81 F. 17 | 2d Cir. | 1897
(after stating the facts). The contention of the complainants is that, notwithstanding the certificate of the auditors, no debenture interest could be paid without impairing the capital of the company, and that in fact there were no profits. They contend that they have demonstrated the impairment of the capital stock to an extent: more than sufficient to prevent the payment of debenture interest: First, on the theory that the capital stock was originally issued for far less than its par value, and has never been fully, if at all, paid; second, on the theory that, even if it were originally fully paid, there has been an enormous depreciation in the value of the capital stock since that time; third, by losses and depreciations in assets other than the good will for which the capital stock was originally issued.
The first of these propositions suggests the questions whether st:ock is issued for “property actually received,” within the meaning of the statute, when it is issued for good will only; and whether, assuming 1hai: the entire stock could, under the New York act of 1892, be issued solely for good will, the good will taken in this case was taken at its actual value. These questions are discussed at great length in the briefs. It is contended that, although “good will” is property in the sense that it is a subject of bargain and
The second proposition which has been discussed at great length in the briefs of counsel is the one advanced on behalf of complainants, viz. that, “even if the capital stock were originally fully paid, there has been an enormous depreciation in the value of the capital stock since that time.” We do not find it necessary to 'review the discussion of this question as to what constitutes depreciation of capital, within the meaning of the statute and articles of incorporation. The defendants insist that “in determining whether a company is entitled to pay a dividend, the property acquired for permanent use in carrying on business may be valued at the price actually paid for it, although it could not be sold again except at a loss.” . Complainants’ counsel controverts this proposition; but, even if complainants’ contention be sound, the result here would be the same. There is an insuperable practical difficulty in the way of deciding whether or not there has been depreciation in the capital of defendant company, or in so much of the assets as represent good will. The case discloses no evidence advising us what the good will of these various concerns bought by the defendant company was worth on the day of purchase and what it was worth on February 29, 1896.,; With absolutely no information as to either minuend or subtrahend, we cannot make any determination as to- what the difference may be between them. This court is advised of no rule or method of appraisal which can be applied to such facts as are in proof in order to determine the value of this asset at either time. The evidence is not entirely persuasive that the rule adopted when the properties were purchased is the true one; and the mere circumstance that complainants, who profited by that valuation, cannot now he heard to question its accuracy, does not make it so. No estimate or appraisal as of either date is testified to, no experts have made calculations, and rehearsed the results thereof. The fact that some of the workshops bought by the defendant company have been closed and dismantled, the business of selling goods to the customers of the concerns who formerly owned such shops being still carried on, does not dispose of the question. Even if the good will of such concerns has ceased to exist (which is by no means certain), it does not follow that the entire value of the good will of all the properties has depreciated. It may be that the disappearance of these concerns from the field has increased
Complainants further contend that on February 29, 1896, there were not profits sufficient to warrant the payment of interest on the debenture stock, such interest concededly being payable only out of profits. This interest, it will be remembered, amounted to $543,994, and the auditors certified that the profits on that day aggregated $1,410,522.39. It is insisted that certain items of assets were taken by the auditors at an excessive' valuation, that in some cases items not properly assets were included on the credit side of the account, and that sufficient sums were not deducted for depreciation, reserves, etc. These items are:
Birge good v.'ill..............................................$2,100,000 00
Birge bonus .............’................................... 300,000 00
Addition to Block account.................................... 100.000 00
Selling expenses treated as an asset........................... 160.030 17
Reserve for depreciation..................................... 300,000 00
Reserve for bad debts of business of 1892 to 1891.............. 50,000 00
Reserve for bad debts of business of 1891 to 1890............... 150.000 00
Eight per cent, for valuation of manufactured goods............ 60,000 00
$3,220,050 17
The first two items may be considered together. About the time when complainants sold their business to the defendant company, in 1892, some effort seems to have been made to buy up the establishment and business of the firm of M. H. Birge & Sons, of Buffalo, upon the same terms as all the others, but Birge & Sons refused to entertain the offer. Subsequently, in December, 1894, a fire destroyed part of the Birge plant at Buffalo. Thereupon defendant company, apparently with a view of ingratiating itself with the firm, offered to lease it one of the defendant’s factories, which was temporarily shut down. Negotiations for the purchase of the entire Birge business and outfit were subsequently begun, and finally Birge made an offer to sell at a certain price, leaving Ms offer open for but a brief period. It was accepted, although not without disapproval by a minority of the board of directors, including complainant Wash-burn. The price agreed upon was $300,000 in cash on the day of signing the cohtract, $2,100,000 in common stock, §50,000 in debenture stock, and an additional sum in cash, to be paid when appraisement of the tangible assets was completed, and which turned out to be $129,286.36. The auditors treated this transaction as a purchase of assets for permanent investment, and $2,400,000 of it as paid for good will and patents. This is a strictly accurate statement of the transaction, and the only possible objection to the auditors’ figuring is the suggestion that the good will and patents were not worth $2,400,000, either when bought, in February, 1895, or when counted as an asset, in February, 1896. Here, again, the question is presented, what is the actual value of this property? But the record gives us no information upon which to answer. It is urged on behalf of
It will not he necessary to review the other items objected to in the auditors’ balance sheet. As to some of them — e. g. the “addition to block account” and the “selling expenses” — the testimony seems to sustain the action of the auditors. But further discussion is unnecessary. Eliminating the two Birge items, it will be found that the others objected to aggregate $826,050.07, but the balance sheet gives a surplus over and above the debenture interest of $866,-528.39; so that, whatever conclusion should be reached as to these other items, there would be sufficient profit to pay the interest, and complainants are not entitled to enjoin such payment.