Kors v. Carey

Court of Chancery of Delaware, New Castle · 1960 · Corporations

158 A.2d 136 (1960)

Updated August 22, 2026

Corporationsdirector fiduciary dutiescorporate repurchase of sharescorporate controltreasury stockstock repurchaseproper corporate purposebusiness judgment

Facts

Lehn & Fink used corporate funds to purchase 60,200 shares of its own stock from United Whelan at $28 per share, plus a brokerage fee, after United had accumulated about 16% of Lehn & Fink's outstanding stock and its president admitted a purpose to gain control. The Lehn & Fink directors concluded that United's business policies and position as a substantial customer posed a serious threat to Lehn & Fink's business policy, customer relationships, and welfare. The corporation kept the shares as treasury stock, and there was no contention that the purchase impaired capital. The stockholder plaintiff argued that the repurchase was an improper use of corporate funds to entrench management, and United sought rescission based on nondisclosure of Lehn & Fink's identity as buyer and on alleged failure of consideration tied to possible § 16(b) liability.

Issue

May directors of a Delaware corporation use corporate funds to repurchase a large block of the corporation's shares from a stockholder threatening control when the purpose is to preserve existing corporate policy? May the seller rescind that sale when the corporation's identity as buyer was not disclosed but no misrepresentation or fraud was proved?

Rule

Under Delaware law, a corporation may purchase, hold, sell, and transfer its own shares so long as the purchase does not impair capital. Directors may, in the exercise of honest business judgment, lawfully spend corporate funds to eliminate a clear threat to the future of the business, including by repurchasing shares held by a stockholder at odds with management policy, provided the transaction is free from fraud, unfairness, misconduct, or abuse of discretion. In direct personal dealings, directors generally owe no fiduciary duty to an individual stockholder seller absent special circumstances such as fraud, misrepresentation, or use of special inside information.

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Seaport Botanicals, a Delaware cosmetics manufacturer based in Newark, learns that one of its largest retail customers, Harbor Drug Group, has accumulated 14% of Seaport's stock and intends to replace management in order to shift Seaport toward aggressive discount distribution that other retail accounts strongly oppose. After months of discussion and advice from outside consultants, Seaport's board authorizes the corporation to buy Harbor's block at a modest premium, and the purchase does not impair capital.

If a minority stockholder challenges the repurchase as an improper entrenchment device, which is the strongest argument for upholding the board's action?

Explanation. The majority opinion permits a Delaware corporation to repurchase its own shares when capital is not impaired and the directors, exercising honest business judgment, act to eliminate a clear threat to the future of the business or its policy. The key limits are absence of fraud, unfairness, misconduct, or abuse of discretion. The court rejected the notion that directors must always use personal funds, and it did not approve all anti-control repurchases automatically.