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Effect of entries in books as evidence.-Directors' minutes are evidence § 45-46 of a contract, though written up after the meeting. They need not be in

the handwriting of the secretary; if entered under his direction and approved by him they are valid. (Wells v. Rahway White Rubber Co.,

19 N. J. Eq., 402.)

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Entries in the books of a corporation are, as a general rule, com"petent evidence of the proceedings of the corporation and of the acts "and votes of its officers transacted at official meetings; but such entries are not notice to third persons of the acts or resolutions entered upon "its minutes. As to third persons, the books of a corporation are private "books, and such persons are not chargeable with knowledge of matters "there recorded any more than a third person would be chargeable with “knowledge of entries made against him in the books of a private person.” (Wetherbee v. Baker, 35 N. J. Eq., 501, 509, 510; North River Meadow Co. v. Christ Church, 22 N. J. Law, 424; and see Van Hook v. Summerville Mfg. Co, 5 N. J. Eq., 137.)

The minute book of a corporation is competent evidence in suits between stockholders to show the acts of the corporation, but is not competent evidence of any agreement made by the stockholders as individuals. (Black v. Shreve, 13 N. J. Eq., 455, 466, 483.)

45. The name of every corporation shall be at all times conspicuously displayed at the entrance of its principal office in this state, and in default thereof the directors shall be jointly and severally liable to a penalty of two hundred dollars, to be recovered with costs, by the state, before any court of competent jurisdiction, by action to be prosecuted by the attorney-general; and they shall jointly and severally be liable to a like penalty for every thirty days' additional default from and after the service of process in the first action, to be recovered in like manner.

[New in 1896.]

46. Whenever, for any reason, a legal meeting of the stockholders of any corporation cannot be otherwise called, three or more stockholders having voting powers may call such meeting by publishing ten days' notice of the time, place and purposes of the meeting in a newspaper published in the county in which its principal office in this state is located, and mailing such notice to all stockholders whose post office address is known or can be ascertained; a meeting called as aforesaid shall be a legal meeting of the corporation, and if there be no officers present, the stockholders may elect officers for the meeting; and the secretary of

§ 47 the meeting shall record the proceedings thereof in the book of minutes of the corporation.

P. L. 1846, p. 70; P. L. 1849, p. 306; Act of 1875, § 51.

IV.-Dividends-Payment of Capital Stock.

47. The directors of every corporation created under this act shall, in January in each year, unless some specific day or days for that purpose be fixed in its charter or by-laws, and in that case then on the days so fixed, after reserving over and above its capital stock paid in, as a working capital for said corporation, such sum, if any, as shall have been fixed by the stockholders, declare a dividend among its stockholders of the whole of its accumulated profits exceeding the amount so reserved, and pay the same to such stockholders on demand; provided, that the corporation may in its certificate of incorporation or in its bylaws give the directors power to fix the amount to be reserved as a working capital.

P. L. 1866, p. 1034; P. L. 1891, p. 176; Act of 1875, § 52.

The Act of 1875 and the supplement of 1891 (P. L. 1891, p. 176) applied only to "manufacturing corporations within this State." This section applies to all corporations under this act, and is not limited to manufacturing corporations.

It was formerly held (Park v. Grant Locomotive Works, 40 N. J. Eq., 114,120) that where the powers of the directors were not restrained by the charter or by contract, their power over the gains of the business was absolute so long as they acted in the exercise of an honest judgment. They could reserve whatever amount their judgment approved as necessary or judicious for repairs and improvements and to meet contingencies, both present and prospective. And their determination in respect to these matters, if made in good faith and for honest ends, though the result may show that it was injudicious, was final and not subject to judicial revision.

Under this section a duty is imposed upon directors to declare dividends annually in January out of the accumulated profits, after reserving such amount for working capital as the stockholders may have fixed, unless the power to fix the amount of working capital has been delegated to the directors.

