Securities Law Commons^™

Corporations - Capital, Capital Stock And Stock, Frederick K. Brown

Michigan Law Review

The recent case of Haggard v. Lexington Utilities Co. is typical of the nominalistic confusion occasioned by the use of the terms "capital" and "capital stock." Whatever progress the courts have made toward making them words of precise signification has not been reflected in the drafting of statutes, where they are employed to represent a bewildering number of connotations. The courts have recognized this and have not sought to make them words of art with a single, definitive meaning but through the mechanics of statutory interpretation have sought to divine the legislative intent.

Corporations - Significance Of Appreciation And Changing Price Levels In Corporate Dividend Policies, Kenneth K. Luce

Michigan Law Review

The appreciation of assets and the legal and accounting problems involved are largely a product of constant fluctuation in the value of money, and to a lesser degree a prodμct of actual rise in the relative value of isolated pieces of property. In the face of political events such as the devaluation of the dollar, and economic phenomena such as the rising price level which the country has experienced since 1933, such problems are of immediate concern to the accountant and lawyer. We must recognize at the outset that appreciation or depreciation in the price level sense are unrelated to …

Corporations - Statutes Declaring Watered Stock Void - Effect Upon The Stockholder's Liability To Creditors

Michigan Law Review

Prior to the present era of "blue sky" laws providing for the careful scrutiny by the state of the issuance of stock, the evil of watered stock was sought to be curbed by constitutional and statutory provisions of a prohibitory and often penal nature. These statutes and constitutional provisions very generally take one of two forms.

The Colorado and the Arizona provisions are typical. In practical effect the two types of provisions are indistinguishable. The phrase "bona fide subscribers" in the Arizona form is construed to mean one who actually turns something of value over to the corporation in lieu …

Election Of Remedies - As Between Conversion And Replevin - Measure Of Recovery

Michigan Law Review

Through fraud, defendant received from plaintiff certain shares of stock together with other securities to secure a loan of $300,000 to the plaintiff. Defendant wrongfully hypothecated this stock. Plaintiff, after learning of the conversion, sued for the specific stock in replevin. During the course of the action he changed his demand to one in damages for conversion. The court held that plaintiff may not change the theory of his cause of action from replevin to conversion. Satterwhite v. Harriman Nat. Bank & Trust Co., (D. C. N. Y. 1935) 13 F. Supp. 493.

State "Blue-Sky" Laws And The Federal Securities Acts, Russell A. Smith

Michigan Law Review

With the current revival of business has come increased activity in the securities markets. Corporations are taking advantage of low money rates to refund outstanding issues and, to some extent, to obtain new money for corporate purposes. If the upturn in business proves to be substantial, rather than merely a temporary, government-induced short-time swing, the issuance of securities for the purpose of financing capital improvements will doubtless accelerate. Questions arising under the various laws, federal and state, for the regulation of the sale of securities will become increasingly important. Persons interested in the issuance and disposal of securities desire, of …

Constitutional Law-Securities Act Of 1933-Right Of Registrant To Withdraw Registration Statement Filed With Commission

Michigan Law Review

Petitioner filed a registration statement with the Securities Exchange Commission covering a proposed issue of securities. After examining the statement, the commission concluded that it contained false and misleading information concerning certain material facts, and thereupon instituted a proceeding to compel petitioner to appear and answer certain questions pertinent to the papers filed. At the hearing, petitioner sought to withdraw the registration statement but was denied permission to do so. Upon application of the Securities Exchange Commission to the district court, an order was granted compelling petitioner to appear and answer the questions. On appeal to the Supreme Court of …

Corporations-Disregard Of Separate Entities-Subsidiary Corporation An Instrumentality Of The Parent

Michigan Law Review

Defendant corporation had an excess of assets over liabilities, but its ratio of current assets to current liabilities had declined below the then normal banking credit requirement of two to one. In order to avoid acknowledgment of commercial insolvency due to inability to meet obligations maturing in the near future, defendant organized a subsidiary corporation to take over the sales end of the enterprise, transferring to the subsidiary sufficient current assets to give it the required banking ratio with regard to the liabilities assumed by the subsidiary consisting of bank obligations and some of the current bills payable of the …

