as owner on the books of the company. But if a company has notice of a
transfer of stock, a dividend subsequently declared should be paid to
the purchaser even though the transfer was not registered. In pledging
stock it is a common practice to declare that the pledgee shall be
entitled to the dividends that are declared. If nothing is said, and
the stock has been transferred on the books of the company, the
pledgee is entitled to the dividends following the general rule above
mentioned.
A dividend may be payable in cash or property or a stock dividend may
be made. Such a dividend, if the stock is issued only to the extent of
the surplus profits, is not a violation of the prohibition against
reducing or withdrawing the capital stock by distribution among the
stockholders.
During recent years some important questions have arisen about
dividends or income on stock given by will to the legatees or friends
of the testator. Dividends that are declared after a grant or bequest,
though earned before, go to the legatee as income. This is not the
rule everywhere. In some states the surplus profits accumulated during
the testator's life, though not divided until after his death, belong
to the estate, while the dividends or income earned and declared after
his death are paid to the legatee or beneficiary mentioned in the
will. Again, a somewhat different rule applies to stock dividends. In
some states these are regarded as an increase of capital and must be
kept as a part of the estate; in other states such stock is regarded
simply as another form of income and goes to the legatee like any
other income flowing from the investment. The highest federal court
has declared that when a distribution of earnings is made by a
corporation among its stockholders, the question whether such
distribution is an apportionment of additional stock representing
capital, or a division of profits and income, depends upon the
substance and intent of the action of the corporation, as manifested
by its vote or resolution; and ordinarily a dividend declared in stock
is to be deemed capital, and a dividend in money is to be deemed
income of each share.
A will bequeathed stock in a corporation in trust to pay the dividends
as they accrued to a daughter of the testator during her lifetime.
Stock dividends were declared by the corporation from time to time and
after the death of the testator, and these accumulated earnings were
invested by the company in permanent works. After the testator's death
the corporation was authorized by statute to increase its capital
stock. The dividends were held to be accretions to the capital, and
the income only was payable to the daughter for life.
WRONGS.
Passing from the action of directors in declaring dividends, the
wrongs done by corporations may be stated. As it is an impersonal,
artificial thing, a corporation cannot possibly commit a wrong or tort
like a natural person. For many years this conception of a
corporation, that it could not commit many of the well-known wrongs,
could not slander a person for example, led to perplexing
consequences. Finally the principle was established that through its
agents or servants a corporation could do wrong quite like an
individual. Thus a corporation may be guilty of malice, and may be
punished for slander or libel, for a malicious prosecution, false
representation, for trespass should its agents unlawfully enter on the
land of another, for maintaining a nuisance and the like. A national
bank is forbidden to certify the check of a depositor unless he has
the amount of money stated in the check in the bank. And if this is
done the certifying official and all others who participated with him
in disregarding the law are made criminally liable, and on several
occasions the law has been enforced.
Again, a corporation is liable for the negligence of its servants in
performing their duties, and are constantly sued for their failures. A
railroad company is sued for injuries to its passengers caused by the
improper running of its trains; for its failure to carry and deliver
freight in accordance with its obligations or agreements. Street
railways are constantly sued by passengers who are injured through the
negligence of its officials.
By statutes corporations are required to do many things and, if they
fail, are liable for the consequences. These duties may be divided
into two classes, those toward the public and those that affect their
stockholders. Their public duties may again be divided into those that
are imposed on them by statute, and a still larger number by the
common law. As we have seen, stockholders confide necessarily the
management of their corporation to directors, who in most cases must
necessarily have a largely discretionary power, and who, in turn, must
appoint other agents to execute the details of the corporate business.
These not infrequently fail through incompetence or neglect to perform
their duties properly, and consequently corporations are subjected to
lawsuits in which redress is sought by the injured parties. Some of
these wrongs for which they are liable to the public have been
mentioned, it would require too much space to mention all.
The injuries done to stockholders by their directors remain for
consideration. Unless directors are restricted by action of the
stockholders at a stockholders' meeting, they have the authority
prescribed by charter and statute; outside these, their authority is
largely discretionary, and must be so. If, therefore, stockholders are
dissatisfied with their directors, as they often are, their remedy is
to elect others at the end of their term of service. If at the time of
choosing them, the annual meeting, none are chosen, the directors hold
over until they are again elected, or others are chosen in their
places. After they have been chosen, no stockholder can interfere in
any way with their discretionary authority unless he has a clear case
calling for judicial action. "Until a mistake," says Morawetz, "on the
part of the directors, individual stockholders have no right to appeal
to the courts to define the line of policy to be pursued by the
company. The courts therefore are quite unanimous in sustaining the
action of directors so long as they act within the discretionary
authority given them."
