229 F. 241 | D. Mass. | 1915
This is a petition by the Charles C. Rewis Company and other creditors of the Knox Automobile Company for review of an order made'by Mr. Referee Bosworth allowing certain claims of Sutton et al., as administrators of the estate of Alfred N. Mayo, deceased, in the sum of $927,945.56. The case comes upon the referee’s certificate, accompanied by the exhibits and a transcript of the testimony before him.
The claims are based principally on eight notes, of $100,000 each, made by the bankrupt and held by the claimants. The notes were given for money loaned by Mr. Mayo to the bankrupt, and their validity is not disputed. The controversy here presented concerns certain alleged offsets which, it is contended by the objecting creditors, should be allowed in favor of the bankrupt against the claim on the notes. These alleged offsets arise, speaking generally, out of certain payments of money and property made by the bankrupt to Mayo while he was its treasurer. Three principal items are involved:
(1) Payments to him as salary, or bonus, in excess, it is contended, of what he was entitled to receive, amounting to about $24,769.
(2} Stock in the bankrupt company improperly transferred to him, it is alleged, amounting at par value to $5,300 preferred and $136,-400 common.
(3) Commissions taken by him on loans of $800,000 from him to the bankrupt, aggregating $40,000.
The salary year of the company ran from August 1st to August 1st. The salaries were, by custom of the company, generally fixed by the directors in January following the beginning of the salary year; i. e., the salaries from August 1, 1910, to August 1, 1911, would be fixed in January, 1911. Mayo became treasurer of the company in January, 1909, and thereafter, while not controlling the stock, was undoubtedly the dominant personality in its management. Prior to August, 1910, his salary had been $12,000 per year. During the latter part of 1909 and the early part of 1910 large extensions of tire plant had been made on his initiative and under his general direction. At this period the company, which had failed and reorganized' in 1907-08, appears to have been very prosperous. Its book profit for the year ■ending August 1, 1910, was $337,771; its book surplus, $466,596. Although it had incurred a substantial indebtedness in connection with the extension of its plant, it began the year on August 1, 1910, in excellent condition.
When the directors came to fixing salaries in January, 1911, for the year which had begun the preceding August and was to end August 1, 1911, Mayo demanded an increase from $12,000 to $25,000 and the preferred and common stock now in question. This stock had been authorized in connection with the reorganization, but had never been issued. He based this demand at that time principally on extraordinary services rendered by him during the past year. The directors objected; the matter was left in abeyance and was not finally settled until August 2, 1911. The year for which the salary was being fixed had at that time expired. It is suggested that the directors had tfiereby lost power to act in the matter. But the board of directors did not go out of office until the following October; it was the same as in January. It was its duty to act on this matter of salary; and it could do so at any time during its term of office.
At a meeting of the board held on August 2, 1911, Mr. Mayo, to whom the company was then indebted to a large amount, took the position that the company could either meet his terms or get another treasurer and arrange to pay his indebtedness when it matured. The company’s business had been unsuccessful during the year ending August, 1911, and it was in no position to take the latter alternative. The directors, after considering the matter carefully, honestly, and disinterestedly, decided that it was best for the company to comply with Mr. Mayo’s demands, which was accordingly done. The vote as passed at that time is set out at length in the referee’s certificate. The $25,-000 so voted was paid, and the stock was duly issued to Mr. Mayo. No vote as to salaries for the year from August, 1911, to August, 1912, appears to have been passed by the directors in January, 1912; and Mayo continued to draw salary at the rate of- $25,000 per year until his death on June 26, 1912. The difference between $12,000 per year and $25,000 per year from August 1, 1910,. to June 26, 1912, constitutes the first item of offsets alleged.
The objecting creditors contend that the vote of August 2d did not fix the salary at $25,000, and that the $25,000 payment under it should
A o misrepresentation, and no fraud, unless Mayo’s' coercive action be so regarded, entered into the agreement between him and the company as to his salary. He stated his terms, and the directors, however reluctantly, agreed to them. There is no finding that his services were not, under the circumstances, worth the amount demanded. On the contrary, the learned referee explicitly finds that “this salary of $25,000 a year * * * was fair and proper compensation for his (Mayo’s) services,” etc. (Certificate, p. 6.) The corporation was adequately represented by its board of directors, between whom and Mayo the agreement was finally reached. Of the nine directors, seven, besides Mayo, approved of the transaction. This item differs from the commission hereafter considered, in that Mayo was not, as treasurer, representing the corporation in contracting with himself as an individual. The corporation was not at that time insolvent; and the bankruptcy petition was not filed for about 17 months thereafter.
It is difficult to see upon what grounds the plaintiffs, who appear here only as creditors of the Knox Company, who have proved claims in the bankruptcy proceedings, have any standing to object to the transaction, which, it seems to me, could properly be assailed, if at all, only in proceedings between the corporation and Mayo. The respondents have not raised this point, however, and assuming, as the parties do, that the objecting creditors have such standing, it does not seem to me that the learned referee’s findings on this matter were erroneous, nor that, after the contract has been executed by Mayo, this court ought to attempt to set it aside, and to> charge his estate with the difference between his original salary of $12,000 and the increased salary of $25,000.
The order of the referee is affirmed.