Friday, October 12, 2012

A.P. Smith Manufacturing Co. v. Barlow case brief

A.P. Smith Mfg. Co. v. Barlow
98 A.2d 581 (1953)

Defendant stockholders sought review from the trial court (New Jersey), which determined that a donation by plaintiff company to Princeton University was intra vires. Defendant stockholders initiated an action for a declaratory judgment to question the legality of plaintiff's donation.

A.P. Smith Manufacturing Co. (A.P. Smith) (D) is a well-established company that manufactures fire hydrants and other equipment. A.P. Smith (D) contributes regularly to the local community chest, to Princeton University, and occasionally to Upsala College.
-On one occasion, the board resolved to donate $1500 to Princeton University, and A.P. Smith's (D) shareholders objected. A.P. Smith's (D) president considered the donation part of a sound business practice to establish good will in the community.
-The donation also helped ensure interest in the company by recent top graduates of the college, ultimately promoting the interests of its stockholders, employees and customers.
-The objecting shareholders argue that A.P. Smith's (D) certificate of incorporation does not give the company the power to make such donations and that the New Jersey statutes that A.P. Smith (D) purportedly relied on in making the donations should not apply to a corporation formed before the laws were enacted.

-May a company make donations to an institution under its lawful exercise of the corporation's implied and incidental power granted by the common law and a relevant statute, even though it was enacted after incorporation?

-A corporation may take any action including authorizing contributions as long as it is consistent with state law.

-The Superior Court, held the donation to be intra vires.
-An appeal taken to the Appellate Division was certified directly to the Supreme Court which held that the corporate power to make reasonable charitable contributions exists under modern conditions even apart from express statutory provisions.

-The court affirmed a judgment of the lower court, which determined that plaintiff company's donation to Princeton University was intra vires.
-The court held that plaintiff was permitted to make charitable contributions where the activity being promoted by the gift promoted the goodwill of the business.
-The court held that, although defendant stockholders objected, plaintiff's contribution was authorized by the statute. 

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