61 P. 791 | Cal. | 1900
It is averred in the complaint that each of the plaintiffs is the owner of at least five shares of the capital stock of the corporation defendant, the Bitumen Consolidated Mining Company, the capital stock being $300,000, divided into shares of $100 each, and that this action is
The court found the appellants liable for $1,888.05 paid out by them as expenses incurred in defending a certain action brought in the superior court by the San Luis Bituminous Rock Company against the defendant corporation herein and certain others of the individual defendants herein. The ground of this finding is that, owing to the nature of that action, the defendants therein other than the corporation should have borne the expenses of the litigation; and, as this finding is not discussed in appellants’ brief, it may be dismissed without further notice.
The chief item of appellants’ liability allowed by the court which is contested by appellants is $6,475 paid defendant Fairchild for services as general manager of the corporation defendant before his compensation therefor had been fixed, which sum, with interest thereon, makes up the main amount of the judgment. The record shows that after the case had been submitted to the trial court that court made an order, on August 29, 1896, that judgment be entered for plaintiffs for $1,888.05 alone. ■ In a written opinion attached to one of appellants’ briefs, the learned judge of the lower court gives his reasons, which we think are exceedingly cogent, for not allowing judgment for the $6,475 paid to Fairchild. But afterward the court made findings and ordered judgment for the $6,475 and interest, in addition to the said $1,888.05,
The corporation defendant was organized in September, 1891. Its main purpose was to control the mining and mar
The by-laws provide that “the compensation and terms of office of all officers of the corporation (other than directors) shall be fixed and determined by the board of directors.” This language does not, on its face, mean that the compensation must be expressly and definitely agreed upon and settled before performance of the services; but respondents contend that under the general law, established by judicial decisions, there can be no lawful allowance to an officer of a corporation for services, no matter what their character and value, where the amount of the compensation had been fixed prior to the rendition of the services. Many authorities on this subject have been cited on both sides, and they are, to some extent, conflicting. Most of those cited by respondents merely declare the rule that a “director,” as such, without some previous understanding, is not entitled to pay for services which are within the ordinary duties to be expected of him as director, although some of them, no doubt, apply the rule to other officers or agents who are also directors; but as to the last proposition the weight of authority and reason is the other way. As a general rule, when one person performs valuable services for another, whether the other be a corporation or a natural person, the law raises an implied promise to pay a reasonable compensation for the services, unless they are performed under circumstances which show an understanding that they were to be gratuitous. It frequently happens that one natural person performs valuable services for another natural person, for which the former cannot recover because circumstances show that they were rendered without any expectation of compensation. Now, it has been held that directors of corporations cannot, without previous express contract, receive compensation for such ordinary services as are usually rendered by directors without pay; for the common understanding, as declared by judicial decisions, is that such services are presumed to be rendered gratuitously. But that presumption does not apply to those onerous services performed by officers and agents of a corporation, though they be also directors, for which compensation is u v. /
We conclude, therefore, upon the authorities above noticed, as well as upon reasonable and just principles, that Fairchild was not precluded from having a legal claim for the value of his services merely because that value had not been fixed beforehand; that, therefore, the allowance of his claim by the board of directors on November 9th—there being no fraud in the transaction—was not an illegal and invalid act, merely because the compensation had not been previously fixed; and that the amount of such claim cannot upon that ground be recovered by respondents. Directors “are required to exercise reasonable care and sound business judgment, but nothing further than this.....They must exercise the same diligence and care that men of usual prudence and skill
The contention of respondents that the act of the board on November 9th was invalid because the presence of Fairchild was necessary to make a quorum is not maintainable. There is a broad statement of this proposition of respondents in section 3929 of Thompson on Corporations, but the authorities there cited do not sustain the text. The main case cited is Miner v. Ice Co., 93 Mich. 97, 17 L. R. A. 412, 53 N. W. 218, but all that was decided in that case was that “it is essential that the majority of the quorum of a board of directors shall be disinterested in respect to the matter voted on”; citing 1 Beach, Corp., sec. 276; Smith v. Association, 78 Cal. 289, 12 Am. St. Rep. 53, 20 Pac. 677. In the latter case (78 Cal., 20 Pac.), Garey and Crow, who were directors, were interested in the matter voted on, and they, with two others, made the necessary quorum of four at which the resolution in question was passed; and the court said: “It was essential to its adoption that a majority of the quorum should vote for it (Civ. Code, sec. 308); and, clearly, there could not have been such a majority unless the vote of either Garey or Crow was counted in the affirmative.” From this language, as well as from what is subsequently said in the opinion, it is clear that, if either Garey or Crow had been disinterested, the court would have upheld the resolution. In 1 Beach on Corporations, section 276, it is said: “Generally a majority constitutes a quorum, and a majority of the quorum may validly act,” and “in the case of directors, who occupy a fiduciary relation to the company, it is essential that the majority of the quorum shall be disinterested in respect of the matters voted upon”: See, also, Buell v. Buckingham, 16 Iowa, 284, 85 Am. Dec. 516, and cases there cited; Foster v. Planing-Mill Co., 92 Mo. 79, 4 S. W. 260. Our Civil Code (section 308) provides, without any qualification, that “a majority of the directors is a sufficient number to form a board for the transaction of business, and every decision of a majority of the directors forming such board, made when duly assembled, is valid as a corporate act.” We think, therefore, that as a quorum was present when the resolutions of November 9th were passed, and as they were passed by a majority of the quorum who were disinterested in the matter voted on, the adoption of the resolutions was a valid cor
For the foregoing reasons, the judgment and order appealed from must be reversed. . Of course, the action of a board of directors in allowing compensation to one of its members should be closely scrutinized, for by such action great injustice is sometimes done; but the asserted principle upon which this case was decided in the court below cannot be maintained, namely, that under no circumstances can an officer of a corporation who is a director be allowed compensation for services unless the compensation had been fixed beforehand, and that, in such case there is neither power in the board of directors to make the allowance, nor in the stockholders to ratify. In the ease at bar it is quite apparent that the services of Fairchild were not merely formal and preten
It is contended by appellants that after the case had been submitted the court made an order allowing an amendment to the complaint, in which there was set up, for the first time, a claim of about $300 for money paid out for an entertainment given to the board of supervisors of San Francisco at one of the mines (which appellants contend was legitimately expended in furtherance of the sale of bituminous rock, and resulted in benefit to the corporation); that in the amendment there was also first set up a claim for $2,000, which was alleged to be reasonable, for counsel fees; that the court also made an order that these new averments “are deemed to have been by defendants denied’’; and that these orders were erroneously made. ' The record, however, does not clearly show that these things occurred as claimed by appellants. Of course, appellants were entitled to contest these new items of the entertainment and the counsel fees, but it does not clearly appear that they were not allowed to do so; and, as a new trial is to be ordered, it is not necessary now to consider these matters. In case judgment, after another trial, shall be rendered merely for the $1,888.05 paid out in the litigation hereinbefore referred to, or for that and also the small amount paid for the entertainment, the court would hardly allow $2,000 for counsel fees; for the latter sum would absorb nearly the entire judgment, leaving nothing for the plaintiffs or for the receiver—a person who, in this class of cases, is generally provided for with inconsiderate liberality. The judgment and order denying a new trial are reversed.
We concur: Henshaw, J.; Temple, J.