In the case of Reid v. Fargo, President of the American Express Company in 1915, plaintiff George E. Reid sued defendant William G. Fargo over a dispute involving stock dividends from the American Express Company (AEC). The Supreme Court had to decide whether or not AEC's distribution of its own shares as dividends was lawful under Michigan law where it was incorporated and if such distributions were taxable income for federal tax purposes. Reid argued that these dividend payments should be considered capital rather than income because they did not come from company profits but instead represented a return on his original investment in AEC stocks. On the other hand, Fargo contended that these dividends constituted income since they increased Reid's total number of shares and thus his potential future earnings. The court ruled in favor of Fargo stating that while state laws may allow corporations to distribute their own shares as dividends without affecting their capital structure, this does not exempt them from being taxed at a federal level as per Internal Revenue Code provisions which consider all corporate distributions to shareholders as taxable unless specifically excluded by law.

In the dissenting opinion for Reid v. Fargo, it was argued that the majority's decision to uphold a lower court ruling in favor of American Express Company failed to properly interpret and apply contract law principles. The dissenting justices believed that Mr. Reid had entered into an agreement with American Express under false pretenses, as he was not made aware of certain stipulations within his contract until after he had already signed it. They contended that this lack of transparency on part of the company constituted a breach of good faith and fair dealing, which should have rendered their contractual agreement voidable at Mr. Reid's discretion. Furthermore, they disagreed with the majority's assertion that Mr.Reid’s claim fell outside statutory limitations period because they felt there were grounds for tolling or suspending this timeframe due to alleged fraudulent concealment by American Express Company.