McCarty vs. Langdeau
McCarty vs. Langdeau
McCarty vs. Langdeau
3. MCCARTY VS. LANGDEAU McCarty who had an outstanding debt to Estate because of the
337 S.W. 2d 407 (Tex. Civ. App. 1960) promissory note. Ratio: Unless the note is paid, creditors will not
receive payment of their claims in full.
FACTS
McCarty claims the defense that under Texan law (discussed in
John L. McCarty is the president of Estate Life Insurance Company.
held), purchase of shares through a promissory note is not allowed,
McCarty entered into a contract with Estate where he would
and will render the transaction VOID. Hence, per his argument, he
purchase shares of stock, with a promissory note as payment.
has no debt to Estate because the same was void.
Under the terms of the promissory note, McCarty would pay initially ISSUE
$20 as payment, and he would make subsequent payments to cover
the cost, and that Estate would have a lien against the shares until WON the transaction between McCarty and Estate was valid? YES.
full payment, or termination of the contract.
HELD
Note: Under the contract (cut out by Campos), if the agreement
were to be cancelled before paying for the whole amount, The court discussed “is a note property?” (You can obtain shares
McCarty would receive shares equivalent to what he has paid through cash OR property. The Constitution of Texas states that it
only prohibits issuance of stock, BUT “if it is understood that the
Why is this important? The court later decides that in this stock will not be “issued” to the subscriber until the note is paid, the
transaction, McCarty was not issued the full amount of the contract is valid and not illegal.
shares outright (if given ALL the shares outright, the contract
would be prohibited), thus the transaction is VALID, and More so, Texan law does not use the word void in the phrase relating
McCarty cannot escape liability. to the prohibition of issuance of shares not for money or property.
The word void is attached to phrase on the fictitious increase of stock
McCarty made some payments but stopped. Estate, however, did or indebtedness.
NOT terminate the contract.
It is assumed that the framers of the constitution did this deliberately.
IMPORTANT Note: This is how the case relates to Watered Clearly, it is not their intention to allow the perpetration of fraud
Stocks. The corporation plus McCarty as president, in effect (like in this case) by way of claiming that the transaction was void.
consented to the issuance of shares in favor of McCarty even
though he paid for it with a promissory note. McCarty’s contract may be construed two ways (both enforceable):
o Shares of stock in question are held as security by Estate
Estate was placed under permanent receivership, and C.H. Langdeau for the promissory note.
was appointed as receiver of Estate. o The issuance of shares of stock periodically as the note is
to be paid. (This makes more sense for me. Even though
the whole amount is not issued to McCarty, when he pays
the installments, he gets the shares equivalent to payment.)