[Ed. Note. For other cases, see Corporations, Cent. Dig. §§ 565-567; Dec. Dig. § 5. CORPORATIONS (§ 152*)-DIVIDENDS-Pow 152.*] ERS OF DIRECTORS. Ill. 103, 109, 110, 42 N. E. 178, 29 L. R. A. as they act in the exercise of an honest judg568, 49 Am. St. Rep. 142; Highbarger v. Mil. ment. ford, 71 Kan. 331, 340, 80 Pac. 633; Lewis on Eminent Domain (3d Ed.) § 198, p. 368. The destruction of and interference with access to this property could not help but injuriously affect its value. The diversion of travel must be, as the court has found it to be, a large element of damage, and it ought to be included in the assessment of damages. The exception to the general rule, applying to property placed in a cul-de-sac, is in our judgment necessary to relieve a somewhat harsh rule of law of a part of its rigor. The superior court is advised to render judgment setting aside the assessment of benefits made by the board of appraisal, and awarding the plaintiff damages above benefits in the sum of $1,200. In this opinion the other Judges concurred. MURRAY et al. v. BEATTIE MFG. CO. et al. Under the corporation act of 1896 (P. L P. 277), when the by-laws authorize the direc tors to determine the amount to be reserved for working capital, it is not illegal to pursue a policy to secure stability in the dividend rate by making the earnings of the prosperous years help out the deficiencies of other years. [Ed. Note.-For other cases, see Corporations, Cent. Dig. §§ 565-567; Dec. Dig. § 152.*] Appeal from Court of Chancery. Bill in equity by Alexander Murray and others against the Beattie Manufacturing Company and others to compel the distribution of accumulated profits and restoration of excessive salaries of officers. From the decree, both parties appeal. Reversed. See, also, 82 Atl. 1047. The complainants are stockholders of the Beattie Manufacturing Company and seek (Court of Errors and Appeals of New Jersey. by this bill to compel the directors to de March 4, 1912.) (Syllabus by the Court.) 1. CORPORATIONS (§ 155*) - DIVIDENDS-Oв JECTIONS. clare a dividend of all the net earnings and accumulated profits not needed for the legitimate purposes of the company's business. The bill was filed September 20, 1905. Evidence was taken in 1906, and on June 27, 1910, the Vice Chancellor held that the complainants were entitled to relief; but a further hearing was had to ascertain the condition of the company at the time, and in 1911 the Vice Chancellor held that a dividend of 20 per cent. should be declared Upon the organization in 1882 of a corporation under the general act of 1875 (Revision 1877, p. 186), the incorporators owning all the stock adopted a by-law, which provided that dividends should be declared and paid semiannually of such portion of profits as the directors should deem advisable. The directors acted thereon for many years. Held, that even if the by-law was in conflict with section 52 of the act requiring dividends of the whole accumulated profits after reserving as a work-payable, not on demand as the statute reing capital a sum not exceeding one-half the capital stock, it is not open for a stockholder now to raise the objection. [Ed. Note. For other cases, see Corporations, Cent. Dig. $$ 560-563, 568, 576-578, 593-603; Dec. Dig. § 155.*] 2. STATUTES (§ 271*)-REVISION-CONSTRUC TION. The corporation act of 1896 (P. L. p. 293) is a revision, and was intended to take the place of the act of 1875 (Revision 1877, p. 175); and a construction which would limit the applicability of section 47 to a corporation created after the act of 1896 took effect is too narrow. The section applies also to corporations organized under the act of 1875. [Ed. Note.-For other cases, see Statutes, Cent. Dig. § 364; Dec. Dig. § 271.*] 3. CONSTITUTIONAL LAW (§ 129*)-IMPAIRING OBLIGATION OF CONTRACTS-AMENDMENT OF CORPORATE ACT. The Legislature may alter the provisions of the corporation act, even as to the relations of the stockholders inter sese, where all the stockholders assent. [Ed. Note. For other cases, see Constitutional Law, Cent. Dig. §§ 296, 301, 362-413; Dec. Dig. § 129.*] 4. CORPORATIONS (§ 152*)-DIVIDENDS-POWERS OF DIRECTORS. quires, but in three equal installments, on the 1st of April, the 1st of July, and the 1st of October, 1911. From this decree both parties appealed; the defendants because they denied the right to compel the payment of any additional dividend, and the complainants upon the ground that the dividend of 20 per cent. is insufficient because it should be of the whole amount of the accumulated profits in excess of its capital stock paid in and not legally reserved as a working capital. The company was organized under the act of April 7, 1875, by a certificate dated June 24, 1882. One of the purposes of the corporation was to purchase of Robert Beattie, one of the corporators, his carpet and woolen factory, and the lands adjoining, together with the water power and privileges. Robert Beattie and his two sons were the sole incorporators and held all the capital stock amounting to $300,000. Among