Corporations – Effect of a Provision in Articles of Incorporation Permitting the Counting of Interested Directors for Quorum Purposes

Plaintiffs, minority stockholders, sought to restrain the consummation of a merger agreement between defendant Mayflower and Hilton corporations because the plan had not been approved by a quorum of disinterested directors of Mayflower. Defendants relied upon a provision in Mayflower’s articles of incorporation which stated that ” . . . any director may be counted in determining the existence of a quorum at any meeting of the Board of Directors of this Corporation for the purpose of authorizing any contract or transaction [between this Corporation and any other corporation in which any director or officer of this Corporation is pecuniarily or otherwise interested or is a director, member or officer of such corporation] with like force and effect as if he were not so interested, or were not a director, member or officer of such corporation. . .” In reply, plaintiffs contended that because this provision was contrary to the Delaware common law rule precluding the counting of interested directors for quorum purposes it was in violation of the corporation statute which permitted only provisions consistent with the law of the state to be included in articles of incorporation. On appeal, held, such a provision does not violate the Delaware statute, at least in situations where the action taken by the board of directors must be submitted for stockholders’ approval. Sterling v. Mayflower Hotel Corp., (Del. 1952) 93 A. (2d) 107.