Baldwin v. Berry Automatic Lubricator Corp.

• Decision Date: 20 February 1926
• Citation: 132 A. 308
• Parties: BALDWIN et al. v. BERRY AUTOMATIC LUBRICATOR CORPORATION et al.
• Court: New Jersey Court of Chancery

132 A. 308

BALDWIN et al.

v. BERRY AUTOMATIC LUBRICATOR CORPORATION et al.

Court of Chancery of New Jersey.

Feb. 20, 1926.

(Syllabus by the Court.)

Suit by Raymond J. Baldwin and others against the Berry Automatic Lubricator Corporation and another for an injunction, and for the appointment of a receiver. A receiver to be appointed.

Samuel M. Hollander and Israel B. Greene, both of Newark, for complainant.

Burnett, Sorg, Murray & Duncan and N. C. Murray, all of Newark, for defendants.

BACKES, V. C. The defendant is a Delaware corporation. The complainants, stockholders and creditors, filed this bill (amended) to enjoin it from exercising its corporate franchise in this state, and for a receiver.

The company was formed in May, 1925, by Christopher H. Berry, an inventor, and John C. Hoshor, a New York stock broker, using dummy shareholders, with an authorized capital stock of $1,000,000, divided into 1,000,000 shares at $1 a share. Berry had invented a grease cup, and had a patent pending, and for a license to manufacture the cup all the authorized capital stock of the company was issued to him; that is, the license to manufacture the cup was capitalized for $1,000,000. 750,000 of the shares were immediately handed over to Hoshor, and 50,000 shares were returned to the treasury of the company for sale to the public. The corporation then entered into a contract with Hoshor's stock brokerage concern, Hoshor, Montayne & Co., later changed to Hoshor, Presby & Co., to sell the company's 50,000 shares of treasury stock, the company to pay all expenses and 10 per cent. commission. The stock-floating campaign was then launched. The public was circularized with the usual alluring literature, guardedly phrased, but false in spirit and fact, in which the Berry Automatic Lubricator Company was represented as an active manufacturer and distributor of lubricators; that its customers were some of the largest manufacturers in the nation; and that there were reasonable prospects of a 20 per cent. dividend in 1926—all designed to intrigue their victims into the belief that the company was in prosperous and successful operation. Crafty salesmen were sent into the field, and with glib tongue and false heart, and by wicked and false pretenses, swindled them of their money and securities —securities paying a lower dividend. The promise of a 20 per cent. dividend was the bait dangled at the end of their line of misrepresentations.

After 2,383 shares had been disposed of at 51.50 a share, the promoters, evidently feeling that they were selling them too cheap, and that $5 and over could be as readily gotten, recapitalized the license at $5,000,000, increased the authorized capital stock to that amount, and the shares to $5 each, and thereafter 100 shares were sold at $4 a share, 24,467 at $5 per share, 131 at $7 per share, and 1,579 at $7.50 per Share, yielding a total of $139,015.50. Of this sum, $76,100.50 represents stock and securities taken in exchange and resold for $54,481.23, leaving a net yield of $117,396.23...