This is a derivative action brought on behalf of Sinclair Venezuelan Oil Company (Sinven) against Sinclair Oil Corporation (Sinclair) and certain of its wholly-owned subsidiaries.
This is the decision after trial on the issue of damages.
The pertinent part of this Court's order of February 26, 1970 which provided the basis for the trial on damages reads as follows:
Plaintiff contends that for late payment of invoices, Sinclair is liable in the amount of $711,095.86 plus interest (on this sum) totaling $442,060.39. Plaintiff thus seeks $1,153,156.25 for late payment of invoices.
As to failure by International to purchase minumum contract quantities (under-lifting) of crude oil and refined products, plaintiff claims that Sinclair's liability for loss of profits amounts to $7,802,265.52, plus interest of $4,619,951.50, or a total of $12,422,217.02.
In short, plaintiff asks an award of $8,513,361.38 plus interest (as computed to May 31, 1973) of $5,062,011.89, or a judgment totaling $13,575,373.27 in favor of Sinven.
Defendant concedes that the arithmetic as to gross damage figures is correct; that is, there is no factual dispute about the formula which plaintiff uses in computing damages nor as to the arithmetic resulting from application of that formula. The parties are in wide disagreement, however, about the judgment.
Sinclair argues that gross damages should be reduced in three ways. First, it says that $3,326,000 should be deducted from the gross amount calculated as damages for underlifting; this is the profit made by Sinven on sales to third parties of crude oil and refined products which would have been purchased by International and so must be applied, argues Sinclair, in mitigation of the claim.
Second, Sinclair urges that interest not be allowed. It says that an award of interest is a matter of discretion with the Court in a derivative suit and contends that it would be inequitable because, though Siven may have been denied use of monies not received, nevertheless during the same time it had the benefit of "over payments" represented by the difference between contract prices paid and prevailing market prices which were lower than contract. Thus it seeks to eliminate interest (the total claimed by plaintiff is $5,062,011.89) on any damages which are awarded.
Finally, Sinclair argues that it is entitled to a set-off exceeding $30,300,000 which it contends represents benefits conferred upon Sinven by the pricing formula of the contract.
I first consider Sinclair's claim to a $30,300,000 set-off which, if allowed, would neutralize any judgment to which Sinven may be entitled. Sinclair calculates this by computing the difference between the contract prices paid to Sinven and the competitive prices at which sales were made in the market during the same period.
Plaintiff has not disputed the fact that the formula provided for prices above those which prevailed in the world market at the time but he argues that Sinclair is not entitled to any set-off or credit for this.
While I am satisfied that there are equities in Sinclair's favor which should be considered in fixing the relief to be accorded
Mr. Drescher's testimony was to the same effect.
There is no dispute as to this because Sinclair states that International was organized in 1961 and one of its purposes was to "absorb Sinven's available production... in a manner advantageous to Sinven and acceptable to the Venezuelan Government." Indeed, Sinclair concedes that the "sole purpose of the written contract" was to provide a formal document upon which to negotiate lower prices with the Venezuelan government.
Thus it is true that Sinven was paid more than world prices for crude and products, but it does not follow that Sinclair thereby conferred a benefit in the legal or equitable sense in the amount of the price differential. The fact is that the Venezuelan government permitted sales only at posted prices ($2.80 per barrel for crude) and that was one of the disadvantages of extracting oil in that Country. But that fact should not be applied here to the disadvantage of Sinven and its minority stockholders. Sinclair saw an opportunity to get the posted price reduced by 5% and for that reason it needed the contract.
In short, Sinven was undoubtedly benefitted by the contract but so was Sinclair. And to now give defendant all it claims in set-off would be, in effect, to ignore Sinclair's admitted purpose in causing the contract to be made and the benefits which it received as a result thereof. Given the contract and the purposes thereof, with the benefits and burdens to each side, it would be grossly unfair to now ignore or weigh lightly what was done and simply say that Sinclair was just conferring a benefit on Sinven.
Turning now to specific claims, it is undisputed that interest on late payment of invoices, under the order approved by the Supreme Court, amounts to $711,095.86. Judgment in that amount will be entered against Sinclair with interest thereon in the amount of $442,060.39. Sinclair has argued that interest should not be allowed on this (or any other claim) but, quite clearly, the principal sums were not paid when due, Sinven therefore was deprived of the use of such sums and interest is necessary to make it whole. 1 Restatement of Contracts § 329, Comment a. Compare Conestoga Chemical Corp. v. F. H. Simonton, Inc., Del.Supr., 269 A.2d 237 (1970); Metropolitan Mut. Fire Ins. Co. v. Carmen Holding Co., Del.Supr., 220 A.2d 778 (1966); E. M. Fleischmann Lumber Corp. v. Resources Corp. Int'l, 114 F.Supp. 843 (D.Del.1953); Superior Tube Co. v. Delaware Aircraft Industries, Inc., 60 F.Supp. 573 (D.Del.1945). The Supreme Court cases arose at law but this case has significant legal (contract) aspects and, in any event, fairness requires application of the principle of full compensation from wrongs suffered.
