Bove v. Community Hotel Corp. of Newport, R.I. 105 R.I. 36, 249 A.2d 89 (1969) Community was a corporation that had a by-law saying that holders of preferred stock had the right to receive any unpaid dividends before the corporation could pay any dividends to common stock holders. Community hadn't paid dividends for 24 years, which added up to a lot of unpaid money! Community needed to sell common stock to raise capital, but people didn't want to buy it if they didn't think they'd get a dividend. So, the directors attempted to get the preferred stockholders to agree to give up their claims for 24 years of unpaid dividends. Some of the preferred stockholders did not want to give up this claim. Unless there was 100% buy in fro the preferred stockholders, the directors couldn't nullify their claims. When it became apparent that Community could not get some of the preferred stockholders to agree to give up their claims, the directors decided to merge Community together with a subsidiary company. The merger rules are complicated, but in the end this move would have gotten around the need to get all of the preferred stockholders' consent, they'd only need a majority (which they had). Bove, one of the preferred stockholders, sued to prevent Community from merging. The Trial Court found for Community. Bove appealed. The Appellate Court affirmed. The Appellate Court looked to Rhode Island law, and found that mergers of corporations required a simple majority of stockholders. The Court noted that nothing in the law talked about any reasons for why a corporation might decide to merge. The Court found that nothing in the law prevented a corporation from merging solely for the purpose of getting around other requirements. Basically, as long as a company meets the statutory requirements for a merger, the courts will not inquire into the reasons the corporation is merging. That's part of the business judgment rule. Contrast this case with Schnell v. Chris-Craft Industries, Inc. (285 A.2d 437 (1971)), in which the Court found that even when a company was strictly complying with the law, equity demands that when the directors take actions for shady purposes, they should not be allowed to profit.