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Keywords

trustcorporationnonprofit
summary judgmenttrustcorporationnonprofitrespondent

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Chapin v. Benwood Foundation, Inc., 402 A.2d 1205

Facts

Benwood Foundation, Inc. is a Delaware charitable corporation formed in 1944, originally governed by a board of three to five trustees. The foundation's assets were primarily composed of stock from the Thomas Companies, which were acquired by The Coca-Cola Company in 1974. Following the sale, three trustees questioned the validity of the 1972 Succession Agreement, which limited the board to four members and designated successors. They executed an agreement to rescind the 1972 Succession Agreement, leading to a dispute over the board's composition.

From its formation in 1944 through 1975 the assets of Benwood were composed almost entirely of the common stock of three companies of which George Thomas Hunter, Benwood's founder, had been the controlling stockholder and chief executive.

Issue

Whether the board of trustees of a Delaware nonprofit corporation can bind itself by a written agreement to limit its composition and designate successors in advance.

The question presented in this case is whether the board of trustees of a Delaware nonprofit, charitable corporation can bind itself by the written agreement of its individual trustees to limit the composition of the board to a number of trustees less than that authorized by the certificate of incorporation and, also, whether by the same agreement it can legally bind itself in advance to name designated persons to fill vacancies on the board of trustees as such vacancies occur.

Rule

The court ruled that directors of a corporation may not delegate their management duties and that agreements restricting the number of trustees or designating successors in advance are unenforceable.

I agree with the movants that the decision here should be controlled by the longstanding rule that directors of a Delaware corporation may not delegate to others those duties which lay at the heart of the management of the corporation.

Analysis

The court found that the 1972 Succession Agreement was no longer relevant after the sale of the Thomas Companies, which had been the basis for maintaining a balanced board. The court emphasized that the trustees have a duty to use their best judgment in filling vacancies as they arise, rather than being bound by prior agreements that do not consider current circumstances.

For these reasons, I cannot conclude that the 1972 Succession Agreement constituted the exercise of a duty imposed upon the board of trustees by Benwood's certificate of incorporation or bylaws.

Conclusion

The court concluded that the 1972 Succession Agreement was unenforceable, affirming that the current five-member board of trustees was lawfully constituted.

Accordingly, I conclude that the 1972 Succession Agreement is unenforceable as against the decision of Benwood's board of trustees in April 1977 to increase the number of trustees to five and to elect Sebert Brewer, Jr. and Joseph H. Davenport, Jr. to the board.

Who won?

Chapin and the current trustees prevailed because the court found that the 1972 Succession Agreement was unenforceable, allowing the board to operate with five members.

Chapin, as applicant, together with Benwood, Probasco, Randolph and Davenport, as respondents, have moved for summary judgment declaring that the present five-member board of Benwood is lawfully constituted and elected.

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