I turn now to plaintiff's claim to $7,802,265.52 for underliftings. As I have indicated, computation of the sum is not in dispute.
Sinclair contends that any damages as to underliftings should be offset by profits of $3,326,000 made by Sinven on sales of crude oil and products to third parties, thus reducing this claim to $4,477,000 (which when added to $711,000 claimed for late payment of invoices equals the $5,188,000 that Sinclair submits is the maximum amount of any judgment).
In considering this claim the Court must decide whether a set-off is to be allowed under any theory. I have already determined that Sinclair is not entitled to the $30,300,000 credit which it claims for benefits conferred, but it does not follow that defendant is without equities to be considered. Before looking to those I first consider plaintiff's contention that under both legal and equitable principles Sinclair is not entitled to a credit in any amount against the claim for underliftings.
First, plaintiff argues that the claim is essentially legal in nature and, tested by standards applied at law, cf. Bokat v. Getty Oil Company, Del.Supr., 262 A.2d 246 (1970), Sinclair is not entitled to any credit against damages which Sinven sustained as a result of the breach of contract. It is axiomatic that the claim belongs to the Corporation and corporate action on it would necessarily be at law and governed by its standards. But it does not follow that in a derivative suit Chancery merely follows legal principles. On the contrary equity applies its own standards in processing derivative actions (absence of a right to jury trial, allowance of counsel fees and application of the intrinsic fairness standard are illustrations of these) and I am not persuaded that barring a set off to a claim legal in nature is necessarily one of these. Stated in the context of this case, I will not bar Sinclair from asserting its equities in the pricing arrangement on the theory that this amounts to an impermissible set-off under principles of contract law. I am not persuaded that such bar is required by the law in general or by the facts of this case.
Second, plaintiff argues also that Sinclair, as a matter of equity, has no right to any credit. In support of this he makes several contentions and he points to various amendments to the contract caused by Sinclair and the breaches which have
Third, plaintiff argues that Sinven's sales to third parties are irrelevant because Sinclair failed to prove that Sinven still could not have met the minimum quantities specified in the contract. In other words, plaintiff contends that the Court should regard the matter as one in which "two sales" were possible: (a) the contract quantities to Sinclair, and (b) actual sales to third parties. Compare Katz v. Exclusive Auto Leasing, Inc., Del. Super., 282 A.2d 866 (1971), and see 5A Del.C. § 2-708. In a context in which products available for sales are not limited, the rule argued by plaintiff is both logical and necessary to do justice to a seller who (factually) can make two sales (e. g., by purchases and/or by expanding production). But the difficulty I have in applying that rule here is that increase of products for sale was limited. The Court has determined that Sinven's production has been at MER since 1960.
I should here note again that at trial evidence as to profits on third-party sales was admitted over plaintiff's objection. Prior to the trial on damages Sinclair's position before the Court was that it had purchased all of Sinven's production (see 261 A.2d 924 and footnote 7, supra); the parties disagree as to whether in pre-trial discovery Sinclair had misled plaintiff with regard to third-party sales.
As I view the case, Sinclair contended prior to the liability trial that it had purchased all of Sinven's production. Sales to third parties was thus a new — and different — matter introduced at the damage trial. But in reviewing the discovery documents on which Sinclair relies, I cannot say as a matter of law that it failed to disclose its position to plaintiff. It failed to disclose to the Court and, indeed, took a contrary position. But I am not persuaded that purposeful deception was involved or that the
Finally, I consider plaintiff's claim for interest. I have already determined that such an allowance was necessary to make Sinven whole as to the claim based upon late payment of invoices. But I am not persuaded that the same approach is necessary here. The invoices were for crude and products actually delivered by Sinven to Sinclair and not paid for within the contract period. The claim for underliftings, on the other hand, is for purchases not made; more particularly, it is for profits not realized. And in considering the claim to interest I conclude that the Court should weigh the fact that Sinven was getting more than market prices for its products.
I have declined to grant the broad setoff which defendant has claimed and I have declined to bar all set-off for which plaintiff argues. I have previously noted that the Court has the power to mold its decrees to the necessities of the case and that includes a recognition of Sinclair's claim on the price question. The critical question, of course, is how is this to be done. In my judgment, the fairest and most appropriate way to do this is by exercising the Court's discretion as to the allowance of interest on the award for underliftings. In brief, I am persuaded that interest should be denied on that claim. I have already indicated some of the reasons for this and I add to them the undisputed fact that prices were really fixed by a third party — the Venezuelan government. See 261 A.2d at 926. As there suggested, some effect should be given this. In short, my view is that Sinclair should be held to the contract it made, damages should be awarded to Sinven for breach of that contract, but interest should not be. The judgment to be entered is based on that conclusion.
Judgment will be awarded in favor of Sinven and against Sinclair in accordance with the following computation:
(1) For late payment of invoices $ 711,095.86 (2) Interest on such sum 442,060.39 _____________ (3) Total 1,153,156.25 (4) For underliftings 4,477,000.00 ______________ (5) Total Judgment $5,630,156.25.
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I should say also that I have considered other arguments made by the parties and have found them to be meritorious only to the extent applied herein.