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Obre v. Alban Tractor Co.

179 A.2d 861 (1962)

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Obre v. Alban Tractor Co.

Maryland Court of Appeals

179 A.2d 861 (1962)

Facts

F. Stevens Nelson and Henry Obre (plaintiff) formed the Annel Corporation (Annel). Nelson and Obre believed that $40,000 in capital was “entirely adequate for the foreseeable needs of the corporation.” Nelson invested $10,000 in equipment and cash and was issued voting common stock with a par value of $10,000. Obre invested $65,548.10 in equipment and cash. Because Obre and Nelson ultimately wanted equal ownership, Obre was issued voting common stock with a par value of $10,000, non-voting preferred stock with a par value of $20,000, and an unsecured note for the remaining $35,548.10. The debt was to be paid in five years with interest. Annel became insolvent. The Circuit Court for Baltimore County had equity jurisdiction over the deed of trust issued for Annel’s creditors. Obre filed four claims as a general creditor based on the note. The other creditors, including Alban Tractor Co. (defendant), objected to Obre’s claims on the ground that the amount in question was a risk capital investment not a debt. The chancellor concluded that the equipment Obre contributed was necessary to the business and the five-year note was evidence that the contribution was a risk capital investment. The chancellor subordinated Obre’s claims to those of the other creditors on equity grounds. Obre appealed to the Maryland Court of Appeals.

Rule of Law

Issue

Holding and Reasoning

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