Cottrell v. Pawcatuck Company

Supreme Court of Delaware

Cottrell v. Pawcatuck Company

128 A.2d 225, 36 Del. Ch. 169, 1956 Del. LEXIS 77

CourtSupreme Court of Delaware

DecidedDecember 21, 1956

StatusPublished

Cited by19 cases

This text of 128 A.2d 225 (Cottrell v. Pawcatuck Company) is published on Counsel Stack Legal Research, covering Supreme Court of Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook

Cottrell v. Pawcatuck Company, 128 A.2d 225, 36 Del. Ch. 169, 1956 Del. LEXIS 77 (Del. 1956).

Pincite

Opinion

Southerland, Chief Justice:

The essential question is whether the consideration received upon a sale of corporate assets was grossly inadequate.

Plaintiff, a substantial stockholder of the defendant, The Pawca-tuck Company, formerly the C. B. Cottrell & Sons Company (herein referred to as “the old company”), sued to enjoin a sale of assets on the ground that the price was grossly inadequate.

An outline of the basic facts follows. It will be supplemented by additional facts in the discussion of plaintiff’s contentions.

The selling corporation is the old company, an old closely-held family enterprise, founded in 1855. It was engaged in the manufacture and sale of printing presses and accessories. It had two plants, one in Connecticut and one in Wisconsin. At the time with which we are principally concerned it was a Delaware corporation with $265,000 of preferred stock and 8,000 shares of common stock issued and outstanding. The common shareholders were all descendants of the original founder or connections of the descendants.

For some years before 1950 Charles P. Cottrell, Jr. was president and held a majority of the common stock — 4,502 shares. In 1949 he retired from the presidency because of ill health, and Donald C. Cottrell was elected president. Two new directors, non-stockholders, were added to the board. In the following year Charles sold 4,002 shares to Donald at $100 a share — “the family price”. Donald retained 2,002 shares and resold 2000 shares to members of his family at $100 a share. These shareholders, holding 4,002 shares, together with Charles P. Cottrell, Jr., holding 500 shares, constitute the “majority group”. Of the nine directors of the corporation in 1953 they had seven. The remaining 3,498 shares were held by other members of the Cottrell family including Helen E. Cottrell, the plaintiff. These shareholders constitute the “minority group”. They had two members of the board, Helen and Leone B. Birdsall, her sister.

*172 Differences of view over corporate policy divided the two groups of stockholders. In 1949 Donald’s election as president was strongly opposed by the minority, or at least by Helen, who appears to have been the articulate spokesman for her group. During the following years the minutes reflect frequent objections and criticisms voiced by Helen relating to the actions of the majority.

As early as 1947, Donald Cottrell, then in charge of the plant in Wisconsin, had explored the possibility of selling or merging the old company. He had discussed the matter with Harris-Seybold Company (one of the defendants). Nothing came of the discussions because of opposition of the minority. After he became president, Donald had approached officials of five or six companies, again with the thought of a sale or merger. Nothing came of these inquiries.

In June, 1953, he received a call from the chairman of the board of Harris-Seybold, inquiring whether he (Donald) cared to resume negotiations. Donald was interested. Negotiations followed. They culminated in a contract dated November 9, 1953, providing for the sale of corporate assets to 1 Harris-Seybold subject to' director and stockholder approval, as required by the statute. & Del.C. § 271.

The necessary approval was had. Thereafter Helen Cottrell sued in the court below to enjoin the sale as a waste of corporate assets. Injunctive relief was denied, .and the sale was consummated. Thereafter the case came on for trial on the merits. The plaintiff sought rescission, or, alternatively, damages. The Chancellor sustained the action of the majority directors and stockholders, holding the consideration for the sale adequate. See 35 Del.Ch. 309, 116 A.2d 787. Plaintiff appeals.

Plaintiff attacks the validity of the sale on several grounds. These will be considered seriatim.

1. The majority directors had a peculiar and personal interest in the sale which overcomes the presumption of good faith ordinarily attaching to the actions of directors.

At the time of the sale the seven so-called majority directors and their individual holdings of stock were as follows:

*173

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