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Hay v. Hay o (b) corp may, from time to time…redeem the whole/part of its 38 Wn. 2d 513 / May 1, 1951/ Donworth, J./FINANCING THE CORP/FVARGAS preferred stock on any annual dividend date by paying NATURE Appeal $101.50/share, and all accrued unpaid dividends thereon at the PETITIONERS Raymond M. Hay
  Hay v. Hay  38 Wn. 2d 513 / May 1, 1951/ Donworth, J./FINANCING TH C! #/F$A GA% NAT&  A''(a)#TITI!N % Raymond M. Hay  %#!NDNT% Edward T. Hay  SUMMARY  . Wh(n th( *or'orat+on wa -(+n )+0+dat(d d0( to +t d+o)0t+on, an +0( aro( a to th( r+ht o 'r((rr(d har(ho)d(r to d++d(nd.   &nd(r 4C a6(nd(d AoI, +t wa ar((d that th( 'r((rr(d to*7ho)d(r %H ho0)d r(*(+( th( 'ar a)0( o th(+r to*7 ')0 an a6o0nt (0a) to a)) a**r0(d 0n'a+d d++d(nd th(r(on -(or( any a(t ho0)d -( d+tr+-0t(d to *o66on %H. Th( Ct *ontr0(d 0*h a6(nd6(nt and a+d that d++d(nd, + not r(0)ar)y 'a+d o0t o aa+)a-)( (arn+n, 6ay-( a6a(d or tor(d 0', wh(th(r (arn(d/not, at th( r(0)ar d++d(nd dat(, and atta*h to th( har( o 0*h to*7 0nt+) *ond+t+on ar+( wh(n th(y 6ay -( d(*)ar(d and 'a+d. Th( a''())(( ar0(d that 0*h 'r((r(n*(do( not a'')y +n *a( o th( d+o)0t+on o a *or'orat+on. DOCTRINE.  Th(y d+:(r(nt+at(d a o+n;*on*(rn *or' and a *or' +n )+0+dat+on and a+d that Art $I d +no)( th( )att(r *a( h(n*( (6. (.%tat. %(*. 3823 wh+*h 'roh+-+t th( d(*)arat+on o d++d(nd o0t o *a'+ta) +na'')+*a-)(. It a)o d+:(r(nt+at(d 'r((rr(d and *o66on %H and 'r((rr(d to*7ho)d(r. FACTS. Background ã + (nd 4and Co 4C wa *r(at(d +n 19<1 -y -roth(r M.. Hayand .T. Hay w+th W.W. Ah)(y. A/N= T Hay + th( ath(r o r('ond(ntdward. dward +nh(r+t(d h+ dad har(. ay6ond + on( o M..Hay *h+)dr(n. Th( *or'orat+on wa to *ond0*t a (n(ra) r(a);(tat(-0+n(, -orrow and )oan 6on(y, o'(rat( ar6, and -0y and ())ood, war(, and 6(r*hand+(. It )at(r ado't(d th( 6(r*ant+)(-0+n( o th( -ro. ã  Th( )+0+dat+n tr0t(( o Th( + (nd 4and Co6'any, +nt+t0t(d th+a*t+on to (*0r( a d(*)aratory >0d6(nt *ontr0+n Art+*)( $I o +ta6(nd(d art+*)( o +n*or'orat+on. ã #r+or to D(*. 2?, 1921, th( *a'+ta) to*7 o 4C *on+t(d (nt+r()y o *o66on to*7. It art+*)( w(r( th(n a6(nd(d on a+d dat( to r(ad a: non (r-at+6= ã Art $I= Th( a6o0nt o *a'+ta) to*7..+ @1.5M d++d(d +nto 157 har( o th( 'ar a)0( o @1<< (a*h. Th( to*7 o th+ *or'orat+on + d++d(d +nto2 *)a(= a *o66on to*7 857 har(, 1<< (a and 'r((rr(d to*7B.57 har(, @1<< (a. Th( : ar( th( *hara*t(r/*ond+t+on/)+6+tat+on+6'o(d on th( har( ((n*(= 'r((rr(d -(or( *o66on= o a th( ho)d(r o th( 'r((rr(d to*7 ha)) -( (nt+t)(d tor(*(+(*060)at+( d++d(nd ro6 th( dat( o +0an*( o a+d 'r((rr(d to*7 at th( rat( o B '(r ann06 and no 6or(,'aya-)( o0t o th( 0r')0 'roEt o th+ *or'-(or( anyd++d(nd ha)) -( 'a+d or (t a'art or th( *o66on to*7. o - *or' 6ay, ro6 t+6( to t+6(r(d((6 th( who)(/'art o +t'r((rr(d to*7 on any ann0a) d++d(nd dat( -y 'ay+n@1<1.5</har(, and a)) a**r0(d 0n'a+d