Brief Fact Summary. Stokes (P), a shareholder of Continental Trust Co. of City of New York (D), demanded that a number of newly issued shares be sold to him equal to the shares he holds now.
Synopsis of Rule of Law. Corporations must allow shareholders to purchase newly issued stocks at the fixed price so that they may keep the share they currently have.
The statement of the right of premption given by Chief Justice STERRETT in Morris v. Stevens is in general the present holders of stock have a primary right to subscribe in proportion to their holdings for any new issue.View Full Point of Law
Issue. Must corporations allow shareholders the opportunity to purchase newly issued stocks at the fixed price so that they may keep the share they currently have?
Held. (Vann, J.) Yes. Corporations must allow shareholders to purchase newly issued stocks at the fixed price so that they may keep the share they currently have. Stockholders have this option as a matter of right. This opportunity must be extended to all shareholders, or else liability incurs. However, stockholders must buy at the fixed sales price, not the par value price as it would inflate the shareholder’s proportionate interest. Stokes (P) suffered damages here, but his damages must be re measured on this price difference. Reversed and judgment modified.
Discussion. This case contains the common law view on preemptive rights, or also known as the right of first refusal of new issues of stock. Predominantly, it is believed these rights apply only to common stock.