Court Opinion

ID: 3584658
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:35:02.273625+00
Date Added: 2024-06-11T13:38:14.003222
License: Public Domain

The defendant is a corporation owning gold mines in Alaska. Apparently it was organized in 1907 after a consultation between a Mr. Cutler and a Mr. Fallows who were interested in the proposed company and the plaintiff who was a mining engineer, and who at that time had had much experience in Alaska. Then or soon afterwards, Mr. Cutler became its president, the plaintiff its vice-president and Mr. Fallows its secretary and treasurer. All three were directors, and although there were two others on the board, they were the active members. There was no provision for compensation for directors or officers. A large majority of the stock was held by Mr. Cutler and Mr. Fallows. Mr. Fox had 1,000 shares for which he had paid $50. The offices of the corporation were at 30 Church street, New York, in Mr. Cutler's private office. In the same building Mr. Fallows and Mr. Fox also shared adjoining offices in the same suite. The former was interested in a so-called Philippine company engaged in business in the Philippine Islands. At times the plaintiff was employed by this corporation. His relations with Mr. Cutler and Mr. Fallows seem to have been intimate. In 1908, 1909, 1910 and 1911 the plaintiff went to Alaska during the summer months to supervise the operations of the defendant. This was work clearly outside the ordinary duties of a vice-president or director. For some of *Page 135 
these trips he was expressly employed by the defendant's directors and his compensation was fixed. For others the record shows no express contract. In each case, however, he was paid for such services. In 1912 the plaintiff remained in New York. On behalf of the defendant he did some work as a consultant, without any express contract. For this he received $1,500. In August, 1913, he again was engaged to go to Alaska to examine into matters which were not proceeding satisfactorily. While there he negotiated an option for a dredging and drilling lease, made a survey for the extension of a ditch, and discussed a sale of the property to another corporation, or if that was impossible a sale of the defendant's ditch rights. He returned to New York in September and was paid for the trip. Thereafter, between November 1, 1913, and April 1, 1915, he rendered services to recover the value of which, on the theory of quantum meruit, this action is brought.
It is important to define the nature of these services. Under the mining laws, to hold unpatented claims, it was necessary to do on each a certain amount of assessment work. Apparently one Brower had agreed to drill on the defendant's claims. Late in October news was received that he would not drill on those situated north of one called Claim 8. Some ditches had been dug connecting with these northern claims, but the title to these ditches was disputed, and, therefore, reliance could not be placed upon this work as applicable to the required assessment work. Under these circumstances Mr. Cutler requested Mr. Fox to consult with Mr. Fallows and advise what action should be taken. This consultation resulted in a telegram of inquiry to the defendant's representative in Alaska and a letter from Mr. Fox to Mr. Cutler explaining the situation.
Another mining corporation, in want of water for its operations, by extending its ditch for four miles could connect with and use a ditch built by the defendant. *Page 136 
While in Alaska, as we have seen, the plaintiff endeavored to negotiate a sale of this ditch. To this end he had surveyed and taken notes as to the necessary connection. In a letter to Mr. Cutler on November 12 the plaintiff says the matter of the sale should be presented to the suggested purchaser. Mr. Fox had not compiled the results of his surveys. Probably until this was done, his work on this subject, for which he had been paid, would be useless to the defendant. He offered to and did make this compilation, and also a tracing showing the proposed extension. Conferences were had between the three officers, and the matter was left wholly to the judgment of Mr. Fox. There were letters between Cutler and Fox on the subject and letters from Fox to the proposed purchaser, submitted to and approved by Cutler. Apparently the negotiations fell through.
On December 30 a telegram with reference to the option for a dredging lease was referred by Cutler to Fox and he was asked to draft a form of a dredging lease. He did so, taking the detail from the option he had given while in Alaska and copying appropriate paragraphs from similar leases in his possession and sent it to Mr. Cutler. Then or a day or two later the latter went to San Francisco. Mr. Fox was to be there also on his way to the Philippines and Cutler asked for a consultation in that city. On his way there Fox was informed by Fallows that one Johnston from whom the defendant had bought certain ditches, and who had not been paid in full, was clamoring for his money and he was requested to consult Cutler on this subject also. In San Francisco there was a consultation between Cutler and Fox and then both the lease and the Johnston matter were submitted to an attorney for his advice. The lease, amended by the attorney and containing certain additional clauses, was thereafter signed. Fox interviewed the builder of a dredge to be used by the lessees and gave him some necessary information. He also wrote on Cutler's request *Page 137 
a letter of instruction or advice to the working manager of the defendant. What became of the Johnston matter does not appear.
On February 12, 1914, Mr. Fox sailed for the Philippines. He remained there until October 30. While there he received a letter from Fallows giving him news of the company and also a similar letter from Miss Matson, one of the inactive directors. He also from time to time received reports as to the progress of the defendant, and as far as possible kept himself in touch with its affairs. As he passed through San Francisco on his return he again had several interviews with the dredge builder, giving him such information as he could. From the time of his reaching New York in December, 1914, to April, 1915, he was employed by the Philippine corporation. His office again adjoined that of Mr. Fallows. But in regard to the defendant he gave advice as to its management, the disposal of old equipment, minor leases on a part of the property and general information.