Taxation-State Tax On Shares Of National Bank-Preferred Shares Held By Reconstruction Finance Corporation

Michigan Law Review

The Reconstruction Finance Corporation owned the entire issue of preferred stock of plaintiff bank The state statute putting a tax on stock of national banks was amended to allow the bank to be taxed directly and pass the tax on to its shareholders. A federal statute permitted states to tax, subject to certain limitations, all shares of national banking associations whose principal place of business was within the state. In a proceeding by the bank for the benefit of the Reconstruction Finance Corporation as well as itself to protest the collection of the tax, it was held that the shares …

Taxation-State Taxation Of Capital Stock Of Corporations Owning United States Securities

Michigan Law Review

A Pennsylvania statute imposed a tax on the shares of trust companies, the companies to be primarily liable therefor and the value of the shares to be ascertained by adding together so much of the amount of capital stock paid in, surplus, and undivided profits as was not invested in the stock of corporations liable to pay to the Commonwealth a capital stock tax or tax on shares, or relieved from the payment of capital stock tax or tax on shares, and dividing the sum by the number of outstanding shares. The corporations so relieved were those exclusively engaged in …

Corporations - Stock And Stockholders - Transfer Of Stock - Right To Vote

Michigan Law Review

Upon the decease of the record owner of shares of the common stock of Canal Construction Company petitioner caused the stock to be transferred upon the books of the corporation to his name as administrator. Certificates were indorsed for transfer and delivered to the distributees of the estate. The recipients of certain of the certificates neglected "to present them for transfer on the stock books of the corporation. When a contest subsequently developed over the election of directors, the petitioner attempted to vote the shares standing in his name as administrator. The ballot was rejected and petitioner brought the proceeding …

Corporations-Validity Of Option To Convert Preferred Stock Into Mortgage Bonds

Michigan Law Review

A corporation issued preferred stock, with a fixed dividend rate, power to elect a director voting as a class, and an option in the holder to convert, at his election, into mortgage bonds which were issued at the same time. After a substantial indebtedness had been incurred by the corporation, the stockholders exercised their option to convert into bonds. The corporation then went into bankruptcy, and in reorganization proceedings, the bondholders claim a preference over general creditors. Held, that the former holders of the preferred stock were stockholders and not creditors of the corporation and that, in the absence …

Corporations - Stock Market Manipulation - Rescission For Fraud

Michigan Law Review

To obtain a more favorable market ratio for the contemplated exchange, defendants maintained an artificial market in Harriman Bank stock, then offered to exchange that stock for Liberty Bank stock. In a suit brought by former Liberty Bank stockholders to obtain a rescission of the executed exchange upon the ground of fraud, held, that a good cause of action was stated. Wilcox v. Harriman Securities Corporation et al., (D. C. N. Y. 1933) Io F. Supp. 532.

Corporations - Double Liability Of Ex-Director Registered As Stockholder For Qualifying Shares

Michigan Law Review

Defendant received ten shares of stock in a national bank under a trust arrangement for the purpose of qualifying him as a director. The shares were transferred on the bank's stock books to the defendant as absolute owner. At the end of his term as director defendant terminated the trust arrangement but did not have a transfer made upon the stock books. Plaintiff, receiver upon failure of the bank, sued for an assessment under U. S. C. tit. 12, sec. 64. Held, since it is conclusively presumed that creditors become such in reliance on the statutory liability of those …

Corporations -Liability Of Broker On Misleading Circulars

Michigan Law Review

The possibilities of civil and criminal liability under the recent Securities Act of 1933 and the Securities Exchange Act of 1934 have caused considerable fear to those business groups which take part in the business of issuing and transferring corporate securities. The federal acts do subject the vendor of securities who induces sales by means of false or misleading prospectuses and circulars to a possibility of civil liability which was not present under the common law. In a recent Michigan case, the court reached substantially the objectives sought by these acts by applying the existing rules of common law in …