d++d(nd th(r(on at th(dat( E(d or 0*h r(d(6't+on o * o0t o th( 0r')0 'roEt r(6a+n+n at(r th( 'ay6(nt o 0))d++d(nd on th( 'r((rr(d to*7 or a)) 'r(+o0 d++d(nd'(r+od and at(r 0)) d++d(nd th(r(on ha)) ha( -((nd(*)ar(d and 'a+d +n 0)), d++d(nd 6ay -( d(*)ar(d 0'on th(*o66on to*7 o d +n th( ((nt o any )+0+dat+on, d+o)0t+on, or w+nd+n 0' o th( *or' th( ho)d(r o th( 'r((rr(d to*7 ha)) -( (nt+t)(d to-( 'a+d +n 0)) th( 'ar a)0( th(r(o, and a)) a**r0(d 0n'a+dd++d(nd th(r(on -(or( any 06 ha)) -( 'a+d to any a(td+tr+-0t(d a6on ho)d(r o th( *o66on to*7 ã Wh+)( th( *or' a*0+r(d a )ar( a6o0nt o r(a) (tat(, +t had no 0r')0'roEt o0t o wh+*h any d++d(nd on (+th(r *o66on/'r((rr(d to*7*o0)d -( d(*)ar(d. %o th(y d+d a 0r(y o th( *or'orat( Enan*+a)tr0*t0r( and th( oard o tr0t(( (nd(d 0' ado't+n a r(o)0t+onwh+*h wo0)d r(d0*( th( *a'+ta) a(t to *ah o that th(y *an)+0+dat(, d+tr+-0t(, and d+o)( th( *or'. It wa o0nd that + th('r((rr(d %H r(*(+( th(+r 'ro6+(d d++d(nd, a(t +nt(ad o 0r')0 'roEt w+)) -( 0(d wh+*h wo0)d r(0)t to *o66on %H not(tt+n any 'art o 0*h a(t. Th+ *a0(d th( )+0+dat+n tr0t(( o th( + (nd 4and Co. to +nt+t0t( th( a+d a d(*)aratory >0d6(nt to*ontr0( Art $I o +t a6(nd(d Art+*)( o In*or'orat+on. ã  Tr+a) *o0rt r(nd(r(d a d(*++on +n aor o th( 'r((r(n*( or th( ho)d(ro 'r((rr(d to*7. Th( d((ndant dward T. Hay, +nd++d0a))y and aad6+n+trator o th( (tat( o Fay(tt( H. I6ho: h+ +t(r, d(*(a(d, a''(a)(d.Not(= Th(r( ar( N! *or'orat( *r(d+tor +no)(d + th(r( w(r(, +)a 60na-a-ayaran. Th( ho)d(r o th( 'r((rr(d to*7 ha( r(*(+(d ro6 th()+0+dat+n tr0t(( th( 'ar a)0( th(r(o. No d++d(nd on th( *060)at+('r((rr(d to*7 ha( ((r -((n d(*)ar(d or 'a+d. No 0r')0 'roEt ar(aa+)a-)( w+th wh+*h to 'ay th( a**060)at(d d++d(nd. Th(r( + a0-tant+a) n06-(r o a(t on hand, -0t th(y wo0)d a)) -( a-or-(d + th(y ho0)d -( a'')+(d +n 'ay6(nt o a**r0(d d++d(nd on th( 'r((rr(dto*7. ISSUES & RATIO .1.Whether the holders of cumulative preferred stock uponliquidation of the corporation are entitled to be paid accrueddividends from the corporate assets before the commonstockholders are entitled to participate in the distributionthereof, the corporation having no earned surplus or netprots – YE!he distribution of dividends to preferred shares rst isauthori ed b# the $rticles of the corporation.  $pellant Ed%ard = a)) a**r0(d 0n'a+d d++d(nd +n'arara'h D o Art $I o art+*)( 6(an that -(or( th(r( *an -( ad++d(nd, th(r( 60t -( 0r')0 'roEt, and that +n*( non( ha((r (+t(d, th( r+ht to 0*h d++d(nd n((r a**r0(d, andth(r(or( non( ar( 'aya-)(. Th( 6+nor+ty o'+n+on +n #(nn+nton *a( tat( that, +t hard to(( any *orr()at+on -(tw((n Ko+n *on*(rn and K+n )+0+dat+on, orwhy th( +nt(r'r(tat+on o Kd++d(nd +n th( o+n;*on*(rn *)a0(ho0)d *on*(rn Kd++d(nd +n th( )+0+dat+on *)a0(. In(tor ')a*(th(+r 6on(y +n *060)at+( 'r((rr(d to*7 *o +t ha a 0arant((dd++d(nd and *(rta+n 'r((r(n*( a (t orth +n th( to*7ar((6(nt. I