Bata v. Hill

• Decision Date: 14 February 1958
• Citation: 37 Del.Ch. 96,139 A.2d 159
• Parties: Thomas J. BATA et al., Plaintiffs, v. Donald M. HILL et al., Defendants.
• Court: Court of Chancery of Delaware

Page 159

139 A.2d 159

37 Del.Ch. 96

Thomas J. BATA et al., Plaintiffs, v. Donald M. HILL et al., Defendants.

Court of Chancery of Delaware, New Castle County.

Feb. 14, 1958.

Robert H. Richards, Jr., of Richards, Layton & Finger, Wilmington, Inzer B. Wyatt, Robert MacCrate and John W. Dickey of Sullivan & Cromwell, New York City, for plaintiffs.

George T. Coulson of Morris, Steel, Nichols & Arsht, Wilmington; Henry Cohen and Daniel M. Sandomire of Cohen & Sandomire, New York City, for defendants Donald M. Hill, Donald M. Hill, Jr.; Donald M. Hill and Donald M. Hill, Jr., as voting trustees; Jan V. Bata and North River Securities Corporation.

Henry A. Wise, Jr., of Wise & Suddard, Wilmington, for defendant Westhold Corp.

William Poole of Berl, Potter & Anderson, Wilmington, for Charles Jucker and Hans Berger, individually, as mandatories in accordance with the law of Switzerland, and as a partnership.

The other defendants have either not been served or not appeared.

SEITZ, Chancellor.

Basically, this is a dispute over the ownership of certain stock admittedly owned by Thomas Bata ('Thomas' or 'testator') at his death on July 12, 1932. While there are several plaintiffs and defendants, it is agreed that the real dispute is between the plaintiffs, Thomas J. Bata ('Tom'), only son of the deceased and the executors of the Estate of his mother, Mary T. Bata, (who died February 27, 1954) on the one hand, and the defendant, Jan Bata, half-brother of Thomas, on the other. Reference to 'plaintiffs' will embrace Tom and the Estate while reference to 'defendant' will embrace only Jan unless otherwise indicated.

By this action plaintiffs and defendant both seek to be declared the beneficial owner of the following property:

1. 890 bearer shares of the capital stock of Leader, A. G., a Swiss corporation.

2. 280 bearer shares of the capital stock of Leader, A. G., a Swiss corporation.

3. 5,084 shares of the capital stock (being all the outstanding stock) of North River Securities Corporation, a Delaware corporation.

4. 2,200 shares of the capital stock (being all but 300 shares of such stock outstanding) of Westhold Corporation, a Delaware corporation.

No challenge to the court's jurisdiction to decide the issues is raised by any party. The Leader shares (Swiss holding company) are bearer certificates which are physically within this court's custody ¹. The other property involved is stock of Delaware corporations which is evidenced by certificates on deposit with the court. The Delaware corporations were created long after Thomas' death. It is agreed however that their ownership will follow, derivatively, the determination of ownership with respect to the Leader shares. They will therefore be given only limited independent consideration in this opinion.

This litigation has a background of such magnitude that timely justice demands that the court restrain itself in painting the factual picture ².

Thomas Bata, a resident of Czechoslovakia, died there in a plane crash on July 12, 1932. At that time he was admittedly the beneficial owner of the shares of the various companies throughout the world which constituted the Bata shoe manufacturing and selling enterprise. On the day of his death two documents written in his own handwriting were found in separate sealed envelopes in his safe. One purported to be a sales agreement dated May 10, 1931, by which Thomas sold all his stock in the various operating and holding companies to his half-brother, Jan Bata. The other, self-described as 'My last will', dated May 19, 1931, purported principally to will to his widow, Mary, and only minor son, Tom, inter alia, the proceeds of the claim arising from a past sale to Jan.

Under Czech law, wills may be either 'testaments' or 'codicils'. A 'testament' names heirs (persons who are given all or fractional parts of the estate). A codicil contains legacies but does not name heirs. The will here is technically a 'codicil' but will be referred to herein as a 'testament' or 'will'.

Despite the fact that the purported sales agreement was dated May 10, 1931, it is conceded that Thomas continued to be the exclusive owner and chief of the business until his death on July 12, 1932.