the objects of the corporation was the manufacture and sale of carpets and other merchandise, the erection of buildings, mills, and machinery, for the purpose of the manufacture, the improvement, renting, and selling of real estate, and the carrying on Under the corporation act of 1896 (P. L. p. 277), when the by-laws authorize the directors to determine the amount to be reserved for working capital, their power to determine of any other business necessary for the propthe amount of dividends is absolute as longer management and development of the prop meaning of the statute. It is unnecessary to decide this precise question, for the reason that the provisions of section 52 were made inapplicable by the conduct of the stockholders. Immediately upon the organization of the corporation, the three incorporators owning all the stock adopted a by-law, which provided that dividends should be declared and paid semiannually of such portion of profits as the directors shall deem advisable. Even if this by-law was in conflict with the fifty-second section of the act, it would not be open at this late day for a stockholder to raise the objection after the directors had act erty. Robert Beattie transferred his business and a large amount of valuable real estate to the company; the value of the assets transferred exceeding the nominal capital stock. A portion of the real estate has since been sold to the East Jersey Water Company for $515,000, and a mortgage for $315,000 has been taken from the Water Company to secure part of the purchase money. At the beginning Robert Beattie owned 1,600 shares of the stock, and each of his sons 700 shares. By Robert Beattie's will a portion of his stock was bequeathed to his sons, Robert and William, and his two sons-in-law, Dixon and Gedney, in trusted upon the by-law for so many years. The for his daughters during life, with the provision that upon the death of a daughter the stock held in trust for her should go to her issue, if any; if none, then to her heirs at law. One of the daughters is unmarried, and two of the others are childless, so that the two sons have a personal interest in the reversion. William Beattie, one of the sons, has died, and has been succeeded as a director of the company by the son of Robert. By the will of the deceased son, Robert is appointed executor with his widow, and stock of the company is bequeathed to them in trust, to be held for the testator's widow and daughter during their lives. By the will of Robert Beattie, Sr., 200 of his 1,600 shares were bequeathed to his two sons, so that after his death they held a majority of the stock. By virtue of the trusts, Robert Beattie also controls most of the balance of the stock. The company has been very successful. Its assets, which amounted to $381,519.53 in 1882, had increased to $1,394,445.69 in 1910, of which amount over $200,000 was in actual cash. It had been declaring dividends at the rate of 10 per cent. (one year, 12) for the six years prior to the filing of the bill. Its earnings during the six years had varied from $33,073.31 in 1905. the year the bill was filed, to $78,045.99 in 1903. Gilbert Collins, for appellants. John B. Humphreys and John W. Harding, for respondents. SWAYZE, J. (after stating the facts as above). [1] The first question that arises is a legal one. The corporation was organized under the General Corporation Act of 1875, and the complainants insist that it is a manufacturing corporation within the meaning of section 52 of that act, and for that reason required, after reserving as a working capital a sum to be specified by the directors not exceeding one-half the capital stock, to declare a dividend of the whole accumulated profits. The defendants claim that, because the corporation had objects other than the manufacture and sale of goods, and because a considerable amount of the assets it took over from Robert Beattie consisted of land, it was principle applicable is that established by the New York Court of Appeals in Kent v. Quicksilver Mining Co., 78 N. Y. 159, and approved by this court in Camden & Atl. R. R. Co. v. May's Landing, etc., R. R. Co., 48 N. J. Law, 530, 7 Atl. 523. The rule was applied by the Court of Chancery to a case like the present. Raynolds v. Diamond Mills Paper Co., 69 N. J. Eq. 299, 60 Atl. 941. The directors have been permitted to invest the earnings, over and above the dividends declared, in machinery, merchandise, and other assets necessary for the successful conduct of the business of a growing company, and the stockholders, having assented thereto, ought not to be allowed to embarrass the directors or the company by now asserting rights in conflict with their previous conduct. [2] The statute itself has been modified as the Legislature from time to time found necessary as the result of the experience of our numerous corporations. In 1891 (P. L. 1891, p. 176) a proviso was attached to section 52 enacting that, when the accumulated profits consisted in part of real property or merchandise necessarily employed in the business