Every evening, Wilmington daily commercial., 1921-07-22
CHANCELLOR RULES
ON LAW
Interesting Financial Dispute
Settled i'm Case of the U. S.
Mortgage Company.

Chancellor Josiah o. wolcott settled
an interesting financial dispute. In
xolvins important points of Delaware S
corporation law. "Wednesday afternoon.
when he refused TO grant a preiimi-
nary injunction restraining the United
States Mortgage Co. incorporated in
this State and having offices at Min
neapolis. Mimi, from submitting TO
the stockholders the proposal OF
an amendment to its certificate of in
corporation and from paying a divi-
dend declared on or about June 90.
While the chancellor's decision
upheld contentious that the detini-
ton OF capital stock of Delaware
corporations is the amount receiv-
ed from the sale of such stock and
not the nominal par value of it.,
the conclusions of law upon which
he based his finding will not be known
until he hands down an opinion. His
order yesterday was made without an
accompanying opinion by agreement
Of counsel 81 as to allow the hold
ing Of a stockholders meeting sched-
ulcd for yesterday.
According TO the decision the di-
reCtors Of the company are allowed
TO make immediate payment of a divi-
dcnd IL 5i2 per cent ON both pre-
ferrcd and common stock. which was
declared a month ago, in spite of al
legged impairment of its capital. and
are also permitted To present 10 the
stockholders, at a meeting today. pro
posed amendments 10 the company ;
charter
An Injunction was requested by
William r. Peters Of Chicago and j..
\. Mansfield OF Minneapolis, who We're
represented at the hearing yesterday
by Judge Daniel .. Hastings. George
IL Peaks and T. .. Bunch OF Chicago.
Herbert IA. Ward and Robert II.
Richards We're attorneys for the re-
spondent
Although the coInany was CAPT
talized at $4,000 600, it received less
than 81 .OOO 900 for its capital stock.
whose present net worth is only ST.
ss4.s74. Declaring there had been an
impairment of capital stock 70 the
extent of at least s1,20O,00O Judge
Hastings attacked the legality of pay
ins a dividend before making up this
apparent loss.
Mr. Ward admitted that only ST.
7l4.596 was received from the sale 81
capital stock, which consists OF $4,000
shares OF a par value Of 500 each.
and in explaining this decrease held
that under the laws of Delaware. as
INTERPRETED in several supreme Court
decisions, il is not necessary to make
nm a difference between the par Nalue
OF capital stock and the actual re-
ceipts of capital stock sales before
dividends can be paid.
How the difference was made MP
does not appear In this case. ne sald,
but We intend 10 show how easily Il
can be accounted for. The expense 81
selling the preferred stock ana the
issuance Of common stock as a bonus
would account for IL. That the sale
~ this stock took something N the
WY Of expense is obvious ana We
hold Il was not an unreasonable sum,
We are not concerned with the eN-
penSe Of selling the stock except that
II shows the amount 81 capital re-
,etvesi which is the capital that con
not be diminished.
He declared that the irreduciole
CAPITAL ~ A Delaware corporation i
The amount actually received from me
80 81 its capital stock and not the
,,o,niral mar value ~ the stock and
,ifed several cases showing this tc oe
~. law 81 the state. He also men
TONED one case ID which i VAS ae-
cia,d that capital stock could be given
away
Judge Hastings argued that the
,Np.ns.. OF selling capital stock should
l.. considered as the same class 81
rxnenS, as building a manufacturers
r1art ana should be met 5eiore the
raxrnent OF any dividends. de de-
dared the company Is insolvcnt. SAY
inr 4 corporation IS always insoiNent
Nrhen II has not enough money 70 pay
its stockholders.
You don't know what insolvency
Is said Mr. Richards.
There are Two kInds Of lnsolN :
any replied Judge Hastings. One
relating 10 receivership and another
when a corporation hasn't enough e
meet the par value q its capita.
stock.
m. amendments 70 the certificate
al incorporation provide chiefly toE
nat nent Of dividends 10 common
stockholders. After per cent divi-
d.rd 4 paid annually 70 preferred
stock owners a dividend Of s. IS 70 *
paid on each share OF common stock
az u-hcih there are 10000 without
r0uina. or par value. IN the event OF
there being any remaining undivided
frohts after these payments. they are
e. be distributed ar the discretion O
th.. Compauy's directors.