Plaintiff instituted this escheat action on November 3, 1948 pursuant to the provisions of L. 1946, c. 155, N.J.S.A. 2:53-15 et seq. The complaint is in the usual form; it alleges that defendant has in its custody or possession certain personal property subject to escheat and demands judgment escheating it. Defendant answered, alleging that certain dividends on its capital stock have been unclaimed, or the owners of the dividends or the whereabouts of such owners have been unknown, for more than the statutory period of 14 years. Defendant further states that as to certain shares of stock, the owners or their whereabouts have been unknown for 14 years or more, and the dividends on such shares unclaimed for that period.
The answer sets up a number of defenses, some of them so far-reaching that, if sustained, they would completely defeat the escheat. At the time the answer was filed, a companion escheat action against the Standard Oil Company was in the course of determination. Further proceedings herein were deferred pending completion of that case. State v. Standard Oil Company , 5 N.J. 281 (1950), 341 U.S. 428, 71 S. Ct. 822 (1951) has disposed of the more fundamental of the defenses raised in the present answer.
On June 28, 1951, and after final determination of the Standard Oil case, an order was entered in this action fixing September 7, 1951, as the time and the State House Annex, Trenton, as the place for final hearing. The order directed that notice of the time and place of the final hearing be given by plaintiff in accordance with the provisions of R.S. 2:53-21.
Such notice was duly published. On September 7, 1951, the hearing was continued in order to afford the parties an opportunity to enter into an agreement as to facts not in dispute. The stipulation filed September 24, 1951, embodies the essential facts in the case.
United States Steel Corporation was organized in 1901 under the laws of the State of New Jersey, and has its registered office in Hoboken. As of November 3, 1934, the cut-off date in this action (being 14 years before the filing of the complaint), there were issued and outstanding 3,602,811 shares of preferred stock of $100 par value, and 8,703,252 shares of common stock of $100 par value. In 1938 the common stock was changed to stock without par value, but with a stated value of $75 a share, and in 1948 the stated value was changed to $100 a share. In 1949 the common stock was split, three shares for one. The corporation maintained and maintains records listing the names and addresses of its stockholders.
From time to time, by appropriate action of the defendant's board of directors, dividends were declared and made payable upon preferred and common stock, a separate resolution being adopted as to each class of stock. These resolutions were always in substantially the same form. An extract from the minutes of the board of directors of October 30, 1928, was attached to the stipulation of facts as an exhibit. These minutes, and the corporation's procedure in carrying out the resolutions of the meeting, are typical and illustrative of all dividends declared between 1901 and 1935. The extract shows that the following successive steps were taken:
1. The chairman called attention to the report of the finance committee and the statement of the comptroller showing that the corporation had surplus or net profits sufficient for the payment of dividends on the preferred stock and also on the common stock.
2. On the basis of the comptroller's statement, the board of directors adopted a resolution declaring a dividend on the preferred stock, and
fixing a date for the payment thereof, which date was about a month after the date of declaration of the dividend. This resolution also provided that a sum equal to the amount of the declared dividend "be set aside from the surplus or net profits of the Corporation as a special fund for the payment of such Dividend No. on the Preferred stock." (This was in accordance with a charter provision that when all preferred dividends, cumulative and accrued, had been declared and become payable, and the company had either paid such dividends or set aside from its surplus or net profits a sum sufficient for the payment thereof, "the Board of Directors may declare dividends on the common stock, payable then or thereafter, out of any remaining surplus or net profits.")
3. A brief intermission would follow the adoption of the resolution, during which defendant's check in the amount of the preferred stock dividend, drawn to the order of J. P. Morgan & Company, was delivered to it, together with a letter of transmittal in which J. P. Morgan & Company was requested to set aside the amount "as a special fund" for the payment of the particular preferred dividend just declared. Immediately upon receipt of the check and letter, J. P. Morgan & Company sent defendant a letter acknowledging receipt of the check and stating that it had credited the same to defendant's special account for payment of the preferred stock dividend.
4. After the intermission, the chairman stated to the board that the treasurer had reported that the amount of the preferred dividend "has been actually set aside from the surplus or net profits of the Corporation as a special fund for the payment of [such dividend] on the Preferred stock." Thereupon, the board of directors adopted a resolution declaring a dividend on the common stock and fixing a date for the payment thereof, that date being about two months after the date of declaration of the dividend.
