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Consolidated Fisheries Co. v. Consolidated Solubles Co.

Supreme Court of Delaware

February 28, 1955

CONSOLIDATED FISHERIES COMPANY, a corporation of the State of Delaware, Thomas H. Hayes, an individual, and Richard C. Hayes, an individual, Appellants,
CONSOLIDATED SOLUBLES COMPANY, a corporation of the State of Delaware, and David Levin, and individual, Appellees.

Reargument Denied April 28, 1955.

See Supplemental Opinion 113 A.2d 576.

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Accounting proceeding brought against fish oil corporation by other party to joint adventure. From judgment of Court of Chancery, Sussex County, 107 A.2d 639, defendant appealed. The Supreme Court, Wolcott, J., held that where fish oil corporation and another party entered into agreement for other party to form corporation to erect condensing plant with other party supplying capital up to specified amount with fish oil corporation to oversee erection of plant and supervise construction, such agreement constituted joint adventure, and was not warranty by fish oil corporation that plant would not cost more, or undertaking by fish oil corporation to build such plant for specified price, and, consequently, sums expended by fish oil corporation in erection of plant, over and above agreed amount, were allowable to defendant.

Reversed in part and remanded for further proceedings.

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[35 Del.Ch. 128] John Van Brunt, Jr., Wilmington, for appellants.

Samuel R. Russell, Georgetown, and William Ginsburg, Philadelphia, Pa., for appellees.

SOUTHERLAND, Chief Justice, WOLCOTT, Justice, and LAYTON, Judge, sitting.

WOLCOTT, Justice.

This appeal brings before us for review a judgment ordering a final accounting and, in part, settling details of the accounting. Portions of the judgment are assigned as errors all of which are set out hereafter.

The facts giving rise to the litigation are summarized.

In early 1951, Thomas H. Hayes (hereafter called Hayes) suggested to David Levin (hereafter called Levin) that he, Levin, erect a plant for the evaporation of weak fish stickwater, which is a waste product of the operation conducted by Consolidated Fisheries Company (hereafter called Fisheries) for the processing of oils and fertilizer from fish, of which company Hayes was treasurer. The evaporation of weak fish stickwater forms condensed fish stickwater, a commercially valuable additive to poultry feeds. The ultimate result was that Levin and Fisheries, on April 6, 1951, entered into a contract for the erection and operation of such a plant upon the land of Fisheries. It seems apparent that Hayes was the controlling force of Fisheries.

Under the agreement of April 6, 1951, Levin agreed to organize a corporation under the name of Consolidated Solubles Company (hereafter called Solubles) and to supply Solubles with capital, not in excess of $50,000, to be used for the erection of a stickwater plant on the land of Fisheries. It was further agreed that Levin would cause [35 Del.Ch. 129] Solubles to enter into the agreement, Fisheries, for its part, agreed to check the construction of the plant and to assist with its best judgment and advice. Upon the completion of the plant, Fisheries agreed to supply to the extent of its ability sufficient weak fish stickwater from its fish processing operation to keep Solubles' plant in full operation during the fishing season which, each year, extends through the months of June to October. Fisheries also agreed to supply at cost all labor, power, supplies and supervision necessary to operate the plant and produce condensed fish stickwater, and also to sell the finished product.

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Under the agreement, Solubles promised to pay to Fisheries the cost to Fisheries of all power, oil, supplies, and labor furnished by Fisheries in connection with the operation of the plant. Fisheries' cost of selling the product was to be reimbursed by a 2% commission on the net sale price. The product was to be sold and billed in the name of Solubles, and the proceeds of sale deposited in Solubles' bank account. All payments of costs of operation due Fisheries were to be made on the 10th of the month following the month in which they were incurred.

It was also agreed that in return for its management and for the supplying of weak fish stickwater, Fisheries was to receive 60% of the net profit of Solubles to be determined by deducting from the gross sales of Solubles all costs of operation of the plant and selling the product, exclusive of salaries to officers, federal income taxes, and interest charges, but inclusive of depreciation.

