Equitable action by holding company against its president and its subsidiary for sequestration and ultimate recover of subsidiary stock, which had been owned by holding company, but which allegedly had been transferred to president as credit upon president's claim for unpaid stock. President counterclaimed for back salary allegedly due. The Delaware Court of Chancery, 96 A.2d 577, directed relief substantially as prayed for in complaint and dismissed counterclaim, and president appealed from dismissal of counterclaim. The Supreme Court, Tunnell, J., held that evidence was sufficient to sustain Chancellor's conclusion that president's duplicate salary was a sham and that holding company had not ratified the pretended obligation.
[34 Del.Ch. 298] William H. Foulk and Edward W. Cooch, Jr., Wilmington, for appellant.
Richard F. Corroon (of Berl, Potter & Anderson), Wilmington, for appellees.
SOUTHERLAND, Chief Justice, TUNNELL, Justice, and CAREY, Judge, sitting.
Candler-Hill Corporation, a corporation of the State of Michigan, brought suit in the Delaware Court of Chancery against its president, Jack R. Gammel, seeking immediate sequestration and ultimate recovery of certain shares of common stock of Seminole Oil and Gas Corporation. The complaint alleged that the stock in question had been owned by Candler-Hill, but that, without the authority or even the knowledge of the Candler-Hill board of directors, Gammel had caused it to be transferred to himself as a credit on a false claim for unpaid salary. For sequestration purposes, Seminole was also joined as a party defendant. Seminole is a Delaware corporation; hence the venue.
Defendant Gammel denied that there had been any irregularity in the means he employed to get the stock, but, guarding against the contingency of his being compelled to surrender the stock, he filed a counterclaim in the action, alleging the above-mentioned debt of [34 Del.Ch. 299] Candler-Hill for back salary and praying for money judgment in his favor in the sum of $37,000, with interest. Issue was joined on both the complaint and counterclaim, and trial was held on both.
The Chancellor found Candler-Hill entitled to recover a portion of the stock in question. Instead of confining his holding to the irregularity of Gammel's method of obtaining the stock, however, the Chancellor went straight to the root of the controversy and held Gammel's claim for salary to be unfounded. Thus, by resolving the one issue, he answered both questions. The Chancellor directed relief substantially as prayed for in the complaint and dismissed the counterclaim.
Following the decision below, Gammel elected to bow to the Chancellor's order in so far as the stock itself was concerned, so he surrendered what the Chancellor had ordered him to surrender, but he appealed from the Chancellor's dismissal of the counterclaim. That appeal is the action before us.
Little being involved here except questions of fact, study must be given to the setting.
At all times with which we are concerned, the stock in Candler-Hill was owned by persons who were in some way associated with a man by the name of Thomas B. Wright. For several years past 80 per cent of it has been owned by Wright's daughter, Phyllis Wright Turner, and 20 per cent by Wright's secretary, Vera L. Mario. Under a voting trust agreement, Wright, until his death, held and exercised the voting rights in all the outstanding stock. He served as a director and as president of the company. During Wright's life no other director, and no stockholder at all, took any responsibility in company affairs. Thus, the mode of operation was characteristic of many one-man corporations. Such formalities as minutes were not ignored, but minutes were made to conform to actions, rather than actions to minutes.
Mr. Wright died on February 20, 1950. Since his death the voting rights have been held and exercised by Miss Mario.
[34 Del.Ch. 300] Gammel had gone to work for Candler-Hill as an office manager in 1942 at a salary of $200 per month. He advanced rapidly until, on October 1, 1946, he was made executive vice-president. He had previously been serving as treasurer, and he also retained that office. He had no written contract of employment, but upon the occasion of his election as executive vice-president, Wright sent him the following note:
‘ Memorandum from Thomas B. Wright To-Jack Gammel--
Effective 10/1 set yourself at $1000 per month--