the dividend is not collectible in an action at insolvent, law.1 § 2136. Reclamation where the Capital Stock has been Divided and the Company has Become Insolvent. Where dividends have been made and paid out of the capital stock, and the company has subsequently become insolvent, the right to reclaim the dividends from the stockholders is clear. The capital stock being a trust fund primarily for creditors and secondarily for the stockholders, the stockholders stockholders cannot pay themselves out of it first; and if they do, the creditors or their representative may maintain a suit in equity to reclaim the dividend so paid. This right of reclamation, it has been held, passes to the assignee of the corporation if the terms of the assignment are sufficiently comprehensive to embrace it.2 In a bill for such reclamation, where the dividends have been declared and paid out of the capital in violation of a statute, it had been held not necessary to aver that any of the present debts existed when the dividend was declared, or that there are not enough assets now to pay the debts. It is immaterial whether the complaining creditors were prior or subsequent creditors. The assets of the corporation, thus improperly diverted into the hands of its stockholders, re main a trust fund out of which they are entitled to have their debts satisfied, and the shareholders who thus receive it are technically guilty of a conversion of it.4 3 § 2137. Construction of the Iowa Statute Authorizing such Reclamation. In the Iowa statute providing that if any person is injured by "the diversion of the funds of the corporation to other objects than those mentioned in their articles," and the payment of dividends will not leave sufficient funds to meet the liabilities of the corporation, "such dividends or their equivalent, in the hands of the It 1 Ibid. The fact was that the corporation, when financially embarrassed, declared a dividend based upon accounts charged to profit and loss, and largely uncollectible. was held that, as the dividend was improperly declared, the corporation could not be compelled to pay it. Ibid. 2 Lexington &c. Ins. Co. v. Page, 17 B. Mon. (Ky.) 412; s. c. 66 Am. Dec. 165; Main v. Mills, 6 Biss. (U. S.) 98. 3 Williams v. Boice, 38 N. J. Eq. 364. 4 McKusick v. Seymour &c. Co., 48 Minn. 172; s. c. 50 N. W. Rep. 116. individual stockholders, shall be subject to such liabilties," 1. the word "funds" means all the resources of the corporation, and not merely cash on hand; and dividends may lawfully be declared, although enough cash on hand is not left to pay all the corporate liabilities. The word "liabilities" means existing indebtedness at the time the dividend is declared, the payment of which can be enforced; and the capital stock, although in one sense a liability of the corporation, is not a debt within the meaning of the staute.2 Divi § 2138. Cannot be Forfeited by the Corporation. dends, after they have been lawfully declared, being, then, the property of the several shareholders, at least in the sense in which a debt is property, it follows that they cannot be forfeited or confiscated at the mere pleasure of the company. When, therefore, in reorganizing a corporation whose franchises were about to expire, under a scheme by which the new corporation succeeded to its franchises and obligations, a provision inserted in the charter of the new company, forfeiting dividends not claimed within three years from the time when declared, was not binding upon the old stockholders, except from the time when, expressly or by implication, they consented thereto by assuming the quality of stockholders in the new company.3 For the same reacannot be appro § 2139. Nor Appropriated by the State.son, an unclaimed dividend in a corporation priated by the State without compensation, though possibly circumstances might be imagined where it could be expropriated for public use upon payment of just compensation. Thus, a statute of North Carolina provided: "That all dividends heretofore declared or which shall hereafter be declared by any corporation, company or association, whether chartered or not, which shall not be recovered or claimed by suit, by the parties entitled thereto, for five years, after the same were or shall be declared," shall be paid by the corporation, etc., to the trustees of the University of North Carolina; and authorized such trustees to sue for and collect such dividends and to hold them without 1 Iowa Code, 1873, § 1072; McLain's Code 1888, § 1622. 2 Miller v. Bridish, 69 Iowa, 278; 8. c. 28 N. W. Rep. 594. 3 Armant v. New Orleans &c. R. Co., 41 La. An. 1020; s. c. 7 So. Rep. 35. liability for profit or interest; and provided that, if no claim should be preferred within ten years, the trustees should hold them absolutely. It was held, on the most obvious grounds, that this statute was unconstitutional, since it was an assertion of power in the legislature to take the property of one man and give it to another without compensation. But it has been held competent for the legislature to enact that an administrator should, after a reasonable time, pay an unclaimed surplus of the estate, either to the State university or other person charged by law with the keeping of the same, for the benefit of the creditors and next of kin; but this was not giving the assets to the university, but merely changing the fund from