The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1900-04-20

u,
it amounted to the full sum invested and
10 per centum per annum thereon.
DISCRETION OF DIRECTORS.
1T is settled law that where the charter
of a railroad corporation does not control
the discretion of the directors in the dec
laration of dividends. their discretion, in
the absence of fraud or bad faith on their
part. is not renewable by the courts. The
Supreme Court of the United States said
in the case of the New York Lake Erie
& Western Railroad Company VS.. Nickals,
1l9 e. S., 296 3O4, which was suit by a
stakeholder for recovery of dividends:
The directors of such corporations hav-
ing opportunities, not ordinarily possessed
by others, of knowing the resources and
condition of the property under their con-
troll, are In better position than stock
holders TO determine whether. in view of
the duties which the corporation owes to
the public, and of all its liabilities, ii Will
be prudent. in any particular years. to de-
clare dividend upon stock. While their
authority in respect to these matters may,
Of course, be controlled or modified by the
companys charter, and while the power
OF the courts may be invoked for the pro-
lection CT stockholders against bad faith on
the part of the directors, we should hesi-
tate TO assume that either the Legislature
or the parties intended to deprive the
to protect the interests of all. including
the public, by using earnings when neces-
sary. or when. in good faith, believed to
be necessary. for the preservation or i'm
rrovement of the property intrusted to it's
control The provisions of Section "a con-
corning dividends do not limit the discre-
ton of the directors in these respects.
Under its provisions dividends were to be
declared from so much of the profits as
the corporation may deem expedient,' and
the directors may retain such proportion
of the profits as a contingent fund to meet
subsequent expenses as they shall deem
proper The broad discretion concerning
the declaration of dividends which was
committed TO the corporation and its di-
rectors by the provision of that section
clearly includes the right to determine the
amount of all dividends or whether any
dividends should be declared or not. Their
discretion was limited only by the require
ment that dividends should not be made
for greater amount than the net profits
after deducting all present and prospective
expenses from them.
IAN equally clear and forcible statement
made by the Supreme Court of the United
States I'm the case of Gibbons VS.. Mahon
tl36 u. s.. 549-55S), which was suit by
tenant for life against the trustee under
VIII to compel the transfer of shares of
stock which had been apportiOned as
dividend. 1t said concerning money earned
by a corporation that the corpora ton may
treat ii and deal with IL either as profits
OF its business or as an addition TO its cap
hal. Acting in good faith and for the best
interests of all concerned, the corporation
may distribute its earnings at once to the
stockholders income. IL may reserve
a part of the earnings of prosperous year
to make up for a possible lack of profits
In a future year, or IL may retain portions
of Its earnings and allow them to accumu-
late and then invest them in its own works
and plant, as to secure and increase the
permanent value of its property. Which
OF these courses shall be pursued is to be
It, -
gard for the companys property and at
fairs as a whole: and, unless I'm case. of
fraud or bad faith on their part their dis
erection in this respect cannot be controlled
by the courts CBeveridge VS.. n. Y. Ele-
waited Railroad Company, liz n. Y, 1-23;
In re kernochan, 104 n. Y. 61S-629; State
of Maryland VS. b. az o. Railroad Com
pany, GILL; 363-3S2; Williams vs.. Western
Union Telegraph Company 80 n. Y, 162-192;
Ely VS.. Sprague, l Clarks CHI, 35l-355;
Smith VS.. Prattville Manufacturing Com
pany. % Ala. 5O3-5OS; Cook on Corpora
tions. Secs. 545-6S4.)
CHARGES NOT SUSTAINED.
'In the absence of fraud bad faith
these and other corporate transactions
which are hereinafter mentioned are un-
Improbable. They are not inhibited by the
charter and they are legitimate in them
selves. The complaint makes divers and
sundry charges of actual and positive fraud
against the corporation and its officers and
directors. These charges are not sustained
by the evidence. 1t does not appear from
the evidence that the corporation either
directly or indirectly misrepresented any
facts to the State. or willfully concealed
any facts from the State. or was guilty Of
any fraudulent acts omissions which
mised the State in any way.
IF any of these corporate transactions
are constructively fraudulent against
the State 1t is on account of the relation
between the parties and some breach Of
duty arising out of 1t. 1t was urged by
the corporation that constructive fraud be-
ing different head Of equity from that
which constitutes the gravamen of the
complaint. and there being a failure of
proof under that issue, the suit ought not
to be retained for an accounting on the
ground that these transactions are con-
structively fraudulent and cited the cases
of Jewett VS.. Bowman ct al. % N. j. Eq.
ia. and Eyre Potter eft al, Is How. Al,
which were decided In Jurisdictions where
the distinction between legal and equitable
presidents are closely followed and are in
my opinion. inapplicable to the present ac-
ton under our Indiana code. Various analo-
gies have been suggested by the State as
descriptive of the relation between the
parties. The State has been alternately
described as a partner. as common stock
holder and as a cestui que trust. These
descriptions of the State imply that a
fiduciary relation existed between the par
ties which imposed upon the corporation
a higher degree of good faith and more
stringent obligations i'm the disclosure of it's
affairs than otherwise would have been
imposed upon IL. But IL is quite evident
that If the aggregate amount of dividends
never became equal TO the full sum in
vested with 10 per centum per annum
thereon, there was never any such fduciary
relation between the parties. The Legis-
lature made the happening of that event a
condition precedent to the existence of any
such fiduciary relation. and the duties and
obligations on the part of the corporation
which grow out of IL. Previous TO that
event they did not exist They were wholly
contingent upon the occurrence of that
event which may or may not have oc-
Cured Until IL occurred the corporation
was not charged with any special func-
tion or trust for the benefit of the State,
or made a depositary for the benefit of the
state OF any special facts that We're other
wise inaccessible except as expressly stipu-
lated In the charter itself. The charter ex-
pressly provided in Section % that il should
be the duty OF the corporation TO furnish
the Legislature. IL required. with a correct
statement of the amount of expenditures
and the amount of profits after deducting
all expenses, which statement shall be
made under oath of the officer whose duty
IL shall be To make the same. AS IL was
conceded upon the argument that the cor
poration was never required 10 furnish any
sions OF Section % until shortly before the
institution of the present suit as described
In the complaint. and as II does not appear
from the evidence that such requirement
was prevented by the fraudulent acts or
omissions Of the corporation. It Is not