Allied Chemical & Dye Corp. v. The Steel and Tube Co. of America

• Decision Date: 25 June 1923
• Citation: 122 A. 142,14 Del.Ch. 64
• Parties: ALLIED CHEMICAL & DYE CORPORATION, a corporation of the State of New York, and BY-PRODUCTS COKE CORPORATION, a corporation of the State of New York (Intervenor), v. THE STEEL AND TUBE COMPANY OF AMERICA, a corporation created by and existing under the laws of the State of Delaware, CLAYTON MARK, HERBERT H. SPRINGFORD, ARMIN A. SCHLESINGER, HARRISON WILLIAMS, W. M. L. FISKE, EDWARD G. WILMER, LEONARD KENNEDY, ANSON MARK, CHARLES F. FAWSETT, GEORGE P. MILLER, FRANK F. CORBY, ADDISON H. BEALE, D. R. MCLENNAN, HARRY COULBY, CHARLES T. BOYNTON, CLINTON S. LUTKINS, E. D. WINKWORTH and C. D. CALDWELL, Directors of the said the Steel and Tube Company of America; CLARENCE DILLON, ROLAND L. TAYLOR, JOSEPH H. SEAMAN, JOHN W. HORNER, JR., JAMES DEAN, R. W. MARTIN, WILLIAM A. PHILLIPS, W. M. L. FISKE, WILLIAM A. READ, JR., E. J. BERMINGHAM and J. v. FORRESTAL, co-partners doing business under the firm name and style of Dillon, Read & Company; CLARENCE DILLON, ARMIN A. SCHLESINGER, HERBERT H. SPRINGFORD and EDWARD G. WILMER, as Trustees, and THE YOUNGSTOWN SHEET & TUBE COMPANY, a corporation created by and existing under the laws of the State of Ohio
• Court: Court of Chancery of Delaware

122 A. 142

14 Del.Ch. 64

ALLIED CHEMICAL & DYE CORPORATION, a corporation of the State of New York, and BY-PRODUCTS COKE CORPORATION, a corporation of the State of New York (Intervenor), v. THE STEEL AND TUBE COMPANY OF AMERICA, a corporation created by and existing under the laws of the State of Delaware, CLAYTON MARK, HERBERT H. SPRINGFORD, ARMIN A. SCHLESINGER, HARRISON WILLIAMS, W. M. L. FISKE, EDWARD G. WILMER, LEONARD KENNEDY, ANSON MARK, CHARLES F. FAWSETT, GEORGE P. MILLER, FRANK F. CORBY, ADDISON H. BEALE, D. R. MCLENNAN, HARRY COULBY, CHARLES T. BOYNTON, CLINTON S. LUTKINS, E. D. WINKWORTH and C. D. CALDWELL, Directors of the said the Steel and Tube Company of America; CLARENCE DILLON, ROLAND L. TAYLOR, JOSEPH H. SEAMAN, JOHN W. HORNER, JR., JAMES DEAN, R. W. MARTIN, WILLIAM A. PHILLIPS, W. M. L. FISKE, WILLIAM A. READ, JR., E. J. BERMINGHAM and J. v. FORRESTAL, co-partners doing business under the firm name and style of Dillon, Read & Company; CLARENCE DILLON, ARMIN A. SCHLESINGER, HERBERT H. SPRINGFORD and EDWARD G. WILMER, as Trustees, and THE YOUNGSTOWN SHEET & TUBE COMPANY, a corporation created by and existing under the laws of the State of Ohio

Court of Chancery of Delaware, New Castle

June 25, 1923

MOTION TO DISSOLVE PRELIMINARY INJUNCTION. After the issuance of a preliminary injunction pursuant to the opinion heretofore filed in this cause, ante p. 1, the defendant, The Steel and Tube Company of America, moved its dissolution. An examiner was appointed to take testimony on the question of the fairness of the price at which the assets of The Steel and Tube Company of America were contracted to be sold, and the motion to dissolve came on to be heard on the testimony of witnesses and exhibits. The facts pertinent to the decision of this motion are set forth in the opinion of the Chancellor.

Outstanding injunction dissolved.

William S. Hilles, and with him, Nathan L. Miller and Frederic Cunningham, Jr., both of New York City, and K. K. Knapp, of Chicago, Illinois, for the complainants.

Robert H. Richards, and with him, George W. Wickersham, W. Lloyd Kitchel, Joseph P. Cotton, and Boykin Wright, all of New York City, and Charles F. Fawsett, of Milwaukee, Wisconsin, for the defendant The Steel and Tube Company of America.

OPINION

THE CHANCELLOR

This cause was before me on another occasion upon a rule to show cause why a preliminary injunction should not issue. See ante p. 1. No further statement of facts of a general nature need be made beyond what may be found by reference to the opinion filed by me in disposing of the rule for preliminary injunction.

The preliminary injunction was duly issued for the reason stated in the opinion heretofore filed. Reference to that opinion will disclose that I was not satisfied upon the showing then made to pass upon the question of the fairness of the price at which it was proposed to sell the assets of The Steel and Tube Company of America, and deemed it wise to hold the proposed sale in abeyance pending full hearing upon that question.

