Putnam v. Juvenile Shoe Corporation

MISSOURI, SUPREME COURT OP Corporation. Putnam v. Juvenile Shoe police proper in laws. Here have a classifications we singles but two number out out a counties, statute surrounding great penal 'a and institution, of counties protect them. The law to does not even cover undertakes join County, or bound Cole situs those counties which protect penal the idea close If was to institution. why communities, discharged influx an from criminals Moniteau, protect Osage, and Miller, well Boone, as .not Callaway? There be can Cole is and constitu- Callaway limiting this law reason tional Cole special a law It is for their benefit, Counties. if there way or the either one other. If this be benefit law is to meaning, given any reasonable must be said mean be twenty-four discharged can, after convict hours, that no upon county' again soil foot of either his without set committing this, a after he his crime, too, has given liberty. his this, been debt to State and And persons can live all the other counties when too, adjoining County of Cole. a classifi- law makes character) (discriminatory up- cannot be cation which custody law renders the void. One held, and which held always discharged by writ of under a void law should accordingly discharged petitioner corpus. habeas from the County. custody Cole Much Sheriff opinion, this but this suffices. been added could Ragland, except J., J., absent; All concur, Walker, who dissents. Appellant, v. JUVENILE SHOE PUTNAM, A.

ANNA et al. CORPORATION Banc, February 17, 1925. In Employees: pay- Fraud. Officers Bonus Tbe 1. CORPORATION: when to officers of a bonus ment dissenting authorized, appropriately in itself a fraud is not practice among large em- common It has become stockholders. faithfulness, stimulating loyalty, ployers, increased as a method among employees, giving diligence activity them continuous Vol. OCTOBER TERM, 1924. company’s real and extra interest in the success of the business by,a unfluctuating compensation,

above that induced definite and adding рrofits company payable and dividends payment legal illegal according stockholders. of a bonus is or purpose which, which, to the for and the it is circumstances under authorized. Company. 2. -: -: Evidence of Fraud: Beneficial to If the payment salary employees aof bonus or deferred officers and corporation upon is beneficial to the it is fraud dis- not in itself a senting stockholders; judgment and will courts not substitute their good policy for that of the as to what is business or corporation, as to what is beneficial to the absent fraud evidence of upon only large minor stockholders. And when one out of a num- objecting bonus, payment ber of stockholders is to the only compared very that one owns a small number of shares to the large others, convincing proof, owned number not there is only fraud, honestly, of the absence of but also of the benefits reasonably expected practice. tо be flow from 3. - n — : Brought. -: Ratification After Suit at T-he ratification meeting illegal a stockholders’ and' fraudulent acts of the corporation, board of directors of a whether done after before or brought dissenting compel suit is stockholders- to a restora- money fraudulently misappropriated, tion of the will not cure fraud; authorizing but where the act of the board of directors payment to officers de- or reasonable bonuses compensation ferred-salaries excess of their stated was worst .only upon dissenting voidable and was not in itself a "fraud stock- act, prudent honestly holders, but was a made and beneficial properly company, meeting at a held after ratification stockholders’ being ratifying ample purpose that it was notice called for the payments, brought by dissenting held such such after suit stock- participating against the directors holders act, binding consenting dissenting stock- said voidablе alike, and the suit cannot be maintained. holders Participation by -: -: Interested Directors in -:4. Meeting. participated Stockholders’ who in the act Directors employees, including themselves, rea- which officers salaries, or deferred are entitled to vote at a stock- bonuses sonable ratify act, such and such called to ratification is holders’ they power illegal for it. voted Stockholders have not because power minority stockholders, dispose have full bind corporation, brought against brought after suit is a suit minority stockholder, ratifying the act of the board MISSOURI, SUPREME COURT CE illegal. directors, If the act unless such act was fraudulent ratification, fraudulent, voidable, suit after even but brought, binding upon is effec- makes the act dispose tive of the suit. 1907; par. Corporations: 1, 14a 14a C. J. Citations to Headnotes: 1943; pars. 2232, pars. 2246; 4, pars. J. J. 14a C. 14a C. 2245, 2246. Joseph Jasper Appeal Circuit F. from Court.—Hon. Judge. Perkins, Affirmed. Flmigan $