It was decided in litigation in both New York and Holland and is here taken to be established that there was no valid inter vivos sale under Czech law. It is admitted that by the Czech court's deed of delivery, the heirs, Tom and Mary, took title to all of Thomas' estate subject to the obligation to pay debts and legacies. Thus, they took title to the Leader shares here involved. I pause to note that Czech law, prior to the Communist seizure, is controlling. Much of that law is found by reference to Austrian Civil Code provisions and court decisions because, of course, Czechoslovakia was part of the Austrian-Hungarian Empire until World War I.

Commencing at Thomas' death, Jan took over the management of the various operating businesses with the full cooperation of the heirs. The Bata Companies were making and selling shoes in large numbers. It was then a big business but was destined to expand much more in the years to come despite the loss of the assets beyond the Iron Curtain. It is disputed whether Jan took over as owner and whether he took over the Leader bearer certificates at all.

Thomas had caused Leader to be created in 1931 and transferred to it a majority of the shares of most of the operating companies. Two thousand Leader bearer shares were issued. Four of these shares were held by Swiss mandatories as qualifying shares and the rest were ultimately held for Thomas by his trusted lieutenant, Muska. Thomas controlled Leader by virtue of what is known as a mandate relationship. Under the agreement covering this relationship, Thomas (mandator) gave instruction to certain Swiss lawyers (mandatories). Subject to Swiss law and the corporation's charter and by-laws, the mandatories were bound to follow such instructions with respect to the affairs of Leader.

The mandatories recognized Jan's right to give orders after Thomas' death and until the dispute broke out several years later between the heirs and Jan. Thereafter they were required to be neutral.

The operating companies continued under the control of Jan until he was compelled to withdraw by virtue of being placed on the British and American black lists during World War II. He then took up residence in Brazil and was not in the 'general picture' for several years. Some time during this period, Tom, who was then in his early thirties, took control almost by 'default' of nearly all the Bata enterprise beyond the German sphere of influence. Tom still controls the vast operation pending a determination of this litigation which involves ownership determination of the majority shares of the holding company, Leader.

The disagreement between Tom and perhaps his mother, Mary, on the one side and Jan on the other was 'brewing' for some time and reached the breaking point in the middle forties. By that time it was apparent that a dispute had arisen as to whether Jan or the heirs owned the various shares of stock left by Thomas, particularly the stock of Leader.

The dispute produced the expected litigation in various places. Plaintiffs first commenced an action in Switzerland on March 28, 1947 to compel the Swiss mandatories to maintain the status quo until further order of the court. An order to this effect is still in force.

In an entirely independent action commenced in Switzerland on June 28, 1947, the heirs sought a declaratory judgment against the Swiss mandatories to have themselves declared entitled to be treated as Thomas' successors with respect to the mandate. Jan was interpleaded in the Swiss action and actively opposed plaintiffs' contentions. The trial court and the intermediate appellate court (decision final as to foreign law) have determined that the heirs are entitled in effect to operate as successors to Thomas with respect to the mandate relationship. The decision is discussed more fully later herein out it should be noted here that the decision is admittedly not entitled to binding force in this action.

The Leader shares (except perhaps for the four qualifying shares) were physically transferred at various times after Thomas' death. Muska, a trusted lieutenant of Thomas and later of Jan and the enterprise, died in the middle forties. Certificates for 826 Leader bearer shares were found in his safe deposit box in a bank in New York. The heirs immediately commenced a replevin action in the New York State Court against the Bank and Muska's administrators to obtain possession on the ground that they belonged to plaintiffs as the heirs of Thomas. Once again Jan was interpleaded and claimed ownership of the shares.

Before the New York action was completed, plaintiffs, on June 23, 1949, commenced an action in Holland to obtain possession of certain stock and dividends of the Dutch Bata Company. Once again Jan was a defendant claiming ownership.

In time the New York action was completed through the highest court and it was determined that plaintiffs were entitled to delivery of the Leader shares found in the New York bank. See Bata v. Chase Safe Deposit Co., Sup., 99 N.Y.S.2d 535; Bata v. Bata, 279 App.Div. 182, 108 N.Y.S.2d 659; 306 N.Y. 96, 115 N.E.2d 672. Basically as hereafter decided, the court concluded that there was no valid inter vivos agreement between Thomas and Jan and that consequently, Thomas died intestate as to the Leader shares there involved and the heirs were entitled to them; that they received them under the deed of delivery and continued to hold the shares as Thomas' intestate heirs. The court also decided that the heirs were not equitably estopped to claim the shares.

Before the New York litigation was concluded in the highest court of that State, the Dutch trial court determined the case on the merits. Despite the lower New York court's decision to...