of the corporation, the same should not be regarded as profits for the purpose of the declaration or payment of a dividend unless a majority of the directors or stockholders should, by resolution, declare that all, or some part, of the accumulated profits invested in real estate or merchandise should be used as a part of the accumulated profits for the purpose of a dividend. In 1896 when the Corporation Act was revised, a still further change was introduced. By section 47 of the Act of 1896 (P. L. p. 293), the directors are required, after reserving as a working capital such sum as shall have been fixed by the stockholders, to declare a dividend of the whole accumulated profits exceeding the amount reserved. By a proviso the corporation was authorized in its certificate or by-laws to give the directors the power to fix the amount to be reserved as a working capital. It is argued that this section is inapplicable to the present case, because the Beattie Manufacturing Company is not incorporated under the Act of 1896. The Act of 1896, however, is a revision, and was intended to take the place of the Act of 1875, which is repealed except so far as ex that every corporation shall be governed by the provisions and subject to the restrictions and liabilities of the act so far as the same are appropriate to, and not inconsistent with, the charter or act under which the corporation was formed. We think a construction which would limit the applicability of section 47 to a corporation created after the Revised Act of 1896 took effect is too narrow, and that the section applies also to corporations organized under the Act of 1875, for which the Act of 1896 was a substitute. After the passage of the Act of 1896, the stockholders of the defendant company, in 1900, unanimously adopted a by-law authorizing the directors to determine from time to time the amount to be reserved by the corporation as working capital. With this power in the directors, it is a mere matter of form whether they determine the amount of working capital and declare the balance as a dividend, or whether they declare a dividend, leaving the balance of the earnings undistributed, and in fact working capital. [3] It is urged that section 52 of the Act of 1875 regulated the rights of the stockholders inter sese, and that it was beyond the power of the Legislature to impair the obligation of this contract without the unanimous assent of the stockholders. In fact, this unanimous assent was had, and the effect was, in substance, to adopt the provisions of the Act of 1896. There can be no objection to the Legislature, by virtue of its reserved power, altering the act, provided all the stockholders assent. This court has expressly approved a change which materially changed the voting power of stockholders. In re Newark Library Association, 64 N. J. Law, 217, 43 Atl. 435. This is as far as the facts of the present case require us to go. We must not be understood, however, as deciding that the Legislature was without power to make the change that was made by the Act of 1896 even if the stockholders did not assent. The provision limiting the amount to be reserved as working capital had a twofold aspect. It had the effect of securing dividends to the stockholders where the corporation was successful, and of limiting the power of the corporation to increase its assets largely beyond the capital authorized by its original certificate. This was a matter of state concern, for the state might well desire to avoid the accumulation of capital in the hands of a single corporation even though the increase came wholly out of its own earnings; and it is also a matter of state concern that a corporation should be permitted to accumulate a sufficient fund to secure its credit and make permanent its successful operation. The unanimous assent of the stockholders to the by-laws of 1900 was an assent only of the persons owning the legal title to the stock. This is all that is necessary, for, under the statute, they alone have the right to to represent the stock held in trust, and to vote thereon as a stockholder. Section 39 of the Act of 1875, Revision, p. 184, which now appears as section 37 of the Act of 1896, 2 Comp. St. 1910, p. 1622. The evidence, however, goes further. The complainants received dividends for years without objection, and must be held themselves to have waived any right to object so long as the directors acted honestly and fairly. The action of the stockholders in assenting to this by-law was, of course, not the act of the directors, but of the stockholders as such. Not only was there this tacit approval of the conduct of the directors, but, even when this bill was filed, the complainants did not rely on the act of 1875 and ask for a distribution of all accumulated profits in excess of the working capital permitted by that act. They very properly limited their prayer for relief to a distribution of profits not needed for the legitimate purposes of the company's business. The proofs make clear the reason for this limitation; the