176 Ky. 188 | Ky. Ct. App. | 1917
Opinion op the Court by
Affirming.
Tlie appellant, Westerfield-Bonte Company, is a corporation organized under tlie corporation laws of tlie state of Kentucky, with, its lióme in tlie city of Louisville. The capital stock consists of two hundred and fifty sfiares of tfie par value of one fiundred dollars eacfi.' Sixty sfiares of tfie capital stock, of tfie par value of one fiundred dollars eacfi, are wfiat is denominated preferred stock, and tfie remainder of tfie sfiares are wfiat is known as common stock. At tfie creation of tfie corporation all of tfie stock was wfiat is denominated common stock, but on tfie 4th day of June, 1910, amended articles of incorporation were adopted, in tfie manner provided by law, by wfiicfi it was provided that sixty sfiares of tfie capital stock should be of tfie class known as preferred stock, and tfie remainder sfiould be common stock. These amended articles were adopted by tfie unanimous action of all tfie ladders of tfie capital stock of tfie corporation. The amended articles provided as follows:
“Tfie preferred stock may, by vote of tfie majority of tfie board of directors of said company, be redeemed on any dividend date, as fixed by tfie by-laws, at any time after one year from the first day of July, 1910, at the price of one fiundred and five dollars ($105.00) per share, and any accumulated dividends, and this preferred
In the face of the certificates issued as representative of the preferred stock were the following provisions:
“This stock is part of an issue amounting in all to $6,000.00, par value, authorized by the amended certificate of incorporation of the company, filed in the office of the clerk of the Jefferson county court,- in Jefferson county, Kentucky, on the 4th day of June, 1910, and subsequently lodged for record in the office of the Secretary of State, of the state of Kentucky.
“This certificate entitles the holder thereof to receive and the company is bound to pay, a fixed yearly dividend of eight per centum (8%) per annum, payable half yearly, before any dividends shall be set apart or paid on the common stock, and the dividends on the preferred stock are cumulative.”
The appellee, Henry Burnett, became the owner of forty shares of the preferred stock, which was two-thirds of it, and on July 28, 1915, made a demand in writing to the board of directors of appellant, by which he requested it to retire the preferred stock, which he held, and to pay him therefor the sum of one hundred dollars per share, with interest at eight per centum per annum from July 1,1915. The demand was acknowledged by-the board of directors, but it refused to retire the- stock or redeem the same, as provided by the articles of incorporation. The appellee, on October 15, 1915, instituted this action and in addition to the above stated facts, alleged that the corporation was amply able- to retire his stock and to pay him the sum necessary for that purpose, according to the articles of incorporation, without detriment or danger to the rights of appellant’s creditors, and that appellant did not owe anything beyond its current bills, and that the rights of its creditors would not be in any manner injuriously affected.
The appellant, by answer and two amendments thereto, denied that the effect of the articles of incorporation was to authorize the appellee to demand the retirement or to receive the par value of his preferred stock, so long as the corporation was a going concern, except that the preferred stock might be redeemed out of the surplus funds of the corporation and without infringement' upon
A general demurrer was interposed and by the court sustained to the answer as amended., Before the submission of the case, however, the appellee took the deposition of the president of the corporation and by him it was shown that after the redemption of the entire preferred stock, and the payment of all the creditors of the corporation, there would be a surplus of assets for distribution among the common stockholders of something between-twelve and fifteen hundred dollars.
The action having been submitted for trial and judgment upon the pleadings, exhibits and the proof on file,
(a) The argument is'advanced, that the judgment is erroneous, because the action of a corporation, in Kentucky, in providing in its articles of incorporation for the redemption and retirement, on demand, of its preferred stock is void, .because such action is against public policy, and for this reason the contract between the corporation and its preferred stockholders, by which it obligated itself to redeem and retire the preferred stock at any time after July 1, 1915, upon the demand of the holders of two-thirds of it, is void and unenforcible, because against a sound public policy. There is a principle, which is invoked in determining whether a thing is against public policy, which is, to the effect, that one cannot lawfully do that which tends to be injurious to the public, or is contrary to the public good, and, in short, against the policy of the law, but the policy of the law must be sought for in the constitution and statutes and decisions of the courts of last resort, and where the legislature has not prohibited the making of a certain character of contract, before a court is authorized to declare it to be void, because against public policy, it must appear that the agreement has a tendency to injure the public or is against the public good or is contrary to sound policy or good morals. City of Princeton v. Princeton El. & P. Co., 166 Ky. 730. If the legislative authority has authorized the making of a certain character of contract, it surely then must be held that such contract is not contrary to public policy or the policy of the law, but in absolute accordance with it. U. S. Trans-Missouri Freight Ass’n, 166 U. S. 290; Heller v. National Marine Bank, 45 L. R. A. 438. Section 564, Kentucky Statutes, in part, provides as follows:
“Any corporation organized under this law may divide its shares into classes, such as preferred, common and deferred shares, or as may be otherwise designated, and it may give to each of the several classes such priority of right in the payment of the dividends and in the redemption of the shares as may be prescribed in the rules
Thus it seems that the corporation was authorized by the statute, supra, through its stockholders, to make the provision in its amended articles of incorporation, by which it is provided that the corporation 'will redeem and retire its preferred stock whenever the holders of two-thirds of it may make a demand that it be done. In Hamlin v. T. St. L. & R. R. Co., 78 Fed. 670, it was said:
“If the purpose in providing for these peculiar shares (preferred) was to arrange matters so that under any circumstances a part of the principal stock might be withdrawn before the full discharge of all corporate debts, the devise would be contrary to the nature of the capital stock, opposed to public policy, and void as to creditors affected thereby.”
