The Republican journal. [volume] (Belfast, Me.) 1829-current, 1882-03-02

TO the non preferred stockholders The
Directors act as trustees, and are required
to exercise their Judgment to manage the
property, and make provision for debit
and liabilities and repairs of corporate
property, and from time to time declare
sucn dividends from profits as III thril
Judgment may be judlcious, From the
earnings they should pay curreut expeu.
ses Of the business, maturpd debts. in
terest on unlnatured debts, and make pro,
vision, If practicable, by sinking fund OF
otherwise for liabilities to mature, rs they
deem prudent, unless otherwise legally
directed by the stockholders. These du-
ties Of the Directors are recognized in the
text books aud many decisions Butts
Va. Wood, 3S, Btro. Isl B-iknap vs..
Davis, 10, Me, 455, Bedford r. Il. vs..
BDwser, As Pa St. 20 Brown VS.. r.
X. 4 Eng, l.. < e. 118 Jackson vs.
Newark Il. r. Vrown 277. Greeu's
Brlce's Ultra Wires, p POI aud uote a.
4 df Ia on Railways s. y & note &
s. 2l2
Creditors are entitled to all the earn
lngs, # urcrss.,ry, 10 pay matured obliga
tlonf, aud II is certainly competent aud
proper for tn, ID rectors to apply the iu-
come to sucu payment without waiting
Tor creditors to compel if.
1t the lSth by- law was susceptible OF
any other construction, it WouId be I'M
Reasonable and III violation of the rights
OF creditors, and would not be upheld hy
the courts. 1t is therefore to be con
srued, as 1t may be consistently with its
language, as protecting the preferred
stockholders, and after that vesting in
the Directors their usual legal authority
t. use the surplus in good faith to pro
vide Tor maturing obligations, 10 the ex--
cinhlon, IN whole or III part as the case
may result, of dividends to tue ordinary
stockholders This view ls fully sus-
tanned by Chief Justice Shaw Barnard
w. Vermont and Mass. r. r. I Alien,
520
That the stockholders 80 understood
the by law is made certain by tie vote Of
January 10Th, 1870, 10y which they an
thorzed second mortgage to secure
bonds with coupons, drawing six per
cent. absolutely to the preferred stock
holders, while the bonds to non preferred
stockholders draw such interest as they
could obtain under tins bylaw.
My construction therefore of the 18Th
bylaw, and tie contract thereby created
is that the corporation guaranteed to the
preferred stakeholder six per cent % bis
stock, If the net earnings are sufficient TO
pay IT. That AS to the surplus, If any
remaining, the Directors were not Obliged
to divide 1t all, If III their Judgment it
was prudent to retain portion to provide
for maturing Obligations, aud that rs to
such surplus, they had the right. if they
saw fit, without the amendment to the
by law, to create IA sinking fund to pay
the maturing city note The dividend is
to be made ''irom the net ,rnings," and
the surplus, after paying preferred stock
dividends, means the surplus which tile
Directors, in the exercise Of their fair
Judgment, think can be divided to the
general stockholders, without detrmpnt
to the credit Of the corporation or its le-
gal liability and true interest to provide
for its maturing obligations. The oppo.
site view would lead to distribution OF
all the income from year TO year, aud
when the city note shall mature, the cor
poratlon would have nothing with which
to pay 1t, and might be sued and have its
franchise sold on execution and thus de-
stroy the whole property OF both sets of
stockhol iers. Such course would lie
bad business management, would not he
approved by the courts, and very possibly
might make the Directors personally Ii
able. Such construction therefore, [
appreheud, would not be adopted either
by the court OF business men, and must
be unsound as it leads to such ruinoua
results.
The important question remains, What
are met eafn,NgS?'
The phrase mas no absolute, defined
legal meaning. It is sometimes used in
one sense aud at times in others. To
correctly understand it III a given case,
the circumstances under which it is used
the subject matter, the situation of the
parties, and the property expected to
make the earnings, must he considered.
In the Union Pacific r. II. Va. United
States, 80 Supreme Court reports, the
court was called upon to decide its mean
ing as used in the act Of Congress grant
ing aid to the Railroad which requires
the road to pay to the United States upon
It's debt to them, portion of its net earn
lngs. A majority of the court say that
they have to determine "the expenditures
which are properly chargable against the
gross earnings in order to arrive at the
net earnings, MS this expression is to be
understood rithin the meaning of the act.
As a general proposition net earnings are
the excess OF the gross earnings over the
expenditures defrayedin producing them.
1t may often be difficult to draw pre-
else line between expenditures for con-
struction and the ordinary expenses in
cident to operating and maintaining the
road, and works of railroad company.
Theoretically, the expenses chargeable
to earnings include the general expense
of keeping up the organization OF the
company, and all expenses incurred in
operating the works ana keeping them in
good condition and repair, whilst expen-
ses chargeable to capital include those
which are incurred in the original con-
strucion Of the works, and in the subse-
quent enlargement and improvement
thereof.