Randall v. Bailey
New York Court of Appeals
288 N.Y. 280, 43 N.E.2d 43 (1942)
The Bush Terminal Company (Bush) and its subsidiary, Bush Terminal Buildings Company, purchased real estate assets in Brooklyn, New York. The corporations originally listed the value of the assets on their books equal to the cost they had paid to purchase them. The assets appreciated in value over the decades the corporations held them. To reflect this appreciation, the corporations increased the listed value of the assets on their books. Because of this increase, the corporations’ books showed that they held assets in excess of their liabilities. However, the corporations did not sell the assets; that is, the gains had not been realized. The corporations then paid dividends. The trustee of Bush (plaintiff) later sued the directors who had authorized the dividends (defendants) in order to recover the dividends. The trustee argued that it was unlawful to pay dividends from an unrealized appreciation of fixed operational assets. The lower courts found the dividends to be lawful, and the trustee appealed.
Rule of Law
Holding and Reasoning (Conway, J.)
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