86 N.J. Eq. 63 | New York Court of Chancery | 1916
1. It is impossible to escape the conclusion that the capital stock of this corporation was originally issued in payment for property purchased at a gross overvaluation.
The nearest approach to a justification of the valuation placed upon the property is to be found in the claim that the circumstances which existed at the time the valuation was determined upon may have justified a reasonable expectation that the cox*poration under proper management would develop an earning capacity proportionate to its capitalization. Euture prospects or prospects of future profits can never be properly ignored in any intelligent valuation of property; but it is well settled that under our statute such prospective future profits cannot be made the basis of valuation for purposes of capitalization in a new enterprise with neither present nor demonstrated earning capacity. The situation here presented bears no analogy to that presented in Railway Review v. Groff Drill Co., 84 N. J. Eq. 321, since affirmed on opinion below.
The property here in question was taken over by the corporation at a valuation of $300,000, and payment was authorized by stock to the amount of $250,000 (the entire authorized capital) and bonds for $50,000. Waldstein, the vendor and leading spirit in the newly organized corporation, had recently acquired the property at a valuation of $20,000. Of that amount $5,000 .had been paid by him in cash axxd $15,000 was to be paid in bonds of the new corporation to the amount of $15,000 and stock of the new corporation to the saixxe amount. Waldstein had also erected a tram on the property which had cost not more than $50,000. This estimate of $70,000 as the cost of the property to Waldstein 'is more than liberal, .and I am fully convinced that the property could not have been properly valued at that time at more than that amouxxt for purposes of capitalization. Any value in excess of that amount which may have appealed to the board must have been as anticipated future profits of an enterprise wholly untried and essentially experimental.
It is difficult, if not impossible, to accredit the members of the board who made the valuation with good faith in the action
It seems reasonably apparent that the real plan of the members of the board was to turn the property over to the corporation at an artificial valuation adequate in amount to constitute the stock full jjaid and certify out bonds to the amount of $50,000 and to have $75,000 of the full-paid stock so issued placed in trust for delivery as a bonus, dollar for dollar, in the sale of the remaining $75,000 of bonds. Evidence of the plan to give full-paid stock as a bonus with bonds is to be found in the testimony of Gaspary and in the consideration expressed in the deed to Bomeisler and in the circumstance of placing $75,000 of the stock in trust with Cassidy.
I am fully convinced that the property conveyed to the company could not have been properly regarded by the parties fixing the valuation as actually worth more than $70,000 and that the-valuation in excess of that amount must be deemed either as deliberate and intentional overvaluation or'as an unlawful capitalization of prospective future profits. Eor the purposes of this case I think it immaterial which.
2. I think it immaterial in this case whether at the time the'
3. The view taken here touching the liability of defendants Bomeisler and Cassidy renders it unnecessary to determine whether their transfer of stock to Beale was Iona fide.
4. I am satisfied that the stock issue of August, 1905, was not consummated. The stock certificates were issued and placed in escrow, but were never in fact acquired by the person for whom they were intended.
6. The amount of stock issued was $250,000. As the bonds for $50,000 were not issued a credit of $70,000 must be made as a payment on the stock, leaving a balance of $180,000 unpaid, or seventy-two per cent, of the par value of the stock. The debts were ascertained at the hearing. The probable expenses of the receivership must yet be ascertained. I will hear proofs and ascertain that amount on any motion day on notice. A decree* will then be advised for an assessment for sufficient to satisfy the debts and receivership expenses. Unless it can be then shown that some stockholders other than the two who have answered can be made to respond, the assessment must be made of a-per