Obre v. Alban Tractor Co.
Maryland Court of Appeals
179 A.2d 861 (1962)
Henry Obre (plaintiff) and F. Stevens Nelson formed the Annel Corporation, believing $40,000 in capital was adequate for its foreseeable needs; Nelson contributed $10,000 in exchange for voting common stock, while Obre contributed $65,548.10, receiving $10,000 in voting common stock, $20,000 in non-voting preferred stock, and an unsecured five-year note with interest for the remaining $35,548.10, structured this way so the two men would have equal ownership and control. When Annel later became insolvent, other creditors including Alban Tractor Co. (defendant) objected to Obre's claims as a general creditor on the note, arguing the funds were really a risk-capital investment rather than genuine debt, and the chancellor agreed, subordinating Obre's claims to the other creditors; Obre appealed.
Whether a principal shareholder's above-capital financial contribution to a corporation, structured as an interest-bearing note with a set repayment term, must be treated as a risk-capital investment subordinate to other creditors' claims, rather than as bona fide debt.