Evening journal., 1921-07-21
INJUNCTION
IS REFUSED
Chancellor Refuses to Issue
Writ Against u. S.
Mortgage Co.
COUNSEL DENIES
INSOLVENCY CHARGE

Petition Of william r. Peters. OF
Chicago, for an injunction against
the United States Mortgage Com |
pany, OF Minneapolis. was refused by
Chancellor Josiah O. Wolcott. yes
terday afternoon. The chancellor's
decision was given without an ac-
companying opinion, by agreement
of counsel. in order 10 permit the
holding of a stockholders meeting
scheduled for today.
Under the decision, the company
Is permitted to make immediate pay
ment OF a dividend of 8 u per cent
on both preferred and common
stock, which was declared about a
month ago, in spite OF alleged inn
pairment of its capital stock. and it
is also permitted to submit to stock
holders at the meeting today a pro-
posed amendment TO its certificate
of Incorporation.
While the Chancellor's decision
upholds contentious that the defini-
ton of capital stock OF Delaware cor
porations is the amount received
from the sale Of such stock and not
the nominal par value of il, the
Chancellor's conclusions OF law upon
which he bases his finding win not
be known until he hands down a
formal opinion.
The restraining order against
these actions was sought by William
r. Peters Of Chicago. a large stock
holder in the company. He was rep
resented at yesterdays hearing by
Judge Daniel o. Hastings. who
presented argument in Peters
behalf. and J. A. Mansfield, OF
Minneapolis. The respondents were
represented by Herbert H. Ward.
who argued the case, and Robert II.
Richards, both OF Wilmington;
George II. Peaks and T. o. Bunch,
both OF Chicago.
Although the United States Mort
gage Company. which was incor-
porated in Delaware In 1915. was
capitalized at $4,000, 900 Il received
less than 100000 for its capital
stock and its present net value is
only sl,S94e742S.
Basing his allegations on these
figures, furnished by the company,
Judge Hastings declared there had
been an impairment OF the com
pany's capital to the extent Of at
least $1,000, 600 and attacked the le-
gality OF paying a dividend before
making up this apparent loss.
Mr.. Ward admitted that only
s1.714.506 was received from the
sale OF capital stock. which consists
Of so, 900 shares Of a par value OF
400 each. and in explaining this de-
crease held that under the laws OF
Delaware, as interpreted In several
Supreme Court decisions, 1t is not
necessary to make up a difference
between the par value of capital
stock and the actual receipts of cap
ltal stock sales before dividends car
be paid.
How the difference was made VI
does not appear in this case" he
said. but we intend 20 show how
easily II can be accounted for The
expense Of selling the preferred
stock and the issuance of common
stock as a bonus would account for
Il. That the sale OF this stock took
something in the way Of expense is
obvious. and we hold It was not an
unreasonable sum. We are not con-
cerned with the expense OF selling
the stock except that IT shows the
amount OF capital received, which il
the capital that cannot be dimin-
ished-"
He then declared that the IRE.
ducable capital OF a Delaware cor
poration is the amount actually re
ceived from the sale OF It's capita
stock and not the nominal par value
OF the stock. and cited several case!
showing this to be the law of th'
state.
4 thought myself at one tim,
that capital stock could not be solo
at less than its par value" Mr.
Ward said then told how. in on
case which he cited, it was decideS
that capital stock could even b
given away. This rank absurdlty
is law In this State" he said. re
ferring to the previous statemen
OF Judge Hastings that TO say tn
legal capital OF a company is les
than the par value OF its capita
stock is a rank absurdity."
Judge Hastings held that the eS
pense OF selling capital stock shoul
be considered as the same class 9
expense as building a manufacturin
plant and should be made up befor
the payment of any dividends.
He then declared that the com
pany is insolvent saying "a corpora
ton is always insolvent when it ha
not enough money to pay its stock
holders"
You don't know what insolvenc
is" said Mr.. Richards
There are two kinds of insol1
ency." replied Judge Hastings. "On
relating to receivership and anothe
when a corporation hasn't enoug