SEMINOLE OIL & GAS CORP. et al.
Action to recover shares of stock of defendant corporation formerly owned by plaintiff corporation but presently registered in name of an individual defendant who had been an officer of plaintiff corporation. The Court of Chancery, Seitz, Chancellor, held that evidence established that plaintiff owed individual defendant no salary after specified date and that individual defendant was not entitled to shares taken by individual defendant other than shares which belonged to such individual defendant.
Order in accordance with opinion.
Richard F. Corroon (of Berl, Potter & Anderson), Wilmington, for plaintiff.
William H. Foulk and Edward W. Cooch, Jr., Wilmington, for defendant Jack R. Gammel.
Defendant Seminole Oil & Gas Corp. appeared without counsel.
This is the decision after final hearing on an action to recover certain shares of stock of the defendant corporation formerly owned by plaintiff corporation but now registered in the name of the individual defendant.
Plaintiff, Candler-Hill Corporation, is a Michigan corporation. In 1942 Thomas B. Wright, and his partner, Fain Gillock, [33 Del.Ch. 515] acquired stock ownership of plaintiff. In 1944, 50% of the stock was owned by Merrel Merke, Gillock's daughter, 40% was owned by Wright's daughter, Phyllis Turner, and 10% was owned by Vera L. Mario, secretary of the plaintiff. Although Wright apparently never owned any of plaintiff's stock after 1944, from September 12, 1945 until the date of his death on February 25, 1950, he exercised 100% voting control as voting trustee of all of plaintiff's outstanding stock. Wright was also president of plaintiff although he apparently lived in New York and spent only part time at the plaintiff's plant in Michigan.
Plaintiff corporation manufactured a small pump for the Armed Forces which was stamped with the trade name ‘ Titan’ . In 1942 Titan Pump & Engineering Corporation (hereafter called ‘ Titan’ ) was incorporated as a wholly owned subsidiary of plaintiff. However, Titan was for all practical purposes wholly inactive until January 1, 1949.
Early in the war plaintiff built a new plant in Detroit which had 32,000 square feet of floor space and in which almost 1,000 employees worked in 1944. Prior to VJ Day on August 15, 1945, plaintiff's business was exceedingly profitable. It showed dollar sales of $4,229,328 and a net profit of $163,000 in 1943; sales of $7,414,514 and a net profit of $263,000 in 1944; and sales of
$3,733,054 and a net profit of $73,935 in 1945.
When VJ Day arrived it spelled financial disaster to plaintiff. All of its government contracts were canceled and plaintiff in a twinkling was changed from a highly successful ‘ war baby’ to a competitor in a civilian market. Its civilian efforts were far from successful. Thus, in 1946 its dollar sales were only $315,000, in 1947, $779,000, and in 1948, $386,000. In each of these years it suffered substantial losses on sales and on an over-all basis. In 1946 plaintiff's many creditors began pressing for payment. During 1947 and 1948 there were about fifteen or twenty creditors' suits pending. In addition, the United States Government was making various substantial claims against plaintiff. The creditors' and the government's claims were in excess of $500,000.
Despite its insolvent position, plaintiff struggled along and as [33 Del.Ch. 516] late as 1947 employed about 200 people. Finally, in July 1948, plaintiff entered into an agreement with Indian Motorcycle Company under which Indian took over the operation of the Detroit plant. This lasted only a short time, and near the end of 1948 plaintiff moved to a much smaller plant at Novi, Michigan.
As of January 1, 1949 plaintiff ceased all operations and transferred to its wholly owned subsidiary, Titan, all of its machinery and equipment, all of its inventories, all accounts receivable and 60,000 shares of Seminole stock. The actual transfer was made about February 10, 1949. At about the same time the manufacturing operations were transferred from the 32,000 square foot Detroit plant to the 11,000 square foot Novi plant. In exchange for ...