[56 NJSuper Page 413] L. L. Constantin & Co., a New Jersey corporation, filed a complaint against R.P. Holding Corp., Charles Denby, Continental Bank & Trust Co. as receiver of Inland Empire Insurance Co., and Royal American
Insurance Co., seeking a declaratory judgment stating the rights and obligations of the parties hereto in connection with preferred stock issued by the plaintiff corporation. Royal American Insurance Co. has not answered and a default has been taken against it.
The controversy between the plaintiff and defendants arises from the legal effect of an amendment on December 23, 1952 of the certificate of incorporation which read, so far as pertinent:
"By authorizing the issuance of fifty thousand (50,000) shares of preferred stock having a par value of Ten dollars ($10.00) each. The holders of the preferred stock shall be entitled to receive, and the Company shall be bound to pay thereon, but only out of the net profits of the Company, a fixed yearly dividend of fifty cents (50 cents) per share, payable semi-annually. The said dividend shall be cumulative. Preferred stockholders shall have no voting rights. The stock shall be redeemable on and after January 2nd, 1955, at Ten dollars and fifty cents ($10.50) per share."
An identical legend appears upon the face of each preferred stock certificate.
The stock holdings of the respective defendants came about as follows: On December 31, 1953 Guardian Insurance Company acquired 40,000 shares, 10,000 of which it transferred to Arizona Western Insurance Company on October 1, 1954. Arizona transferred its holding to S & C Trading Co., Inc. on June 11, 1956, and on November 22, 1957 S & C Trading transferred its holdings to R.P. Holding Corp. Charles Denby holds 8,000 shares, having acquired 10,000 shares from Echo Falls Farm, Inc., on August 12, 1953, and thereafter having sold 2,000 shares to plaintiff on January 11, 1955. In June 1954 Guardian transferred 30,000 shares to Central Standard Insurance Company. On December 31, 1954 Central transferred all or part of its shares to Inland Empire Insurance Company, and thereafter Continental Bank and Trust Company took possession of Inland's holdings of 30,000 shares by virtue of Continental's appointment as receiver of Inland on November
29, 1955 by order of the U.S. District Court for the District of Utah.
Thus it appears that defendants' stock interests were acquired on the following dates:
R.P. Holding Corp. November 22, 1957
Charles Denby August 12, 1953
Continental November 29, 1955
As to R. P. Holding, its predecessor acquired the stock June 11, 1956; Continental's predecessor acquired its stock December 31, 1954.
In 1956 Arizona Western sued Constantin in the U.S. District Court for the District of New Jersey. In that action S & C Trading Co., Inc. (predecessor in title to R. P. Holding) intervened. The first count sought a judgment for Arizona because of non-payment of a dividend on the preferred stock admittedly declared on December 28, 1954. A partial summary judgment was entered in favor of Arizona and the amount thereof, $5,504.16, paid into the registry of the court pending outcome to an action between Arizona and S & C Trading Co. The second count was dismissed by stipulation of Arizona and Constantin. The third count asserted that under Constantin's amended certificate of incorporation and the preferred stock certificate, Constantin was bound to pay Arizona, out of net profits, a fixed yearly dividend of 50 cents a share; that net profits were available in 1955 but no dividend had been paid although Arizona had made demand therefor. Constantin then moved for summary judgment in its favor; Arizona made a cross-motion for summary judgment. The U.S. District Court granted judgment in favor of Constantin, denying Arizona's cross-motion. On appeal to the United States Court of Appeals for the Third Circuit, that court reversed the judgment below. Arizona Western Ins. Co. v. L. L. Constantin & Co. , 247 F.2d 388 (3 Cir. 1957). The rationale of the opinion is found in the following excerpt therefrom.
"The amended certificate of incorporation in the case at bar provides in pertinent part that, 'The holders of the preferred stock shall be entitled to receive , and the Company shall be bound to pay thereon , but only out of the net profits of the Company, a fixed yearly dividend of fifty cents (50 cents) per share, payable semi-annually.' Identical language is found in the preferred stock certificate. Words could not more clearly or plainly manifest that Constantin agreed to be bound to pay dividends where net profits were available for the purpose."
The appeal was decided July 31, 1957, "as amended Sept. 10, 1957." In the interim between institution of the action in the U.S. District Court and decision on appeal, Constantin on September 28, 1956 held a meeting of its board of directors and passed a resolution which so far as pertinent reads:
"The holders of the preferred stock shall be entitled to receive (cumulative) dividends, as and when declared by the Board of Directors, out of its surplus or net profits, as determined pursuant and subject to the provisions of the General Corporation Law of ...