Curing Defects in Stock Issuances - American Bar Association

1126 The Business Lawyer; Vol. 63, August 2008
knowledge must be imputed to stockholders as a matter of law. 86 And in that case
too, there was no discussion of the void-voidable distinction in regard to stock
overissuances.
Having found all common stock issued prior to the certifi cate’s amendment
“void,” the court proceeded to fi nd “invalid” all the common issued after the amendment.
87 Here the court noted two statutory violations in regard to the stock issued
after the charter amendment. First, the DGCL (then in effect) required that
the consideration for no par stock be fi xed (either by the board if authorized by
the certifi cate or by the stockholders) prior to the stock’s issuance. 88 Because the
price of the no par common stock had never been fi xed by the board or by the
stockholders, the entire issuance of common stock, both that issued before and
after the amendment to the certifi cate, was “invalid.” 89 The court explained, “It
is a wise provision of the law that the consideration which must be paid for no
par value stock shall be fi xed by proper authority, because persons who have
become stockholders, and have furnished the capital of the corporation, should
know what must be paid for the no par value stock that is to be issued.” 90 Second,
the court determined that the stock issued to the defendants-appellants was
“invalid” 91 because it was issued for unlawful consideration, i.e., future services,
a form of consideration that was not then legal. 92
With regard to these two statutory violations, which were unrelated to any charter
provision, the court used the term “invalid” as opposed to “void.” It is not clear
that the two terms are co-extensive; it is possible that invalid stock (as opposed to
void stock) may be capable of validation. “Void,” as in “void” stock, is a term of art. 93
The Triplex court never expressly reached the question of whether the stock issued
after the certifi cate amendment was capable of being cured or ratifi ed by subsequent
stockholder action. 94 The court’s expansive language—that “the act [of issuance]
86. See N.Z. Banking Corp., 3 Ch. at 140 (“It is impossible not to impute to every shareholder
[including the plaintiff ] . . . the knowledge of what has been called the charter of documents under
which the company was trading.”). In Triplex, the resolution amending the charter put stockholders
on express notice of possible defects in the charter. See supra note 76.
87. Triplex, 152 A. at 348– 49.
88. See id. at 348.
89. Id. at 348– 49.
90. Id. at 349.
91. Id.
92. See supra notes 22 & 71.
93. Cf. Staar Surgical Co. v. Waggoner, 588 A.2d 1130, 1136 (Del. 1991) (“[I]t is clear that the
preferred convertible shares originally issued to the Waggoners were invalid and void under Delaware
law.” (emphasis added)), rev’g C.A. No. 11185, 1990 WL 28979 (Del. Ch. Mar. 15, 1990).
94. Defendants-appellants asserted defenses grounded in estoppel, waiver, and laches; all of which
the court rejected on the particular facts in Triplex. See 152 A. at 349–50. But the fact that the court
addressed these arguments at all suggests that under other circumstances these arguments or ratifi cationtype
arguments might have succeeded. The appellants also asserted ratifi cation and acquiescencebased
defenses in regard to the statutory violations. See id. at 349. These arguments were not discussed
in the Delaware Supreme Court’s opinion. Ratifi cation was discussed in the Court of Chancery’s opinion.
See Triplex, 147 A. at 322. There the ratifi cation argument was rejected, not as a matter of law, but
on the particular facts of the case, i.e., the petitioner’s conduct did not amount to ratifi cation. Id. at
322. This, too, is a reason to believe that, under proper factual circumstances, ratifi cation could have
cured certain issuance defects relating strictly to statutory compliance failures. Cf. Triplex, 147 A. at 324