The Saint Paul globe. (St. Paul, Minn.) 1896-1905, 1901-04-09
SHELTER CASE INJUNCTION
DECISION OF LOWER COURT DIS.
SOLVING THE INJUNCTION
is REVERSED
DIRECTORS NOT WHOLE SHOW
Ruling Is of Great Importance as
Affecting Corporations That Are
ORGANIZED; Under Laws
of New Jersey.

| Ut trenton, N. j., TO-DAY MED the opinion
of the courts of errors and appeals in the
case brought by the minority stockhold-
ers of the American Smelling and Refin-
ing company to enjoin the purchase of
the property of M. Guggenheim & Sons.
| This decision has been awaited with
| great interest by corporation lawyers as
| it is considered most important as affect
ing corporations in New Jersey. The
| Importance of the opinion lies in the in
depreciation placed by the court in the
| fortieth and thirty-ninth sections of the
| general corporation act. Vice Chancel-
lor Stevens held that the court could not
| go beyond the beard of directors as 10 the
value of property to be purchased by the
| issuing of stock. The court of errors
on the contrary, holds that it must be
! clearly shown that the value of such prop
erty is at least reasonably near the price
| to be paid and that the action of the di-
| rectors is subject to review at the in
stance of any stockholder, who consid-
ers himself agrieved. The syllabus of
Justice Dixon follows:
DUTIES OF DIRECTORS.
Under section 40, of the corporation
| act, when an original issue of corporate
stock for property to be purchased is
| contemplated it is the duty of the di-
| rectors to see that the real value of the
value of the stock.
Before an original issue of corporate
STOCK Tor property to be purchased takes
place the bona fide Judgment of the Iii
rectors as to the value of the property
While it is entitled to considerable weight
is not conclusive, but may be reviewed at
the instance of existing stockholders, and
II on such review by a court of equity
the value of the property appears to be
less than the face value of the stock
the issue should be restrained. After
STOCK has been issued as fully paid stock
for property purchased the judgment of
directors as to the value of the property
becomes conclusive in the absence of an
actual fraud in the transaction and such
STOCK is not liable to any further call
An issuance of corporate stock. voted
for by the board of directors and by the
requisite majority of stockholders in Or
der to issue such stock for property
worth less than the face value of the
stock should be restrained at the in
stance of the dissenting stockholders
In considering the right of the court
to review the action of the directors,
Justice Dixon says the language of sec
tion 80, of the corporation act, is not
questionable in so far as the money
paid in must equal the stock issued The
language of section 80 states that the
corporation may issue stock to the
amount of the value of the stock.
The distinction between the contem-
plated issue of corporate stock for prop
erty and the issue for money Justice
Dixon finds, does not lie upon valuation,
but in the fact that different estimates
may be formed of the value Of property.
When such differences are brought be-
fore a judicial tribunal, Justice Dixon
| says the judgment of those upon whom
the duty Of determining the value is
placed must be accorded considerable
weight, but it is not final.
STOCKHOLDERS RIGHTS.
Nor is it necessary" the opinion says,
that conscious generalization of any
| other form of fraudulent conduct on the
| part of these primary values should be
| shown to justify judicial inquiry into the
position. Their honest judgment, if reach
| ed without examination into the ele-
ments of value or if used in part upon
| an estimate of matters which really are
| not property or if plainly warped by self
interest, may lead to violation of the
statutory rule as surely as would cor
rupt motive. The original issue of cor
| porate stock is a special function, in the
| exercise of which the legislature has
| fixed the standard to be observed, and
| it is the duty of the courts, so far as
| their jurisdiction extends, to see that this
standard is not violated either intention
| ally or unintentionally.'
|
section 40, when corporate stock has
once been issued for property purchased
| the legislature has directed the applica-
! tion of another rule. Under such condi-
| tions nothing but actual fraud in the
transactions can impair the right of the
stockholder to hold his stock as full paid
stock free from further call.
Applying the rule, as above laid down,
Justice Dixon discusses the actual value
Of the property. the purchase of which
was contemplated by the issue of $45,0
600 of stock. He finds it admitted that the
value of the Guggenheim plant, as ply
sical possessions, did not exceed $10O00-
600, and with the cash to have been
turned over, leaving about $23, ,O00, coo to be
made up in the value of the good will of
| the business and the leases and contracts,
| the nature of which was not at any time
! disclosed in the proceedings
| While the defendants claimed the com
| plainants had not borne the burden Of
| proof cast upon them, Justice Dixon
| holds that under the circumstances this
rule should not be vigorously enforced
at this stage The proofs, Justice Dixon
says, points strongly to the conclusion
| that in the negotiations between the par
ties the real value of the property to be