120 N.Y.S. 350 | N.Y. App. Div. | 1909
The plaintiff, since 1901, has been the owner of 50 shares of the capital stock of the defendant Thaddeus Davids Company, a domestic corporation with a capital of $30,000 divided into 300 shares of the par value of $100 each. For some years prior to his death,
The plaintiff, in October, 1907, brought this action to compel the directors to return to the corporation the salaries paid in pursuance of the resolution, the complaint alleging that the directors had voted these salaries fraudulently for the purpose of depriving her of her just share in the profits of the corporation. Shortly after the commencement of the action Edwin "W". Davids died and his executor was duly substituted as. a party in his place. The answer of the defendants put in issue the material allegations of the complaint. At the conclusion of the trial the court found in favor of the plaintiff ; that the services rendered by Louisa A. Davids, as president and treasurer, from January 1, 1906, were purely nominal; that the services rendered by Edwin W. Davids Were reasonably- worth $2,250 a year, his former salary; that those rendered by Merckle
Before the passage of the resolution referred to, the aggregate annual salaries paid to these three officers were $6,750. ' While the president had nominally received a salary of $20,000, it is perfectly obvious that his real salary had been $2,500, and the fact is not disputed that the balance of $17,500 was distributed each year among the stockholders according to their respective holdings. This-method of distributing profits in the guise of salary, is not. unknown and, no matter what the purpose was in the present case, it was a distribution of profits among those legally entitled thereto, and nothing else. By the resolution, therefore, the directors increased their collective salaries from $6,750 to $24,000, which practically used Up the entire earnings of the corporation.
It is difficult to see how the plaintiff could have made out a stronger case of fraud. The capital of the company was, as already stated, only $30,000, and the three directors were the only stock holders, except the plaintiff, who owned one-sixth of the stock. They met and voted themselves this large increase in salary- by a single resolution, in which. they all concurred. As directors they held a position of trust. It was their duty to manage the business and affairs of the corporation honestly and with fidelity, having in view not only their own interests, but the interest of the plaintiff. ' Simply because they happened to hold a majority of the . stock, which enabled them to elect themselves directors, and that ‘ they constituted all of the directors, gave them ho right to vote themselves salaries. ' In doing so they were not occupying that impartial position which the law requires; in other words, self-interest might induce them to act to the prejudice of the other stockholder. Salaries cannot be voted under such , circumstances, and, when so voted and paid, the money can be recovered back for the" corporation at the suit of an aggrieved stockholder. (Jacobson v. Brooklyn Lumber Co., 184 N. Y. 152; Miller v. Crown Perfumery Co., 125 App. Div. 881; Fitchett v. Murphy, 46 id. 181; Snow v. Church, 13 id. 108; Ziegler v. Hoagland, 52 Hun, 385.)
It is suggested that the resolution referred to was voted on in parts and that no director voted on the proposition to increase his own salary, and there is some testimony in the record to this effect. But assuming that such testimony is true, and that the court would have been justified in making a finding to that effect, it would have ' been no justification for the increase. All that would have amounted to would have been to give the semblance of legality to a wrongful act, which would not prevent a court of equity from exercising its powers to compel a restitution.
It is also urged on the part of the appellants that the plaintiff failed to prove the salaries voted were excessive and that the bad faith of the directors cannot be presumed. The suggestion is based upon an erroneous assumption as to the precise relation in which the defendants, as directors, stood, to the corporation. They occupied a position of trust and when the fact appeared that they had voted themselves salaries by a resolution in which they all joined, then they were put in the position of trustees dealing with themselves, to their own advantage, with respect to their trust. In such case the presumption is that they acted in their own interest, to the prejudice of the corporation, and the burden was upon them to overcome such presumption. (Sage v. Culver, 147 N. Y. 241.) This they entirely failed to do. A minority stockholder in a corporation has nothing to say about the management of its business and affairs, because the directors are elected by the majority. Hot withstanding this fact a minority stockholder has some rights, which the directors are bound to respect, viz., that the property of the corporation shall not be . stolen or misappropriated under the guise and pretense of salaries of officers, and whenever such attempt is made and the a.ct by which it is attempted to accomplish that result is reviewed by a
The trial court here should have directed the return of all moneys withdrawn. It ought not to have permitted any of the defendants to retain an amount equivalent to the amount of salaries received before the passage of the resolution, because they had no legal right to such sums. The plaintiff, however, did not appeal. She does not complain of this allowance.
If the foregoing views he correct, then it follows the judgment appealed from should be affirmed, with costs.
Ingraham, Laughlin, Houghton and Scott, JJ., concurred.
Judgment affirmed, with costs.