business has grown so that more capital is necessarily employed. The complainants evidently had this in mind, and for their own advantage, as well as that of the other stockholders, refrained from asking a distribution of all the profits to which they would have been entitled under the Act of 1875. [4] This brings us to the question of fact in the case: The propriety of the Court of Chancery ordering the declaration of the additional dividend. The rule of law that governs was clearly stated in this court by Mr. Justice Garrison in Laurel Springs Land Co. v. Fougeray, 50 N. J. Eq. 756, 26 Atl. 886. After stating the power of the court to order the directors to make a dividend of unused profits when they improperly refused to do so, he adds that the authority of the directors is absolute as long as they act in the exercise of an honest judgment. To put it in the language used by the Court of Chancery in another case, "The court should not intervene if there is any room for doubt." Raynolds v. Diamond Mills Paper Co., 69 N. J. Eq. 299, 307, 60 Atl. 941, 944. The question, therefore, is not whether a Vice Chancellor, or this court, with all the light that has been thrown upon the case by a prolonged litigation, during which the company has continued to thrive and has increased its assets, shall now say that the directors should have declared a larger dividend more than six years ago; but whether the directors, in view of their knowledge at the time, their experience of the business, their reasonable apprehension of its future hazards, were justified in withholding from the stockholders all the profits, except the 10 per cent. dividend declared. It would be very unfair, after the directors had for six years conducted a corporation successfully, for the court to say that they ought to have anticipated the successful operation of [5] The total net profits of the company from its organization until November 30, 1905, were $1,106,104.35, as stated in complainant's brief. The dividends declared amounted to $633,000; in some years the dividends exceeded the earnings of the year. We cannot say that the retention of the difference in this developing and successful business indicates any lack of honest management. It is proper to look with suspicion upon the conduct of directors who have a personal interest adverse to the declaration of dividends, but we are unable to draw the same conclusion as the Vice Chancellor from the facts. Nor can we say that it is illegal for the directors, under our present statute and the by-laws of this corporation, to pursue a policy to secure stability in the dividend rate by making the earnings of the prosperous years help out the deficiencies of other years. The natural inference to be drawn from our cases is that such a method is legal. Goodnow v. American Writing Paper Co., 73 N. J. Eq. 692, 69 Atl. 1014; Bassett v. U. S. Cast Iron Pipe & Foundry Co., 75 N. J. Eq. 539, 73 Atl. 514. very conduct of this case is sufficient to show | business. Naturally, the amount needed for the difficulty that an honest director must the legitimate purposes of the company's have felt in November, 1905. The evidence business must be determined by the directors, was taken in 1906, and for four years there- who are intrusted with the management of after the Vice Chancellor held the matter the company. Even upon this appeal counsel under consideration, and even then decided for the complainants urge that the directors to decree an additional dividend only tenta- might obtain the cash necessary to pay the tively, and found it necessary, before actual- large dividend demanded by reducing their ly making the decree, to take further tes- stock of merchandise, and by using the credtimony as to the then existing conditions it with the banks to be obtained by means of the company, so that the final decree was of the East Jersey Water Company mortnot made until February, 1911, five years and gage. The merchandise seems to have been three months after the bill was filed. The higher in 1910 than in previous years; but, Vice Chancellor, even then, did not venture even if we assume that it was higher than to decree that the whole dividend of $60,000, was necessary, it does not follow that the diawarded by him, should be payable on de- rectors were wrong five years before. The mand; but he allowed it to be paid in three amount is not so great that we can say installments, the last more than seven months it indicates an attempt to invest cash in ordistant. No doubt this was a proper pre- der to avoid a dividend. In fact, the divicaution; but the statute requires that divi- dends have been doubled pending the suit dends declared by the directors shall be pay- as the company prospered. able on demand, and, if proper caution prohibited such a payment in 1911 after years of business (some of which were extremely profitable), how can it be said that the directors failed to exercise an honest judgment in not declaring a larger dividend in 1905, which would necessarily be payable on demand? It may be