Note: Estate had creditors, so Langdeau naturally went after
3. MCCARTY VS. LANGDEAU McCarty who had an outstanding debt to Estate because of the
337 S.W. 2d 407 (Tex. Civ. App. 1960)
FACTS
 John L. McCarty is the president of Estate Life Insurance Company.
McCarty entered into a contract with Estate where he would
purchase shares of stock, with a promissory note as payment.
 Under the terms of the promissory note, McCarty would pay initially
$20 as payment, and he would make subsequent payments to cover
the cost, and that Estate would have a lien against the shares until
full payment, or termination of the contract.
Note: Under the contract (cut out by Campos), if the agreement
were to be cancelled before paying for the whole amount,
McCarty would receive shares equivalent to what he has paid
Why is this important? The court later decides that in this
transaction, McCarty was not issued the full amount of the
shares outright (if given ALL the shares outright, the contract
would be prohibited), thus the transaction is VALID, and
McCarty cannot escape liability.
 McCarty made some payments but stopped. Estate, however, did
NOT terminate the contract.
IMPORTANT Note: This is how the case relates to Watered
Stocks. The corporation plus McCarty as president, in effect
consented to the issuance of shares in favor of McCarty even
though he paid for it with a promissory note.
 Estate was placed under permanent receivership, and C.H. Langdeau
was appointed as receiver of Estate.
promissory note. Ratio: Unless the note is paid, creditors will not
receive payment of their claims in full.
 McCarty claims the defense that under Texan law (discussed in
held), purchase of shares through a promissory note is not allowed,
and will render the transaction VOID. Hence, per his argument, he
has no debt to Estate because the same was void.
ISSUE
WON the transaction between McCarty and Estate was valid? YES.
HELD
 The court discussed “is a note property?” (You can obtain shares
through cash OR property. The Constitution of Texas states that it
only prohibits issuance of stock, BUT “if it is understood that the
stock will not be “issued” to the subscriber until the note is paid, the
contract is valid and not illegal.
 More so, Texan law does not use the word void in the phrase relating
to the prohibition of issuance of shares not for money or property.
The word void is attached to phrase on the fictitious increase of stock
or indebtedness.
 It is assumed that the framers of the constitution did this deliberately.
Clearly, it is not their intention to allow the perpetration of fraud
(like in this case) by way of claiming that the transaction was void.
 McCarty’s contract may be construed two ways (both enforceable):
o Shares of stock in question are held as security by Estate
for the promissory note.
o The issuance of shares of stock periodically as the note is
to be paid. (This makes more sense for me. Even though
the whole amount is not issued to McCarty, when he pays
the installments, he gets the shares equivalent to payment.)