The Rutland daily globe. [volume] (Rutland, Vt.) 1873-1877, 1875-02-26
v NET EARNINGS.v

met EARNINGS"
The decision of the supreme court of the
United States, in the case of holder of
preferred stock against the Erie railroad
company, brought to compel the payment
of dividends, is of greater importance and
far wider in Its application than Is appar-
ent at first sight. The suit arose out of q
disputed construction of the words 'net
earnings" the charter providing that diNi.
dends should be paid on the preferred
stock out of the met earnings" earned dn-
ring each current year. 1t was claimed on
the part of the plaintiff that these words
had more limited meaning, as applied to
railroad company, than as generally used,
but the court held that Websters definition
"clear of all charges and deductions" or
that of Worcester, ''that which remains
after the deduction of all charges or outlay
as net profit, which was, also, the popular
acceptaton of the words, was the correct
meaning, and that, therefore, as used "net
earnings means the profit remaining after
deducting running expenses, rents, and ir-
terest or Indebtedness, whether floating or
bonded, or whether borrowed or incurred
before or after the issuing and sale OF the
preferred stock. This definition and de-
cision will strike the average mind as rea-
sonable, and as taking a common sense and
business like view of the words and of the
case. The question would probably never
have arisen but for the habit Of certain
railroad corporations, perhaps the Erie
among the number, of making good
showing by presenting the gross earnings
of the road, deducting therefrom the oper-
ating expenses and giving in large type the
balance as ''nct earnings"
Bonds and preferred stock have been sold
in this way, but it is difficult to see how a
corporation or business man could have
been deluded into the idea that a railroad
was making ''net earnings" or any earn
ings to be applied as dividends, so long as
the revenue, over and above the operating
expenses, was insufficient even to pay the
interest on borrowed capital. We hardly
think that merchant would commit the
folly of saying, much less of believing,
that there were any "net earnings" in bis
business if his gross profits were INSULT
cient to pay the rent of his store, the saa-
ries of his clerks, and interest on borrowed
money-let alone the interest on his own
capital or payment for his own time. But
railroad corporations have so claimed,
when it was their interest to do so, and,
even, the government of the United States,
acting on the opinion of their law adviser,
have made substantially the same claim.
Outside of the parties litgant, the United
States will be the first to feel the effect of
the decision. In the charters of the Union
AM Central Pacific railroads, the govern
meat, besides the land grant, agreed to,
and subsequently did, issue its bonds to the
amount of from ten thousand to forty thou
sand dollars per mile, and for reimburse
ment of this loan it was provided, and
these corporations undertook the obliga-
ton, that at least five per cent of the 'net
earnings" of the road should be annually
paid into the federal treasury as fund for
that purpose. After the completion of the
roads, the government made q claim of
some two and half millions Of dollars as
five per cent of the "net earnings" and in
stituted suits for its recovery. This
amount was claimed on the basis that the
''net earnings" composed the whole bal
lance OF gross earnings after paying the
this claim, the Union Pacific offered to
make an ual.payment of five hundred
thousand dollars for term of years, and
seven hundred and fifty thousand dollars
thereafter-much better terms than the
government is entitled to under the char.
ter as affected by this dccision--but the
proposition has not, as yet, been accepted
"Net earnings in this case, under the de-
cision, would mean earnings after the pay
mcnt of operating expenses, interest on al
class of bonds and, as some claim, even in
tercst on the capital stock of the company
In any event, the met earnings" of the
road will be less than half million of dol
lars for years to come, and it is probable
that the corporation will now withdraw 1T
offer, thus showing to the government thu
dangers OF delay.