McReynolds McReynolds and John JÍ. appellant. authority give (1) no to a bоnus. directors had The Corp*p. trus 1. note Directors are 4012, 4 on 76. Fletcher (2) 14a C. 97-99. Plain as such. J. tees, answerable non-consenting minority en stockholder, was a tiff, as equity for the benefit of the to titled sue corporation making where, here, a defendant, corporation the individual defendants. was dominated 89 Mo. 10169‘-10171; Davidson, R. secs. 'Ward v. 1919, S. W. Yon Ardin v. 469; 213 S. 445; Farrar, Proctor v. 680; N. E. Kleinschmidt Works, American 74 v. Tube Mining Eaton 785; Robinson, 139 Pac. American v. Co., Albers Rader, 970; 173 Pac. 100; L. R. A. v. 29 Smith Hingston App. v. Mont 206; 45 Mo. Ex., v. Merchants Bulkley App. Mo. gomery, 77 Iron '451; Co., v. 121 Mo. agreement (3) pretended oral sub was, 105. corporation money addi some “if the makes stance, optional you. compensation is with be tional will corporation pay pay the amount it or not to to it, may wholly determined and uncertain be indefinite optional discretionary action in the future ’’ (cid:127) being agreement unenforceable, it Such the board. mutuality. uncertainty Burks v. lack of void for. Thompson, 58 App. v. Mackintosh 455; 65 Mo. Stam, 77 1924. TEEM, Yol. OCTOBER App. Supp. Pairplay Twp. Div. 25; 68 N. Y. 492; School v. 27 26 N. O’Neill, 686; Kammerer, Iud. E. Butler v. 95, 218 Pa. Atl. 332'. Since it void the 242, 67 was recognize right giving away corporate no had compelled may funds. as a be matter of Directors, law, corporation expended moneys to restore to the on 35>; invalid claims. 14a O. note Sleet 108', J. (N. S'.) 421; Farmers F. A. Butts Mut. Ins. 19 L. Bi. Co., 38 Y. Adcock v. New Wood, 317; Barb. NL 37 Crystal (4) The bonus of Ice 234 S. Co., W. himself allotted President Beith to should be $18,800 corporate treasury for several reasons: restored (a) corporate nine board of directors consisted a majority constitute shareholders; necessary quorum corporate Beith was for business. transaction of meetings present at the board as the fifth director (when mem January the other board 1919 he claims year orally promised pay later a bonus him bers corporation money), 29:, of November if the made (when of the stock $50,000' 1919 “melon cut” money away). absent given he had been If holders’ meetings, quоrum, there have been no would binding quorum, not lack futile and of a have been would constitute corporation. counted be He had to represent lawfully morally quorum: He could claim A can director both himself. compensation had to he where under board action McCarthy Port. up quorum. In re counted to brake v. Gold Steele 923; Fed. El. A. 201 120' C. C. Co., Land 349; Camden Mng. Pao. Col. v. Combi McConnell v. Me. 78; Lewis, Go. 101 239', 563; Mont. Mng. 31 Mont. Co., nation 30' v. Fields 181; Barb. 317, Y. Butts v. 37 N. 38 Wood, Mfg. 73 v. Lithic Victor Pac. Burton Co., 529; 175 Co;, this of courts State 1149. Ore. Pac. 144 While just an question the above from discussed es vote was gle, own a director’s have held if salary, fixing passage his of a resolution sential corporation. binding On and not resolution is void 78 MISSOURI, SUPREME OF COURT' v. Juvenile Shoe