The clause often inserted in the certificate of incorporation is:

"The board of directors shall have power without the assent or vote "of the stockholders to make, alter, amend and rescind the by-laws of "this corporation, to fix the amount to be reserved as working capital, "to authorize and cause to be executed mortgages and liens upon the real "and personal property of this corporation."

44

Suit to enforce the declaration of a dividend must be in equity. Generally suits to compel the declaration of dividends must be in the

"name of the corporation, but where the corporation is a defendant and "the majority of directors are parties charged with fraud in this very "respect the suit will proceed to a decree upon the complainant's rights." (Laurel Springs Land Co. v Fougeray, 50 N. J. Eq., 756, 760.)

When a dividend is declared it becomes a debt due from the corporation to the individual stockholder, and after demand of payment, an action at law may be maintained for its recovery. (King v. Paterson & Hudson R R. R. Co., 29 N. J. Law, 504.)

48. Nothing but money shall be considered as payment of any part of the capital stock of any corporation organized under this act, except as hereinafter provided in case of the purchase of property, and no loan of money shall be made to a stockholder or officer thereof; and if any such loan be made the officers who make it, or assent thereto, shall be jointly and severally liable, to the extent of such loan and interest, for all the debts of the corporation until the repayment of the sum so loaned.

P. L. 1846, p. 69; P. L. 1849, p. 306; Act of 1875, § 54.

An agreement on the part of a corporation that a subscriber for stock shall be secured as to part of his investment by mortgage on the corporation's property is void as to creditors of the corporation. (Boney v. Williams, 55 N. J. Eq., 691.)

49. Stock issued for property purchased.

Any corporation formed under this act may purchase mines, manufactories or other property necessary for its business, or the stock of any company or companies owning, mining, manufacturing or producing materials, or other property necessary for its business, and issue stock to the amount of the value thereof in payment therefor, and the stock so issued shall be full-paid stock and not liable to any further call, neither shall the holder thereof be liable for any further payment under any of the provisions of this act; and in the absence of actual fraud in the transaction, the judgment of the directors as to the value of the property purchased shall be conclusive; and in all statements and reports of the corporation to be published or filed this stock shall not be stated or reported as being issued for cash paid to the corporation, but shall be reported in this respect according to the fact.

Act 1875, 55; P. L. 1889, p. 412; P. L. 1893, § 444.

"In the absence of actual fraud in the transaction the judgment of the direct"ors as to the value of the property purchased shall be conclusive" was inserted in the statute by the Revision of 1896.

In the extent to which these words protect holders of stock issued for property purchased, the statute law of New Jersey is different from that of other States.

§ 48-49

§ 49

In making the judgment of the directors as to the value of the prop erty purchased conclusive the question of the value of the property for which the stock was issued is removed as an element of danger to the stockholders, except so far as gross over-valuation is evidence of actual fraud in the transaction.

The precise meaning of the words above quoted has not yet been passed upon by the courts.

It is safe to say that the statute protects the stockholder from many of the attacks which may be made upon him under the statutes of other States, notably that of the State of Maine, where a judgment creditor of the corporation recovered in an action at law against a stockholder upon the theory that his subscription was unpaid, the finding of fact being that the property was not of the value for which the stock was issued. (Libby v. Tobey, 19 Atl. Rep., 904.)

Commenting upon this decision Mr. Cook says: "Maine formerly "was a resort for incorporations, but a recent decision of its highest "court, holding stockholders liable on stock which has been issued for "property where the court thought the property was not worth the par "value of the stock, makes Maine too dangerous a State to incorporate "in, especially where millions of dollars of stock are to be issued for "mines, patents and other choice assortments of property. (Cook on Corporations, Section 945.)

It may be safely asserted that holders of stock in New Jersey corporations issued for property purchased cannot be held liable on any such grounds.

An individual creditor cannot bring an action in his own behalf at law against a stockholder upon the ground that the property for which the stock was issued was not of the value of the stock. All such suits must be by a general creditors' bill. (Wetherbee v. Baker, 35 N. J. Eq., 507.)