All these services for which the plaintiff now seeks compensation are defined by him as "consulting service" and were rendered whenever he "was available." Whenever he was in New York he was "right on the spot." As we have seen, he had been paid for similar services rendered in 1912. But it also appears that at other times he consulted with Mr. Fallows and Mr. Cutler and if necessary wrote letters, and for this neither received nor expected compensation.
In brief, therefore, the plaintiff at the request of the defendant's president (1) consulted and advised about assessment work; (2) consulted with the other officers and with a proposed purchaser as to a sale of some of the defendant's property; (3) prepared a draft for a dredging lease of some of defendant's claims and consulted in regard thereto with his co-directors, an attorney and the lessee, and as to the dredge to be used with its manufacturer, (4) consulted with the president and an attorney *Page 138 
as to a claim against defendant's property. Without any such express request, so far as appears, he (1) compiled the result of his survey as to the ditch, (2) gave advice as to the management of the defendant.
A director and officer of a corporation may not recover compensation for services, rendered to it, within the line of his duties as such officer and director, in the absence of a prior express contract therefor, created by the charter, the by-laws or by the resolution of some body duly given by them or by the stockholders authority to make such a contract. No such contract existed in the case before us. The directors, however, or an officer empowered to make such a contract with a stranger, may employ a director to perform extraordinary services outside of the scope of his duties and may agree to pay him therefor. (Bagley v. Carthage, W.  S.H.R.R. Company, 165 N.Y. 179.) Whether such a contract has been made is a question of fact. Its existence may be shown by proof of an offer and its acceptance; or by such circumstances as show an intent on the part of the corporation and its directors that such services shall be rendered and paid for. Again here there was no offer of employment and no express acceptance. As between a stranger and a corporation the mere fact that beneficial services have been rendered with the latter's knowledge or received affords the requisite evidence of a contract. And in other jurisdictions the same rule has been applied to a director, provided the services rendered by him are outside the ordinary scope of his duties. So far as I can discover, it has never been so held in this court. Nor should it be. He is a trustee for the stockholders. And as a trustee the mere fact that services were rendered by him gives rise to no presumption that both parties understood they were not to be gratuitous. Other facts must be shown which legitimately give rise to the inference. The nature of the services, and their value, the time occupied by the director, the extent of the interference with his regular occupation, the place *Page 139 
where and the circumstances under which the services were rendered, the relation of such services to the services he was required to render as a director, whether or not other officers were paid for similar work, whether he himself had or had not been paid previously for the like acts — other matters of this character are relevant.
Before a recovery can be allowed in this case, therefore, the plaintiff must show that the services for which he seeks to recover were not only outside the scope of his duties as vice-president and director but that they were rendered under such circumstances as justify a finding of fact that both he and the corporation expected that they were to be paid for.
As to the greater part of the services, they were clearly within the line of the plaintiff's duty as a vice-president and director. He had been chosen for that place to manage and control the business of the corporation. He was bound to use such care in that regard as if the business were his own. He was in part responsible for its policy. He should see that the transactions into which it entered were proper, that its property was not wasted. The mere attendance at stated meetings of the board of directors, the mere casting of his vote at such meetings upon propositions presented was not the limit of his duties. He should know and give direction as to the general affairs of the institution and its business policy, and have a general knowledge of the manner in which the business is conducted, the character of the investment and the employment of its resources. (Kavanaugh v. Commonwealth Trust Co., 223 N.Y. 103.) True this was said of a director of a bank, but similar principles apply to all directors. Consultations with other directors or with the executive officers as to the course to be pursued, information given to prospective purchasers at the request of the president as to the property, are distinctly within his duties as a director. "Consulting service," the plaintiff properly calls it. And being within the line of his duty, *Page 140 
the fact that the plaintiff had or had not previously been paid for similar services is immaterial. (N.Y.  N.H.R.R. Co. v.Ketchum, 27 Conn. 170.)
It may be possible, however, that a question of fact was presented whether two particular bits of work were within the line of the plaintiff's duties. At the request of the president he prepared and submitted to him a draft of the dredging lease. On his own initiative he compiled the result of his surveys. But even so, there was no evidence tending to show that these services were rendered on the understanding that they were to be paid for. An option for the dredging lease had been made by Mr. Fox while in Alaska. Mr. Cutler, as we have seen, in January asked him to give him a draft of such a lease as he thought proper, containing a clause that Mr. Cutler believed important. Three days later Mr. Fox sent such a draft to Mr. Cutler, saying a lawyer could add any finishing touches that were necessary. The purpose was to assist the president in the completion of the transaction begun by the option. From these facts alone, the jury would not be justified in drawing the necessary inference. Little time was occupied. The work was of slight importance. No hint of an agreement to pay Fox is found anywhere. No demand for payment was made until long afterwards. It was a transaction for the benefit of the corporation which the three officers were attempting to bring about — two of them at least without thought of compensation. It was closely connected with work for which he was entitled to no compensation. The compilation of the data of the survey was not requested — it was offered. It was to make available work for which Mr. Fox had already been paid. It was a minor matter taking little time. Again there was no hint of payment. And in connection with all these matters, it should be remembered that the right of action of a director against his corporation for services rendered, where the contract to pay for them is not clear, should not be extended. *Page 141 
The judgment appealed from should be affirmed, with costs.
HOGAN, J., and POUND, J., in memorandum, with whom HISCOCK, Ch. J., concurs, concur with ELKUS, J.; COLLIN and McLAUGHLIN, JJ., concur with ANDREWS, J.
Judgments reversed, etc.