that the directors were overcautious; but, in view of the fact that the earnings of the company for the year 1905 were only 11 per cent., we think there was no failure to exercise an honest judgment when they declared only a 10 per cent. dividend. It is true that they had gradually accumulated a surplus, but the profits of their business had varied from year to year. They had gone through a change of fashion which decreased the demand for carpets and forced them to go into the new business of manufacturing rugs. They must naturally have felt that a similar change of fashion might again involve them in unusual expense. They had the experience of the panic of 1893, and might well dread a recurrence of a similar business depression. Moreover, the very increase of their business made it necessary to have a larger circulating, or working, capital. It is clear that if they had pursued the policy which the complainants now insist they were legally bound to pursue, and had limited their working capital to 50 per cent. of their capital originally subscribed, they would have been quite unable to conduct their business successfully, and would probably have had to succumb to the competition of stronger concerns. The learned Vice Chancellor himself recognized in an earlier case the necessities presented by such a situation. Stevens v. U. S. Steel Corporation, 68 N. J. Eq. 373, 59 Atl. 905. Even the complainants did not venture in their bill to pray for a distribution of all the accumulated profits, but limited their prayer to a declaration of a dividend of all the net earnings and accumulated profits not needed 1. The defendant corporation, the Beattie for the legitimate purposes of the company's Manufacturing Company, was incorporated by The decree in this case should be reversed, with costs. This, necessarily, disposes of the question raised as to the allowance of a counsel fee, since the complainants are not entitled to costs, but are liable for costs awarded against them, they, of course, cannot be entitled to a counsel fee. NOTE. The following is the opinion of Stevenson, V. C., in the Court of Chancery: they filed their bill were entitled to a compulMy conclusion is that the complainants when sory dividend distributing a very substantial amount of accumulated profits. My further conclusion is that the salaries of the defendants Robert Beattie and William H. Beattie ($8,500 each) are not excessive, but, on the contrary, in view of all the facts and circumstances of the case, so far as they are disclosed by the evidence, are fair and reason able. chase from Robert Beattie & Sons the goods and stock in said factory and at their store No. 85 White street, New York City. (3) To carry on the manufacture and sale of carpets and other merchandise at said manufactory and store; to erect buildings, mills, and machinery for the purposes of such manufacture; to improve and rent and sell said real estate; and to carry on any other business necessary for the proper management and development of said property." certificate filed under the General Corporationery and fixtures in said factory. (2) To purAct of 1875, June 27, 1882. For many years prior to that date Robert Beattie had been operating a carpet manufactory at Little Falls on the Passaic river, where from time to time he acquired tracts of land, until apparently the entire water power of the river at that place was owned or controlled by him. Two sons, Robert Beattie, the defendant, and William Beattie, now deceased, were associated with their father in the manufacturing business upon an indefinite partnership arrangement. On April 19, 1879, Robert Beattie and his two sons made a written partnership agreement in which it is recited that the father and sons had "for several years been in partnership under the name of Robert Beattie & Sons, in the manufacturing business and without any definite agreement as to the respective interest of each in said business," and further recited that the written agreement was made to settle the interests of the parties and to provide for a continuance of the business. The significant fact is that the parties took as a basis of settlement a statement of assets and liabilities made January 1, 1879, showing a net surplus of just $140,000. The partnership assets included machinery, stock, and bills receivable, and the agreement sets forth that it was "conceded that the ownership of all the real estate is in Robert Beattie." When the partners proceeded in June, 1882, to create a corporation to take the manufacturing business of Robert Beattie & Sons, and also to take the very large interests of Robert Beattie in real estate and water privileges at Little Falls, the manufacturing business appears to have been turned over to the corporation at the same valuation fixed in the partnership agreement as of January 1, 1879, to wit, $140,000; the bill of sale by which the transfer was effected being signed by the three partners. It may be noted in passing that the bill of sale in terms transfers only goods and stock at Little