Whenever a preferred dividend was declared, the corporation charged the amount of the dividend to its Surplus Account and credited an account entitled "Dividends on Preferred Stock -- Unpaid." On the day preceding the date fixed for payment of the preferred dividend (about one month after the declaration), J. P. Morgan & Company, with whom the funds had been set apart to pay the dividend, transferred such funds, pursuant to a check drawn by the defendant, to a specific dividend account in another bank, that account being in the name of J. P. Morgan & Company. Dividend checks payable to the order of holders of preferred stock were drawn on this account, such checks being checks of the defendant prepared and signed by its officers. At this
time the defendant charged the amount of the dividend to the account "Dividends on Preferred Stock -- Unpaid," and credited "Cash."
Whenever a common stock dividend was declared, defendant charged the amount of the dividend to its Surplus Account, and credited an account entitled "Dividends on Common Stock -- Unpaid." On the day preceding the date fixed for payment of the common dividend (about two months after the declaration), defendant paid over to J. P. Morgan & Company, from its general cash, an amount equal to the common dividend to be disbursed. This amount was recorded in an account in J. P. Morgan & Company, in the name of J. P. Morgan & Company. Contemporaneously with this, J. P. Morgan & Company deposited in its name an equivalent amount in another bank, in a dividend disbursing account against which checks were to be drawn. Dividend checks payable to the order of holders of common stock were drawn on this account, such checks being checks of the defendant prepared and signed by its officers. At this time the defendant charged the amount of the dividend to the account "Dividends on Common Stock -- Unpaid," and credited "Cash."
The practice as to common dividends just described was followed until 1932, when defendant stopped depositing any sum with J. P. Morgan & Company to pay the common dividends. Thereafter defendant deposited the amount of the declared common dividend in a dividend disbursing account standing in its own name in the bank against which the dividend checks were to be drawn. The bookkeeping entries were the same as before.
It is stipulated that a separate dividend disbursing account was used to pay each dividend declared on each class of stock.
It was defendant's practice when a person became a stockholder to ask him to sign a printed form known as a "Permanent Dividend Order." Four exhibits attached to the stipulation of facts show the various forms of permanent dividend orders in use between 1901 and 1949. Prior to 1941, no
dividend check would be mailed unless such an order had been executed and filed by the record owner of stock with the defendant company.
At the top of each of the three forms used in the period from 1901 to 1931, there appears a request to the stockholders "to fill in and sign the attached permanent order, and upon receipt of the same from you we will file it as your instructions covering the mailing of future dividends on your holding of Shares in the Capital Stock of the Corporation." The order covered all future dividends and was to remain in force until further instructions were received.
The "Permanent Dividend Order" that is part of each of these three forms is addressed to the defendant's treasurer, and requests him to "pay, by checque on New York, to the order of by mail to the following post office address: all dividends due, and which may hereafter be due," on all shares of the capital stock, preferred and common, that may at any time stand in the stockholder's name on the books of the defendant corporation, until the order was revoked in writing.
The fourth of the permanent order forms, used from 1931 to 1949, differs from the other three in the text appearing at the top of the page, ahead of the request to the treasurer. The text reads:
"Your name and address is recorded on our ledgers as it appears on the envelope in which you received this form.
IF CORRECT PLEASE RETAIN THIS FORM FOR FUTURE USE
Should you desire your dividend checks drawn in a different manner or mailed to another address kindly fill in the attached dividend order, sign it personally , and mail to United States Steel Corporation, Stock Transfer Department, 71 Broadway, New York 6, N.Y."
