Pauley Petroleum Inc. v. Continental Oil Co.

CourtUnited States State Supreme Court of Delaware
Writing for the CourtWOLCOTT; WOLCOTT
Citation239 A.2d 629,43 Del.Ch. 516
Decision Date24 January 1968
PartiesPAULEY PETROLEUM INC., a corporation of the State of Delaware, Pauley Pan American Petroleum, Inc., a corporation of the State of Delaware, and American Independent Oil Company De Mexico, S.A. de C.V., a corporation of the Republic of Mexico, Plaintiffs Below, Appellants, v. CONTINENTAL OIL COMPANY, a corporation of the State of Delaware, Defendant Below, Appellee.

Page 629

239 A.2d 629
43 Del.Ch. 516
PAULEY PETROLEUM INC., a corporation of the State of
Delaware, Pauley Pan American Petroleum, Inc., a corporation
of the State of Delaware, and American Independent Oil
Company De Mexico, S.A. de C.V., a corporation of the
Republic of Mexico, Plaintiffs Below, Appellants,
v.
CONTINENTAL OIL COMPANY, a corporation of the State of
Delaware, Defendant Below, Appellee.
Supreme Court of Delaware.
Jan. 24, 1968.

Page 630

[43 Del.Ch. 517] Appeal from Court of Chancery in and for New Castle County.

H. Albert Young, H. James Conaway, Jr., and Ben T. Castle, of Young, Conaway, Stargatt & Taylor, Wilmington, and Orris R. Hedges, Los Angeles, Cal., for appellants.

James M. Tunnell, Jr., and William S. Megonigal, Jr., of Morris, Nichols, Arsht & Tunnell, Wilmington, and Joseph C. Hutcheson, III, and Finis E. Cowan, of Baker, Botts, Shepherd & Coates, Houston, Tex., for appellee.

WOLCOTT, C.J., and CAREY and HERRMANN, JJ., sitting.

WOLCOTT, Chief Justice.

This an appeal from the denial of a preliminary injunction which would have required Continental Oil Company (hereinafter 'Continental'), a corporation of the State of [43 Del.Ch. 518] Delaware, defendant below, to cause its wholly-owned subsidiary, Mexofina S.A. de C.V. (hereinafter 'Mexofina'), a Mexican corporation, to cease the prosecution of an action filed in the First District Court for Civil Matters of the Republic of Mexico against Pauley Pan American Petroleum, Inc. (hereinafter 'Pauley Pan Am'), a Delaware corporation, and American Independent Oil Company, S.A. de C.V. (hereinafter 'Aminoil'), a Mexican corporation, wholly-owned subsidiaries of Pauley Petroleum Inc. (hereinafter 'Pauley'), a

Page 631

Delaware corporation. The plaintiffs below, Pauley, Pauley Pan Am and Aminoil, appeal.

In order to understand the controversy, some background history is necessary. About 1950, Edwin W. Pauley and his associates (hereinafter 'Pauley Group') obtained three mineral exploration contracts for the petroleum exploration of certain upland and tideland areas in Mexico from Petroleos Mexicanos (hereinafter 'Pemex'), a nationalied petroleum instrumentality of the Republic of Mexico. Under these contracts, the Pauley Group was entitled to recover approved costs incurred in the exploration and, in the event of oil production, certain percentages of the production as their compensation. In the decade 1950 to 1960, the Pauley Group, acting through subsidiaries wholly-owned by Pauley, viz., Pauley Pan Am (which was authorized to do business in Mexico), Mexofina and Aminoil, conducted the exploration. By 1961, these three Pauley wholly-owned subsidiaries owned all of the interest in the three exploration contracts with Pemex.

In the latter part of 1960, Continental became interested in investing in the oil exploration conducted by the three Pauley subsidiaries under contract with Pemex. Acting upon legal advice, Continental decided that it would not be practical for it to obtain approval for the doing of business in Mexico and accordingly, reached the conclusion that it should invest by acquiring one of the Pauley subsidiaries. Ultimately, Continental purchased all of the capital stock of Mexofina in a good-faith transaction.

Prior to the acquisition of Mexofina by Continental, Pauley management had selected the officers of Mexofina and made all important business decisions for that corporation. Thereafter, Continental carried on in the same fashion.

[43 Del.Ch. 519] The ownership of Mexofina was transferred by a contract between Continental and Pauley executed in California and described as the 'Purchase Agreement of 1961'. Under the terms of this contract, Continental acquired all of the stock of Mexofina, and Pauley caused a 50% Interest in certain of the contracts with Pemex to be conveyed to Mexofina.

By the Purchase Agreement of 1961, Pauley Pan Am was designated as the operator and had exclusive control and management of operations conducted under the provisions of the contracts with Pemex.

The parties continued to operate under the 1961 Agreement until June, 1962. At that time, pursuant to the desire of Continental to make a heavier investment in these Mexican oil operations, three separate agreements were entered into between the several corporations concerned. A 'Purchase Agreement of 1962' was entered into between Mexofina, Aminoil and Pauley Pan Am. A supplemental agreement was entered into between Pauley, Pauley Pan Am, Aminoil, Mexofina and Continental, and a 'Guarantee Agreement' was entered into between Pauley and Continental.

As a result of the Purchase Agreement of 1962, Mexofina acquired an additional 25% Interest in one of the Pemex contracts, bringing its total interest to 75% In certain defined tideland areas of exploration. Mexofina was designated as the operator under the Pemex contracts in the defined area in lieu of Pauley Pan Am. The Guarantee Agreement between Pauley and Continental did not relate to the operation of the exploratory activities on the Mexican oil lands but did guarantee on behalf of Pauley and Continental the proper performance of the obligations of their wholly-owned subsidiaries under the other two contracts. The third agreement, designated as 'Supplemental Agreement', amended specifics of the 1961 Agreement and concerned matters affecting only Continental and Pauley.