The agreement provided that it should remain in effect for a period of ten years, unless terminated sooner at the option of Solubles for Fisheries' failure to supply sufficient week fish stickwater in accordance with its undertaking. Upon the termination of the agreement, for either cause, it was agreed that Fisheries should have the right to purchase all of the outstanding stock of Solubles at its book value, to be determined in accordance with a set formula.

Simultaneously, with the execution of the foregoing agreement of April 6, 1951, Fisheries and Levin entered into another agreement by the terms of which Levin, the sole stockholder of Solubles, agreed not [35 Del.Ch. 130] to transfer any of his stock, and granted Fisheries an option to purchase his stock at any time, upon certain terms with which we are not concerned in this appeal.

Shortly after the execution of the agreements of April 6, 1951, construction of the plant commenced and machinery was purchased for installation. It soon became apparent that the contemplated plant could not be constructed for the sum of $50,000 and, accordingly, on May 31, 1951, Levin and Fisheries entered into a second agreement modifying the agreement of April 6, 1951. This agreement obligated Levin to advance a maximum of $70,000 to Solubles in order to enable it to expend up to that amount for the erection of the plant.

The erection of the plant then proceeded, but it became apparent that the complete plant could not be constructed for the sum of $70,000, the maximum amount of Levin's commitment. The testimony as to the understanding, if any, of the parties after this became known is sharply at loggerheads, but, in any event, Fisheries completed construction of the plant at a total cost claimed to be in excess of $95,000, Solubles contributing slightly in excess of $70,000.

Fisheries commenced operation of the plant. Upon the refusal of Solubles and Levin to agree to reimbursement for the excess of construction cost over the sum of $70,000, Fisheries proceeded to sell the condensed fish stickwater produced at the Solubles plant in its own name and to credit on its claim all the net receipts from sales, with the exception of a nominal amount paid over to Solubles.

From this point on, the difficulties and disagreements between the parties multiplied. Fisheries claimed the right to retain the proceeds of sale of Solubles' product until it had reimbursed itself for the cost of plant construction in excess of $70,000, while Solubles claimed that Fisheries had agreed to erect the plant at a cost not to exceed $70,000, and denied that Fisheries had any right to reimbursement for the excess cost from the proceeds of sales, or from any other source. It further claimed that in fact the cost of the plant was actually approximately $49,000, and that in any event as to the amount of cost over $70,000, Fisheries was a volunteer and entitled to no reimbursement.

[35 Del.Ch. 131] The dispute eventually culminated in the litigation now before us. Solubles filed its complaint in the Court of Chancery asking for an injunction to prevent Fisheries from

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selling Solubles' product in its own name, from failing to deposit the proceeds of sale in Solubles' bank account, and for an accounting of the monies advanced by it in the construction of the plant and of the proceeds of the sales by Fisheries.

The Vice-Chancellor issued a preliminary injunction ordering Fisheries to refrain from selling Solubles' product in its own name, and from further refusing to deposit the proceeds of sales in Solubles' bank account. On the application of Fisheries the Vice-Chancellor stayed the issue of the preliminary injunction, but on review this court reversed the stay. 99 A.2d 253. Thereafter, this court affirmed the Vice-Chancellor and ordered the preliminary injunction continued until final judgment. 99 A.2d 497

After final hearing, the Vice-Chancellor entered a judgment making the preliminary injunction final, and ordering that Fisheries account to Solubles for the cost of construction of the Solubles plant and for the cost of operation for the years 1951 and 1952.

From this judgment Fisheries has appealed asserting that the Vice-Chancellor committed error in her decision that the preliminary injunction be made permanent and in his decision upon certain items in the accounting which he decided adversely to Fisheries.

Initially, we can dispose of one point on the concession of counsel for Fisheries. After the docketing of this appeal Fisheries exercised its option to purchase all of the outstanding stock of Solubles owned by Levin, and counsel for Fisheries now concedes that the question of the permanent injunction has become moot and therefore abandons the application for review of this portion of the judgment. We accept this concession and will, accordingly, not disturb the issue of the permanent injunction.

The other questions raised by the appeal are, however, urged upon us vigorously and with them we must cope. Fisheries urges that the Vice-Chancellor ...

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