Professional Documents
Culture Documents
HELD: Under Section 16 of the Corporation Law stock dividends can not
be issued to a person who is not a stockholder in payment of services rendered.
And so, in the case at bar Nielson can not be paid in shares of stock which form
part of the stock dividends of Lepanto for services it rendered under the
management contract. We sustain the contention of Lepanto that the
understanding between Lepanto and Nielson was simply to make the cash value
of the stock dividends declared as the basis for determining the amount of
compensation that should be paid to Nielson, in the proportion of 10% of the
cash value of the stock dividends declared. And this conclusion of Ours finds
support in the record.
RATIO: The term "dividend" both in the technical sense and its ordinary
acceptation, is that part or portion of the profits of the enterprise which the
corporation, by its governing agents, sets apart for ratable division among the
holders of the capital stock. It means the fund actually set aside, and declared by
the directors of the corporation as a dividends, and duly ordered by the director,
or by the stockholders at a corporate meeting, to be divided or distributed among
the stockholders according to their respective interests.
2) End of 1943- the balance sheet of the C showed assets in excess of the
liabilities and the issued capital stock in the amount of $2,545. However, the
existence of the alleged surplus depended on the inclusion in the assets of the
“write-ups” of $26,000 (represented an unrealized appreciation in the value of
the Plaintiff C’s fixed assets), w/c still remained on the balance sheets, for if
that amount were eliminated, there would be a deficiency of $23,454.
5) C, now under the control of new SHs, sued to recover for its treasury the
$13,000 w/c it alleged Defendants had unlawfully declared and paid out as
dividends.
3) In each of the fiscal years of 1935, 1936, and 1937, the annual net
earnings of the defendant C was positive.
4) In each of the said years, however, there was also a deficit respectively
and a corresponding impairment of capital.
6) In each of said years, the annual net earnings were applied to deficit,
thereby effecting substantial reductions. There were no dividends declared on
either the PS or CS during the said fiscal years.
7) In 1941, the defendant C declared a dividend on both the PS and CS. This
declaration of dividends, w/c is herein questioned, specifically contemplates the
payment from the net profits of the current year and from no other fund.
8) During the said years, the C, despite the deficit, also maintained adequate
reserves. These reserves were maintained both prior to and subsequent to the
said period.
HELD: In the years in question (1935, 1936, and 1937) no net profits to w/c
the inchoate right to dividends, could have attached. There was in each of said
years a substantial deficit w/c greatly exceeded the annual net earnings of the
corresponding year, and, to the reduction of w/c the annual net earnings were
applied. It is manifest therefore that the annual net earnings of each of the said
years resulted, not in profits, but in a reduction of the deficit. There was in each
of the said years no source from w/c dividends could have been paid lawfully; the
payment of dividends under the circumstances would have been unlawful.
HELD: It seems clear, in light of the facts, the C did not have a reasonable
need to for the large surplus accumulated and held as bonds or other easily
liquidated assets in December 1936.
Hence, the surplus was easily available for dividends if the directors so
elected.
The large surplus also existed at the time when the Ryans (BOD) were
receiving salaries in excess of their worth and draining from the C cash
otherwise available for dividends. Viewed in light of these facts, the
spectacle takes on a distinct color of fraud and bad faith.
2) When plaintiffs made their complaint, and demand for further dividends
the FORD MOTOR CO. had concluded its most prosperous year of business.
The demand for cars at the price of the preceding year continued.
3) C defense:
The expenditure in question was for the extensions of the C’s plants
Since the only possible source of profit to the P SH from his investment is
the distribution of earnings in the year in w/c they accrue, he has a right to
insist that an accounting shall be taken annually, and that the surplus of
one year, available for a dividend, shall not be carried over to meet a
possible deficiency of the next.
McLaran v. CRESCENT PLANNING (SW, 1906)
3) BOD failed to pass a resolution setting aside a fund for the said
dividends.
5) However, the 1.5% installment falling due April 1 was not paid and at a
meeting of the BOD (held on April 11) it was shown that an error had
been discovered in the previous showing of the financial condition of
the company and that its assets were actually $6,000 less than had
been understood, w/c reduced its surplus from $29,000 to $23,000.
9) Plaintiff sued C.
10) Defense:
HELD: The right of SHs to be paid dividends vests as soon as the same
has been lawfully declared by the BOD. From that time, it becomes a debt owing
by the C to each stockholder and no revocation of the dividends can be made.
RATIO:
1) If the declaration of the dividend is fairly and properly made, out of profits
existing at the time it is declared, the relation of debtor and creditor is hereby
established between the C and the SHs and a debt is hereby created against the
C and in favor of the SH for the amount of the dividend due on the stock held by
him.
3) Prior to the annual meeting, Marcus sent a written notice to the C that
as a Common stockholder that:
6) Defense:
Marcus application was not made in good faith since the effect of the
amendment on her was trivial because she only owns 50 Common
Stocks (out of 1,656,000 shares of common stock).
3) Rivera subscribed for 450 shares (P45,000) and paid only half of it
(P22,500).
4) C became insolvent and went into the hands of PHILIPPINE TRUST CO.
6) Rivera’s Defense:
HELD: In the case before us, the resolution releasing the shareholders
from their obligation to pay 50% of their respective subscriptions was an
attempted withdrawal of so much capital from the fund upon w/c the C’s creditors
are entitled ultimately to rely and, having been effected w/o compliance w/ the
statutory requirements, was wholly ineffectual
[Campos Note: Did the Court imply that if the statutory requirements had been
complied with (i.e. SH’s meeting, 2/3 vote, and filling of certificate), the reduction
would have been valid even if the creditors were prejudiced? Whether under the
well-settled principles of corporation law or under the express provision of
Section 38, this implication cannot be legally supported.]