The Vanishing Distinction between Creditors and Stockholders

E. Ennalls Berl
1928 University of Pennsylvania Law Review and American Law Register  
Two recent cases warrant the hope that courts are becoming less disposed to encourge corporate financing schemes which permit investors to be treated as creditors for purposes of security, and as stockholders for purposes of profit.' These cases deal with instruments entitled "Participating Operation Certificates", which have become popular in the promotion and financing of chain gasoline and accessory stations. The language of the certificate is the same (mutatis mutandis) in both cases and
more » ... ds as follows: "Consumers Service Stations, Inc., . . . for and in consideration of the receipt of Two Hundred Fifty Dollars, and other good and valuable consideration, agrees to create a fund from the operation of a so-called service station in the place designated on the reverse side hereof (Oskaloosa, Iowa) and to distribute said fund in the manner hereinafter set forth to the registered owner of this certificate and all other registered owners of such certificates in said station, and such distribution shall continue until there shall have been paid on this certificate the sum of Five Hundred Dollars, whereupon it shall become null and void. "To provide the fund hereinbefore mentioned from the daily receipts of said station, there shall be set aside in a bank one cent (io) on each gallon of gasoline and five per cent (5%) on all other merchandise sold by said station, and the fund thus created shall be distributed every month among the registered holders of these certificates in said station, as their interests may appear." There is no necessity for discussing the claims of the certificate holders in the cases referred to, to be equitable lien holders, for the interesting point is that in each case the certificate holders were held to be not even general creditors of the issuing corporation. The grounds upon which the courts appear to have
doi:10.2307/3307818 fatcat:24j2wzcrpjcexpvsqc4gr62s7e