Corporations - Right Of Preferred Stockholders To Participate In Dividends Beyond Specified Amount

Michigan Law Review

The holders of a minority of the preferred stock of a foundry company petitioned for receivership and repayment of part of the dividends which had been paid to common stockholders, contending that after payment of the stipulated 6 per cent dividend on the preferred stock and a like percentage on the common stock, preferred and common stockholders should participate alike in all further dividends declared. There was no provision in the articles or by-laws of the corporation concerning such participation in dividends. Held, that in the absence of express provision, preferred stockholders are entitled to receive only their guaranteed …

Constitutional Law-Service Of Process-Jurisdiction Over Non-Resident Acquired By Service Upon Resident Agent, Maurice S. Culp

Michigan Law Review

Henry L. Doherty, a non-resident of the State of Iowa, did business within the state under the name of Henry L. Doherty & Co., with a district manager in charge of the office at Des Moines. Under the manager were clerks and salesmen engaged in the business of selling securities. One of these salesmen made an illegal sale to Goodman, and for damages resulting from the transaction Goodman brought suit in 1931, serving in the regular manner in accordance with the provisions of section 11079 of the Iowa Code the district agent at the Des Moines office. Doherty appeared specially …

Corporations - Depreciation And Net Profits For Dividend Purposes

Michigan Law Review

This discussion will deal only with cash dividends on par value stock. It proceeds on the assumption that dividends in a particular jurisdiction may be paid only from "net profits," but it is not the writer's purpose to interpret "net profits" except so far as that term is affected by depreciation. The discussion will consist of a short examination of the economic nature of depreciation; a consideration of accounting techniques for handling depreciation in the accounts, with an evaluation of these techniques from the point of view of analytical jurisprudence; and a discussion of the case law.

Corporations-Trust Indenture-Notice To Security Holders Of Contents Of Indenture

Michigan Law Review

Ever since corporate bonds made their appearance more than a century ago, there has been a steady increase in difficult problems relating thereto. Not the least interesting of these problems pertains to the matter of notice to holders of the bonds and other securities of the contents of the indenture under which they are generally issued. The question becomes acute when one of these bondholders starts suit in law or in equity, and is met by the proposition that his right to so sue is limited by the trust indenture. There are two aspects to the matter, and it is …

Corporations - Right Of Preferred Stock To Stock Dividend After Payment Of Preferential Dividend

Michigan Law Review

Plaintiff held 500 shares of the common stock of an Illinois corporation, organized by plaintiff and defendant with a capital stock of $160,000, divided into 2000 shares of common and 30,000 shares of preferred stock, each with a par value of $5.00 per share. The statutes of Illinois provided that the capital stock might be divided into classes but that this classification and the rights and duties thereunder must be stated in the articles of incorporation and on the stock certificates. The articles and certificates gave the preferred shares a preference on dissolution, and to dividends to the extent of …

Banks And Banking - Bank Stock Holding Company As Fraud On Double Liability Statute

Michigan Law Review

The question as to when, to prevent evasion of a statutory liability, a court will look behind a corporate entity in order to hold individual stockholders liable has been raised in two recent cases. The first, a federal case, involved the Detroit Bankers Company, a Michigan corporation formed for the purpose of holding and investing in bank stocks. Each corporate stock certificate of the holding company contained an "agreement" that the holder of the stock would be liable for his pro rata share of any assessment for which the corporation might become liable as a result of the failure of …

The Securities Exchange Act Of 1934, John E. Tracy, Alfred Brunson Macchesney

Michigan Law Review

The Congress has enacted and the President has just signed an act for the regulation of stock exchanges, to be known as the Securities Exchange Act of 1934. In order that we may understand the nature of the Act and the reasons for its enactment, it will be well first to consider briefly the organization and functions of stock exchanges, the evils that are claimed to have arisen from their existence, and some of the previous attempts which have been made to prevent the occurrence of such evils.

