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Bayer v. Beran - 49 N.Y.S.2d 2 (Sup. Ct. 1944)

Rule:

The business judgment rule provides questions of policy of management, expediency of contracts or action, adequacy of consideration, lawful appropriation of corporate funds to advance corporate interests, are left solely to directors' honest and unselfish decision. Their powers therein are without limitation and free from restraint, and the exercise of them for the common and general interests of the corporation may not be questioned, even where the results show that what they did was unwise or inexpedient.

Facts:

In their shareholder derivative suit, the plaintiffs, Bayer, et al., presented two causes of action against the corporate defendant, the Celanese Corporation of America, and its individual directors. According to the plaintiff shareholders, there were two instances when the company directors breached their fiduciary duties: the first one was in connection with a program of radio advertising embarked upon by the corporation towards the end of 1941, and the other was in relation to certain payments of $ 30,000 a year made to Henri Dreyfus, one of its vice-presidents and a director, pursuant to a contract of employment entered into with him by the corporation. In the present case, the plaintiff shareholders asked the court to review the alleged breach of fiduciary duty by the directors.

Issue:

Did the actions of the directors constitute a breach of fiduciary duty?

Answer:

No.

Conclusion:

The Court concluded there was no breach of fiduciary duty on the part of the directors because the evidence failed to show that the program was designed for a purpose other than one benefiting the corporation, and there was full and adequate consideration for the joint remuneration provided to the corporate vice-president and director. Moreover, the Court held the directors acted in the free exercise of their honest business judgment, and their conduct in the transactions challenged did not constitute negligence, waste, or improvidence.

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