Untitled Texas Attorney General Opinion ( 1946 )

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 74 Xmorable Esco Walter - Page 5 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 JKA:zd \1