A.P. Smith Manufacturing Co. v. Barlow

Supreme Court of New Jersey · 1953 · Corporations

CorporationsCorporate charitable contributionsUltra viresReserved power of the legislaturecorporate charityintra viresimplied powersincidental powers

Facts

A.P. Smith Manufacturing Company, incorporated in 1896, manufactured valves, fire hydrants, and related equipment and had about 300 employees. Its board adopted a resolution appropriating $1,500 to Princeton University as a contribution toward the university's maintenance, stating that the donation was in the corporation's best interests. Corporate officers and other witnesses testified that such gifts promote goodwill, a favorable business environment, and the long-term availability of educated personnel, and that private universities are important to democratic government and free enterprise. Objecting stockholders did not dispute that testimony or the public need for such institutions, but argued that the corporation lacked power under its charter and that the New Jersey statutes could not constitutionally apply to a corporation formed before their enactment.

Issue

Whether a New Jersey business corporation incorporated before the enactment of corporate-charity statutes could lawfully contribute corporate funds to Princeton University over stockholder objection. More specifically, the court asked whether the donation was authorized by the corporation's implied and incidental powers and by New Jersey statutes validly applicable to pre-existing corporations.

Rule

Under modern conditions, a business corporation may, within reasonable limits, make charitable contributions in support of academic or similar institutions when the contribution aids the public welfare and advances corporate interests; such power exists as an implied and incidental common-law power and is also confirmed by New Jersey statutes. Legislation adopted in the public interest under the state's reserved power may constitutionally apply to pre-existing corporations even though it affects stockholder rights.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lakeside Forge Works, a New Jersey manufacturer incorporated in 1910 and based in Newark, votes to donate $20,000 to Garden State Technical Institute in Trenton. The board minutes state that the school trains machinists and engineers, improves the local business climate, and promotes goodwill in communities where the company recruits employees. A minority stockholder objects that the certificate of incorporation contains no clause authorizing gifts.

Is the donation most likely within the corporation's power?

Explanation. The majority held that under modern conditions a business corporation has implied and incidental common-law power to make reasonable charitable contributions when made in the reasonable belief that they will aid the public welfare and advance corporate interests. The absence of an express charter provision is not fatal. The court rejected a narrow view requiring only direct, immediate profit or unanimous stockholder approval for every gift.