209 A.D. 52 | N.Y. App. Div. | 1924
This is an action, brought by minority stockholders suing on behalf of themselves and all other stockholders similarly situated, to compel an accounting and declaration of dividends, the plaintiffs also claiming that salaries of certain of the officers were paid pursuant to resolutions voted on by said officers in their capacity of directors, and hence were illegal, or if legal, that said salaries were excessive. The chief grievance of the plaintiffs is that no dividends have been paid since 1916; and the real purpose of the action is to compel the declaration of dividends, the other relief sought being incidental.
Upon the trial the duties of the various officers were inquired into for the purpose of showing that their salaries were excessive. No claim was made in the complaint that the services of any of said officers were unnecessary. The learned, court went further than the complaint demanded, and further than the facts warranted, in holding certain of these officers to be entitled to no compensation whatsoever for services rendered to the corporation over many years to the knowledge of all the parties, without any such objection prior to the trial of this action.
As to the salaries paid prior to the increases voted at the meeting held February 14, 1922, the action of the directors was ratified when all of the plaintiffs, represented either in person or by proxy, voted for ratification of all of the proceedings of the corporation during the years 1903, 1904, 1905, 1906, 1907, 1908, 1909, 1911, 1912, 1916 and 1919. For the years 1913, 1914, 1915, 1917, they all ratified except Alvin Kranich, who took no part. For the year 1918, all of the plaintiffs ratified except Alvin Kranich and Mary Kranich, who took no part. The record does not seem to contain evidence of a single complaint from a stockholder in regard to either superfluous employees or excessive salaries, made to the corporation or its officers either at a stockholders’ meeting or otherwise, during all these years. At the stockholders’ meeting in 1904 the following resolution was passed: “ That all the acts of the directors of this company since the annual election in February, 1903, with reference to the transactions, resolutions, payments of money, and the general conduct of the affairs of this company, and the
Under the foregoing circumstances it is clear that the plaintiffs cannot now question the validity, of the numbers of officers employed or the payment of salaries made. In Lewis v. Matthews (161 App. Div. 107, 112), where the ratification was only for one year and where some of the stockholders actively objected, the court said: “ * * * I think it entirely clear that the action of the stockholders in ratifying the action of the board of directors in fixing the salaries of the president and treasurer for the year 1912 was a complete ratification of the action of the directors, and justified the "officers of the company in paying the salaries so provided for, and estopped the corporation or the minority stockholders from questioning the validity of the payments or the right of the officers to receive the salaries thus formally fixed.”
In Continental Insurance Co. v. New York & Harlem R. R. Co. (187 N. Y. 225, 238) the court said: “Assuming that the fact that the majority of the directors of the Harlem were also directors of the Central rendered the agreement made by the two boards for an apportionment of the interest reduction between the two companies voidable at the election of the Harlem stockholders, as doubtless was the case, nevertheless the agreement was not absolutely void, but could be ratified by the action of such stockholders, in which case it would become binding upon the company.”
.Moreover, in .addition to the ratifications by the stockholders,
The defendant Jacques B. Schlosser has been directed to return the salary paid him during the past seven years, with interest, and the corporation enjoined from paying him any further salary. The facts are analogous to those in the case of the defendant Bach. Schlosser entered the employ of the corporation in 1897, starting as an apprentice and working his way through, learning the business in detail and serving in whatever manner he could be useful. In 1902 he became vice-president. In 1903 his salary was $6,500 a year, in 1909 it was increased to $7,800 a year, which salary continued until 1922, when it was increased to $13,000.
The defendant Helmuth Kranich, secretary, was directed to return the salary paid him during the past seven years, and the corporation enjoined from paying him any further salary. He was in the employ of the corporation since 1892. From 1902 to 1909 he received $6,500 a year, and from 1909 to 1922, $7,800, increased to $13,000 in 1922. Like the others he gave all his time, knowledge and ability to the business. He looked after the sales end of the business in all its ramifications, and in addition passed on all pianos that were sent out, as' to construction, finish and tone, being particularly expert as to the latter. His name, being the same as the founder's, was also of value to the corporation as having 0. K.’d the instruments, each of which bore his personal certificate of approval.
The judgment appealed from also directs the repayment by the defendants Bach, Schlosser and Kranich of an increase of $4,420
As to the increased compensation, this was voted at a stockholders’ meeting at which 2,808 shares of stock out of a total issue of 4,000 were voted, and the only opposition was by Victor Kranich, holder of 5 shares. Said meeting was held February 14, 1922, which is subsequent to the commencement of the action. While equity may adapt the remedy to the conditions existing at the trial (Kilbourne v. Supervisors, etc., 137 N. Y. 170), yet in the case at bar the facts do not warrant the granting of the relief prayed for. There had been no increase of salary to Bach in twenty years, or to Schlosser and Kranich in thirteen years. Conditions in the corporation’s business have changed, owing to the introduction of mechanical players and the change in demand to grand instead of upright models; competition has grown keener and the business broadened. The employees have kept pace with these changing conditions. After long service an employee’s services necessarily become more valuable by the acquisition of experience.
While these considerations are cited to show some of the reasons for the result reached, a reading of this record discloses that if "this court were free to substitute its judgment for the judgment of those charged with that duty, no increase would have been granted, except perhaps to Maier. If a wise and prudent business policy dictated a withholding of dividends, it would seem that the officers should have been willing to make some sacrifices as well as the stockholders. Too selfish and ruthless a policy on the part of the officers does not usually bring that success which is given by the co-operation of all. Moreover, it appears usually that where the number of officers and the salaries paid them are fitting and fair to all concerned, the declaration and amount of dividends satisfactorily adjust themselves.
In so far as directing the declaration of dividends is concerned, there is no justification for the interference of the court. The corporation began business in 1890 with a paid surplus of $350,000. At the date of the action this surplus amounted to $353,075. From 1902 to 1916. the directors paid out an average of fourteen per cent annually in dividends. It had been the policy to pay out practically the entire earnings in dividends. When earnings were insufficient, dividends had been paid out of surplus. In 1916 commenced a period of depression in the business, following the war, and no dividends were declared during the years 1917 to 1920, although some $16,000 a year was carried over to surplus. It is apparent that the directors could not continue indefinitely the practice of paying dividends out of surplus, and the very experience they were having demonstrated the wisdom of building up a surplus, or at least in holding their surplus intact so as to insure the continuation of the business as a going concern. Said surplus was not a cash surplus, but consisted in large part of property used by_ the corporation in its business, in the form of inventories, ISTS™1"-* receivable, etc. The testimony is that in order to have paid' dividends during the years 1916-1920 the company would have had to borrow money. Had the defendants been less generous in the past in the distribution of dividends, they would have been better able to make payments during the period of depression through which they were passing. The amounts carried to surplus were just sufficient to keep the same intact. Moreover, the testimony is that conditions in the trade were changing so that greater capital was necessary; new machinery had to be installed, and player pianos and grand pianos were in demand instead of uprights, requiring greater outlay and investment of capital. The matter
The judgment should be reversed, with costs, and the complaint dismissed, with costs.
Dowling, Smith, Merrell and Martin, JJ., concur.
Judgment reversed, with costs, and complaint dismissed, with costs. Settle order on notice.