Scribd Logo
Upload

Welcome to Scribd!

  • 332 views

    Merritt-Chapman & Scott Corp. v. New York Co

    Uploaded by

    Stradivarium
    This case involved stock purchase warrants issued by Merritt-Chapman & Scott Corp. that allowed bearers to purchase shares of common stock. The corporation later declared a 40% stock dividend payable to shareholders of record as of a certain date. The warrant holders argued they were entitled to the dividend without having to exercise the warrants by that date. The court ruled in favor of the warrant holders, finding the warrants gave them an unlimited privilege to purchase shares and the stock dividend did not change each shareholder's proportional interest in the corporation.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Merritt-Chapman & Scott Corp. v. New York Co

    Uploaded by

    Stradivarium
    332 views3 pages
    This case involved stock purchase warrants issued by Merritt-Chapman & Scott Corp. that allowed bearers to purchase shares of common stock. The corporation later declared a 40% stock dividend payable to shareholders of record as of a certain date. The warrant holders argued they were entitled to the dividend without having to exercise the warrants by that date. The court ruled in favor of the warrant holders, finding the warrants gave them an unlimited privilege to purchase shares and the stock dividend did not change each shareholder's proportional interest in the corporation.

    Original Description:

    Digest for Merritt.

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This case involved stock purchase warrants issued by Merritt-Chapman & Scott Corp. that allowed bearers to purchase shares of common stock. The corporation later declared a 40% stock dividend payable to shareholders of record as of a certain date. The warrant holders argued they were entitled to the dividend without having to exercise the warrants by that date. The court ruled in favor of the warrant holders, finding the warrants gave them an unlimited privilege to purchase shares and the stock dividend did not change each shareholder's proportional interest in the corporation.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    332 views3 pages

    Merritt-Chapman & Scott Corp. v. New York Co

    Uploaded by

    Stradivarium
    This case involved stock purchase warrants issued by Merritt-Chapman & Scott Corp. that allowed bearers to purchase shares of common stock. The corporation later declared a 40% stock dividend payable to shareholders of record as of a certain date. The warrant holders argued they were entitled to the dividend without having to exercise the warrants by that date. The court ruled in favor of the warrant holders, finding the warrants gave them an unlimited privilege to purchase shares and the stock dividend did not change each shareholder's proportional interest in the corporation.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    CORPORATION LAW | B2015

    CASE DIGESTS

    Merritt-Chapman & Scott Corp.


    v. New York Trust Co.
    1950
    Swan, Circuit Judge
    Raeses, Roberto Miguel O.

    SUMMARY: Merritt-Chapman & Scott Corp. issued stock purchase


    warrants, which allowed the bearers to purchase full-paid and nonassessable shares of common stock. The board of the corporation
    declared a stock dividend which, among other things, directed that
    the dividend be payable on Oct. 15, 1950 to holders of the stock as of
    the close of the business on Sept. 15, 1950. The warrant holders
    opposed this, saying that, contrary to the corporations contention,
    their right to be entitled to share in the stock dividend cannot be
    limited by the abovementioned time. The court ruled infavor of the
    warrant holders.
    DOCTRINE: A stock dividend does not change the proportional
    interest of each shareholder in the corporate enterprise. It changes
    only the evidence which represents the interest.
    FACTS: Stock purchase warrants were issued by Merritt-Chapman &
    Scott Corp. in bearer form.
    1. Each certify that the bearer is entitled to purchase full-paid and
    non-assessable shares of common stock of the corporation, at
    the price of $30 upon surrender of the warrant at the office of
    the New York Trust Co.
    a. The basic purchase price of $30 was subject to
    downward revision, subject to certain contingencies in
    the trusts deed.
    To insure availability of stocks purchasable under the warrants:
    1. Trust deed required that stock certificates with aggregate
    amount of 40K shares shall be delivered to the trustee.
    2. It also constituted the Trust Co. as the corporation agent for
    the purpose of receiving the purchase price and to deliver
    stock certificates upon exercise of the warrants.

