Court Opinion

ID: 4139298
Source: CourtListenerOpinion
Date Created: 2017-02-18 02:46:03.900322+00
Date Added: 2024-06-11T14:33:28.863811
License: Public Domain

70

          OFFICEOFTHEATTORNEYGENERALOFTEXAS
                            AUSTIN
GROVER,ELLER,
AT?O”r4W
       GCNLIAL

  ffonorable Es00 Ulter
  Tjiatriof Attorney
  104th JudlOial Dlatrlct
  Abllene, Texas
  mar blrr                     opinion   r?o. O-7016
                               Rc: Whether the paymentof

            Ue have received
  in which you request an
  follmlng  question:
                “can a
          business in Texa

                                                       we must m&e

   the eb~sumptlona.
             You have further aet out the provlsloos   of Article
   108~  of the Penal Code of Texaa and we shall proceed to con-
   strue its general appllcetlon   to the limited statement of
   iacts in your quest1ocl.   The Article is quoted as follova:
                                                                 71

!Ionoreble Bsco Welter - Peue 2

            "Any dealer, agent, 5ale5man, prlnolpel,
     officer,   or employee, who shall within thla State,
     sell. offer for ale or delivery,     soliolt  subsor?.&?-
     tioni to or ordera for, dlsposembf, lnvlte offers-
     for, or who ahall deel la any other scanner in any
     seourity or seoudtlea. ulthout being registered

     vita orhers for, or who shell de81 ii any other
     menner in say security or securities     issued after
     the effective    date of thla Act without Mving se-
     cured a permit es hereln provided, or who knoulngly
     makes any false statement of feat In any stetemsnt
     or matter of information required by this Act to be
     filed with the Secretary of State, or in any edver-
     tlsemeat, pro8pectu5, letter,    telegram, olrcular,   or
     any other document contelnlng en offer to sell or
     dispose of, or ln or by verbal or vrltten eollcttetlon
     to  purchase,   or in any oommendetory matter concerning
     any securities,    vrth intent to ald in the disposal or
     purchase of the aem, or nho knoulngly makes any felse
     statement or representation    concerning any reglstre-
     tlon made under the provislo~s of this Aot, or vho 15
     guilty of any freud or fraudulent praatlce In the sale
     of, offerlag for sale or delivery of, lnvltatlon      of
     offera   for, or dealing in eny other manner In eny

           The provisions of the above Article are directed against
individuals and prohibits   the declaration,  issuance or peyment of
cash dividends out of funda other than actual earnings or lauful
buslncss liquidation,   plus the penalty for violations  thereof,
iionoreble Esoo Welter - Page 3

vhlch oonntltute 8 felony punishable by fine and lmprlsonsmnt.
Undoubtedly, this statute    uukea it e orlms for OfflOerE, 8gents,
etc., of dosmoatlC ooaporationa, domloiled in this State, to do
that uhlo~resely~prohlblted,            but we are here ooncerned
with the Statute’s  applicetlon   to offlcers,  eto.,  of foreinn
corporationo.            .
           The legislative    latent in enacting this stetute may
be determlned from the term8 used therein.         We believe    the ebove
underlined portion or terms of the statute are later-related            50
that the illegal   deolaratlon,    lssusnce or paymsnt of cash dlvl-
dends by any agent, OfflCer, etc., must be aooompllahed by such
persons ?ilthln thla Stete” in order to come within the stetute’s
penal effect.    As we must e8aw       t&tit the “declaring,    issuing or
paylng’of cash dividends by the directors, agents, etc., of this
foreign corporation were executed in the Stete of Delaware, it
obviously  follovs   that such act8 were not done “vlthln thlr State,”
so a5 to make those lndlvlduala crlmlnally liable under the Texas
law. The euthorltlea      hold that a crlms is essentially        local and
a crlmlnal law of a state has no extraterrltorlal          force or effect.
Consequently, the nature of a orlmlnal act vi11 be determined by
the law of place where it is conmltted. 15 C.J.3.,           Sec. 12b,
Crimes.
           Unquestionably, it is the law ln this State that when
8 foreign corporation comes into Texas tn transact business, it.
thereby submits to the laws of this State and la respect of the
buslneas trensaoted 1s bound by such law.       The rule of comity
does not go to the extent of placing foreign corporations      on
more fevorable    grounds than domestlo oorporatlons --in the trens-
action of bualness vlthln the State,      11 Tax. Jur., Sec. m
Phillipv.~     Perue, 229 5. W. 849; Fouler v. Bell, 37 3. W. 1058~
Hlldebrend, Foreign Corporation, Vol. 4, Sec. 1073.
           But elso exlstlng in this State is the law and general
rule vhloh prohibits   the State from regulating or lnterferlng
vlth the internal affelrs   or management of a foreign corporation
legally doing buslneea in the State or exercising     authority over
the corporate functions or relations between the corporation and
its members arising out of and depending upon the lav of its
creation.   Such powers belong only to the State which created the
corporation and are dlstlngulshed    from powers relatln& --to the trens-
Ronoreble Eoco Walter - Page 4

