Fed. United Corp. v. Havender - 11 A.2d 331 (Del. 1940)

Rule:

A merger of a parent corporation with a subsidiary wholly owned by it is within the purview of Del. Gen. Corp. Law § 59.

Facts:

The stockholders owned outstanding preferred stock with accumulated dividends in the corporation. They were informed of a merger plan under Del. General Corporation Law § 59 and of the corporation's intent to cancel the stock and to convert the old stock into new preferred stock. They did not respond to requests to forward certificates for dividend payments. The corporation denied the stockholders' later demand for payments and offered them an exchange of securities instead. The corporation argued the merger was valid.

Issue:

Is a merger of a parent corporation with a corporation wholly owned by it within the purview of Section 59 of the General Corporation Law?

Answer:

Yes.

Conclusion:

The court held the merger was valid because it was within the purview of § 59, which contemplated the conversion of the shares of the subsidiary corporation into shares of the resulting corporation. The accumulated dividends could be disposed of other than by money payment because (1) the stockholders' right in the arrears on the preference stock was not a fixed contractual right; (2) they must have known under the circumstances that their right would be subject to adjustment; (3) the terms of the merger were fair and equitable; and (4) the stockholders were guilty of laches because they gave no warning of contemplated legal action and the delay in filing was unreasonable.