Theodora Holding Corp. v. Henderson
257 A.2d 398 (Del.Ch. 1969)
Henderson had a controlling
interest in a corporation called Dawson Inc. He regularly arranged for
Dawson to make large charitable contributions to a specific charity.
One year, one of the directors
suggested that the charitable gift be made to a charitable corporation
supported by Henderson's ex-wife (who also owned a chunk of Dawson stock).
In response, Henderson reduced the number of directors on the Board of
Dawson, and made the gift to his charity anyway.
Henderson's ex-wife (through
her holding company), sued, challenging the gift as an inappropriate use
of corporate funds.
The Trial Court found that the
donation was acceptable.
The Trial Court found that
the donation was not excessive compared to the overall income of the
The Court looked to the Internal
Revenue Code, which said that
business donations were limited to 5% of the revenue of the corporation.
Since this donation was less than that, it meets the requirement of
The Court noted that there
were tax benefits to the corporation for making charitable donations.
Therefore Court found that
there were legitimate reasons to make donations. Due to the Business
Judgment Rule, the Court was not
going to second guess a business decision unless it was unreasonable, and this seemed reasonable.
In addition, the Court
wanted to advance the public policy of corporate donations.