In a proceeding to review the election of directors it became necessary to determine whether or not a certain declaration of dividends was lawful. The Delaware statute provides that dividends may be declared either "out of its [the corporation's] net assets in excess of its capital" or "in case there shall be no such excess, out of its net profits for the fiscal year then current and/or preceding fiscal year." It was admitted that there had been no profits during the current or preceding fiscal year, and it was found that in calculating the surplus no allowance had been made for bad debts against the asset item of loans receivable, and that no allowance had been made for depreciation in a real estate investment. Held, that due allowance should be made for bad debts and depreciation on real estate in determining the surplus, and that since the surplus item disappeared when such allowances were made, the dividend was not lawfully declared. Vogtman v. Merchants' Mortgage & Credit Co., (Del. Ch. 1935) 178 A. 99·