BAYARD et al.
Proceeding by corporation, present stockholders, and another to enjoin seller from proceeding with executions upon certain judgments upon judgment notes, executed by corporation and buyer in connection with sale of outstanding stock of corporation, pending determination of suit in Superior Court by seller on account of nonpayment of judgment notes, wherein counterclaim was interposed for alleged stock fraud of seller. The Court of Chancery, Newcastle County, 98 A.2d 780, entered judgment denying application for preliminary injunction, and plaintiffs appealed. The Supreme Court, Tunnell, J., held, inter alia, that in considering propriety of issuance of temporary injunction only probability of prevailing which it was proper for Court of Chancery to consider was probability of prevailing on issues which that court itself was to try and treatment of fraud issue would not be within scope of present proceeding.
[34 Del.Ch. 187] Appeal from a judgment of the Court of Chancery denying an application for a preliminary injunction to restrain execution proceedings on certain judgments in a court of law, pending outcome of an action at law.
William E. Taylor, Jr., Wilmington, for appellants.
August E. Walz and, on the brief, Clarence W. Taylor, of Hastings, Stockly & Walz, Wilmington, for appellee.
TUNNELL, Justice, and CAREY and HERRMANN, Judges, sitting.
On October 3, 1946, Joseph H. Martin, the defendant, entered into a contract with Star Publishing Company (hereinafter called ‘ Star’ ), one of the plaintiffs, and an individual by the name of J. Edwin Carter. The contract provided that Martin was to do and refrain from doing a number of things of benefit to Star and to sell Carter all of the issued and outstanding capital stock in Star. As part consideration for the contract, Martin was to receive $140,500 in money, of which $35,000 was paid down, and the remainder was to become due in twenty-one installments maturing over a period of years. A judgment note was taken for each installment. Both Star and Carter executed the contract and each of the notes, and in January, [34 Del.Ch. 188] 1947, all the notes were entered in judgment in the Superior Court of New Castle.
Carter continued to own all of the stock, and Star proceeded to pay Martin his payments, until August 1, 1949, when Star, being in serious financial difficulty, became unable any longer to pay.
In that situation, on the 12th of October, 1949, Carter entered into a contract to sell 87 1/2% of his Star stock to Stanley Ross, one of these plaintiffs. By way of consideration for the portion of the stock Carter was selling, he was to be released from all obligation to Martin. Star, Ross, and Martin, by formal instruments, settled that Carter was to be so released; that Ross was to assume Carter's obligation in the premises, giving Martin new notes in equivalent amounts; that Carter was to be released from all obligation to Martin, including, of course, all liability on the series of judgments entered against Carter and Star; and that Star was to seek no advantage from the substitution, remaining liable on the judgments as before. These judgments are the ones with which the present action is concerned.
In due course it was disclosed that Ross had not been acting in the transaction for himself-at least not up until the date of the contract-but had been the agent for Alexis I. duPont Bayard and Erwin M. Budner, the remaining plaintiffs in this action.
Large sums of new money were made available to Star, and legal matters remained for a time as above related, with
Martin continuing to collect the judgments which matured from time to time, until, when the balance had been reduced to about $50,000, Bayard, Budner, Ross, and Star, or some of them, began to assert a claim that in connection with the sale of Carter's stock to Ross in 1949, Martin, in order to improve his security, had grossly deceived Ross in respect to certain particulars of Star's business which had a material bearing upon the worth of Star stock. All payments were stopped.
Thereupon Martin not only pressed for collection of the judgments as they matured from time to time, but also sued Star, Bayard, and Budner on the 1946 contract (subject to the substitution of [34 Del.Ch. 189] obligors effected in 1949) in the Superior Court of New Castle County, in Civil Action No. 320, 1952. By that suit Martin sought recovery of certain income taxes alleged to have been refunded to Star and, on account of the above-noted nonpayment and other alleged defaults on the part of defendants, acceleration to the present time of the obligation to pay all of the above-mentioned installments, with interest. Defendants interposed a counterclaim, asserting Martin's perpetration of the stock fraud and seeking to recover substantial damages fro him on account of it. This suit, at issue on both the complaint and the counterclaim, presently awaits trial in the court in which it was brought.
In the meantime, Martin, by issuing execution on certain of the judgments against Star and Carter, has obtained liens upon the personal property of Star. All of the judgments, by virtue of their entry, automatically became and are liens upon Star's real estate.
After the first two executions had been issued, however, Bayard, Budner, Ross, and Star brought suit in the Court of Chancery, reciting the facts above related, alleging Martin's active participation in the stock fraud, and demanding that the Court of Chancery intervene to protect them from being compelled to pay Martin the whole amount of these judgments before they can ...