Bothwell v. Estep ( 1932 )

I dissent. The evidence showed that the Cleveland Stone Company was incorporated under the laws of Ohio. In the absence of proof of the laws of that state, it must be presumed that the laws of Ohio are the same as the laws of Washington.

"`The rule of law that requires corporations to preserve their capital intact is alone sufficient to prevent the corporation from paying dividends except out of profits.' 5 Thompson, Corporations (2d ed.), § 5305." Jorguson v. Apex Gold MinesCo., 74 Wn. 243, 133 P. 465, 46 L.R.A. (N.S.) 637.

The law presumes that the directors did not fraudulently impair the rights of creditors and pay cash out of the capital. No fraud was pleaded or proved.

The estate of Jessie Estep, deceased, owned two hundred forty shares of stock in the Cleveland Stone Company, the decedent having acquired two hundred shares on April 13, 1910, and forty shares on April 1, 1912; the par value of each share of stock being one hundred dollars. The Cleveland Stone Company owned all of the three thousand shares of stock in the Indiana Quarries Company. Before and at all times since the acquisition of the Indiana Quarries Company stock, the Cleveland Stone Company has been conducting business, and, after the sale of the Indiana Quarries Company properties, the Cleveland Stone Company retained all its physical properties and had assets of $3,600,000, other than the proceeds from the sale of the Indiana Quarries.

In 1926, the assets of the Indiana Quarries Company were sold for a consideration of $4,700,000, after that corporation had, during the previous six years, earned as profits $3,390,000, which had not been distributed. Had the investment of the Cleveland Stone Company in Indiana Quarries Company represented a loss, the life income of appellants from Cleveland Stone Company stock would have suffered. Now that the investment represents such a profitable undertaking for the Cleveland Stone Company, in my opinion the life tenant is entitled to the benefit of the profitable sale of the assets of Indiana Quarries Company, which profitable sale was largely due to the accumulation and withholding of profits totaling almost three-fourths of the sale price within six years prior to the date of the sale. In my opinion, the twenty-four thousand dollars realized by the trustee was a cash dividend, and should be treated as income of the life tenant.