Putnam 80 Mo. Mill Davidson, 445; Ward v. Davis Oo.v. Bennett, App: Roofing 30 Bennett v. 19 460; Mo. Co., St. Louis App. Seky, App. 340; v. Mo. Remmers 70 Mo. 364; Hill (b) v. Rick Coal M. 110 Co., Hill Mo. O. That Reith performed any scope services outside the of his duties president by-laws ais mere as provide fiction and sham. The president general “shall have ac management corporation.” tive of business per Under these circumstances it cannot be said that he any president, formed service which, as he was not bound perform. pp. (c) L. R. A. Note, F, 1017 326-330. compensation year His was fixed at for the 1010 $6,000 January shown minutes impeached by 1010. parol. This solemn record cannot be App. (d) Davis Bennett, Mill v. 30 Mo. The Co. 461. only definite contract which Reith'had in advance of the salary rendition of his services was for a $6,000 may only 1010. law, Under director recover for compensation definitely when services fixed in ad Carbonating vance board action. Rose v. 60 Mo. Co., App. Roofing App. Bennett v. Car 28; Co., 340; 10 Mo. Carriage App. Besch Co., v. Western Mo. 336; Ward App. Seky, v. 80 Mo. Davidson, 454; v. Mo. Remmers 70' App. 364; Pfeiffer v. Brake 44 Mo. Beach 50; v. Co., Rly. App. Taussig 84 Mo. Stouffer, 305; Co., Mo. (e) 33; Welden v. F'arm Loan 213 S. W. permitted judge board Reith to be sole own his corporation. Irrеspective worth of written au per arrangement this immoral thorities, should not be gave mitted to stand. Reith himself two-fifths and another bonus two-fifths four his intimates. pocketed The five of he $41,000: than them Less one-fifth apportioned among thirty-one of the smaller em ployees. His conduct have been would little less reprehensible defensible and little more if had he taken (f) fixing January it all. resolution of binding by way salary at on him $6,000 was Reith’s estoppel compensation estopped and he claim of that amount. Voorhees 245 111.256. Mason, excess 79 1924. TERM, OCTOBER Yol. Corporation. v. Juvenile Shoe Putnam binding plaintiff. (5') not on ratification Not The rights— deprive can her of her all the other Schoe-, alone. themselves Brick v: Co. ratified App. Arnim v. American Tube- 283; Mo. Yon 65 neick, Giodley (Mass.) SL. 680; N. E. v. R. Crandall, 74 works, Ry. Brooklyn N. E. St. 53 632; Co., Flinn v. A. Brewing 441; Assn., 83 N. Continental Klein 520; v. E. (N. Bag S.) Security 112; 51 R. Belmont, v. L. A. Co. Ry. 4 Fletcher Co., Haré, 114; 7 shaw Eastern Union v. Corps, Corps, p. sec., 4 sec. Fletcher on 4010; on ,Y. Co., S. Rubber 146 N. 29; note Theobald v. U. Eq. Brown Supp. 81 378; N. J. Marvel, Endicott v. 597; Headley, DeYoung, 100'Atl. 863; 47 N. E'. v. Matthews v. (6) & M. Pac. 194. v. Com. M. 76 645; McConnell plaintiff, the ratification other stock If view requiring defendants entitled to a decree is not holders, corporate misappropriated $50,000 restore judgment treasury, to a in her own entitled at least she is proportionate part, stockholder, as for her favor Headley, misapplied 100 Atl. v. fund. Matthews DeYoung, (Md.) 863; 47 N. E. Emerson Brown 645; v. L. R. A. 29 26; Robinson, Atl. Eaton v. 64 Gaither, v. (Mo.) 469/ 213 Farrar, Proctor v. S. W. 100; respondents. Gray for and Ho%onrd & Rice Lewis point (1) appellant’s directors first The authority give noticed that á bonus. will had proposition. support This one case is cited support proposition. not does examined, when case, contrary. En 21Fletcher’s general is to the rule Mays p. Corporations, cyclopedia Roberts v. 2151; Payne Fed. 269 States, v. United 530i; 114 S. E. Mills, Wayne County, L. 21 Ed. Wall. Kenicott 871; Company, Manufacturing 137 N. W. Zwolanek v. 322; testimony do (2) disclosed facts plaintiff’s cited un bring the decisiоns case within appellant’s the evidence point; furthermore, der second both, (in majority fact, all, shows meeting) stockholders’ at the their action shown SUPREME COURT OP MISSOURI, . majority (all appellant) of the stockholders bnt approved Vogeler payment. 205 Mo. 558. Punch, (3) Answering appellant’s point agree that the oral pay ment to the bonuses was so indefinite uncertain uncertainty mutuality, void and lack of say it is sufficient to that this is suit on the con- fully but by tract, the contract been executed both . has parties. thing left uncertain the amount by to be this was bonus, made definite corporation paying purpose, a sum for that which was accepted by employees. In other words, after con performed ques tract has been it is too late to raise the uncertainty mutuality. Reynolds tion of lack v. Tie and Wash-G-riffith Lumber 227 Co., 438; S. W. Eaton App. 194; v. Goal 125 Mo. Laclede Co., Construction Co. v. Tudor Iron 169 Mo. 151; Ice & Works, Eldorado * Planing Stanley 460'; Co. S. v. Kinard, v. 131 W. Sum- E, Boyd 697; 163 S. v. 34 S. . Willets rell, Brown, 907; W. Company, (a) urged

