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 company.
      • 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 being reasonable.
    • 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.