Occasions happen when the removal of directors is essential to the
welfare of a corporation. Suppose they are pursuing a course clearly
ruinous to the company? In such a case the court will grant relief on
the request of the stockholders whenever the corporation itself is
unable or unwilling to do so. Primarily the corporation should proceed
against the directors, for the wrong is a corporate one. In many cases
the corporation is so completely in their control that the
stockholders are unable to do anything through it. In such case they
must act in the name of, and in behalf of the company. And if they
succeed in establishing their case, the courts will order the removal
of the directors.
Sometimes the courts, instead of going so far, will enjoin them from
doing wrongs that are feared. Suppose it is feared that directors will
declare a dividend that has not been earned, the courts on proper
proof would enjoin them from making it. Suppose it is feared they will
issue more stock and divide all the shares among themselves instead of
proportionately among all the stockholders as the law requires, in
order to get control of the company, a court would not hesitate to
restrain them.
Lastly may be considered a stockholder's rights to inspect the books
of his company. This he may do at all proper times and for reasonable
purposes. And if the right is refused the courts will aid him in
making an inspection. What then is a proper purpose that justifies him
in making the request? He cannot do so to satisfy some freak, or to
annoy an official with whom he may be on bad terms. Nor can he do it
to obtain information to be used for stock-jobbing purposes. Suppose
he has reason for supposing that the books were falsified, that the
stockholders were not receiving correct accounts of the expenditures
and earnings of the company, a stockholder would certainly have a
right to make an examination, and could also employ an agent,
attorney, or expert accountant to do this for him, for his ignorance
of bookkeeping methods might debar him from making an efficient
examination were the right confined exclusively to himself.
=Curtesy.=--A husband acquires an interest or estate in land belonging
to his wife after her death. To be entitled to it, there must be a
legal marriage. Even though it be unlawful, if not set aside during
her life, his interest in her estate cannot be defeated by afterwards
declaring the marriage void. Curtesy does not extend to land nominally
held by her, or as trustee. The wife must have had a child who might
have inherited the estate. It is immaterial whether she acquired her
estate before or after the birth of the child. As soon therefore as a
child is born, his estate or interest begins and is perfected or
consummated by her death, and may be taken at any time afterward for
his debts. What may be the effect of a divorce is not well settled. In
some states even though he is an innocent party, he forfeits his
estate. This rule is founded on the idea that he is a voluntary party,
and therefore need not have one; in other states his interest
continues. As the husband's rights to such an estate have been
abolished in many states, we refrain from adding more principles.
=Deceit.=--A seller is not liable for deceit when the knowledge, or
way of obtaining it, is equally known by both parties. If one goes
into a store to buy a bushel of apples that he has seen by the door
and inquires the price and pays for them without making any inquiry
concerning their quality, he cannot recover his money if half of them
prove to be rotten unless the seller intentionally deceived him, for
he might have inquired whether they were all like those on top and of
good quality. But if the merchant should put fine ones on top in order
to deceive a purchaser, he could recover for his loss. This rule has a
wide application. Suppose a seller keeps his store dimly lighted
intentionally so that the inferior quality of his goods cannot be
discerned, and a person should thereby be deceived and injured, he
would have a good cause of action against the seller. Suppose a ship
was decayed in places, and these were intentionally so concealed that
they could not easily be seen by one who was examining with the
intention of purchasing, and he was thereby misled, the seller would
be liable for the loss to the purchaser. Of course, the prudent course
is to obtain a warranty, or better still, whenever practicable, buy of
one who has established a reputation for honest, fair dealing.
Suppose a man purchases a piece of land, generally supposed to be an
ordinary farm, which contains, as he knows, a valuable coal mine, can
the seller after the public knowledge of the mine, recover the land or
a larger purchase price therefor? Has the purchaser deceived him? Did
the law require the purchaser to make known his superior knowledge
before purchasing? No, if it did, there would be no end to the
confusion to which such a rule would lead. It is within ordinary
experience that purchasers buy either knowing or supposing they will
reap advantages from their contracts of which the seller is ignorant.
There is no deception in this; but there is in withholding knowledge
from the buyer of the quality or condition of a thing that affects its
value, and which if known by him would probably prevent him from
purchasing. Suppose a horse is blind in one eye and the prudent horse
trader says nothing. Can the buyer recover? Ordinarily he could not,
for he ought to have looked, and if he did not know enough to look,
either he should have obtained a warranty, or have employed a
competent agent to purchase for him. Suppose the old trader, skilled
in his business, intentionally put his horse in the shadow so that the
defective eye could not be seen, then the seller would surely have
his remedy against him. If he put his horse there accidentally he
would not.