The Varying Meaning And Legal Effect Of The Word "Void", Abraham J. Levin

Michigan Law Review

To interpret properly what has been said or written necessitates our going beyond the dictionary into the sphere of action and reality. In its narrowest sense the, meaning of a word is the single effect which is given to it in the specific case. Insofar as nature repeats itself are we able to build up concepts and symbols which function in substantially the same way in different cases. But the mind must always be ready to discard an accepted definition of a word symbol for the particular legal effect which the circumstances demand. The same word or symbol with the …

Amendments To The Securities Act Of 1933, Laylin K. James

Michigan Law Review

Title II of the Securities Exchange Act of 1934 amends the Securities Act of 1933. These amendments make substantial concessions to the persistent and continuous clamor against the Securities Act. They will help to allay some of the fears of corporate managements and merchant bankers. The changes affect the definition section, the exemptions, the prospectus, the civil liabilities, and administration provisions.

Constitutional Law - Power To Enact Federal Securities Act Of 1933

Michigan Law Review

The scope and implications of the Securities Act of 1933 have been set out in a recent issue of this Review. Broadly, the Act regulates the issue and sale of securities by requiring registration thereof with the Federal Trade Commission, by specifying certain data to be included in prospectuses relating to such securities, and by imposing sanctions in the form of penal and civil liabilities. The Act purports to be an exercise of the Congressional power "to regulate . . . commerce among the several states" and "to establish post offices and post roads." Various constitutional questions are involved but …

The Securities Act Of 1933, Laylin K. James

Michigan Law Review

In 1907 a Pennsylvania superior court stated in one of its opinions that, "'there is no reason why a man should not be a fool.' As a corollary to that saying, it may be added that there is no reason why a court should protect a fool against the result of his folly. No new feature of rapacity in the buyer is apparent in this instance [ the purchase of property worth $ 5,000 prospectively for $ 500] to make him a worse offender against the law of fair dealing than an army of Shy locks who have preceded him. …

Corporations - Pre-Emptive Rights In Treasury Shares

Michigan Law Review

Plaintiff, a former shareholder, sued the directors of a corporation for damages arising out of their alleged refusal to allow him pre-emptive rights in stock that had been issued, re-purchased by the corporation from the shareholders, and re-issued by the defendant-directors to themselves. Upon appeal from an order dismissing the complaint for insufficiency, held, that the order be reversed on the law. Hammer v. Werner, (App. Div. 1933) 265 N. Y. S. 172.

Trusts - For Employees - Definiteness Of Cestui

Michigan Law Review

The testator by his last will and testament devised a saw mill owned by him to certain trustees, the will reading, "I suggest that my said trustees sell the mill" for a specified price about half the estimated value of the property to a corporation to be organized by "my employees." There was a further provision reading, "I suggest that all the employees who have been in my employment for five years or longer should hold stock in such corporation, should they so desire in such proportions as my trustees shall presence." After the corporation had been organized, the incorporators …

The New Federal Securities Act, John E. Tracy

Michigan Law Review

A proper understanding of the purposes of this new Act and the reasons for its enactment can probably best be obtained by a short discussion of the manner in which the sale of securities has been regulated prior to this time.

Receivers - Situs Of Pledged Stock For Jurisdictional Purposes

Michigan Law Review

The assets of Insull Utility Investments, Inc., an Illinois corporation, consisted of stock in other Illinois corporations. This stock was pledged to New York banks by the president of Insull Utility in his representative capacity. Upon receivership of Insull Utility in the federal court in Illinois it was found that the equity of redemption in this stock comprised virtually the corporation's entire assets. The stock having depreciated below the amount of the loan secured, the pledgees took action to foreclose their collateral. Since otherwise the unsecured creditors would take nothing, the receiver sought to enjoin the sale until a better …

Control Of Securities Selling, Watson Washburn

Michigan Law Review

President Roosevelt in his inaugural address stated as one of the most important immediate necessities of the country "a strict supervision of all banking and credits and investments." This statement is in line with his campaign criticism of the failure of the Republican national administration to check the inordinate inflation of security prices in 1929. There is no doubt that the President's program in this respect received a sympathetic hearing throughout the country. Many state legislatures are now considering changes in state laws regulating securities. It is interesting that some States with rigid blue sky laws seem to be quite …