v. Insurance N. T. 45:. 45 It was appellant through trial all that the contract with these ‍​​‌‌‌‌​‌​‌​‌​​‌​‌​‌‌​‌‌‌​​​‌​‌​‌‌‌‌‌‌‌‌‌​​‌​‌‌​​‍had to be evidenced records of Taussig the board of directors. This not the law. v. St. Louis & Kirkwood Railroad 166 Mo. Co., 28; App. v. O’Brien Boiler O’Brien Works 154 Co., Mo. 183; Cyclopedia Corporations, 4 Fletcher’s secs. 2760', 2754; Brown Co., Crestón Ice 85 N. Politz 7501; v. W. v. N. E. Co., Wabash Railroad 100 Altavista Cotton 721; ,E'. (b) Mills v. 112 S. 637. of the officers Instead Lane, being guilty agreements carrying a fraud in out these -conniving they employees, with would have been these agree carry at a fraud if refused to out the had Mfg. 769; ment. v. Baker N. 4 Co., Zwolanek W. Encyclopedia Corporations, on 2394; Fletcher’s sec. says Cummings (4) Appellant Mo. 427. Parker, 250 allotted to Mr. Reith should be returned $18,800 (a) proposition, to.her first As adversely appellant the fol contention is settled Railway lowing Taussig Company, 166 authorities: 4009; Cyclopedia Corporations, p. Mo. 4- 68; Fletcher, Vol. OCTOBER 81 TERM, 1924. (b) answering proposition In the second that the meet ings which bonus was voted the directors and majority ratified them did not have a of the disinter say present, ested directors we this contention in con allegation,of petition theory flict with her which she tried her ease, and, that the further, subsequently the stockholders, called and held for the purpose taking vote stockholders on the said legal. act ratified said action and made it Henry Booth v. 118 Beattie, 257; Russell v. Patter ÍAtl, son 232 Co., Pa. 113; Soter v. Coatesville Boiler Works, Corporations, 101 Atl. 744; Fletcher on secs. 2394 and Railway 2761; Pollitz v. E. 721; N. Harris v. Co.,.100 Steeple Moreland Motor Co., 543; v. Max-Kuner Fed. 102.; Murray 44; 208 Pac. 152 N. T. v. Smith, S. Elyea Lehigh Mining v. Salt N. 992; 61 E. Cook Co., Corporations (6 ap Ed.) 606. The third of contention pellant president go duty is that it was the of out goods. on the road as a common This salesman sell Cyclopedia is not true. of Law, Fletcher’s secs. George

2741; Barenstecher v. Pac. Brau, 518; Hoff 135 town Merc. National 73. Bank, Co. v. First S. W. board, the, It is also that the of of claimed act fixing salаry president of included all $6,000 at pay as.,president he was and out to have for services parties side services inter as well. The have not so preted the contract and did not enter into it with understanding. Mfg. & Metal Co., Seitz Union Brass by-laws (5) corporation 189 N. 586. do W. prevent ratifying reviewing or stockholders from Washing the acts of the Kirwin v. board directors. Steeple ton Match 208 Co., v. Max-Kuner 928; 79 Pac. Cyclopedia Corporations, 44; Pac. sec. Fletcher’s (6) Appellant long authorities a list of has cited binding to the effect ratification order to be examining By of the stockholders must be unanimous. every nearly in be however, found cases, will taking stance em that the to an amounted funds abso bezzlement or a the act was willful fraud or SUPREME COURT OF MISSOURI, lutely ultra vires. other number of On a hand, by appellant point, fully authorities cited under that recognize respondent’s and sustain contention. Endicott Flynn Brewing v. Marvel; Klein v. Brook Association; lyn, supra. minority equity by

DAVID E. BLAIR, J. Suit corpo- compel stockholder to directors to restore to moneys treasury rate out deferred bonus salaries to in- officers cluding' Judgment certain of such directors. below was appealed plaintiff court. for 'defendants to this has 'and organized Corporation Defendant Shoe Juvenile under the laws of made a defendant Missouri, and was corporation the domi- because is ’said to under said composing nation control of the other defendants, any its refuse to institute directors, board who “would premises.” contended action in the It is not for relief petition action, a cause that the not state does allegations if be noticed hence the thereof will become material. engaged in the and was

Defendant Carthage, Beloit, Missouri, of shoes manufacture principal Louis, Missouri. at St. with office Wisconsin, its large president stock F. Defendant C. Reith capital of 5,000 consisted stock holdеr. The authorized common preferred shares and '5,000' stock shares of au per aor total par share, stock value $100' preferred stock capital $1,000,000. stock of thorized per divi cent cumulative to the holder seven entitled disposition Preferred preference assets. of in dends, with the except of power, voting failure for stock carried no corporation was and years pay dividends, to for two common The redemption terms. subject stated provisions, affected ordinary save as carried the stock time of the preferred At provisions stock. by the of the shares 2,000] and stock of the common 3500shares the trial outstanding. and issued preferred were of the stock Yol. OCTOBER. 1924. TERM, president corpo- C.