Is a wink a deception for which the winker must answer in the law? A
hardened dealer once went near a large meeting of men with a wagon
load of bottles containing cold tea. The thirsty crowd soon came
around. "One dollar a piece," he announced with a wink. The wink was
effective and the bottles were quickly sold. They were filled with
cold tea, and the buyers sued for the deceit that had been practiced
on them. They failed, the court said that a wink was not enough.
Another court might have decided otherwise.
=Deeds.=--In selling and buying land several deeds are in use. The
forms differ considerably in the different states. The most important
of them is called a warranty deed, in which the seller not only
conveys the title, but warrants or agrees to defend it against all
attacks. Suppose A sells a piece of land by warranty deed to B, who
makes the unwelcome discovery that a mortgage is existing thereon. He
notifies A and asks him to clear the title. Suppose the mortgage has
been paid, but the lender of the money, the mortgagee, forgot to give
the proper deed to show that he had received payment. And suppose he
was an ugly fellow who would not give the proper release. B could
compel him to do so, and the expense must be borne by A because his
deed of warranty required him to give a clear title.
In such a deed the grantor or seller agrees or covenants to do usually
four or more specific things: first, he asserts that he has a right to
convey the land at the time of the sale. Of course, if he has not, the
agreement or covenant is at once broken and the buyer can proceed
against him to make the title good, or to recover damages if he cannot
retain the premises. The second covenant or agreement is to the effect
that the seller has both the quantity and quality of land mentioned in
the deed. The third covenant is that there are no encumbrances on the
land, that is, no mortgages, no rights of others to pass over it, or
to take earth, water or other things from the land. The fourth
covenant is for the quiet enjoyment of the land, which is the most
general form of warranty. There may be other covenants, often there
are, while the four mentioned may be, and often are, modified.
Does such a warranty bind other persons than the warrantor, in other
words are his heirs and persons to whom he may devise his lands also
indefinitely bound by his warranty? The statutes in some states fix
his liability. Where none exist the law limits the liability of
parties to the amount of assets or property they have received from
the warrantor; if they have received nothing they are not liable for
anything.
A covenant to protect the buyer from encumbrances, claims, etc., does
not always relieve him from the expense of a lawsuit. Suppose A claims
a right of way over B's land and insists on using it. B brings his
action of trespass against him and wins. He cannot sue his grantor or
seller to recover the expense of the suit, for the latter would reply,
"You have won your case which is proof that the title is good as
warranted, and therefore you have no claim against me." If, on the
other hand, A had won his case B would then have a good cause of
action against his covenantor.
Another kind of deed used in selling land is called an indenture. This
is signed by all the parties, and copies are usually made and
delivered to all of them. This deed also contains warrants or
covenants like the one first described.
Another kind of deed is called a release or quit-claim. By this the
grantor or party giving it conveys whatever interest he may have in
the land. It is the deed always given by a mortgagee on the payment or
discharge of his mortgage. It contains no warrants to do anything and
therefore differs from a deed of warranty. Sometimes a person conveys
a piece of land knowing that the title is defective which the
purchaser, notwithstanding the defect, is willing to buy. The seller
may safely give a quit-claim deed for he thereby sells only whatever
interest he may have.
All the deeds above mentioned except an indenture, are signed only by
the selling or granting party. They become effective by delivery. They
are often called poll deeds.
Every grantor must append to his name a seal. Once a seal was of the
utmost importance in the days of ignorance when persons knew not how
to write and each person had a seal of his own. As distinctive seals
have long since disappeared, seals have less significance than
formerly, nevertheless many legal rules are founded on the distinction
between sealed and unsealed instruments. Thus two written contracts
may be exact duplicates except that one of them may have no seal. The
law in most states regards the unsealed one as a mere oral or
unwritten contract, to which are applied the same rules of evidence.
The use of L.S., enclosed in brackets, thus [L.S.] is just as
effective as a seal of wax or a wafer. In many states a corporation
need not use its corporate seal, any other may be substituted. The
federal rule especially requires the use of the corporate seal and
that it be affixed by someone who was properly authorized to do this.
By statute the names of two witnesses are required, and when omitted
the deed is not only defective, but in some states at least is void. A
witness need not write his name in the grantor's presence, if asked to
sign in the proper place as a witness this will suffice.
A lease of land is also a deed differing from those mentioned in
conveying the use of land for a fixed period and on varying terms.
A deed should be completed before delivering it, the same rule applies
to most legal writings. Unimportant alterations may be made, and if
any are made, the question may prove difficult, are they important or
not. Of course if both parties agree to them, the validity of the deed
is not impaired. Whenever they do appear, in some states the law
presumes they were made before delivering the deed, but this is not
the rule everywhere.
Who can make or execute a deed? A minor cannot make a legal deed, and
if he attempts to do so he can avoid or set it aside after he becomes
of age whenever he acts with reasonable promptitude. If he does not
thus act, his delay will be regarded as a ratifying of his previous
action. What action will have this effect is a fact to be proved
whenever the controversy arises.