The earlier cases held that the contract of the subscribers could only be fulfilled by payment in money. In later cases this doctrine has been relaxed, and stock issued and paid up in work and labor, or in the purchase of property the corporation is authorized to hold, has been held to have been legally issued. (Wetherbee v. Baker, 35 N. J. Eq., 501, 512.) The rule was clearly stated by the Court of Errors and Appeals, as follows:

"The inquiry, therefore, in the court below, should have been, "whether the agreement in question was fraudulent or not; for, if the "transaction was an honest one, the difference in value between the "property constituting the consideration of the sale and the stock had no "legal significance. The charter of this company authorizes the corpo"ration to exchange its capital stock for property, and, under that condi"tion of things, a court of equity cannot set aside a transaction of that "kind simply on the ground that the bargain, on the side of the corpora"tion is a disadvantageous one. In such affairs the company and the "purchaser stand on the common footing of buyer and seller, the valua"tions of property in making the exchange, either on the one side or "the other, cannot be supervised or controlled by the Court of Chancery, "for, in the absence of deceit, or some other corrupt constituent, the

"bargain between the parties cannot be disturbed." (Bickley v. Schlag, § 49 46 N. J. Eq., 533.)

Where shares were issued for property at a very excessive vaiuation, the transaction was held to be dishonest, and it was held that the shares were not fully paid. (Hebberd v. Southwestern Cattle Co., 55 N. J. Eq., 18.) This was prior to the Revision of 1896.

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"To justify a corporation in issuing stock under our act for property 'purchased, there should be an approximation at least in true value of the thing purchased to the amount of the stock which it is supposed it "represents." (Edgerton v. Electric Improvement, &c., Co., 50 N. J. Eq., 354. Decided in 1892.)

(See also Rural Homestead Co. v. Wildes, 54 N. J. Eq., 668. Also Meredith et al. v. N. J. Zinc & Iron Co., 55 N. J. Eq., 211; aff'd 56 N. J. Eq., 454)

The goodwill of a business is property, and stock may be issued for it. And one who participated in and approved the method of valuation of such goodwill cannot afterwards claim that the goodwill so bought by the corporation was overvalued. (Washburn v. Natl. Wall Paper Co., S1 Fed. Rep., 17.)

Issue of corporate bonds below par.-The usury act (G. S., p. 3703) forbids the issue in New Jersey of bonds at a greater rate of interest than six per cent. per annum, and in a suit to enforce usurious bonds only the principal can be recovered. Bonds of canal and railroad corporations are excepted from the provisions of the statute. A practical way of avoiding the usury act is indicated by the decisions in Franklin Trust Co. v. Rutherford, B. S. & C. Electric Co., 41 Atl. Rep., 489, and Lane v. Watson, 51 N. J. Law, 186; aff'd 52 N. J. Law, 550.

Sales to company by promoters. The power of directors to contract with the company has been considered (see pp. 26-7).

Vice-Chancellor Green reviewed the leading English cases on the subject and defined very clearly the duties and liabilities under the laws of this State of promoters on a sale of property by them to the company. (Plaquemines Tropical Fruit Co. v. Buck, 52 N. J. Eq., 219.)

He quotes with approval Lord Chancellor Cairns:

"I do not say that the owner of property might not promote and "form a joint stock company and then sell his property to it, but I do say "that if he does he is bound to take care that he sells it to the company "through the medium of a board of directors, who can and do exercise an "independent and intelligent judgment on the transaction, and who are "not left under the belief that the property belongs, not to the promoters, "but to some other persons." (Erlanger v. New Sombrero Phosphate Co., 3 App. Cas., 1218, 1236; s. c. 6, English Ruling Cases, p. 777.)

In another recent case in the Court of Chancery it was held that where a promoter has a mere option to purchase lands, a one-sided contract which could not be enforced against him, and he contracts to sell those lands to his company, the transaction is presumably fraudulent, and he is liable for the profits made. (Woodbury Heights Land Co. v. Loudenslager, 55 N. J. Eq., 78; aff'd 56 N. J. Eq., 411.)

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