    The trust deed provided that:


    1. Stock certificates deposited with the trustee shall not be
    deemed legally issued or outstanding until delivered by the
    trustee.
    2. The corporation. will, at all times during the life of the
    warrants, retain a number of authorized but unissued shares of
    the common stocks of the corporation represented by the stock
    certificates and stock scrip certificates then on deposit with the
    trustee, and/or which the corporation may be required to
    deposit with the trustee (Sec. 7, Art. III).
    On July 12, 1950, the corporation declared a stock dividend of 40% per
    share of no par common stock on each legally issued and outstanding
    share of common stock.
    1. The dividend was payable on Oct. 16, 1950 from authorized
    but unissued shares to holders of the stock as of the close of
    the business on Sept. 15, 1950
    2. Price was fixed at $20 per share.
    3. Directed the treasurer to transfer from the Earned Surplus
    Account to the Common Capital Stock Account $20 for each
    dividend share.
    4. Directed the officers to give warrant holders outstanding
    under the trust deed and to The New York Trust Co. the 60 day
    notice required by Sec. 10, Art. III.
    a. In case the Corporation shall pay any stock dividend
    upon the outstanding common stock; or
    b. Take other specified actions which may affect the
    value of the stock purchase warrants.
    ISSUE: WON the warrants had to be exercised before the specified
    period (in this case, Sept. 15, 1950) in order for the warrant holders to
    share in the stock dividend.
    RULING: No, there is no need for warrant holders to exercise the
    warrants before the time specified.
    RATIO: The warrants gave the holders the privilege, unlimited in time,
    to purchase an aggregate of 40k authorized but unissued shares.

    CORPORATION LAW | B2015


    CASE DIGESTS

    1.

    In 1928, there was a definite number of outstanding common


    shares at the time the warrants were issued.
    a. If the holders exercised option to purchase, they
    would have acquired a definite percentage of the
    common stock.

    A stock dividend does not change the proportional interest of each


    shareholder in the corporate enterprise.
    1. It changes only the evidence which represents the interest.
    2. If the corporation were at liberty to declare stock dividends
    without any provision for warrant holders, the percentage of
    interest in the common stock capital they could acquire could
    be reduced to nil.
    a. While injustice could be avoided by reducing the price
    paid for each share purchased under the warrants, the
    privilege of the warrant holders to acquire a definite
    proportional interest in the common capital stock
    would be lost if there was no provision protecting
    such.
    i. This is where Sec. 7, Art. III comes in.
    1. It recognized the possibility that a
    stock dividend may be declared and
    paid on outstanding shares before the
    warrants had been exercised.
    a. In
    that
    event,
    stock
    certificates representing that
    proportion of the dividend
    shares which the shares
    subject to the warrants bore
    to all the common shares
    would be deposited with the
    trustee.
    b. The trustee would then
    deliver the shares without
    additional consideration.
    ii. There is nothing in Sec. 7 which sets a time
    limit on the warrant holders unlimited option
    to purchase common shares.

    Appellee points to Sec. 10, Art. III as providing such a limit.


    1. HOWEVER, the corporation here merely promised to give
    warrant holders and the trustee a sixty day notice in case the
    corporation pays any stock dividend or take other specified
    action that would allow the warrant holders to purchase stock
    and receive, in effect, stock dividends on the date when the
    dividend is payable.
    a. The warrant holders are not asking for such. What
    they ask for are the rights under Sec. 7.
    2. The language of Sec. 10 does not show that the purpose of the
    notice is to remind warrant holders that failure to exercise
    such warrants will result in forfeiture.
    a. Sec. 8 and 9 specifically deal with forfeiture anyway.
    It is contended that Sec. 7 is inconsistent with the warrants, as it
    supposedly limits the holder to the stated number of shares of common
    stock as it may exist at the time of such purchase, and that the right to
    buy conferred to the warrant holder is on an as is basis.
    1. This interpretation would contradict Sec. 7 and 8, which
    contemplate changes resulting from stock dividends,
    recapitalization, merger, etc.
    2. It is more consistent to read the quoted words as referring to
    those changes.
    a. One share may, because of stock dividends, mean 1.4
    shares of stock as it may exist at the time of the
    purchase.
    Sec. 6, Art. III is said to provide a reduction in the basic purchase price
    in case of a stock dividend.
    1. HOWEVER, the language cannot be said to denote na transfer
    on the companys books from the Surplus Account to the
    Capitlal Stock Account.
    2. It would also be contradictory to Sec. 7
    DISPOSITIVE: Judgment reversed.
    DISSENTING OPINION (Clark, Circuit Judge): Secs. 8 and 9 apply to
    the particular situations they expressly cover and do not apply to the
    situation covered in sec. 10, and there is no surplusage. The provision

    CORPORATION LAW | B2015


    CASE DIGESTS

    of sec. 6 for reducing the basic purchase price of the stock seems, to my
    mind, rather clearly applicable in case of a stock dividend and be a
    reasonably fair counterad-justment to those warrant holders who still
    wish to stay on the outside awaiting developments. And sec. 7 carries
    its own statement of its application conditioned "if the same had been
    declared upon the common stock represented by the stock certificates
    then held in trust by the Trustee hereunder" or later "if the same had
    been declared upon the common stock so purchased."

    You might also like