Evening journal., 1917-04-13


lc powder ami cannon powder was
greed to by thu parties and filed as
stipulation In TIE cause. The amount
Of the contract advances assured the
Powder Company OF a substantial profit
upon each contract over the cost of
manufacture in case the buyers refused
or failed to acceTt any lot or the whole
amount called for under any contract, or
failed to pay the remaining 80 per cent.
Of the contract price, and the powder
was left upon the Company's hands.
1t has been seen that the surplus
which appears under the item of profit
and loss" is arrived at by deducting
from all current assets. investments and
fixed assets not only the current liabili-
ties. and the fix ed liabilities, but. as the
contingent labi ity, the amount of cash
advanced upon The contracts. II may be
that that item was properly deducted in
order to ascertain the surplus as a book
keeping term hut in reality the amount
of the current assets of the Company
which could be used without impairing
its capital stock paid in is TO be deter
mined by a comparison of all Of the as
sets of the Company, including all OF its
quick OF fluid assets available as work
ing capital, with its actual indebtedness
over and above it's capital stock. The
amounts advanced to 1t upon these con
tracts did not constitute an indebted
ness, but there was a contingent liability
based upon the agreement in the CON
tracts that upon the failure of perform
ance upon the part of the seller caused
by failure of powder to conform to con-
tract requirements or by any contn-
gencies beyond its control by strikes, or
labor trouble, the Powder Company
would be required to return to the buyer
such amount of money as may have been
advanced on account of the powder 50
affected.
At the time Coleman's stock was pur
chased by Pierre on February 2s, 1915,
the contracts had increased in amount
from SlS.292,225 on December 81, 1914,
to $5S,932 ,22j. Additional contracts for
enormous amounts were being negoti-
ated at that time, so that by the end
of March the contracts exceeded S9O,-
100000 and by the end of September ex-
ceeded S225,0OOO0O.
p During the period covered by Pierre's
spondence with Coleman 1t appears
that the manufacturing plant was in
creasing its capacity sufficiently to sue
cessfully meet every requirement of its
predictions Of Coleman as TO increase in
the value of the stock were realized and
there was a confident expectation OF
profits of 100 per cent.
The defendants witnesses testified as
. TO the risks attending performance o.
the contracts based on the uncertainty
of the plant being capable of the re-
quired production. The statements made
by the officers and directors of the com
} pany during the period in question beal
! q different inference from their testi
mony on the stand. The cores pondenc'
between Coleman and Pierre and the dis
y cussion at the meetings of the BoarC
of Directors in March carry conviction
u that the company was fully able TO pro
e duce and was producing all that wa
necessary to carry on the business AM
g that huge profits were to be made on
d of the business on hand Betwee
l. March ], 1915, and the time of the tria
J. in July, 1916, cash dividends equivalen
is to 1873 per cent. had been paid upon III
re stock of the Powder Company. At I'll
n time of the meeting of the Board {
Directors of March, 1915, it was state
d by Pierre that the surplus out of whiC
d alone Mr.. LAfTey advised the board III
J. stock could be purchased amounted
a S95OOOOO. In addition to what was,
d the bookkeeping sense, called surplu
d the company had in hand amply suff
q cient sums to purchase the stock Will
e out impairing the capital stock paid il
d unless the total amount of the advance
l. constituted an Indebtedness.
p Mr.. Laffey's opinion was based upo
d paragraph VII Section (hl of the char
4 ter and Section 30 of the corporatio
4 law of New Jersey. The charter cor
IL tains the following provision:
Ie III. The objects for which this col
y, poration is formed are:
z . . =
~ To subscribe or cause to be sui
2 scribed for, and to purchase or otherwii
= acquire, hold for investment, or othe
'g wise sell, assign, transfer mortgage
E pledge, exchange, distribute or otherwi
l. dispose of the whole or any part of Il
!. shares of the capital stock
"a of itself or any other corporation or CO
porations
- VII Tn furtheran
in but not in limitation of the powers CO.
A. ferred by law. the board of directors a
e. expressly authorized.
is (hl From time to time to fix and d
le termine and to vary the sum TO be 7
So served over and above its capital sto,
" paid in as working capital before d
Is claung any dividends among its stoc
n holders; to direct and determine the Il
~ and disposition of any surplus or n
NJ profits over and above the capital sto
/. = paid in; to fXe the time of declaring al
O. paying any dividend and, unless othC
Is wise provided in the bylaws, TO dete
O. mine the amount of any dividend
no sums reserved as working capital
id otherwise may be applied from time
r. time TO the acquisition or purchase of
NO bonds or other Obligations or shares
n its own capital stock or other proper
he to such extent and in such manner a
IL. upon such terms as the board of dir,
lis tors shall deem expedient, and neitl
st the stock, bonds or other property
ed acquired, shall be regarded as accum
" lated profits for the purpose of decll
o. ing or paying dividends unless otherw
It's determined by the board of director
lc but shares of such capital stock so pr
A. chased or acquired may be resold, 1
e. less such shares shall have been retil
Is. for the purpose of decreasing the co
81. pany's capital stock as provided by Ia,
D. Under the charter, therefore, one
ese the objects of the corporation is the D
for chase of its own stock Paragraph Y
int Section (h), confers upon the board
ON directors authority ain furtherance
of not in limitation of the powers confer
ion by law" The first of the powers in s
,ed ton (hl is to fix and determine and
md vary the sum to be reserved over 3
the above its capital stock paid in as wo
ing ing capital befored eclaring any di
l.. H.. -. II