A.P. Smith Mfg. Co. v. Barlow

Brief Fact Summary. Defendant stockholders, Ruth Barlow et al., questioned the legality of a donation made by Plaintiff corporation, A.P. Smith Manufacturing Company.

Synopsis of Rule of Law. Corporate gift-giving is an allowable method of increasing goodwill, but the gift should be less than 1% of capital and surplus and directed to an institution owning no more than 10% of the company stock.

Facts. Plaintiff corporation, founded in 1896, had a history of donating minor sums of money to various charities and institutions. In 1956 Plaintiff voted to give $1,500 to Princeton University. Plaintiff instituted a declaratory judgment action after Defendant stockholders questioned the proposed gift. Although a state statute allows corporations to contribute to charities, Defendants assert that the corporation’s certificate of incorporation does not allow the gift, and the corporation was incorporated prior to the statute that authorizes the gift-giving.

Issue. The issue is whether Plaintiff can donate money to a charity without authorization from stockholders or through the certificate of incorporation.

Held. Plaintiff can give money to charities providing that the total does not exceed the statutory maximum of 1% of capital and surplus, and the institution receiving the money does not own more than 10% of the company stock. Corporate gift-giving increases the goodwill of the corporation, and public policy should be to encourage corporations to provide to charities in the same manner as individuals are encouraged to give.

Discussion. The court did not accept Defendants’ reasoning that the donation was not allowed because the corporation preceded the statute authorizing the gift-giving. The court explained that the potentially infinite lifespan of corporations would lead to corporations a varying ages to live under various sets of laws.