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��National Banks.
��This question is virtually answered above, for if the object of the law in requiring the creation of a surplus fund may not be defeated by one means it may not by another; if it may not be defeated by paying away the amounts carried to surplus in dividends, neither may it be by charging losses to the surplus and at the same time using the other earnings for dividends.
Moreover, section 5204 of the Revised Statutes of the United States provides as follows : " If losses have at any time been sustained by any such association, equal to or exceeding its undivided prof- its then on hand, no dividend shall be made ; and no dividend shall ever be made by any association, while it con- tinues its banking opexations, to an amount greater than its net profits then on hand, deducting therefrom its losses and bad debts."
This language fixes the extent to which dividends may be made at the amount of the "net profits " on hand after deduct- ing therefrom losses and bad debts, and as it has been shown above that the surplus fund cannot be considered "net profits," available for dividends within the meaning of the law, it follows that in order to determine the amount of net earnings available for dividends the losses must first be deducted from the earnings other than surplus.
It is to be observed also that section 5204 specifies that if losses have at any time been sustained by a bank equal to or exceeding its " undivided profits " on hand no dividends shall be made.
Now the surplus fund is not undivided profits, except in so far as it is earnings not divided among the shareholders. It is made upon a division of the profits — so much to the stockholders and so much to the surplus fund. If the law had intended that losses might be charged to surplus fund in order to leave
��the other earnings available for divi- dends it is to be presumed that care would not have been taken to use the words " undivided profits," in the con- nection in which they are used, as stated above.
Furthermore, if losses maybe charged to surplus when at the same time the other earnings are used for dividends to shareholders, a bank may go on declar- ing dividends, and never accumulate any surplus fund whatever if losses be sus- tained, as they are in the history of nearly every bank. A construction of the law which would render inoperative the requirement for the creation of a surplus cannot be sound ; and as the only way to insure that a surplus shall be accumulated and maintained is to charge losses against other earnings as far as may be before trenching upon the surplus ; it must be that the law intended that the " undivided profits " which are not in the surplus fund shall first be used to meet losses.
To a full understanding of the sub- ject it is proper to say that after using all other earnings on hand at the usual time for declaring a dividend to meet losses the whole or any part of the sur- plus may be used if the losses exceed the amount of the earnings other than surplus, and then at the end of another six months a dividend may be made if the earnings will admit of it, one-tenth of the earnings being first carried to surplus and the re-accumulation of the fund thus begun.
This is because the law has been complied with by charging the losses against the " undivided profits," as far as they will go, and it is impossible to do more, or require more to be done, for the re-establishment of the state of things that existed prior to losses hav- ing been sustained than to do what the law requires shall be done to originally establish that state of things.
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