Mitchell v. Highland-Western Glass Company

Delaware Court of Chancery · 1933 · Corporations

19 Del. Ch. 326 (1933)

Updated August 22, 2026

Corporationsasset saleminority stockholdersgross inadequacylegal frauddirector judgmentstock considerationpresumption in favor of directors

Facts

The defendant corporation, organized under Delaware's General Corporation Law, sold its assets under Section 64(A) to Mississippi Glass Company in exchange for 53,000 shares of the purchaser's stock, with no claim that the statute's procedural requirements were violated. The complainants, objecting minority stockholders, alleged that the consideration was so grossly inadequate as to constitute fraud in law, and also argued that certain officers benefited personally and that the directors were insufficiently informed. Three vice-presidents of the seller later became directors and vice-presidents of the purchaser at the same salaries they had previously received, and the defendant's directors had access to the purchaser's books during negotiations. The transaction effectively pooled the two companies' rolled glass businesses, with the parties' post-sale stock interests reflecting a two-to-one ratio based on the view that the purchaser's net assets were about twice those of the seller.

Issue

Whether a statutory sale of all corporate assets for stock of the purchasing company should be enjoined or set aside as a fraud on non-assenting minority stockholders because the consideration was allegedly grossly inadequate, because certain officers allegedly received personal advantages, or because the directors were allegedly uninformed.

Rule

In reviewing a sale of corporate assets of this sort, the court presumes that the directors who negotiated it honestly believed they were securing terms that were expedient and in the corporation's best interests. Directors and majority stockholders authorizing such a sale owe a duty to obtain a fair and adequate price, but mere inadequacy of price does not make the transaction fraudulent unless the inadequacy is so gross as to amount to a badge of fraud.

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

Lakefront Panels, Inc., a Delaware corporation based in Cleveland, sells all of its operating assets to Riverbend Materials, Inc., a fictional Ohio manufacturer, in exchange for shares of Riverbend under a statute expressly permitting stock consideration. A small group of dissenting stockholders sues in Delaware, alleging only that the board made a bad bargain because they think the assets were worth somewhat more than what the stock later traded for.

How should the court most likely evaluate the challenge?

Explanation. The majority opinion applies a presumption in favor of directors who negotiated a statutory sale of assets, assuming they honestly believed the terms were expedient and in the corporation’s best interests. It also states that mere inadequacy of price does not establish fraud; the inadequacy must be so gross as to display itself as a badge of fraud. Because the challenge here alleges only that the bargain was somewhat low, the sale would likely be upheld.