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4 Alb. L. Rev. 42 (1934-1935)
Corporations - Guaranty of Dividends

handle is hein.journals/albany4 and id is 52 raw text is: CORPORATIONS - GUARANTY OF DIVIDENDS During thisperiod when corporations are failing to pay dividends on their stock, contracts of guaranty of dividends assume vast im- portance. The case usually presented is where one corporation, thich owns an interest in another, by a contract of guaranty endorsed on the certificate of stock, agrees to nay the stoci: dividends of the latter corporation. The result of this situation is that the guarantor com- pany, when called upon to carry out its agreement, looks for some loop- hole in the contract or tries in some maricr to evade payment. If the existence of the corporation, whose dividends are guaranteed. is termi- nated, the guaranty is likewise terminated and the guarantor is relieved of liability, unless an estoppel arises. Such a situation was presented in the case of Wessel v. Crosse & Blackwell, Ltd., (152 Misc. 814). Here plaintiff owned fifty shares of preforence stock of Crosse & Blackwell, Ind., a Maryland corporation. Endorsed on the face of his certificate of stock was a written guaranty executed on behalf of the defendant, an English corporation, whereby the latter corporation unconditionally guaranteed the payment of divi- dends on the stock represunted by the certificate. While the facts in the case arc involved, a brief allusion to them is necessary for a complete understanding of the situation. The two companies sold the same product, under the same name and brands and used the same manu- facturing forumulas; and the English comnany owned sixty per cent of the common stock of the Maryland company. After its incorooration the Maryland company invested a large amount of money in a Canadian com- pany organized to conduct a similar business with a similar name. The Maryland company earned operating profits each year, but the Canadian company was a failure, with the result that the Maryland company had wTitten do 0m its investment in the Canadian company to one-fourth its original amount. In 1931 the English company was called upon to furn- ish dividends for the Maryland company, with the prospect of a contin- uation of the same procedure. At this time a plan of consolidation was approved by all. By this plan the defendant was to supply capital to a now corporation to be organized, which would consolidate with the Maryland company and wipe out both. The English company-was to buy the Canadian comoany and to release its claim against the Maryland company for reimbursements for the dividends it had paid out for the latter. This plan was carried through. Vhile the defendant could not carry through this consolida- tion alone, as it did not o-n sufficient shares of stock in the Mary- land corporation, yet the plan could not go through without its active assistance and consent. The plaintiff now sues on the guaranty of dividends made by the defendant company, which says as a defense that the Maryland company was terminated by the consolidation, that the effect of this was to extinguish the two consolidating companies, and that the contract of guaranty contemplated the cmntinued existence of the cor5oration whose dividends were guaranteed. The plaintiff in reply claims that the consolidation was initiated, nurtured and carried to fruition with the active participatin of the defendant to relieve itself of its guaranty liability and that the defendant is est3'ped from asserting as a de- fense the destructirn of the. Maryland corporation.

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