The Salt Dome Oil Corp. v. Schenck

• Decision Date: 05 February 1945
• Citation: 41 A.2d 583,28 Del.Ch. 433
• Court: Supreme Court of Delaware
• Parties: THE SALT DOME OIL CORPORATION, Defendant Below, Appellant, v. WILLIAM A. SCHENCK, ERNEST F. WILDERMUTH and HENRY KRINSKY, Complainants Below, Appellees

41 A.2d 583

28 Del.Ch. 433

THE SALT DOME OIL CORPORATION, Defendant Below, Appellant, v. WILLIAM A. SCHENCK, ERNEST F. WILDERMUTH and HENRY KRINSKY, Complainants Below, Appellees

Supreme Court of Delaware

February 5, 1945

Appeal from the Court of Chancery, New Castle County.

Caleb S. Layton, of the firm of Richards, Layton & Finger (Schofield Andrews and Ballard, Spahr, Andrews & Ingersoll all of Philadelphia, Pennsylvania., of counsel), for appellant.

William S. Potter and Collins J. Seitz, of the firm of Southerland, Berl & Potter, for appellees.

Layton C. J., and Richards, Rodney, Speakman, and Terry, JJ. sitting.

OPINION

Layton, C. J.

This is an appeal from an order of the Court of Chancery for New Castle County appointing appraisers to value stock of dissatisfied stockholders under the merger provisions of the General Corporation Law. (Rev. Code 1935, Ch. 65. §§ 2091 -- 2094, Secs. 59-62, as amended by Ch. 131, Vol. 41, Del.Laws, approved April 13, 1937, and by Ch. 132, Vol. 43, Del.Laws, approved April 9, 1941); and also an appeal from an order denying the respondent leave to amend its answer. The amendments to the sections found in Chapter 125, Volume 44, Delaware Laws, approved April 15, 1943, are not involved.

By Section 59 any two or more corporations organized under the provisions of the chapter may merge or consolidate into a single corporation by entering into an agreement submitted to the stockholders of each constitutent corporation at meetings called separately and obtaining thereat the votes of stockholders of each corporation representing two-thirds of the total number of shares of its capital stock.

By Section 61 any stockholder who objected in writing to the merger or consolidation may demand from the resulting or surviving corporation, and is entitled to receive from it, the value of his stock at the date of the merger by following a certain procedure. Having objected in writing to the proposed merger, the stockholder is required to demand in writing from the resulting corporation payment for his stock within twenty days after the merger has been accomplished, and the corporation within three months is obliged to pay to him the value of his stock at the date of the merger, exclusive of any element of value arising from the expectation or accomplishment of the merger. If within thirty days after demand for payment the parties have not reached an agreement as to value, the stockholder may demand an appraisal by three disinterested appraisers, one to be selected by him, another by the corporation, and the third by the two so selected. If, however, the corporation fails or refuses to designate an appraiser, or if the two designated appraisers fail to select the third appraiser, the stockholder may apply to the Chancellor to designate a second and third appraiser, or a third appraiser as the case may be. The decision of the appraisers is final and conclusive on the parties, and the amount of the appraisal is made collectible from the resulting corporation as other debts are collectible by law.

The material facts alleged in the bill of complaint are these: On October 16, 1942, the Salt Dome Oil Corporation and Gulfboard Oil Corporation, both organized under the laws of this State, entered into an agreement of merger. On November 24 following the stockholders of the two companies were notified of the intention to merge, and that special meetings of stockholders would be held on December 15 for the purpose of voting upon the adoption or rejection of the merger agreement. On December 11, 1942, the complainants wrote letters to each of the corporations, similar in form and content except as to the name of the corporation, saying, "we, the undersigned, stockholders * * * do hereby object to the approval and adoption of the agreement of merger, dated as of October 16, 1942 * * *", and "Enclosed herewith are our proxies, each instructing that our votes be cast against the adoption of the agreement of merger." The proxies, bearing the same date as the letters, were in the usual form, and on each of them following the signatures of the complainants were statements with respect to the number and ownership of shares, on The Salt Dome Oil Corporation proxy "Together owning 7250 shares 7100 shares of which are on the books in the name of Guido Pantaleoni, Jr.; on the Gulfboard Oil Corporation proxy, "Together owning 10,000 shares which are on the books in the name of Berberich & Co. for our benefit." The merger of the two corporations was accomplished on December 28, 1942, the resulting or surviving corporation retaining the name "The Salt Dome Oil Corporation." On January 16, 1943, the complainants made demand in writing on the respondent, the surviving corporation, for payment of the value of their shares, and the demand being ignored, they applied to the Chancellor for the appointment of appraisers. The complainants alleged that they were, jointly, the owners of 7100 shares of the common capital stock of The Salt Dome Oil Corporation, duly registered on the books of the corporation in the name of Guido Pantaleoni, Jr., and 10,000 shares of the common capital stock of Gulfboard Oil Corporation, duly registered on the books of the corporation in the name of Berberich & Co., and that the record holders held the shares solely for the benefit of the complainants; and that they had in their possession certificates for the shares, duly endorsed in blank by the record holders; that on February 23, 1943, the complainants designated an appraiser to act for them, and requested the respondent within thirty days to designate its appraiser; and that the respondent failed and refused to designate its appraiser. It was prayed that the Chancellor designate the second and third appraiser, and order the appraisers to fix the value of the shares of stock.

