Burk v. Ottawa Gas & Electric Co.

Citations

• 87 Kan. 6
• 123 P. 857
• 1912 Kan. LEXIS 79

Syllabus

<p>SYLLABUS BY THE COURT.</p> <p>1. Corporation — Preferred Stock■ — Contract—Dividends. The • capital stock of a corporation was issued and subscribed in the ratio of three-tenths preferred stock to seven-tenths common stock, and the by-laws, adopted at the organization, provide: “The preferred stock shall carry a six per cent per annum preferred, noncumulative dividend, payable semiannually on the first days of July and January of each year after January 1st, 1906, out of the net profits of the preceding -. fiscal year, and a pro tanto dividend if such dividend fall short of 6 per cent; and the preferred stock may be called in as a whole or in pro rata installments at 101 and accrued dividend and cancelled at the option of the board of directors on three months notice at any dividend paying period after two years dividend has been paid thereon.” Held, (1) that such by-law constitutes a contract between the preferred stockholders and the corporation which a court of equity will enforce when the specified conditions exist which entitle the preferred stockholders to a dividend and it is refused them; (2) the cost of operating the plant in furnishing gas within the city, including necessary repairs, extensions, fixed charges, taxes and other necessary expenses, only, shall be charged as expenses to be deducted from the entire receipts from the business to determine the net profits.</p> <p>2. -■— Same. If net profits, as above defined, had accrued in the business from year to year it was not within the discretion of the board of directors to declare or not to declare a dividend on such preferred stock; If the funds were available for the purpose, the preferred stockholders were entitled to a dividend as a matter of right. .</p> <p>3. - Same. The duty to declare a dividend upon such preferred stock is, however, subordinate to the obligation of the corporation to the public. And if it was necessary to use all of the earnings in the enlargement of the plant in order to fu