one agency of the State to another, without changing the trust.2 § 2140. No Discrimination among Shareholders in Respect of Dividends. - Directors of a corporation have no power to discriminate among its shareholders in respect of dividends, unless such power is conferred by the charter or governing statute.3 This statement has, of course, no reference to dividends on preferred shares.1 § 2141. But the Stockholder Discriminated against can not Recoup against Others. But if the corporation does discriminate against a particular stockholder in the declaration and payment of a dividend, he can not maintain an action against those who have been preferred before him to recover his proportionate share of what they have received. The principle is that a stockholder, whose right to participate in a dividend declared by a corporation has been wrongfully denied by it, cannot maintain an action in the first instance for money had and received against another stockholder who has participated in such dividend. A stockholder cannot follow the assets of the company into the hands of other stockholders who have received them in the form of dividends, until he has at least established his right as a creditor of the company and exhausted his legal remedies against it.1 It was also said that if the plaintiff had been an admitted stockholder, and a dividend had been declared upon her shares with the others, and the amount of the dividend had been placed in the hands of a third person for distribution, the case would be within some of the authorities cited by counsel for the plaintiff, in which it was held that a trust was created in favor of the stockholder to whom the dividends were due, and that she could follow the funds into the hands of the party who had thus received it, or his transferee.2 § 2142. Discretion of Directors as to Time and Place of Payment. — In the exercise of their discretion in respect of the declaring of dividends, the directors may, it has been held, fix the time and place of payment within such limitations as reason and good faith to the stockholders may require. They may make them payable at a banking house in good credit, giving proper notice to the stockholders of the deposit made there to their credit.3 § 2143. Payable at a Bank which Fails Who Bears Loss.If the stockholder, after receipt of notice, neglects to draw the money within a reasonable time, and the bank fails, the loss will fall on the stockholder, and not on the company. But of course the company must show that due notice was given to the stockholder.4 - § 2144. When Considered Divided and Paid. Within a statute relating to taxation 5 dividends are to be considered as divided 1 Peckham v. Van Waggener, 83 N. Y. 40; s. c. 38 Am. Rep. 392; aff'g s. c. 13 Jones & Sp. 328. Compare Butterworth v. Gould, 41 N. Y. 450; Patrick v. Metcalf, 37 N. Y. 332. 2 Citing LeRoy v. Globe Ins. Co., 2 Edw. Ch. (N. Y.) 657; Re LeBlanc, 75 N. Y. 598. 3 King v. Paterson &c. R. Co., 29 N. J. L. 82. 4 King v. Paterson &c. R. Co., 29 N. J. L. 82. 5 Ala. Act 1868, pp. 303, 304, § 12. and paid over to the stockholders of an insurance company, when the stockholders have received the same in money, or in credits on stock notes in possession of the company.1 2 § 2145. Dividends in Liquidation. These rest on a different footing from dividends of profits made to stockholders while the company is a going concern. They are not, of course, discretionary with the directors who are usually displaced by an assignee, receiver, or other representative of the corporation; and they are declared to be in accordance with the principles of administration in equity, or under rules specially enacted by statute, which in general are the same as those in equity. Those are: 1. That valid lien creditors are first to be paid according to their respective priorities. 2. That general creditors are next to be paid pro rata. 3. That what is left, if anything, shall be divided among the shareholders in such a manner as to produce, as far as possible, equality among them. This, of course, means a pro rata division among all shareholders standing on an equal footing. Thus, if some of the shareholders have paid for their shares in full, while others have paid in part only, those who have paid in full are entitled to a return of the excess paid by them above that paid by the others, before any division of the balance takes place. This balance is then to be divided ratably among the shareholders; and this has been held to be the proper mode of distribution, although the corporation has been in operation for many years, making dividends of profits in proportion to the amounts paid in by the respective shareholders. It has been held that where an order directing a receiver to pay a certain dividend is neither objected to nor appealed from until after the entry of the final decree in the cause, and after the dividend has been thereupon paid, and its payment confirmed by the court, the validity of the order cannot be questioned on appeal from the final decree.5 1 Citizens &c. Ins. Co. v. Lott, 45 Ala. 185. 2 Stockholders are not entitled to any division of the profits and moneys of a corporation until its debts are paid. Ryan v. Leavenworth &c. R. Co., 21 Kan. 365. 3 Post, Ch. 88. Krebs v. Carlisle Bank, 2 Wall. Jr. (U. S.) 33. 5 Republic Life Ins. Co. v. Swigert 135 Ill. 150; s. c. 25 N. E. Rep. 680. |