Further, in the same opinion, it was said:
“Ordinarily, preferred stock is entitled to no preference over other stock in relation to capital. But where there is such an agreement giving such preference, not - prohibited by local law nor the charter, we see no reason why it is not a valid contract, as between the corporation and such preferred stockholders, and binding upon the common stockholders.”
In the instant case, there is an express agreement, which gives the preferred stockholders a preference over the other stock, in relation to the redemption of the shares, and the agreement is not prohibited by statute nor the articles of incorporation, but is expressly authorized by the charter provisions and by the statute and provides for the retirement and redemption of any preferred stock, not only upon final dissolution, but at any time upon demand, after July 1, 1915. In Rider v. John G. Delker & Sons Co., 145 Ky. 634, which was the suit of a preferred stockholder against a corporation, and in which he insisted that he should be treated as a creditor, the court, among other things, said:
“As between themselves and the third persons, who deal with the corporation and give it credit, their stock is equally liable. It is only in cases where the corpora
Prom these authorities, it is gathered that an arrangement between the corporation and its preferred stock'holders, by which a preference is given to the preferred stockholders over the othér stockholders, either as regards the surplus or the capital of the corporation, where such agreement is not prohibited by the law nor the articles of incorporation, the contract is valid and enforcible, as between the stockholders and the corporation and between themselves. '"While a preferred stockholder, in his relations to the creditors of a corporation, is not a creditor of the corporation and cannot as against the creditors enforce any right he may have as against the corporation, but as between him and the corporation^ or the other stockholders in it, there does not appear any sufficient reason why he should not be treated as a creditor, where he has a demand against the corporation, which can only be enforced as a debt. It is only where the carrying out of an agreement made between the stockholders and the corporation will injuriously affect the rights of the creditors of the corporation that the agreement becomes in contravention of a sound public policy.
The articles of incorporation, which constitute the contract between the corporation and its shareholders, and between the shareholders, in addition to the provisions, heretofore, set out, contained provisions to the effect, that the holders of the preferred stock should be entitled to receive, when declared,, from the surplus or net profits of the corporation, yearly, dividends at the rate of eight per centum per annum, on dates to be fixed by the by-laws; that the dividends set apart to the preferred stock should be cumulative and payable before any dividend on the common stock should be paid or set apart, and if any year’s dividend amounting to eight per centum should not be paid thereon, the deficiency should. be payable before any dividends should be paid upon th© common stock; that, whenever, all cumulative dividends on the preferred stock for all previous years shall have
It is an undisputed doctrine, that corporate property must first be appropriated to the debts of a corporation before there can be any distribution of it among the stockholders, holding either preferred or common stock, as both classes of stock are equally liable to the creditors of the corporation. There can be no lawful distribution of the capital of the corporation among the stockholders, without the corporate debts having been first paid or provided for, but in the absence of any creditors, or where provision has been made for them or exists for them, the rights of the preferred stockholder depends upon his contract with the corporation. 7 R. C. L., sections 170, 171. A judgment should not be rendered, by which any of the assets of a corporation are appropriated to the payment of any claim of a' stockholder growing up out of a contract for a preference among the stockholders, if such appropriation would endanger the collection of the corporate debts. The corporation, however, is the property of the stockholders, and if they contract in such a way as to be legally bound to appropriate a portion of the capital to redeem the share of the preferred stockholder, the contract may be enforced, if the enforcement does not affect the collection of the claims of the creditors of the corporation. In the instant case, the rights and remedies of any creditor of the corporation, either against the corporate property or against a preferred stockholder, whose stock might be redeemed out of the assets of the corporation, or who might receive the proceeds of the sale of the corporate property, are not here determined, as the questions are not before us upon the record, but suffice it to say, that the answer failed to show that the enforcement of the contract of appellee with the corporation would endanger the collection of the corporate debts. Hence, the judgment sustaining the demurrer is affirmed. It may be added, that the deposition of the president of the corporation, which is made a part of this record by appel
The judgment is therefore affirmed.