Harry W. MACLARY, Alfred S. Maclary and Ella Mae Maclary, Plaintiffs,
PLEASANT HILLS, Inc., a corporation of the State of Delaware, Robert P. Maclary, Bessie M. Donovan, Emma S. Maclary, Rebecca M. Turner, Edith C. Maclary and Clarence P. Donovan, Defendants.
Stockholders' derivative action for cancellation of certain stock, recovery of an alleged illegal loan from corporation to director, and recovery of certain real estate obtained by some of individual defendants from corporation for an inadequate consideration, or in lieu thereof repayment of difference in value. The Court of Chancery, in and for New Castle County, Seitz, C., held that where resolution was passed authorizing issuance of 100 shares of stock to individual defendants, who were directors of corporation, but certificates were not actually issued until three years later, transaction was not completed until certificates were issued, and plaintiffs, who became equitably entitled to some corporate stock between date of resolution and date of issuance of certificates, were entitled to maintain a stockholders' derivative action attacking the transaction.
[35 Del.Ch. 40] William Poole (of Berl, Potter & Anderson), and Abraham Hoffman, Wilmington, for plaintiffs.
Albert W. James, and Henry van der Goes (of Morris, James, Hitchens & Williams), Wilmington, for individual defendants.
Edward W. Cooch, Jr., Wilmington, for defendant corporation, Pleasant Hills, Inc.
[35 Del.Ch. 41] SEITZ, Chancellor.
This is the decision after final hearing in a stockholders' derivative action seeking:
1. Cancellation of certain stock;
2. The recovery of an alleged illegal loan from the corporation to a director;
3. The recovery of certain real estate obtained by some of the individual defendants from the corporation for an inadequate consideration, or in lieu thereof repayment of the difference in value. Plaintiffs also seek to recover profits made by one of the individual defendants on the sale of certain houses on the basis of the corporate opportunity doctrine.
In order to point up sharply the issues for decision, it is necessary to commence with the organization of the corporate defendant, Pleasant Hills, Inc. (hereafter called ‘ Pleasant Hills' or the ‘ corporation’ ). It was incorporated on May 25, 1940, and was the brain child of one of the individual defendants, Robert P. Maclary (hereafter called ‘ Robert’ ), who throughout the period involved was the dominant figure in the matters now under scrutiny.
Shortly after incorporation, the parents of Robert transferred a tract of about 111 acres to the corporation for the purpose of creating a real estate development. The development known as Pleasant Hills was created by the erection of numerous homes, most of which were later rented by the corporation. Indeed, it now has a profitable business along that line. In consideration of the transfer of the land, the corporation on May 28, 1940 authorized the issuance of 300 shares of its capital stock (there being only one class) to Robert's parents. At this same meeting a resolution was also passed authorizing the issuance of 100 shares of stock to the individual defendants, Robert and his sisters, Emma S. Maclary, Bessie M. Donovan and Rebecca M. Turner. According to the language of the resolution, it was issued to them for approximately $10,000 in expenditures made by them for the benefit of the corporation. They constituted the board of directors at that time. This is the first transaction under attack.
[35 Del.Ch. 42] Defendants first contend that plaintiffs may not attack the issuance of the 100 shares authorized by the resolution of May 28, 1940 because of 8 Del.C. § 327, which provides:
‘ In any derivative suit instituted by a stockholder of a corporation organized under the laws of this State, it shall be averred in the complaint that the plaintiff was a stockholder of the corporation at the time of the transaction of which he complains or that his stock thereafter devolved upon him by operation of law.’
Chancery Court Rule 23(b), Del.C.Ann., contains a ...