Friday, March 23, 2012

Zahn v. Transamerica Corporation case brief

Zahn v. Transamerica Corporation (3rd Cir. 1947)

-Transamerica was majority shareholder in Axton-Fisher, and knew that AF’s assets
were about to rise sharply in value. Through its board appointees, it had AF exercise
an option to redeem a class of stock at a set price. As a result, Transamerica then
owned the vast majority of the remaining classes of stock. The board then liquidated
the company, resulting in a large profit for Transamerica.

Here, since the transaction was dominated by the majority, dominating board has to
prove fairness. Majority has fiduciary relationship toward minority.
The court says that AF’s call to redeem the class of stock is voidable in equity.
Most states will say that a share is a contractual right and fiduciary duty doesn’t go

Remedies available to court include:
o Void transaction
o Impose remedial damages to make transaction fair.

Note that corporations might issue callable stock because they want to reduce the amount of dividends they have to pay.

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