Delaware Decision

In Delaware, little mother of big corporations, a prime property right received new sanction last week--but not precisely to the liking of the corporation involved-which was Wilson & Co. Last year this big Chicago packing house put through a recapitalization plan providing, among other things, for the payment of $12,600,000 in dividend arrears, not in cash but in stock. The payment was accepted as a satisfactory settlement by the owners of 99% of the shares affected. Among the holdouts was a Wall Streeter named Joseph Keller, who figured that if back dividends were to be paid at all he was entitled to hard cash, $21.25 on each of his 500 Class A shares. Hiring a smart Manhattan lawyer named Abraham L. Pomerantz, he filed suit in Delaware, where Wilson & Co. was incorporated, seeking full cash payment of back dividends for all holdout stock.

In the lower courts stockholder Keller lost, the ruling being that a vote of the majority of the stock was binding on the minority. Last week on appeal, however, the Delaware Supreme Court reversed that opinion, holding that Stockholder Keller and his fellow holdouts were indeed entitled to cash. Said the high court of Delaware: "Property rights may not be destroyed."

The court's point was that the privileges of the preferred stockholder, plainly set forth in the certificate of incorporation, were acquired when stock was purchased and constitute a vested property right. To deprive a stockholder of that right--by majority vote in the Wilson case--was an infringement of the due-process clauses of State and Federal Constitutions.

The Delaware decision did not, of course, affect Wilson stockholders who had already assented to the plan. But it did affect all Delaware corporations organized before 1927, may affect corporations chartered under the present law. On the ground that the high court of Delaware was laboring "under a misapprehension," Wilson & Co. filed for a rehearing.

After the decision last week. Federal Water Service Corp. and Consolidated Retail Stores Inc. both withdrew stock-for- back-dividends plans, and National Supply Co. held up its plan pending counsel's opinion.

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