Brief Fact Summary. Georges, Maurice, Armand and Paul Marciano, (Appellants) appeal the decision of the Court of Chancery validating a claim in liquidation of Gasoline, Ltd. placed in custodial status by reason of deadlock among its board of directors.
Synopsis of Rule of Law. The principle of per se voidablitity for interested transactions does not invalidate transactions determined to be intrinsically fair.
Approval by fully informed, disinterested shareholders pursuant to § 144(a)(2) invokes the business judgment rule and limits judicial review to issues of gift or waste with the burden of proof upon the party attacking the transaction.View Full Point of Law
Whether the disputed debt is voidable as a matter of law.
Whether the Nakashes failed to meet their burden of establishing full fairness.
No. The principle of per se voidablitity for interested transactions does not invalidate transactions determined to be intrinsically fair.
No. The Chancellor’s conclusion that the terms of the loans met the “intrinsic fairness standard” was supported by the record and the product of a logical deductive process.
Discussion. Appellants argue that Section 144(a) provides the only basis for immunizing self-interested transactions and since none of the statute’s component tests are satisfied the common law per se rule applies. Continued viability of the intrinsic fairness test is mandated not only by fact situations where shareholder deadlock prevents ratification but also where shareholder control by interest directors precludes independent review. In this case, none of the curative steps afforded under Section 144 were available because of the director-shareholder deadlock. The ratification process contemplated by Section 144 presupposes the functioning of corporate constituencies capable of providing assents. The Court of Chancery’s conclusion that the terms of the loans met the intrinsic fairness standard was supported by the record and was the product of a logical deductive process.