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Wolf v. Globe Liquor Co.

Supreme Court of Delaware

March 25, 1954


Accounting action by former employee, who had been corporate president, director, and manager, for bonus allegedly due under employment contract. The Court of Chancery in and for New Castle County, 96 A.2d 236, entered judgment dismissing complaint, and employee appealed. The Supreme Court, Wolcott, J., held that, where employee, who was director, president, and manager of corporate employer, had, by his acceptance of bonuses and execution of corporate tax returns, assisted in putting corporation in position that prevented it from complying with his present demand for additional bonuses allegedly due under employment contract allowing bonuses based upon net profits, and only means of corporate recoupment would be by tax refund claims, collection of which were at best doubtful, and, even if successful, would be accompanied with expense of prosecution, doctrine of equitable estoppel would preclude recovery of additional bonuses even if employee were correct in his interpretation of employment contract.

Judgment affirmed.

Where corporation and corporate employee, who was corporate president, director, and manager, had operated under corporate interpretation of employment contract provision entitling employee to annual bonuses based upon net profits, employee's bonus rights were finally determined at end of each year, and, therefore, employee would not be entitled to additional bonus payment as result of refund paid corporation due to carry-back of its loss of one year to a previous year.

[34 Del.Ch. 313] William Prickett, Wilmington, for appellant.

H. Albert Young, Wilmington, for appellee.


WOLCOTT, Justice.

This appeal involves the question of the right of a former employee to demand an

Page 775

accounting from his employer of additional profits in past years, to a percentage of which the employee contends he was entitled pursuant to the terms of his employment agreement. The facts of the case are as follows:

Globe Liquor Company, the appellee, (hereinafter called Globe) is a Delaware corporation engaged in the wholesale liquor business. Some time in 1937, Morton Lazarus acquired all of its outstanding stock and, in July of that year, in Globe's behalf, entered into an employment agreement with Harry Wolf, the appellant. This agreement is evidenced by a minute of action taken at a meeting of Globe's directors on July 14, 1937. Under its terms, Wolf was hired as general manager of Globe at a salary of $75 per week and additional compensation as a bonus of 25% of the ‘ net profits' of Globe until such time as Lazarus was reimbursed by Globe the sum of $30,000, upon which event Wolf's bounds was to be 50% of the ‘ net profits'. Either Globe or Wolf could terminate the agreement by giving 30 days written notice.

Wolf was elected a director and president of Globe and managed its operations. From 1937 through 1939, the operations were nonprofitable. Commencing with 1940 substantial earnings were made by Globe and Wolf was paid 25% of the ‘ net profits' until 1944 when he ascertained that more than $30,000 had been accumulated by Globe from earnings and, by agreement with Lazarus, that fact was considered to be reimbursement of Lazarus. Thereafter, Wolf's bonus was computed at the rate of 50%.

In 1940 Globe retained an accountant. At a meeting between the accountant, Lazarus and Wolf, the question of the meaning of the [34 Del.Ch. 314] phrase ‘ net profits' used in the employment agreement was raised by the accountant. He proposed to compute Wolf's bonus upon a basis of ‘ bonus after would-be taxes'. This method was suggested as a simple method of computing the bonus which would not involve the use of an algebraic formula, or a trial and error computation. Thereafter, Wolf's bonuses were computed and paid upon this basis. However, the tax returns filed by Golbe set up Wolf's bonus payments as a deduction thus reducing the actual tax paid by Globe from the amount of ‘ would-be tax’ used in computing the bonus. The result was to increase the amount of profit retained by Globe. Throughout the period of employment Wolf received a total of $91,635.16 as bonus payments. In 1947 Globe operated at a loss and Wolf terminated the employment agreement at of December 31. 1947.

Throughout the period of his employment, Wolf received raises in his salary and other compensation. Thus, his salary was increased in 1939 to $100 per week; in 1941 to $175 per week, and, finally, was increased to $200 per week. In addition, Wolf was paid a so-called salary bonus in 1940 of $6,000 and in each of the years 1945 and 1946, a salary bonus of $3,000. The so-called salary bonuses were in addition to the bonuses paid Wolf pursuant to the employment agreement of 1937.

Commencing some time about the middle of the period of his employment, Wolf became dissatisfied with the amount of his compensation and complained to Lazarus. Various expedients were proposed to Wolf to increase his compensation. These were designed to do so at little more expense to Globe. However, these suggestions did not bear fruit in a formal agreement. In spite of Wolf's apparent dissatisfaction, his bonus ...

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