Court Opinion

ID: 5242607
Source: CourtListenerOpinion
Date Created: 2022-01-06 17:29:59.344512+00
Date Added: 2024-06-11T08:27:49.244400
License: Public Domain

Foote, J. (dissenting in part):
I agree that defendants Burgwegerand Bartholomay should be required to refund to the corporation all moneys drawn by them from its treasury for so-called entertaining and traveling expenses which they have not accounted for, except such amounts as, upon accounting, they are able to show were properly disbursed in the interest of the company’s business, and the particulars of each item so expended so far as may be necessary to enable the court to determine the items of such expenditure which were properly made. I do not think they should be allowed on such accounting for moneys which they claim to have expended in the interest of the company’s business where they are unable to show when and to whom the money was paid and for what purpose. These officers should, I think, be held in duty bound to-follow the same business method of reporting and accounting for the expenditures of the company’s money as they were in the habit of requiring from the company’s employees over whom they had supervision.
I am not able to concur, however, in the views of the majority of the court to the effect that these defendants must return to the corporation all the money drawn by them as increased salaries since July, 1907. The defendants Burgweger and *57Bartholomay together owned and controlled a majority of the shares of the company. They also constitute a majority of the board of directors, which has only three members. They are and for many years have been the acting managers of the company’s business, the defendant Burgweger as president and general manager, and the defendant Bartholomay as vice-president, treasurer and manager and salesman for the company’s shipping trade outside of Buffalo. They each devote all their time to the business of the company, which under their management has been prosperous and successful, resulting in the accumulation of a surplus of about $700,000. At the time of the organization of the company in 1892 the salaries of the officers Were fixed by resolution of the board at $3,000 per year each. After the first year and until 1897, during which time the company was in financial difficulties, the president, Mr. Burgweger, voluntarily reduced his salary to $2,000. Subsequently his salary was increased by consent of the directors without any formal resolution, first, to $4,000, then to $5,000, and later to $6,000, which was the sum he was receiving in the year 1907. Mr. Bartholomay during the first year of his employment in 1902 received $3,000, with a promise that his salary would be increased to $5,000 if he made a certain increase in the volume of the company’s shipping business, which he did. He continued, however, to draw at the rate of $3,000 per year until July, 1907. A directors’ meeting was held on July 1,1907, at which resolutions were adopted increasing the salary of Mr. Burgweger to $10,000 and of Mr. Bartholomay to $10,000 and giving to Mr. Bartholomay the increased salary which had been promised him of $5,000 from 1903 to 1907. • These resolutions were adopted by the vote of Messrs. Burgweger and Bartholomay. The third member of the board, who was the treasurer and attorney of the company and a friend and personal attorney of Mr. Kreitner, voted in the negative, though expressing his willingness to vote for an increase to Mr. Burgweger up to $8,000. Thereafter the defendants drew salaries at the increased rate authorized by these resolutions until shortly after the commencement óf this action in March, 1910, when the salary of the defendant Burgweger was further increased to $12,000, which amount he has since drawn. At the next annual *58meeting the dissenting director was not re-elected, and his place has since been filled by persons friendly to the interest of the defendants and having no substantial interest in the company.
The trial court has found that the salary voted to the defendant Burgweger in 1907 and 1910 was fair and reasonable and not more than the fair value of the services he rendered to the company, but as to the salary voted to the defendant Bartholomay that it was in excess of the fair value of his services, and that such services were of the value of $8,000. These findings were made upon the testimony of apparently disinterested witnesses familiar with the value of such services, and their testimony was wholly uncontradicted, plaintiff calling no witnesses upon the subject but relying entirely upon the legal invalidity of the resolutions under which the salaries were paid.