th( ar((6(nt +( 'r((r(n*( a to d++d(nd +n)+0+dat+on 'ro*((d+n, th( to*7 wo0)d nor6a))y -( *on+d(r(d aa -(tt(r -0+n( r+7. +(. No d+: -(tw((n o+n *on*(rn and +n)+0+dat+on o da'at -awa) (+th(r way &espondent &a#mond'  a - * Art $I d(a) w+th 'ay6(nt o d++d(nd to 'r((rr(d %H o0t o 0r')0 'roEt wh+)( th( *or' +a o+n *on*(rn d on th( oth(r hand, a0thor+L( 'ay6(nt o a**060)at(d and 0n'a+d d++d(nd o0t o a(t 0'on )+0+dat+on o th( *or'orat+on ((n tho0h th(r( no 0r')0 'roEt aa+)a-)( no+6'a+r6(nt o *a'+ta) 6(an no 'o+nt +n r(tr+*t+n 'ay6(nt o d++d(nd to th( 0r')0 'roEt. (t = )irst,  th( art+*)( dont *onta+n any *ond+t+on that th( 0r')0'roEt 60t -( (0a) to or r(at(r than th( tota) o a)) a**r0(d0n'a+d d++d(nd -(or( 0*h d+tr+-0t+on 6ad( . !he# %erecontracting re' future liquidation %hich doesn*t fall underthe statutor# prohibition against declaration of dividendsout of capital. econd , dward *ont(nt+on that th(r( an +6')+(d *ond+t+ona'')+*a-)( on)y on a o+n *on*(rn + *ontrary to th( *on*('t o th( )aw o *or'orat+on. Th(r( a d+: -(tw((n a *or' wh+*h + ao+n *on*(rn and on( wh+*h + +n )+0+dat+on. While it+s true thatno dividends can be declared b# a corporation in nancialdistressdestitute of surplus or net prots, there is ane-press provision in this case %hich precisel# governs sucha situation ie. $rt /0 d.23npaid dividends accrued4'  0n'a+d and a**r0(d 6od+yd++d(nd. Th+ 6(an that d++d(nd, + not r(0)ar)y 'a+d o0t o aa+)a-)( (arn+n, 6ay -( a6a(d or tor(d 0', wh(th(r(arn(d/not, at th( r(0)ar d++d(nd dat(, and atta*h to th( har(o 0*h to*7 0nt+) *ond+t+on ar+( wh(n th(y 6ay -( d(*)ar(d and'a+d. Th(( *ond+t+on 6ay n((r ar+(. In th+ *a(, th( Ct Endthat th( ho)d(r o 'r((rr(d to*7 ar( (nt+t)(d -oth to th( 'ar a)0(o th(+r to*7 and to d++d(nd wh+*h ha(nt -((n d(*)ar(d or 'a+d-0t wo0)d( had th(r( -((n 0r')0 or n(t 'roEt.  5. 67$8Y 80E9! %*hoo) o tho0ht=1.A d++d(nd *an *o6( +nto -(+n and (+t on)y -y ar6at+(d(*)arat+on o th( *or' tr0t((, and th(n on)y + th( *or' ha onhand 0r')0 n(t 'roEt. I th(y dont ha( that 0r')0, th( r+ht toa d++d(nd n((r a**r0(d, h(n*( a6( *ant -( d(6and(d o0t o th( *a'+ta) a**o0nt on )+0+dat+on. What h( -()+(( + th( r+ht  on(. 2.D++d(nd, + not r(0)ar)y 'a+d o0t o aa+)a-)( (arn+n,6ay -( a6a(d or tor(d 0', wh(th(r (arn(d/not, at r(0)ard++d(nd dat(, and +n th( a-(n*( o a *ontro))+n tat0t(, 6ay -('a+d o0t o a(t wh(n th( *or'n )+0+dat(d + th( AoI 'ro+d(. What 6a>or+ty o))ow(d.   J. G)ady ((nt+a))y tat( that th( *a( 0(d -y th( Ma>or+ty a-a+ or th( d(*++on ar(nt a'')+*a-)( h(r( -(*a0( th(r(, th( *tw(r(nt 0+d(d -y a tat0t( )+7( (6 ( %tat %(* 3823. %0*htat0t( *onta+n 2 +nh+-+t+on= 1 aa+nt 6a7+n any d++d(nd,(*('t ro6 n(t 'roEt ar++n ro6 th( -0+n( r()at( to 6a7+nd++d(nd 2 aa+nt any d+++on, w+thdrawa) or 'ay6(nt to th(%H o any 'art o th( *a'+ta) to*7 o th( *or'n r()at( to d++d+na(t o th( *or'. 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