Within a short time after the issuance of the preliminary injunction, the appearing defendant moved its dissolution. Thereupon, after hearing the parties, I directed the appointment of Caleb S. Layton, Esq., as examiner and commissioner to take testimony of witnesses produced on behalf of both parties, upon the question of the fair value and adequacy of price of all the assets proposed to be sold by The Steel and Tube Company to The Youngstown Sheet & Tube Company.

The pending motion to dissolve the injunction is, therefore, to be disposed of in the light of the evidence which the fuller hearing before the examiner and commissioner has produced. This evidence consists of a large volume of testimony and numerous exhibits. It is of such fullness and of such character as to indicate that I am now in possession of about all the facts that the parties can adduce in support of their respective views. At all events, I am convinced that further evidence on a final hearing would produce nothing more, if anything, than a mere amplification of details. In view of the determining effect of the mere passage of time upon the practical disposition of the litigation, it would appear to be the duty of the court to proceed to pass upon the question of the continuance of the outstanding injunction at the earliest practicable moment. This should not of course be done in view of the opinion heretofore filed, unless the facts now adduced by the evidence taken are sufficiently full to warrant the reaching of a conclusion which under the facts as they appeared upon the return of the rule I stated I was unable to do with any satisfying degree of confidence in my judgment. I now feel that I can reach a satisfying conclusion upon the facts before me, and I accordingly proceed to do so.

The question before me is one that concerns value. It is not one of cost value or of replacement value. It is a question of value in connection with sale. I have already held that Section 64a of our General Corporation Law (29 Del. Laws, c. 113) permits The Steel and Tube Company of America to determine the question of whether it shall sell all its assets entirely aside from any consideration of advisability or expediency. The only room for consideration of such questions as expediency and advisability which the statute affords is in connection with the terms and conditions of sale. The directors are the ones under the section who pass upon these terms and conditions. In the instant case, as a matter of fact, the stockholders by their approving action also passed upon them. Whether the section requires them to do so, I need not pause to consider. The fact is that they did. The stockholders did two things. They authorized a sale and they approved of the judgment of the directors as to its terms and conditions. This means that if the sale was consummated upon the terms and conditions mentioned, they desired to authorize it. The only element in the corporate action thus proposed to be taken that can be called in question is whether the terms and conditions were such as to meet the test of being expedient and for the best interests of the corporation. The other element in the corporate action, to-wit, the fact that a sale should be made cannot be reviewed by the court.

This being so, the question of the expediency of the terms and whether they are in accordance with the best interests of the corporation must, when it is sought to review them as here be passed upon in the light of the fact that it is desired to exercise the absolute right to make a sale. In other words the question of terms is a question of selling terms. A sale can never, of course, be a one-sided affair. It necessarily imports a seller and a buyer. If the question is asked "What selling price is expedient for a seller and in his best interest?" it is not satisfactorily answered by stating in terms of dollars what the value is to the seller for his own use, because before the thing can be sold some one must be found who is willing to become a purchaser. Hence in ascertaining the fair price at which to sell a given thing, the willingness of the buyer to pay, as well as the willingness of the seller to receive, is an important and influencing factor. When, therefore, the section in question which authorizes a sale is to be construed, the test that the terms and conditions must be expedient and in the best interests of the corporation is to be applied in the light of the fact that the corporation in making the sale must find a purchaser. In other words, the best interests of the corporation are those of a corporation desiring to sell. When this is said, the opposing interests of a purchaser are introduced into the situation as a factor. If these views are correct, then the ingeniously argued contention of the learned solicitors for the complainants that the "value to be considered in this case ought to be measured by what the assets were intrinsically worth to the company for use by the company considered as a going concern" cannot be accepted as presenting the sole fundamental point of view from which to approach the question of the fairness of the price here involved, because such a point of view fails entirely to consider that on the other side of the negotiation for price there is a purchaser whose views may be and in most like instances are quite divergent from those of the seller. The fair price at which the assets should be sold is to be determined by considering the matter not only from the side of the seller in the light of what is contended for by the complainants as the sole consideration, but also from the side of possible purchasers in the light of what the assets may be worth to them. There are, of course, many factors that enter into what may be a fair price in a given case for a seller to take and for a purchaser to pay. But fundamentally the fair price is the resultant of the two opposing views of a willing seller and a willing purchaser, the former of whom is not compelled to sell and the latter of whom is not required to buy. There may be particular circumstances in which the owner finds himself which may make a price fair and reasonable which under other circumstances might be unfair and unreasonable. The extreme illustration of such a case would be that of one who is forced to sell. In proportion as the situation of the seller is removed from that of constraint impelling the sale, the price which in fairness to himself he ought to take will advance above that which the necessities of desperation would suggest. In the instant case, there is no situation which suggests a forced sale. But there are circumstances, as I shall attempt to point out, which it seems to me make it advisable for the seller not to...