Under these circumstances, I do not think plaintiff should be allowed in -this equity action to compel defendants to restore to the corporation all the moneys received by them as increased salaries since the resolutions of July, 1907. On that subject I agree with the views expressed in the opinion at Special Term. The case would be different if there were findings that the amounts paid as salaries were not fair and just for the services rendered or that the corporation could have procured the work to be done for less or that defendants had been guilty of some bad faith. Not only are there no such findings, but none were requested by plaintiff in the proposed findings submitted to the trial court. Plaintiff’s reliance, as shown by the findings he asked the court to make, was upon the legal invalidity of the resolutions of the board to increase the salaries. I agree that those resolutions were not of themselves sufficient to increase the salaries. They were voidable at the election of the company or any of its stockholders. If not so avoided they were binding upon defendants and estopped them from claiming any greater compensation. If avoided by the company, I do not think the effect was to limit the compensation to what defendants had been receiving the year before. That amount had -not been fixed by any resolution; in fact there was no previous resolution on the subject of salaries except the one adopted on *59the organization in 1892 which fixed the salaries at $3,000. It was understood and expected by all that defendants should receive fair compensation for their services. The services were for the most part outside their duties as officers and directors. All the stockholders, including plaintiff, acquiesced in the several increases of Burgweger’s salary up to $6,000, the amount he was receiving prior to July, 1907, though they were all made without any formal resolution of the hoard. Plaintiff does not question these increases in this action, but relies wholly upon the illegality of the resolution of July, 1907. If defendants and all the stockholders understood and expected that defendants should receive adequate salaries, and if there is no legal method by which the board can determine what are adequate salaries, because the members of the board have a personal interest to serve, then -defendants must have a remedy at law to recover the fair value of their services. It cannot be that they were concluded in 1907 and subsequent years by the amount they voluntarily accepted in 1906. Such acceptance did not make a contract for the future. If the resolutions of July, 1907, did not fix the salaries thereafter, then they have not been fixed at all. Those resolutions do show that defendants were not willing to continue at the same salaries and that they claimed an increase. I see no ground for holding them bound to accept the previous salaries because the resolutions did not bind the corporation to the amounts there stated. Under these circumstances I think defendants could have maintained an action against the company to recover the fair value of their services. (See Bagley v. Carthage, Watertown & Sackets Harbor R. R. Co., 165 N. Y. 179, and cases there cited.) In effect they have been permitted to so recover in this action. Where, as here, the majority stockholders are themselves the officers and directors and at the same time the active managers, they must of necessity in the first instance fix their own compensation as managers. It is not ordinarily a question for the stockholders until the directors have acted, and where the same men who constitute the hoard of directors also control the majority of the stock and have as directors fixed their own salaries necessarily by their own votes, I think they should he held in equity to have consented as stockholders for *60the stock which they control. At any rate a majority of the stockholders' are in this action in the attitude of insisting that the salaries as fixed by the resolutions of the board should stand, and I see nothing to he gained by referring the matter now to a stockholders’ meeting for ratification. As a majority of the stock is controlled by defendants, they could not, as stockholders, effectually ratify as against the minority action of the directors fixing unfair and excessive salaries for themselves. That would be a manifest fraud upon the minority and could not prevail. (See Godley v. Crandall & Godley Co., 212 N. Y. 121, and cases cited.) So ultimately the courts must settle the controversy between these parties and determine the limits beyond which defendants may not go in the amount they vote to themselves for salaries even after they have ratified such vote in stockholders’ meeting. The question may as well he determined now. Such seems to be the practice in similar cases in New Jersey. (See Raynolds v. Diamond Mills Paper Co., 69 N. J. Eq. 299; Lillard v. Oil, Paint and Drug Co., 70 id. 197.) If defendants may recover of the corporation the fair value of their services, circuity of action will be avoided by allowing them to retain what they have received up to what that value has been found to he. Plaintiff seeks equity and he should he required to permit equity to be done to defendants.
This case should be distinguished from Godley v. Crandall & Godley Co. (supra) and others, where directors have voted themselves salaries as mere incidents of their office.
I think the judgment should be modified as above indicated, and as modified affirmed.
Judgment modified in accordance with the opinion of Lambert, J., and as so modified affirmed, with costs to the appellant against the defendants in this court and the trial court. Findings and order to he settled before Lambert, J., on two days’ notice.