Deering Milliken, Inc. v. Clark Estates, Inc., 43 N.Y.2d 540 (1978)

When a contract is made for the future transfer of beneficial interest in stock, and the contract is silent regarding dividends declared before payment and delivery, the dividends remain the property of the seller.

Summary

Deering Milliken, Inc. (buyer) sued Clark Estates, Inc. (seller) to determine which party was entitled to dividends declared on Albany Felt Company stock between the signing of the stock purchase agreement and the delivery of the stock. The contracts were silent on the issue of dividend entitlement. The New York Court of Appeals held that because the agreements contemplated a future sale, not a present transfer of beneficial ownership, the dividends declared before the stock transfer belonged to the seller. The absence of explicit language transferring present beneficial ownership was crucial to the court’s decision.

Facts

Deering Milliken, Inc. entered into agreements on March 31 and April 5, 1967, to purchase stock in Albany Felt Company from the Clark Estates, Inc. The agreements stipulated that minimal payment was due upon signing, a partial payment on May 1, 1967, and the remaining balance on August 1, 1967. Delivery of the stock certificates was scheduled to occur upon full payment. A condition of the purchase was that Deering Milliken had to be satisfied with Albany Felt’s financial condition. The contracts did not specify which party was entitled to dividends declared between the agreement dates and the stock transfer date.

Procedural History

Albany Felt declared a regular quarterly dividend on May 24, 1967, payable on July 1 to shareholders of record on June 16. The stock certificates were delivered to Deering Milliken on June 19 and August 1, 1967, after full payment. The sellers rejected the buyer’s demand for the dividends. The Appellate Division ruled in favor of the sellers. The New York Court of Appeals affirmed the Appellate Division’s decision.

Issue(s)

Whether, in the absence of express contractual language, the buyer or seller is entitled to dividends declared on stock between the signing of a stock purchase agreement and the delivery of the stock certificates when the agreement contemplates a future sale.

Holding

No, the seller is entitled to the dividends because the agreements executed were contracts for the future sale of stock, not for the present transfer of beneficial ownership. Thus, the sellers remained the beneficial owners when the dividend was declared.

Court’s Reasoning

The court emphasized that the intention of the parties, if clearly expressed, would control the outcome. However, since the agreements lacked express provisions regarding interim dividends, the court had to construe the agreements to determine the parties’ intent. The critical determination was whether the contracts manifested present sales or agreements to make future sales. The court stated, “In the absence of an agreement to the contrary, the buyer under an executory contract to sell stock is not entitled to dividends until the legal title to the stock has passed to him.”

The court highlighted the terminology used in the agreements, such as “Seller will sell to Buyer” and “shares to be sold,” as indicative of future occurrences rather than a present transfer of beneficial ownership. The court also noted the express conditions that allowed the buyer to avoid payment if not satisfied with Albany Felt’s financial condition. This indicated that the buyer was not necessarily obligated to complete the purchase. The court concluded that the sellers, as the actual and beneficial owners of the shares when the dividend was declared, were entitled to the distribution.

The court distinguished this case from others where a present sale and transfer of beneficial interest had occurred. The court also noted that the sellers wanted to defer the sale of the stock for tax advantages and rejected a proposal that “the agreement be cast in terms of a present sale and purchase.”

The court further clarified, “Although the inclusion of an obligation for payment of interest by the buyer from the date of the contract’s execution would have supported a claim of a present sale… its absence does not necessarily lead to a contrary result.” In this instance, the sellers may have negotiated for a higher purchase price instead of including an interest obligation in the agreement.