From the very beginning certain of the dividend checks mailed pursuant to such dividend orders were never presented for payment, nor were they returned by the postoffice. Other checks so mailed were returned by the postoffice because the person named in the order could not be located at the address given therein. In such event defendant withheld the mailing
of further checks until the stockholder or his designee could be located. Defendant kept separate lists of the checks returned by the postoffice, and of those not returned but never presented for payment.*fn1
Schedule A attached to defendant's answer contains a list of checks payable prior to November 3, 1934, but unpaid November 18, 1948, which were returned by the postoffice or which, though not returned, were never presented for payment. Except as certain of these items were to be excluded under authority of an order of the court dated September 13, 1951, the schedule comprehends all dividends which were unpaid and unclaimed for more than 14 years prior to the filing of the complaint, and the persons entitled to such dividends, or their whereabouts, were unknown during such period. Such unpaid dividends on preferred stock totalled $157,372.04, and on common stock $185,418.78, or a grand total of $342,790.82.*fn2
Schedule A also contains a list of persons shown on defendant's records as the present record owners of the shares of stock set opposite their names, such persons having been shown as such record owners for more than 14 years prior to the filing of the complaint. These individuals had not received or presented for payment dividend checks on their respective shares of stock for more than 14 years prior to the filing of the complaint, nor had they received dividends thereon down to November 18, 1948.*fn3
The published notice of the time and place of hearing stated not only the name and record address of each of these stockholders, and the number of shares held by each, but also set forth the certificate number under which the shares were issued, and the dividends thereon unpaid less than 14 years prior to the cut-off date, November 18, 1948.
The conditions prescribed by the Escheat Act, N.J.S.A. 2:53-15 et seq. , exist in this case. The personal property which is the subject of the action and which is set forth in Schedule A of defendant's answer (less certain items which the parties have stipulated shall be excluded), has been unclaimed for 14 successive years, and the owners or the whereabouts of the owners of such property have been unknown for that period of time. Plaintiff claims that such
personal property has, therefore, under the provisions of the statute escheated to the State. Defendant recognizes that the conditions of the statute apparently exist, but puts forward a number of defenses denying the State's right to escheat. These defenses represent the residue of those originally set up in the answer, and are considered by the defendant as not having been decided by the Standard Oil case. They will be considered in the order in which they were argued.
The first defense is that no trust was created with respect to the dividends declared by defendant on its common stock. In effect, defendant contends that under the facts the relationship between the corporation and its common stockholders, upon the declaration of any dividend, was that of debtor and creditor. More than six years having elapsed from the time the dividends were declared and made payable, before the escheat statute was enacted and this action instituted, defendant claims a vested right to the plea of the statute of limitations which the Legislature cannot take away.
Defendant insists that the situation relating to dividends declared by it on its common stock differs from that involving its preferred stock dividends. It admits that a trust fund was created for preferred dividends, but argues that reference to the procedure followed by the board of directors in declaring dividends on the common stock shows there was no intention to create a trust fund as to such dividends. Defendant explains that the deposit of common dividends prior to the date for payment thereof was not for the purpose of creating a trust fund, but merely for the convenience of payment of the dividends.
Re-examination of the procedure followed by the board of directors in declaring dividends and, subsequently, by the defendant upon the declaration of such dividends, shows that there was no essential difference between what the
defendant did as to preferred dividends and what it did as to common dividends. The preferred and common stock dividend resolutions, as has already been pointed out, followed immediately upon the report of defendant's finance committee and the statement of its comptroller showing that the corporation had surplus or net profits to an amount in excess of the sum required for the payment of the proposed preferred and common dividends. The language of these resolutions was almost identical, except that in the case of the preferred stock there was an additional paragraph providing that a specific sum be set aside from surplus or net profits as a special fund for the payment of the dividend. Defendant's argument that there was no trust fund created in the case of common dividends apparently hinges upon the absence of such an additional paragraph in the common stock dividend resolution, and therefore the resolution created no more than a debtor-creditor relationship.
The reason for the additional paragraph in the preferred dividend resolution is apparent and has already been adverted to. The board of directors was merely being careful to comply with the corporate charter provision that
"Whenever all cumulative dividends on the preferred stock for all previous years shall have been declared and shall have become payable, and the accrued quarterly installments for the current year shall have been declared, and the company shall have paid such cumulative dividends for previous years and such accrued quarterly installments, or shall have set aside from its surplus or net profits a sum sufficient for the payment thereof, the Board of Directors may declare dividends on the common stock, payable then or thereafter, out of any remaining surplus or net profits."
This provision, of course, looked to the protection of preferred dividends, cumulative and accrued, and their payment in advance of common dividends. With what may be described as a meticulous regard for the quoted charter requirements, the board of directors, immediately upon adoption of the resolution which declared the ...