DIVIDEND. A portion of the principal or profits divided among several owners of a thing. Williston v. R. Co., 13 Allen (Mass.) 400; Taft v. R. Co., 8 R. I. 310, 5 Am. Rep. 575; Attorney General v. Bank, 21 N. C. 545; Cary v. Say. Union, 22 Wall. (U. S.) 38, 22 L. Ed. 779. See Rose v. Barclay, 191 Pa. 594, 43 Ati. 385, 45 L. R. A. 392.
As confined to corporations it is "that por tion of the profits and surplus funds of the corporation which has been actually set apart by a valid resolution of the board of directors, or by the shareholders at a corpo rate meeting, for distribution among the shareholders according to their respective in terests, in such a sense as to become segre gated from the property of the corporation, and to become the property of the share holders distributively." 2 Thomp. Corp. § 2126; Mobile & 0. R. Co. v. Tennessee, 153 U. S. 486, 14 Sup. Ct. 968, 38 L. Ed. 793.
In the commonest use of the term divi dends are a sum which a corporation sets apart from its profits to be divided among its members. 'Lockhart v. Van Alstyne, 31 Mich. 76, 18 Am. Rep. 156; which, for the purpose of declaring a dividend, consist of the excess of its cash affa other property on hand over its liabilities ; Hubbard v. Weare, 79 Ia. 678, 44 N. W. 915.
Dividends cannot usually be paid out of the capital but only from the profits. The former is a trust fund for the stockholders; 2 Thomp. Corp. § 2152; which each of them is entitled to have preserved intact; Slay den v. Coal Co., 25 Mo. App. 439; but this principle does not apply when the capital from its nature is liable to waste and de preciation, as in case of companies to work a mine or a patent; 41 Ch. Div. 1.
Where dividends are required to be de clared out of profits merely of a railroad company, the rule for ascertaining the prof its is to exclude from consideration all debts other than what are commonly understood by the term funded debts, but to treat as deductions debts incurred and due for en gines, rails, and the like, which should and would have been paid at the time if the funds had been in hand and are necessary deductions from the property ; 29 Beay. 272; and as to what are net earnings in the sense of surplus profits and therefore susceptible of definition, see Union Pac. R. Co. v. U. S.,
99 U. S. 420, 25 L. Ed. 274 ; 99 Am. Dec. 762, note; Excelsior Water & Mining Co. v. Pierce, 90 Cal. 131, 27 Pac. 44.
In England it was held that dividends must be payable in money ; L. R. 14 Eq. 517; and it has been said there that the whole of the profits of a corporation must be divided periodically ; L. R. 4 Ch. 494; but this is perhaps too broadly stated; Green's Brice, Ultra Vires 201. Neither of the above rules obtains in America : here stock and scrip dividends are very common; Leland v. Hayden, 102 Mass. 542; Lord v. Brooks, 52 N. H. 72; Howell v. Ry. Co., 51 Barb. (N. Y.) 378; State v. R. Co., 6 Gill (Md.) 363; Mo raw. Priv. Corp. 448; and in the absence of statutory restriction are lawful; Williams v. Telegraph Co., 93 N. Y. 162; Rand v. Hub bell, 115 Mass. 471, 15 Am. Rep. 121; Com. v. Ry. Co., 74 Pa. 83 ; and bonds may be is sued to the stockholders of a railroad corpo ration in place of cash, as the dividends rep resenting earnings appropriated to the con struction account, and these dividends, hav ing been duly earned, may be declared for four years at once instead of each year ; Wood v. Lary, 47 Hun (N. Y.) 550.
The declaration of dividends is within the implied scope of the authority of the di rectors, and unless controlled by the action of the corporation itself they have authority, in their sole discretion, to cjeclare dividends and to fix the time and place of payment within the limits of reason and good faith with the stockholders; State v. Bank, 6 La. 745; Union Pac. Ry. Co. v. U. S., 99 U. S. 420, 25 L. Ed. 274 ; Minot v. Paine, 99 Mass. 101, 96 Am. Dec. 705 ; Park v. Locomotive Works, 40 N. J. Eq. 114, 3 Atl. 762; Excel sior Water & Mining Co. v. Pierce, 90 Cal. 131, 27 Pac. 44 ; Williams v. Telegraph Co., 93 N. Y. 162 ; and as to time and place; King v. R. Co., 29 N. J. L. 82. See Belfast & M. L. R. Co. v. City of Belfast, 77 Me. 445, 1 Atl. 362 ; New York, L. E. & W. R. Co. v. Nickals, 119 U. S. 296, 7 Sup. Ct. 209, 30 L. Ed. 363.