Falls and at the store in New York; but I understand that it is conceded that in fact all the tangible assets of the firm were transferred to the corporation. At the same time Robert Beattie, the father, made an agreement with the corporation by which, in consideration of 1,600 shares of the stock of the company, he conveyed, or agreed to convey, his carpet and woolen manufactory at Little Falls and the tract of real estate whereon the same was erected, and certain lands adjoining the same, "together with the water privileges and the machinery and fixtures in said factory." The agreement provided for a more formal deed thereafter to be given. The capital stock of the corporation set forth in its certificate was $300,000, and assigned 1,600 shares to Robert Beattie and 700 shares to each of his sons. The entire authorized stock (3,000 shares) was thus fully paid for. It may be noted that the corporation was formed to purchase two very different kinds of property, and to carry on two very different kinds of business with the two kinds of property thus acquired. The company bought a carpet factory and stock of goods which had been made therein, and the certificate provided, as one of the permanent objects of the corporation, for the carrying on of the carpet manufacturing business and the erection of "buildings, mills and machinery for the purposes of such manufacture." But the corporation was receiving lands and water privileges far beyond what were necessary for use in connection with the carpet manufacturing business, as the proofs amply show, and the certificate therefore provided as another object of the corporation that the company was "to improve, rent and sell said real estate and to carry on any other business necessary for the proper development of said property." Robert Beattie, the father, died about a month after the corporation was formed before the "formal deed" provided for in the agreement of July 6, 1882, above mentioned, had been made. This deed, however, was executed by the two sons and residuary devisees, William and Robert Beattie, and their respective wives to the corporation on March 25, 1884, and although the instrument was duly acknowledged on April 5, 1884, it was not recorded until February 20, 1886. From this formal deed it appears that in fact Robert Beattie, the father, turned over to the corporation a large number of tracts of land, aggregating 400 or 500 acres at Little Falls with all the valuable water rights which were appurtenant thereto. The deed expressly conveys all "the right, title and interest of Robert Beattie, now deceased, to lands under water in the Passaic river at Little Falls, and all the water power, privileges, dams, aqueducts, canals, raceways, rights to flow land, rights to maintain dams, abutments, and bridges, and all rights appurtenant to his lands or mills at Little Falls." In pursuance of the corporate objects above specified, the corporation continuously from 1882 until the filing of this bill in 1906 has carried on the carpet manufacturing business at Little Falls and in New York City, and has also sold land and marketed the water privileges which Robert Beattie conveyed to the corporation upon its formation. Both branches of business seem to have been carried on with great success and have resulted in the accumulation of a very large amount of money and securities, the apparent aggregate value of which seems to make the capital stock of the corporation ($300,000) appear like rather a small figure. The corporation at all times since the death of Robert Beattie until the death of William Beattie, in 1889, was under the control of the two sons, Robert and William, who were the officers of the corporation and constituted a majority of its board of di It is proved beyond all question that no definite valuation of the assets of the partnership or of the real estate and water rights of Robert Beattie was made when the corporation was formed. Three hundred thousand dollars apparently was selected as a convenient amount of stock to issue; all parties recognizing that the assets conveyed to the corporation were worth a great deal more money. There is nothing, however, about the case to affect the necessary inference to be drawn that the lands and water power of Robert Beattie were more valuable than the assets of the part-rectors. After the death of William Beattie nership. The specification of the objects for which the company was formed set forth in the certificate of incorporation_is as follows: "(1) To purchase of Robert Beattie the carpet and woolen manufactory and tract of real estate whereon the same is erected and the lands adjoining the same at Little Falls, together with in 1889, the defendant William H. Beattie, a son of Robert Beattie, took the place of his uncle William. Since 1889 Robert and his son William H. have had absolute control of all the affairs of the company. Under the management of these gentlemen, the defendants Robert Beattie and his son William H. Beattie, water privileges have been sold to the East Jer |