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Morris v. Standard Gas & Electric Co.
Delaware Court of Chancery
63 A.2d 577 (1949)
Standard Gas & Electric Company (Standard) (defendant) was a public-utility holding company with several outstanding classes of cumulative preferred stock. The cumulative preferred shares were entitled to receive dividends either quarterly or annually, depending on the class, and all classes of preferred stock were in arrears. Standard had substantial net profits and sought to pay its first dividend in several years. To that end, Standard engaged a third-party firm to value its assets to ensure that the dividend would be lawful. The third-party firm found the assets to be of sufficiently high value. Standard also commissioned opinions from three outside attorneys who agreed that dividend payment complied with state law. At a public hearing, David Morris & Company (Morris) (plaintiff) opposed the dividend payment and argued that Standard had overvalued its assets. Morris did not allege that Standard had engaged in fraud or bad faith. Morris sued to enjoin Standard from issuing the dividend. Morris presented an alternative valuation that calculated the total value of the assets to be so low as to make the dividend unlawful. Morris cited his business degree and his professional investment experience as evidence of the credibility and appropriateness of his valuation.
Rule of Law
Holding and Reasoning (Seitz, J.)
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