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A. P. Smith Manufacturing Co. v. Barlow

Decided: May 19, 1953.


Stein, J.s.c.


[26 NJSuper Page 108] This controversy presents questions of transcendent importance, the solution of which is not without considerable difficulty. The court is pleased to acknowledge that its task was appreciably lightened by the distinguished contribution made by all opposing counsel, whose excellent arguments, written and oral, revealed exhaustive [26 NJSuper Page 109] research and exceptional skill. The court itself is sensible of the fact that although the matter in dispute cannot be regarded as res nova , yet in this State there has been no judicial pronouncement on the validity of the state legislation here involved, enactments upon which the plaintiff relies in its quest for a favorable declaratory judgment and which legislation the defendants condemn as unconstitutional insofar as that legislation is sought to be applied to the plaintiff company. While the contest here relates to a very modest donation, $1500, made by the directors of the plaintiff company, a large and prosperous corporation, to Princeton University for the latter's general educational purposes, the questions thereby provoked and here presented are of great public interest and very materially touch the public welfare. Stripped to its simplest form, the question calling for decision is whether a New Jersey corporation, organized in 1896 to engage in industry for purposes of profit, may lawfully in 1951 donate from its funds for the general maintenance of an educational institution like Princeton University, private in nature, in the sense that it is privately supported, it being an institution where learning is advanced by the teaching of learned languages, the liberal arts and sciences, architecture, engineering, and political science. The plaintiff company, speaking through its directors, answers this question affirmatively and seeks justification in two acts of our Legislature, one being R.S. 14:3-13, L. 1930, c. 105, p. 353, as amended by L. 1931, c. 290, p. 724, and L. 1949, c. 171, p. 560, and the other being N.J.S.A. 14:3-13.1 through 13.3, L. 1950, c. 220, p. 553, adopted by the unanimous vote of both Houses. Since the 1950 act did not repeal the 1930 act and its amendments, and the two are not repugnant to one another, their provisions should be considered together. The earlier act permits corporations organized in this State to cooperate with other corporations and with natural persons in the creation and maintenance of community funds "or of charitable, philanthropic or benevolent instrumentalities conducive to public welfare," and their directors and trustees are permitted to expend for such

purposes such sums as they deem expedient and "as in their judgment will contribute to the protection of the corporate interests." The act imposes the limitation that if such expenditures in any calendar year amount in the aggregate to one percent of the capital and surplus of the company as of the end of the preceding year, then before any further like expenditure is made during the current year, ten days' notice must be given to the stockholders of the intention to make the further expenditure, specifying the amount thereof, with the further limitation that if stockholders holding 25% or more of the stock of the company object, such further expenditure shall not be made unless and until authorized at a stockholders' meeting. It will be observed that that act does not contain within its express language any reference to institutions or organizations engaged in educational or scientific activities or any civic activities conducive to the betterment of social and economic conditions. Such omitted specification does appear in the 1950 act. In that later enactment the Legislature declared it to be

"the public policy of this State that encouragement shall be given to the creation and maintenance of institutions or organizations engaged in * * * educational, scientific or benevolent activities or patriotic or civic activities conducive to the betterment of social and economic conditions; that such a policy will be in the public interest in that the public welfare will be thereby promoted."

The act further declares it to be a part of the said public policy that corporations organized under the laws of this State should be specifically empowered to contribute such moneys as in the judgment of the governing boards

"will conduce to the betterment of social and economic conditions, thereby permitting such corporations, as creatures of this State, to discharge their obligations to society while, at the same time, reaping the benefits which essentially accrue to them through public recognition of their existence within the economic and social, as well as within the legal, structure of society."

The act then grants to every domestic corporation in New Jersey the permissive power of making such contributions

as are mentioned in the aforesaid declaration of public policy. Limitations are, however, imposed upon this granted power of contribution. No such contribution may be made if at the time of the making thereof, or immediately thereafter, the recipient institution owns more than 10% of the voting stock of the donor corporation or of one of its subsidiaries. A further proviso is that a corporation having capital stock may not in any fiscal year contribute more than one percent of its capital and surplus as of the end of its preceding fiscal year, unless the excess contribution is authorized by the stockholders at a meeting. The act expressly preserves all existing rights and powers of companies with reference to appropriations, expenditures or contributions of like nature. Thus the ten-day notice requirement and the 25% stock objection provision contained in the 1930 act are preserved and continue to govern contributions made under the 1950 act.

