Nathan Clifford

“ We submit that the proposition that dividends transfer to stockholders property which previously belonged to the company is true only of ordinary money dividends, and never of dividends of stock. The subject-matter of a stock dividend is a thing created, not transferred, by the declaration. It is a chose, taking the place of an aliquot share in capital. ”

“ That which a stockholder obtains is not a thing previously held by the company, but is only a definite and formal partition of some beneficial interest in the capital of the company, which previously he had held indefinitely and in common with other stockholders. ”

“ We submit that, on the contrary, this double option as to dealing with the subject-matter of the certificate does not exhaust the duty of the company to its holder; but that over and beyond such option it owes to such holder a duty arising out of the nature of the transaction, a duty which is, indeed, not technically a debt or an implied absolute assumpsit, but is of like sort with that implied in behalf of those who hold stock, viz., that at all events he shall have a pro rata share in the distribution of whatever assets may remain at the dissolution of the company. ”

“ No attempt is made in argument to show that the fact that the company has reserved the right to pay the certificates out of their future earnings exempts them from liability to taxation under that act, and it is clear that the fact that they do not confer the right to vote cannot have any such effect, as dividends in stock do not necessarily entitle the holder to any additional vote. ”

“ Stock represents capital,-principal. Stock has absolute and ultimate force and value between the corporation and the holder. Each share of stock is the title to an aliquot part of the assets and property of the corporation. Whenever the corporation is wound up the assets belong absolutely and wholly to the stockholders; and while the corporation continues the stockholders govern and own it. Not so with the certificates and their holders. While the corporation lives the holders of certificates do not vote, or govern, or own it. ”

“ And when the corporation dies, they have no claim on it for anything, and no ownership or interest in its assets at any time. If a stockholder owns also a certificate, he does not, at the dissolution, receive a cent more for his certificate than he would have done had the certificates never been issued. If one not a stockholder becomes owner of a certificate, he acquires no ownership in the capital or assets during the life or at the death of the corporation. ”

“ They are usually declared in money, but as they are sometimes declared in stock, and known as scrip dividends, and as when so declared they represent income as profits which are apportioned to stockholders in stock instead of in money, Congress, intending to reach income in every form, subjected to tax 'dividends in scrip or money.' The inquiry then is, were the interest certificates, as issued by the company, a stock dividend? ”

“ Liabilities of the kind do not attach to the company in cases where the stockholder is exempt by law from such an exaction, as the same section of the act provides that the company in such a case is authorized to deduct and withhold the amount of the tax from all payments on account of such interest or coupons and dividends, which cannot have any application in a case where the stockholder is by law exempt from any such exaction. ”

“ Net earnings of such a company may be expended or invested in constructing or equipping the railroad, or in the purchase of real estate or other properties, but the investment, whatever it may be, belongs to the stockholders, and may be distributed, as they may direct, in dividends of stock or of scrip or of money, payable out of the future earnings of the company, or by a sale of property not necessary to effect the purposes for which the company was created. ”

“ Usually a stockholder is a member of the company and as such has a right to vote, but, it does not necessarily follow that the right increases with the increase of stock, or that the right is lessened in case the number of shares owned by the stockholder should be diminished. ”

“ Enough has already been remarked to show that there is no merit in the third objection to the assessment, as the act providing for the consolidation of the two companies enacts that the liabilities of the old company assessed in this case may be enforced against the new corporation and their property to the same extent as if such liabilities had been incurred or contracted by such new company. ”

“ Indebitatus assumpsit is founded upon what the law terms an implied promise on the part of the defendant to pay what in good concience he is bound to pay to the plaintiff. Where the case shows that it is the duty of the defendant to pay, the law imputes a promise to fulfil that obligation, but the law never implies a promise to pay unless some duty creates such an obligation, and more especially it never implies a promise to do an act contrary to duty or contrary to law. ”

“ Payment of the tax is required of the company, and for any default in making or rendering such list or return, or of the payment of the tax or any part thereof, the company making such default shall forfeit as a penalty the sum of one thousand dollars, and the assessment and collection of the tax and penalty, in case of such default, shall be made according to the provisions of law in other cases of neglect or refusal. ”

“ The 22d section of the Internal Revenue Act of June 30th, 1864, [1] enacts: 'That any railroad company that may have declared any dividend in scrip or money, due or payable to its stockholders, as part of the earnings, profits, income, or gains of such company carried to the account of any fund or used for construction, shall be subject to and pay a tax of 5 per centum on the amount of all such dividends or profits, whenever and wherever the same shall be payable ”

“ Corporation bonds are the representatives of money, because they are issued for sale in negotiable form, but certificates of stock are not securities for money, nor are they negotiable instruments in the strict commercial sense. ”

“ By the certificates and resolutions the stockholders are entitled severally to 80 per cent more of the stock than they had before, 'at the option of the company.' In other words, each stockholder shall have additional stock to that amount if the company shall, in its discretion and at its pleasure, see fit to assign it to him. ”

“ Like stock certificates they are made conveniently transferable, as they may be transferred upon the books of the company, and possess an equal value with stock when used as collateral security or as the basis of credit in any moneyed transaction. ”