Texas Attorney General Opinion: V-1520 Page: 4 of 7
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Hon. Jack Ross, page 4
You state that you are satisfied that the assets of the cor-
poration are worth the reappraised value. In the light of the above
explanation of the nature of a stock dividend, we fail to see a likeli-
hood of injury from the proposed increase in capitalization.
Neither the O'Bear-Nester case nor the Turner case men-
tions increase in capitalization or issuance of stock based on an
enhancement in the value of the corporate assets. Two opinions by
Courts of Civil Appeals have said that increased value of the assets
could not support a stock issue.
In Houston Cemetery Co. v. Drew, 36 S.W. 802 (Tex. Civ.
App. 1896, error dism.), the question decided by the Court ofCivil
Appeals was whether the district court had acted properly in atp-
pointing a receiver for the corporation pending a hearing on the
merits. One of the grounds upon which the appointment was sought
was that the corporation had issued watered stock. On this point
the court said by way of dictum:
S. . . The capital stock was afterwards increased
to $100,000, upon the estimated increase in value of
the land bought for the purposes of the cemetery; and
the certificates of stock were issued to the shareholders
at the ratio of 10 of the new shares for 1 of the old. This
was apparently within the inhibition of the constitution
(article 12, 3 6) against the issuance of stock except for
money paid, labor done, or property actually received."
In Cole v. Adams, 49 S.W. 1052 (Tex. Civ. App. 1898), the
receiver of an insolvent corporation brought suit to compel payment
by the stockholders of the balances alleged to be due upon the stock
issued to them. The corporation had been chartered on September
27, 1889, and after organization the defendants conveyed certain
real estate, for which they had paid $14,000, and certain contract
rights to the corporation. On May 22, 1890, it was estimated that
the actual value of the property, rights, and franchises then owned
by the corporation,,including enhancement4n value of the rea$ prop-
erty since its conveyaipcp to the corporation, over and above its: in'
debtednesa was $28,000. Based on thatValation, the corporation
issued 40 shares having a par value of $100 to each of the seven de-
fendants. Between that date and September 1, 1890, six of the defend-
ants. had contributed $500 each to the corporation, and that to-
gether with $10,000 out of earnings of the corporation had been in-
vested in, further plant expansions, On September 1, by agreement
of the stockholders, the corporation issued 10 additional shares 1
to each of' six of the defendants. The receiver sued each of the de-
fendants for 50 per cent of the par value of the shares issued to him,
upon the theory that the defendants were not entitled to credit for "es-
timated enhanced value of the properties of the c orporation, contracts,(V-1520).
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Texas. Attorney-General's Office. Texas Attorney General Opinion: V-1520, text, August 29, 1952; (https://texashistory.unt.edu/ark:/67531/metapth266337/m1/4/: accessed April 26, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting UNT Libraries Government Documents Department.