action   of the businessof the car oration.   Royal Fraternal
iJnioa v.Lurrdym        K ~:~Atec8,               99 9. W. (26)
623; Gr6hamv. Hew Mexloo Eastern Gcs Co., 141 S. U. (26) 3889;
Hildebrend, Foreign Corporetlono, Vol. 4, 3eo. 1103. The reeaon-
lug behind this geuerel rule rests   upon pub110 policy due prlmar-
ilg to (1) the want of power to enforce orders, and to (2) the
fact that  neither the executive offloers,  the governing body,
nor the horns office reoordo of the foreign oorgoratlon are vlth-
In reach of the prorresseo of any except the domlcillery   courts
vhere the oorporetlon ~6s oreeted.
           The courts of this state oaunot enforce a forfeiture
of the charter of a foreign oorporetlon for vlolatlono    of law
nor can ths looel courta remove officers  for misconduct.    Bllde-
brand, Foreign Corp., Vol. 4, Sec. l103.
           In the cese of Union & NewHaven Trust Co. v. Wetrous
146 A 727, the Supreme   Court of Errors of Connecituot held that
when moneys were separated from the corporate     essetlr by the
dlrsotors for the benefit of stookholders in the form of did-
dendo, such act of separation 1s a strictly     corporate act ln-
valving the Internal management end policy of the corporation,
authorlsed and oontrolled exoluolvelp by the law of the cor-
porate domlo il.  The court St8tedr     ‘wa cannot control tba
determlnatlon of a forelgn dividend, nor regulate its terms,
nor decree its leg61 effect.?    To the sams effect See Hague
v. American Steel Foundaries, 92 A 1073.
          In the case of Borg et 01 v. Internatlona1 Silver
co., 11 Fed. 2nd 147, the Circuit Court of Appeels (26 Circuit)
held that where 8 New Jersey Corporetlon we.8 doing business
in HemYork and Nev Jersey lav did not make it unlawful to pay ’
dividends out of profits  though the capital stock be in fact
Impelred, it could not be v8lldly argued that such actloa ves
unlavful under Nev York law where the corporation viis doing
business.   To a similar effect, see HamIlton v. United Iaundrles
Corp., 161 A 347 and North State Copper Co. v. Field, 20 A 1039.
            Thus, It 15 seen that under the decisions,  thematter
o!! declaration of dividends lo one lnvolvlng the internal affairs
and menegsnrsnt of a corporation  which oa)y the courts of the
corporate domlcll will undertake to control,     Consequently,
these decisions coupled with our prevloua findings lead us to
the coaoluslon that Article 108% of the Penal Code of Texas
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is   not applicable   to nor enforceable against officers, agent a,
etc.,   of a foreign corporation legally doing business in Texas,
in the absence of extenuating clrowsstances     placlag such of-
ficers,   etc.,, ulthin the jurlsdic:lon  OS Texas Courts.
            As ve find Article   108% of the Texas Penal Code in-
applicable here, ve feel that your question la adequately        an-
swered and la the affirmatlre     as far as the lava of this State
are concerned therevlth, but conditioned,        of course, upon the
character of the Dslavare Laws as the lava and statutes        of that
State must determine the legality      or lllegalltp   of such a trans-
ac tlon.   Further, we feel that   It is here unnecessary to discuss
and we do not enter into an examlnatlon of the possibility        of
forfeiting   the forolgu corporation’s    permit to do business In
this State when said corporation     violates    a Texas law.

                                           Youra very truly
                                      ATTORNEY
                                             OENRRALOFTEXAS

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