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The declaration of dividends is within the discretion of the board of directors and in the absence of abuse thereof, the court will not interfere. To entitle a stockholder to relief, the proper grounds therefore must clearly appear.
Plaintiff corporation amended its certificate of incorporation to provide, inter alia, that holders of preferred stock were entitled to receive, and plaintiff was bound to pay thereon out of its net profits, a fixed yearly dividend. Plaintiff subsequently filed a complaint against defendants, seeking a declaratory judgment stating the rights and obligations of the parties in connection with preferred stock issued by plaintiff. A default was taken against one defendant for failure to answer.
Did the directors abuse their discretion in failing to declare a dividend on the preferred stock for the years in question?
It thus appears from the experts themselves that the contingent liabilities of the corporation are matters that enter into the directors' judgment as to whether or not a dividend should be declared for a given year, and this court finds as a fact that the contingent income tax liabilities for 1952 through 1955 and the renegotiation liability for the years 1952 and 1953 were ample reasons why the board of directors withheld the declaration of a dividend on the preferred stock. There was no evidence submitted in this case which would justify this court in finding that the directors had abused their discretion in failing to declare a dividend on the preferred stock for the years in question. The court held that the amendment did not make the payment of a dividend mandatory, even if net profits were available therefor. The court also held that plaintiff's board of directors did not abuse its discretion in failing to declare a dividend on the preferred stock for certain years.