11 Ga. App. 440 | Ga. Ct. App. | 1912
J. J. Mangham, as treasurer and director, and J. W. Mangham, as secretary and director, were jointly indicted and convicted for a violation of § 740 of the Penal Code of 1910, which declares: “No joint-stock company, corporation, or other association shall declare any dividend, or distribute any money among its members as profits, when such dividend, or money, is not declared or distributed-from the actual legitimate net earnings of its investments, and does in any manner increase its debts. Any president, director, or other officer or agent of any joint-stock company, corporation, or other association, violating the provisions of this section, shall be guilty of a misdemeanor.” The accused filed a demurrer to the indictment, based on numerous grounds,
Before this court the learned counsel for the plaintiffs in error insist that the verdict of guilty is contrary to law and without evidence to support it. In other words, they, present for determination squarely the merits of the case against the accused. The law applicable to the facts, they insist, was correctly charged by the court as follows: “The State in making out its case against these defendants must satisfy your minds beyond a reasonable doubt, first, that a dividend was declared and paid to the stockholders; second, that these defendants participated in the act of declaring and paying and distributing that dividend; third, that the declaration and payment of the dividend in question was made out of funds of the corporation other than those arising out of the net earnings of its legitimate investments; fourth, that the declaration and payment of the dividend increased in some way the debts of the corporation;” fifth, that unless the defendants knew that this dividend was declared and distributed from funds of the corporation other than actual net earnings, there could be no conviction. We thoroughly agree with the statement of learned counsel that these instructions correctly stated the provisions of law involved and the burden upon the State. It is conceded that a dividend was declared by the directors of the corporation as charged in the indictment, and that there is positive evidence of the fact that the accused participated in the declaration and payment and distribution of this dividend. But it is insisted that the State has failed to establish at least three of the essential elements of the offense: (1) that the State failed to prove that the company did not earn any profits for the year ending May 28, 1910, out of which the dividend was declared and paid; (2) that the State did not prove that the debts of the company were increased by the declaration and payment of dividends, or that the payment of the dividend in question bore any relation to the debts of the company; and (3) that the evidence fails to show knowledge on the part of either of the defendants that the dividend in question was not declared and
Does the evidence show that the corporation declared and distributed dividends for the year ending May 28, 1910, from the actual legitimate net earnings of its investments? If it did, the law was not violated; if it did not, the statute was violated, and all of the directors and officers who participated in the declaration and distribution of the dividends were guilty of a misdemeanor. Under the express terms of the statute, no joint-stock company, corporation, or other association can lawfully declare any dividend or distribute any money among its members as profits when such dividend or money is not declared or distributed from “the actual legitimate net earnings of its investmentsThis prohibition of the statute is but the declaration of the general rule that dividends can be declared and paid only out of the profits or surplus earnings of the company. What is meant by the term “net earnings?” This term is simply a synonym for the profits of the business, and, popularly speaking, the net receipts of a businéss are its profits, and the surplus over and above the capital stock and debts constitutes profits. ' We give several clear and comprehensive definitions of “profits.” As defined by the New Jersey Chancery Court, “ ‘net profits’ mean what shall remain as the clear gains of any business venture, after deducting the capital invested in the business, the expenses incurred in its conduct, and the losses sustained in its prosecution.” Park v. Grant Locomotive Works, 40 N. J. Eq. 114 (3 Atl. 162). “The surplus over and above the capital and debts constitutes profits.” Barry v. Merchants Exchange, 1 Sandf. Ch. (N. Y.) 280, 307. And the Supreme Court of the United States said that the term “profits,” out of which dividends alone can be declared, denotes what remains after defraying every expense, including loans falling due, as well as interest on such loans. Eyester v. Centennial Board, 94 U. S. 500 (24 L. ed. 188). Comprehensively speaking, the net earnings are the amount, of earnings left after deducting the indebtedness of the company
The learned trial judge in the present case instructed the jury that “a corporation which is insolvent may, from its actual legitimate earnings on its investment for a particular and definite period, pay a dividend, and an insolvent corporation may, for a particular period, have legitimate earnings.” This view of the law was very favorable to the accused. We do not think it is sound. We think that dividends may be paid from the -surplus accumulated from the profits of previous years, although there may have been no actual profits during the year in which such dividends are declared and paid; but we think it absolutely a condition precedent to the declaration and distribution of dividends that there must be a surplus previously accumulated or made during the current year; for it is not possible for an insolvent corporation to lawfully declare and distribute a dividend, for the very simple reason that it can not have any surplus or net earnings as long as it is unable to pay its indebtedness. 5 Thomp. Corp. § 5311. As dividends can only be. declared and paid out of profits, it is clear that they can not be declared unless there are profits; and even if there are profits, still they can not be declared and paid where the corporation is clearly insolvent. 5 Thomp. Corp. § 5383. See also Orr v. State, 8 Ga. App. 129 (68 S. E. 849), where it is held by this court that no declaration of a dividend is lawful in a condition of insolvency or impairment of capital stock; for any profits that may be made must first be applied to the payment of the debts of the corporation and to the restoration of the capital stock.
We now make a brief application' of these general principles, which are well settled, to the evidence in the present case. The dividend declared May 31, 1910, which it is alleged in the indictment was an unlawful dividend, was declared by the board of
It is next insisted that the State failed to show knowledge on the part of either of the defendants that the dividends were not paid from the net earnings of the investments of the company. The evidence clearly shows that if any one connected with the company knew of its financial condition, it was J. J. Mangham. The entire management of the business of the corporation, it seems, was entrusted to him, and had been entrusted to him for years. All the contracts, of the corporation were made by him, all' the collections of money for the output of the mills were made by him. He bought all the cotton for the mill. He contracted all the debts for the mill. He prepared the annual statements from which the directors declared dividends. The bookkeeper testified,
Judgment affirmed.