116 A. 600 | Conn. | 1922
The declaration of a dividend by the board of directors of a corporation severs from its assets a portion to be distributed among its stockholders in proportion to their respective holdings. Thereupon the share of each stockholder vests in him as an individual.Cogswell v. Second National Bank,
The power of the directors to declare a dividend which shall vest in the stockholders of record on the day when their resolution is passed, implies and includes the power to declare a dividend which shall vest in the stockholders of record on another day. Before the declaration, the assets of the corporation belong to the corporation, and the stockholders as individuals have no legal right to any share therein. It is the declaration of the dividend that sets apart a portion of the assets to be distributed as dividends and vests in each stockholder individually the legal title to his proportion of them. Spooner v. Phillips,
It is a matter within common knowledge, that to prevent uncertainty and confusion in business transactions often involving the ownership of large sums of money, and to determine definitely the rights and obligations *369 of the corporation to its present and to its future stockholders, and to fix accurately the status of each of them toward the corporation and toward each other, it has long been the custom of directors to declare distinctly that the dividend shall be made to stockholders of record on a specified day, payable on a named day thereafter, and that the transfer books shall be closed from the first to the later day. Apparently these men, accustomed to control the affairs of large business enterprises, have generally deemed it wise to declare precisely who shall be the persons whose relationship to the corporation is to be changed, at least in some measure, from that of joint owners to that of individual creditors, and to prescribe exactly when this change shall be made. We know of no reasonable objection to, or principle of public policy against, this custom. Certainly one who is a stockholder of record on the day when a dividend is declared cannot reasonably complain because the title to the dividend will not vest in him until a future day. It is optional with him to retain his stock until he shall be entitled to the dividend, or to sell his stock at a price which has been increased by the dividend declared; for it may not be assumed that he would at any time sell his stock without securing information of all things that would affect its value.
It has been the general rule that the persons who are stockholders of a corporation at the time a dividend is declared are entitled to share in the dividend, regardless of the time when they acquired their stock or when the dividends were earned, and although the dividends are payable at a future date. But careful examination discloses that this rule has not been applied in any case in which the record shows that the directors' resolution in its terms declared that the dividend should be made to stockholders of record on a future *370
day. We find no authority which pretends to limit the power of the board of directors to fix the day when a part of the assets of the corporation shall be separated and vested in its stockholders as individuals. Certainly no such restriction has been suggested in the decisions of this court which have been cited. InBeers v. Bridgeport Spring Co.,
We are satisfied by principle and by authority, that the declaration of the dividends in question must be *371 interpreted and given the effect which the directors evidently intended it to have: that is, that the dividends declared on October 21st, 1919, belonged to the stockholders of record on December 26th, 1919. Since on that day the defendant appeared to be the holder of these shares on the stock book of the corporation, and it does not appear that notice of the transfer of ownership had been given to the corporation, it was warranted in paying the dividends to the defendant. But on that day the plaintiffs were in fact the owners of these shares, and their failure to have them transferred before the books of the corporation were closed was caused by the neglect of the defendant. The unrecorded transfer was good between the parties, and therefore the plaintiffs had the right to the dividends as against the defendant. 6 Fletcher, Cyc. of the Law of Corporations, 6342; 2 Cook on Corporations (7th Ed.) 1573; 14 Corpus Juris, 818.
It is reasonable to assume that when he sold these shares nearly two months after the resolution declaring a dividend had been passed, the defendant knew the terms of the declaration, and that $1,050 would be payable in a few days to the person who should appear of record on December 26th, 1919, to be the owner of these shares. But for his neglect, the plaintiffs would have appeared in that position on that day, and the corporation would have paid to them the subsequent dividends which the defendant took. He had made no stipulation or contract to reserve these dividends to himself. The plaintiffs, according to the custom of corporations in declaring dividends and the usage of dealers in stocks and bonds, were justified in believing that these dividends would belong to them, and therefore in paying a correspondingly increased price for the stock. Apparently, if the defendant be permitted to retain the dividends, he will make a two-fold profit *372
on the transaction at the cost of the plaintiffs. Certainly, the defendant has taken and is keeping dividends which belong to the plaintiffs. "The doctrine that one who holds money which he ought in equity and good conscience to pay over to another is subject to a legal duty to make such payment," is firmly established.Fairfield v. Southport National Bank,
In the view we have taken of the plaintiffs' title to these shares of stock, no merit can be discovered in the third reason of demurrer. The allegations of the complaint are sufficient to show that the legal title to the stock was vested in the plaintiffs on December 26th, 1919.
The Court of Common Pleas is advised to overrule the demurrer to the complaint.
In this opinion the other judges concurred.