that the authority of the directors is absolute as long as they act in the exercise of an honest judgment. To put it in the language used by the court of chancery in another case, "the court should not intervene if there is any room for doubt.” Raynolds v. Diamond Mills Paper Co., 69 N. J. Eq. (3 Robb.) 299, 307. The question, therefore, is not Avhether a vice-chancellor, or this court, with all the light that has been thrown upon the case by a prolonged litigation, during which the company has continued to thrive and has increased its assets, shall now say that the directors should have declared a larger dividend more than six years ago; but whether the directors, in view of their knowledge at the time, their experience of the business, their reasonable apprehension of its future hazards, were justified in withholding from the stockholders all the profits, except the ten per cent, dividend declared. It would be very unfair, after the directors had for six years conducted a corporation successfully, for the court to say that they ought to have anticipated the successful operation of the company for six years in advance. The very conduct of this case is sufficient to show the difficulty that an honest director must have felt in November, 1905. The evidence was taken in 1906, and for four years thereafter the vice-chancellor held the matter under, consideration, and even then decided to decree an additional dividend only tentatively, and found it necessary, before actually making the decree, to take further testimony as to the then existing, condition of the company, so that the final decree was not made until February, 1911, five years and three months after the bill was filed. The vice-chancellor, even then, did not venture to decree that the whole dividend of $60,000, awarded by him, should be payable on demand; but he allowed it to be paid in
The total net profits of the company from its organization until November 30th, 1905, were $1,106,104.35, as stated in complainants’ brief. The dividends declared amounted to $633,000; in some years the dividends exceeded the earnings of the year. We cannot say that the retention of the difference in this developing and successful business indicates any lack of honest management. It is proper to look with suspicion vupon the conduct of directors who have a personal interest adverse to the declaration of dividends, but we are unable to draw the same conclusion as the vice-chancellor from the facts. Nor can we say that it is illegal for the directors under our present statute and the by-laws of this corporation to pursue a policy to secure stability in the dividend rate by making the earnings of the prosperous years help out the deficiencies of other years. The natural inference to be drawn from our cases is that such a method is legal. Goodnow v. American Writing Paper Co., 73 N. J. Eq. (3 Buch.) 692; Bassett v. United States Cast Iron Pipe and Foundry Co., 75 N. J. Eq. (5 Buch.) 539.
The decree in this case should be reversed, with costs. This, necessarily, disposes of the question raised as to the allowance of a counsel fee. Since the complainants are not entitled to costs, but are liable for costs awarded against them, they, of course, cannot be entitled to a counsel fee.