Usually a deed need not be read to the grantee, nor can he avoid it
because he did not know the contents, except when fraud has been
practised on him. To a blind or ignorant man a different rule applies.
The deed should be read to him, and if this is not done, or if it is
wrongly read to him, he can have it set aside in a proper legal
proceeding.
Delivery is essential; to do this two things are required. The
grantor must give up the deed and the grantee must actually accept it,
consequently the delivery of a deed after the grantor's death would
not be valid. There must be an actual delivery by him, and though a
deed may be completed in every other respect, it is not an effective
deed. A deed therefore stolen from one's drawer and delivered to the
grantee would not be valid, however innocent the grantee might be in
receiving it. Many difficulties have arisen in applying this rule.
When the question comes before a court, it seeks after the intention
of the parties, and is guided by it when ascertained. If therefore a
deed were lying on a table and the grantor should say to the grantee,
take it, and he did so, the delivery would be complete; but if he
should get it in a surreptitious way there would be no legal delivery.
Suppose a deed were mailed to the grantee, or handed to another person
to deliver to the grantee, this would be a good delivery.
As soon as the deed has been delivered, it should be taken to the
recorder's office to be recorded. Every state has offices in the towns
or counties for keeping a perfect copy of all deeds relating to the
transfer of the lands within the limits of the town or county. The
object of this is to protect purchasers, for, if this were not done,
the owner of land might sell it to a purchaser a second time who knew
nothing of the previous sale, and then someone would be the loser. To
guard against such frauds the system of registration was established
at an early day in American history. A purchaser therefore should take
his deed at once to the proper recording office for record, and this
is regarded as notice to the world from the time of delivering the
deed to the recorder, who makes a note thereon of the day and hour it
was left with him. Suppose that some creditor of the grantor, not
knowing of the sale, should attach the land as the property of the
grantor to secure a debt due to him, could he hold it as against the
purchaser? Ordinarily the purchaser could still retain the land, and
the same rule would apply between him and a second purchaser, though
buying in good faith supposing the grantor was the real owner. In some
states a statute protects the purchaser by giving him a fixed period
of two or three months or more to record his deed. The safe rule is to
leave the deed with the recorder as soon as possible after receiving
it.
It is a general practice to do another thing with deeds, to make or
take an acknowledgment of them, and in some states this must be done
before they can be recorded. This consists on the part of the grantor
going before a proper officer, often a notary public, justice of the
peace, clerk of a court of record, commissioner of deeds, and making
oath that he has duly executed the above deed. This oath appears in
the form of a certificate at the bottom of the deed or appended
thereto and is signed by the officer, who also attaches his official
seal. When a deed has thus been acknowledged it can be used in a legal
proceeding as evidence without requiring further proof of its
execution. But if it had not been acknowledged, then a court would
require some proof that the deed had been made and delivered before
accepting it as proof of the fact.
When a married woman executes a deed the officer who took the
acknowledgment of the deed must make an examination, apart from her
husband, to ascertain whether or no her act was voluntary, and he must
also record the fact. The acknowledgment should be made after the
examination. A defective acknowledgment by a married woman is
worthless, nor will any court compel her to make another one. Should
she make another deed, however, with a proper acknowledgment this
would be legal.
The officials who take acknowledgments possess different authority,
some can take them only of land situated in their respective states;
others have authority to take acknowledgments of deeds of land in
every state. In all the states are commissioners of deeds, so called,
who are authorized to act outside their own state. Some persons who
have an important conveyancing business have qualified themselves to
thus act as commissioners for many states, and perform a highly useful
service.
If a mistake has been made in a deed can it be corrected? The general
rule is it can be amended in all cases of fraud, accident, or mistake.
How can this be done? If the grantor is unwilling to do right, the
purchaser can by a proper application to a court, or court of equity,
ask for the correction of the deed or such other relief as justice
requires. Suppose the grantor has declared in his deed that the land
contains a hundred acres and a survey finds only fifty. This would be
a palpable fraud and a court would, if requested, order the
reconveyance of the land and return of the money. Suppose the deed
covered no land at all belonging to the grantor, this would be a still
greater fraud. Suppose the deed said one hundred acres more or less,
and a survey found only fifty acres. The purchaser bought supposing
that there was no such deficit, but perhaps a small one, what would a
court do? Doubtless it would hold that the grantor tried to deceive
the other party and would grant relief.
The land sold must be bounded or described. As land is increasing
everywhere in value more pains is taken in describing it, than
formerly. Large tracts have been surveyed by the government and are
indicated as sections, quarter sections, yet even these boundaries are
sometimes imperfect, caused by incorrect surveys, whereby lands
overlap, or otherwise have defective boundaries.