No explanation was given of the failure of the record holders to act in the premises; nor did it appear that the certificates of stock were ever exhibited to the two corporations or to the resulting corporation.

The respondent demurred on the ground that the complainants were not stockholders of the two corporations entitled to demand the appraisement and payment of the value of any stock in the two corporations; and it also filed an answer, and later moved to amend its answer by alleging that the record holders of the shares of stock were essential parties. The Chancellor overruled the demurrer (27 Del.Ch. 234, 34 A.2d 249). The motion for leave to amend the answer was denied (ante p. 54, 37 A.2d 64). An order was entered appointing appraisers, and these appeals followed.

The broad question raised by the demurrer involves the status under the then existing law of a holder of a certificate representing shares of stock in a Delaware corporation, indorsed in blank, but not recorded on the corporate books. The precise question is whether the holder of such a certificate is a stockholder within he contemplation of Section 61, entitled to object to a proposed merger of corporations, to demand appraisal of and payment for his shares, and to sue at law to recover the amount of the appraisal upon non-payment.

The term "stockholder" ordinarily is taken to apply to the holder of the legal title to shares of stock. In most jurisdictions registration, or its equivalent, is essential to pass the legal title as against the corporation; and the unregistered transferee is not entitled to the rights and privileges of a stockholder in his relations with the corporation. Whatever may be the equitable rights that may arise by a delivery of the stock certificate accompanied with a power of attorney for its transfer, the legal title and legal rights and liabilities of the stockholder of record remain unchanged until the transfer is actually accomplished. The record owner may be but the nominal owner, and, technically, a trustee for the holder of the certificate, but legally he is still a stockholder, and may be treated as the owner by the corporation. 18 C.J.S., Corporations, § 475, p. 1144; 12 Fletcher, Cyc. Corp., (Perm.Ed.) 329, 335; Russell v. Easterbrook, 71 Conn. 50, 40 A. 905. The learned Chancellor seems to have accepted these concepts as sound in the case of In re Giant Portland Cement Co., 26 Del.Ch. 32, 21 A.2d 697, 701; and there he cited Cheatham v. Wheeling & L. E. Ry. Co., (D.C.) 37 F.2d 593, 596 in which it was said

"It is obvious that the only persons who are integrated with the corporation as stockholders are those persons who are stockholders of record on the stock books of the corporation. To hold otherwise would lead to corporate chaos. The holder of a 'street certificate,' i. e. a certificate of stock indorsed in blank by a stockholder of record or the holder of a certificate indorsed to the holder by name, is not a stockholder, although he has been given an irrevocable assignment of his transferor's rights. * * * His rights as against the corporation are inchoate only until the transfer is consummated by the surrender of the indorsed certificate and the issue of a new certificate in his name. Until then he is not entitled to the privileges or emoluments of stockholders, nor does he come under the liabilities, if any, which may be inherent in such a status. * * * Cases of attempted intervention by strangers in intracorporate affairs are not rare. They are almost always initiated by the holders of 'street certificates' or their equivalent, and the rights claimed by such persons usually are and always should be denied."

The question is an open one in this State although there are dicta to the contrary to be found in the decisions. See Drug, Inc., v. Hunt, 35 Del. 339, 5 W.W.Harr. 339, 168 A. 87; Haskell v. Middle States Petroleum Co., 35 Del. 380, 5 W.W.Har...