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Garbarino v. Albercan Oil Corp.

Court of Chancery of Delaware, New Castle County

November 12, 1954

Mary T. GARBARINO, Guido M. Garbarino, Renata C. Treves, Gino R. Treves, Leo J. Wollemborg, George R. Miller, Lee E. Miller and Olimpia Falco, Plaintiffs,
ALBERCAN OIL CORPORATION, Canada Southern Oils, Ltd., and The Catawba Corporation, Defendants.

On Reargument Dec. 21, 1954.

Action by certain stockholders attacking sale of corporate assets to majority stockholder on ground that consideration paid for assets was legally inadequate. On objections to plaintiffs' interrogatories, the Court of Chancery, in and for New Castle County, Seitz, C., held that where agreement for sale of corporate assets for stock of corporate vendee contained stipulation that chancellor was to determine whether consideration fixed in agreement was so inadequate as to be invalid and that for purpose of such determination stock of vendee was fixed at a certain value as of date of agreement, date to be used in determining fairness of sale price was original date of agreement and not date of extension or date on which sale was finally consummated.

Order accordingly.

In derivative action by stockholders attacking fairness of sale of assets to stockholder, which owned 90 per cent of voting stock and which acquired oil and gas property shortly after corporation discovered oil and gas on land leased or purchased by it, stockholders were entitled to discovery of holdings of majority stockholder in nonproducing and producing oil and gas properties and pertinent information relative thereto.

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[35 Del.Ch. 29] Robert C. Barab, Wilmington, and Gallup, Climenko & Gould, New York City, for plaintiffs.

Robert H. Richards, Jr., of Richards, Layton & Finger, Wilmington, for defendant Albercan Oil Corp.

John J. Morris, Jr., of Morris, James, Hitchens & Williams, Wilmington, for defendant Canada Southern Oils, Ltd.

SEITZ, Chancellor.

This is the decision on the objections of the defendants, Albercan Oil Corporation (called ‘ Albercan’ ) and Canada Southern Oils, Ltd. (called ‘ Canada Southern’ ) to plaintiffs' interrogatories. Defendants object to all the interrogatories for one or more reasons.

This is an action by certain Albercan stockholders attacking a sale of assets on the ground that the consideration paid by Canada Southern to Albercan for its assets was legally inadequate. Canada Southern owns a majority of the Albercan stock. Under the agreement of sale, Albercan was to sell its assets to Canada Southern and in turn Canada Southern agreed to deliver to or upon the order of Albercan sufficient shares of Canada Southern stock to provide each shareholder of Albercan one share of Canada Southern for every 2.444 shares of Albercan held. In order to have the sale ‘ go through’ without injunctive interference, the parties stipulated, inter alia, as follows:

‘ 4. The chancellor will proceed to determine whether the consideration fixed in the contract of sale between Albercan and [35 Del.Ch. 30] Canada Southern, dated March 27, 1953, was so inadequate as to be invalid. For the purposes of such determination, it is agreed that the value of the stock of Canada Southern on March 27, 1953, was $11.50 per share.’

Defendants first object to certain interrogatories on the ground that they seek information for periods not relevant to the date to be used in judging the fairness of the sale. Obviously, the assets must be valued and compared as of a particular date. The parties are in disagreement as to the date the court should use in evaluating Albercan's assets. Defendants insist that the date is March 27, 1953, while plaintiffs contend that the date is either November 25, 1953, or February 23, 1954. The reason for the division of opinion is that the original agreement of sale was dated March 27, 1953. However on November 25, 1953,

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an extension agreement was executed by which the closing date was further extended from earlier extension dates granted the selling corporation. The sale was consummated on February 23, 1954.

Initially, I see no reasonable basis for using February 23, 1954, the consummation date, for purposes of comparing values. There is no suggestion that it was unreasonably chosen or chosen in bad faith. As subsequently appears, it was selected soon after the tax free nature of the sale was established.

Plaintiffs next argue very vigorously that the November 25, 1953 date should be used for purpose of testing the fairness of the sale price, rather than the date of the original agreement. They point to the admitted control of the selling corporation by the purchasing corporation and say such fact rendered it necessary for Albercan's directors to re-examine the fairness of the transaction before approving the extension on November 25, 1953. This being so, they contend that the later date must be used for comparison purposes.

Defendants say that the extensions were solely for the benefit of the selling corporation in the sense that the contracting parties were waiting to see whether they could obtain a ruling that Albercan [35 Del.Ch. 31] would be making a tax free sale.[1] Defendant, Canada Southern, of course, necessarily concedes that this benefit to plaintiffs would largely inure to its benefit because it is the largest stockholder of the selling corporation. However, the reason for the extension was also beneficial to Albercan's other stockholders. Indeed, a serious problem ...

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