Martin v. American Potash & Chem. Corporation

Supreme Court of Delaware · 1952 · Corporations

92 A.2d 295 (Del. 1952)

Updated August 22, 2026

CorporationsReduction of capitalShare repurchasesSection 28private salestock repurchaseretirement of sharespro rata offering

Facts

American Potash & Chemical Corporation agreed to buy from Mathieson Chemical Corporation 2,575 shares of Class A stock and 117,425 shares of Class B stock at $40 per share for retirement under Section 28, subject to stockholder approval. Mathieson was a substantial stockholder, had previously sought a merger with defendant on terms defendant rejected, and relations between the companies were not harmonious. Defendant's management concluded that eliminating Mathieson's block of shares was in the company's interest and chose to proceed by private sale rather than public distribution. Plaintiffs, stockholders of defendant, sued to stop the meeting or the purchase, arguing the private purchase was unlawful without a pro rata offer and was inequitably motivated.

Issue

Does Section 28 of the Delaware General Corporation Law permit a corporation to purchase its own shares at private sale for retirement without first making a pro rata offer to all holders of the affected class? If so, may such a purchase still be challenged as inequitable based on fraud, unfairness, or self-interested director action?

Rule

Section 28 authorizes a corporation to reduce capital by purchasing shares for retirement either pro rata from all holders of a class, in the open market, or at private sale. The phrase authorizing purchase 'at private sale' permits negotiated purchases from one or more willing stockholders without any pro rata offering to all holders of the class, although the exercise of that statutory power remains subject to equitable scrutiny for fraud or unfairness.

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

Red Mesa Minerals, a Delaware corporation based in Phoenix, agreed to buy 180,000 shares of its Class B common stock from a single investor, Nora Levin, in a negotiated transaction for retirement. The board did not offer any other Class B holders an opportunity to sell on the same terms, and several minority stockholders sued solely because the purchase was not made pro rata.

Under the governing rule, are the minority stockholders most likely to succeed on that theory alone?

Explanation. The majority held that the statute authorizes three distinct methods of purchasing shares for retirement: pro rata purchase, open-market purchase, and private sale. Because private sale is a separate method, it is not conditioned on a pro rata offer. Thus, a challenge based only on the absence of ratable treatment fails, though fraud or unfairness could still be litigated.