Thursday, November 21, 2013

Obre v. Alban Tractor Co. case brief

Obre v. Alban Tractor Co. case brief summary
179 A.2d 861 (1962)


CASE SYNOPSIS
Appellant, the principal shareholder, president, and unsecured creditor of appellee insolvent corporation, challenged the decision of the Circuit Court for Baltimore County (Maryland), which sustained exceptions by appellee creditors to appellant's claim in corporate liquidation proceedings.

CASE FACTS
At the time of initial capitalization of appellee corporation, appellant received a note payable in five years for a cash contribution, said note being listed in the entity's financial reports. Appellee creditors contended in liquidation proceedings that the note represented a risk capital investment, was not a bona fide debt, and that there had been undercapitalization.

DISCUSSION

  • The court reversed the trial court's decision that sustained the exceptions to appellant's claim because in the absence of any element of fraud or imposition on a subordinating equity, such a loan was recoverable to the same extent as if made to the corporation by any other lender. 
  • The court rejected appellees' contention that the corporation was undercapitalized, and found that appellee creditors had a duty to obtain information from the corporation's financial records and from the public records, and had only themselves to blame for failure to do so.

CONCLUSION
The court reversed the trial court's decision in favor of appellees and against appellant, holding that appellant's claim as a unsecured creditor was valid.


Recommended Supplements for Corporations and Business Associations Law

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