The Purchase Agreement of 1962, in paragraph 5(d), required Mexofina under certain circumstances and with certain restrictions to 'carry' Pauley Pan Am and Aminoil by paying some of the expenses of performing

Page 632

the Agreements with Pemex for a certain period of time. It is paragraph 5(d) of this Agreement which causes the [43 Del.Ch. 520] current litigation since Mexofina, directed by Continental, its parent, has served notice on the Pauley wholly-owned subsidiaries that the so-called 'carrying period' has been terminated. As a result, Mexofina now refuses to continue the paying of the expenses under the contracts with Pemex.

This, we understand, is the main controversy between the parties, although Pauley...

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106 practice notes
  • In re Inc., Bankruptcy No. HG 05–00690.
    • United States
    • United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Western District of Michigan
    • March 17, 2011
    ...Delaware courts, like Michigan courts, apply the alter ego doctrine only to avoid an injustice. Pauley Petroleum Inc. v. Cont'l Oil Co., 43 Del.Ch. 516, 521, 239 A.2d 629, 633 (1968); Alberto v. Diversified Grp., Inc., 55 F.3d 201, 205–06 (5th Cir.1995) (citing Pauley Petroleum ). 81. Sept.......
  • In re the Heritage Organization, L.L.C., Bankruptcy No. 04-35574-BJH-11.
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas
    • May 11, 2009
    ...LLC, 537 F.3d 168, 176 (2d Cir.2008) (hereinafter "NetJets Aviation") (citing Pauley Petroleum Inc. v. Continental Oil Co., 43 Del.Ch. 516, 239 A.2d 629, 633 (Del. 1968)). And, while Heritage is a Delaware limited liability company, not a Page 512 "[g]iven the similar liability shields that......
  • Int'l Union, United Mine Workers of Am. v. Consol Energy, Inc., CIVIL ACTION NO. 1:16-cv-12506
    • United States
    • United States District Courts. 4th Circuit. Southern District of West Virginia
    • June 4, 2020
    ...veil may be pierced only in the interests of public convenience, fairness and equity); see also Pauley Petroleum Inc. v. Cont'l Oil Co., 239 A.2d 629, 633 (Del. 1968). Here, the court has relied on the record, testimony at the preliminary injunction hearing, and agency theory to find that C......
  • Kelley v. Opportunity Fin., LLC (In re Petters Co.), JOINTLY ADMINISTERED UNDER CASE NO. 08–45257
    • United States
    • United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Minnesota
    • December 1, 2016
    ..., 11 A.3d 1180, 1213 (Del. Ch. 2010).69 Hamilton Partners, 11 A.3d at 1213 (Del. Ch. 2010).70 Pauley Petroleum Inc. v. Cont'l Oil Co. , 239 A.2d 629, 633 (Del. Ch. 1968).71 Wallace ex rel. Cencom Cable Income Partners II, Inc., L.P. v. Wood , 752 A.2d 1175, 1183–84 (Del. Ch. 1999).72 See Eq......
  • Request a trial to view additional results
106 cases
  • In re Inc., Bankruptcy No. HG 05–00690.
    • United States
    • United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Western District of Michigan
    • March 17, 2011
    ...Delaware courts, like Michigan courts, apply the alter ego doctrine only to avoid an injustice. Pauley Petroleum Inc. v. Cont'l Oil Co., 43 Del.Ch. 516, 521, 239 A.2d 629, 633 (1968); Alberto v. Diversified Grp., Inc., 55 F.3d 201, 205–06 (5th Cir.1995) (citing Pauley Petroleum ). 81. Sept.......
  • In re the Heritage Organization, L.L.C., Bankruptcy No. 04-35574-BJH-11.
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas
    • May 11, 2009
    ...LLC, 537 F.3d 168, 176 (2d Cir.2008) (hereinafter "NetJets Aviation") (citing Pauley Petroleum Inc. v. Continental Oil Co., 43 Del.Ch. 516, 239 A.2d 629, 633 (Del. 1968)). And, while Heritage is a Delaware limited liability company, not a Page 512 "[g]iven the similar liability shields that......
  • Int'l Union, United Mine Workers of Am. v. Consol Energy, Inc., CIVIL ACTION NO. 1:16-cv-12506
    • United States
    • United States District Courts. 4th Circuit. Southern District of West Virginia
    • June 4, 2020
    ...veil may be pierced only in the interests of public convenience, fairness and equity); see also Pauley Petroleum Inc. v. Cont'l Oil Co., 239 A.2d 629, 633 (Del. 1968). Here, the court has relied on the record, testimony at the preliminary injunction hearing, and agency theory to find that C......
  • Kelley v. Opportunity Fin., LLC (In re Petters Co.), JOINTLY ADMINISTERED UNDER CASE NO. 08–45257
    • United States
    • United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Minnesota
    • December 1, 2016
    ..., 11 A.3d 1180, 1213 (Del. Ch. 2010).69 Hamilton Partners, 11 A.3d at 1213 (Del. Ch. 2010).70 Pauley Petroleum Inc. v. Cont'l Oil Co. , 239 A.2d 629, 633 (Del. Ch. 1968).71 Wallace ex rel. Cencom Cable Income Partners II, Inc., L.P. v. Wood , 752 A.2d 1175, 1183–84 (Del. Ch. 1999).72 See Eq......
  • Request a trial to view additional results

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