Now as to the particular facts upon which the court is asked to consider the legislation aforementioned. The facts are not in dispute. The only evidence before the court is that adduced by the plaintiff. The defendants offered no proof. Thus the process of arriving at a decision is here considerably eased. Many of the facts testified to in this case by leaders of American Industry and by front-line educators are matters of such common, almost universal, familiarity that the court might well have taken judicial notice of them. It needs no proof that the universities and colleges of the land are eleemosynary institutions. Colleges were so characterized by Lord Mansfield in St. John's College, Cambridge v. Todington , 1 Burr. 200, and by Chief Justice Marshall in the ever-famous Dartmouth College case (Trustees of Dartmouth College v. Woodward), 4 Wheat. 518, 4 L. Ed. 629 (1819). At Princeton, as at most American universities and colleges, the tuition paid for instruction meets only fractionally the per capita cost of the education furnished. Not only that, but a large segment of the student body is assisted by scholarships and by direct financial aid from the school's treasury. So widespread has been for [26 NJSuper Page 112] many years this policy of aid to the needy student that it cannot in truth be said that any deserving youth of ambition and promise cannot obtain at some American university or college that aid, in whole or in part, necessary to put him through an under-graduate career and even a post-graduate course. Unlike the system of higher education in other countries, the tremendous growth and expansion over the years of the American universities and colleges have created and furnished to the youth of the land the broadest of opportunity for instruction and development in the area of advanced learning in arts and pure and applied science and in the field of economics and government. It is from the millions of young men and women who are the products of higher American education that industry has picked, and will have need to pick, its scientists and its business executives. It is the youth of today which also furnishes tomorrow's leaders in economics and in government, thereby erecting a strong breastwork against any onslaught from hostile forces which would change our way of life either in respect of private enterprise or democratic self-government. The proofs before me are abundant that Princeton emphasizes by precept and indoctrination the principles which are very vital to the preservation of our own democratic system of business and government, particularly vital at this time when alien ideologies seek to impose themselves upon our habits and our dreams for the future. I cannot conceive of any greater benefit to corporations in this country than to build, and continue to build, respect for and adherence to a system of free enterprise and democratic government, the serious impairment of either of which may well spell the destruction of all corporate enterprise. Nothing that aids or promotes the growth and service of the American university or college in respect of the matters here discussed can possibly be anything short of direct benefit to every corporation in the land. The college-trained men and women are a ready reservoir from which industry may draw to satisfy its need for scientific or executive talent. It is no answer to say that a company is not so benefited unless such need is

immediate. A long-range view must be taken of the matter. A small company today might be under no imperative requirement to engage the services of a research chemist or other scientist, but its growth in a few years may be such that it must have available an ample pool from which it may obtain the needed service. It must also be remembered that industry cannot function efficiently or enjoy development and expansion unless it have at all times the advantage of enlightened leadership and direction. The value of that kind of service depends in great measure upon the training, ideologies and character of the personnel available. All of these considerations must lead the reflecting mind to the conclusion that nothing conducive to public welfare, other than perhaps public safety, is more important than the preservation of the privately supported institutions of learning which embrace in their enrollment about half the college-attending youth of the country. Even public safety depends heavily upon the educated mind; witness what scientific research at Princeton and elsewhere was able to accomplish in discovering and making of practical utilization what had since the beginning of time been the mystery of the atom. Princeton is preeminent in its encouragement of the searching mind both in science and in public affairs. Its preservation is indeed of first importance to the welfare of the State.

The court was furnished with proofs that Princeton, like most other privately supported institutions of higher education, is presently facing a serious threat, if not to its very existence then certainly to the extent of its public usefulness. High taxation against individual incomes and inflationary living costs have dried up the sources which heretofore nourished and sustained the school's activities. The school's budgetary deficits are mounting and are assuming threatening proportions. To turn to the State for help carries with it a certain decided disadvantage. The award of state funds is a matter of political administration. Such grants certainly present the hazard of political interference or control. The experience of the University of Louisiana, a state university, can hardly be forgotten. That school for a time

became a political football, a condition hardly to be courted. I am strongly persuaded by the evidence that the only hope for the survival of the privately supported American college and university lies in the willingness of corporate wealth to furnish in moderation some support to institutions which are so essential to public welfare and therefore, of necessity, to corporate welfare. What promotes the general good inescapably advances the corporate weal. I hold that corporate contributions to Princeton and institutions rendering the like public service are, if held within reasonable limitations, a matter of direct benefit to the giving corporations, and this without regard to the extent or sweep of the donors' business. The benefits derived from such contributions are nation-wide and promote the welfare of everyone anywhere in the land.

On July 21, 1951, plaintiff's board of directors adopted the following resolution:

"Whereas it appears that there is a growing recognition that corporations which in their own capacities enjoy many of the benefits of citizenship are under an obligation, greater in times of prosperity, to assume their part of the burdens of citizenship, one such burden being the support of voluntary charity, including the privately supported universities and colleges; and

Whereas it appears that in order to maintain, over a period of time, the conditions under which corporations in general and this corporation in particular can exist and do business for profit, it is necessary that understanding of the benefits to the nation flowing from private enterprise and ...

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