Defendant F. Reith was of the ration, he and the other individual con- defendants stituted year the hoard nine of In directors. the superintendent plant said Reith the of each the corporation pay- deferred-salary were voted a bonus or ment the board of directors. nec- Five were directors essary quorum. presence constitute Rleith’s vote were necessary to make the five his vote was recorded for the bonus. He then received $3,9:00, petition Alden and Bean, named as de- paid were each fendants, were au- $1,000. Such bonuses September, thorized board fixed 1918, January paid meeting and ordered at a the board on January, meeting salary IS., 1919. At the 1919, by- defendant Reith for 1919 at $6,000. The fixed corporation empowered of the laws employees. fix the salaries minutes of all officers meeting of the of the that board of directors do not show salary except any employee, other officeror Reith, was fixed the board of directors for paid during exact 1919 to amounts defendants McCall, stipulated Alden, Scheurer and Bean were in the record, but need not detailed. About close оf 1919, be said being following per paid defendants were sums month; $250', $300'; Bean, McCall, Alden, $300; Scheurer, $300. meeting

At a of the directors on November following adopted: resolution president company that the First, “Resolved, salary pay hereby deferred be, authorized to aas employees payment, money various sums to various fifty aggregate not to thousand the sum of exceed which, ($50,000) amounts and which dollars, president in view be be determined each'.to payment is, service each; rendered salary pres- part employee’s considered of each year.” ent fiscal January

At of directors of the board or de- apportionment bonus $50,000' MISSOURI, 84 OF COURT SUPREME Corporation. Shoe Putnam v. Juvenile payment, ferred-salary 1919, November authorized 29, approved Reith, as made defendant was ratified and appor- appeared president. defendant as said Al- $6,400'to defendant thereof to himself, tioned $18,800 defendant Mc- $7,000 to Bеan, to defendant den, $6,400 Call, a total Scheurer, to defendant and $2500 ranging down from amounts, $41,000. Smaller $500 departments apportioned to heads of and $50, to $8,900'. and amounted and lesser ’meeting’on At November 29,1919, the directors when deferred-salary payment a authorized, bonus or was present, quorum five and included bare directors Reith Alden. When the defendant directors and approved January payments on made were ratified including present, directors were directors 1920, six 26, all of whom Alden, McCall, Bean Reith, received pay- portions deferred-salary bonus or substantial of said ment. January petition 1921. 27, in the case filed special meeting stock- of the 1921,

On November 14, was held at office of the its St. holders following pursuant notice: Louis, special meeting given hereby that a “Notice 'Corporation of the Juvenile Shoe the stockholders of company, America held at office will be Advertising Building, Louis, St. 300, Locust Room Street, Monday, day of at the 1921, the 14th November, Mo., voting purpose of for the hour nine o’clock a. m. (cid:127) ratify proposition the board of direc- the action of January 26th, 29tii, tors on November paying’ em- authorizing to the officers $50,000' ’ ’ compensation. part ployees company of their as adopt- following resolution was At said ed: Juvenile That the

“Resolved, approve ac- ratify Corporation of America Shoe Juvenile and officers of the board of tion Corporation November America taken Shoe paying authorizing January 26, 1920, Vol. 307] OCTOBER TERM, fifty employees thousand dollars the officers and company part compensation.” as the of their preferred

Apparently, as well as common stock- meeting. report holders at such voted on tellers’ . the vote aswas follows: “3248 stock shares common ‍​​‌‌‌‌​‌​‌​‌​​‌​‌​‌‌​‌‌‌​​​‌​‌​‌‌‌‌‌‌‌‌‌​​‌​‌‌​​‍preferred and 1536 shares of in stock favor of reso- voted against lution, and 217 of commоn stock the shares voted resolution.” voting

The 217 shares common stock, recorded as against attorney said were an in resolution, voted plaintiff. Subsequently, fact of the all stock, the ap- represented person meeting, proxy or at said pears payment to have ratified the in one form or another.

'After said stockholders’ to-wit, held, corporation, December 1,1921, the defendant and defend ants F1. Drosten McCall, Alden, Drosten, W. G. Reith, W. separate filed Schumacher, their amended answer, deferred-salary pay which ratification of such bonus or up. ments answer board of directors is set Said payment by admitted the sum defendant Reith of said corpora employees of $50,000'to the officers and of the “ alleged tion. that at the time said all of officers employees duties, elected to officeand their were assumed agreed paid it was understood and that the salaries only living drawing them were thаt at account, and yeár company the end of the if the had been successful money, paid and had made additional sums would employees. said officers answering

“The defendants further state that except said E!. A. Alden other said officers, and the they accepted C. F. at and en the time their Reith, offices employment corporation, tered into the of the defendant receiving largely were salaries excess amount compensation, fixed fixed for their the same was and that all the understood it was to be that stated, as above compensation the dis said officers to be allowed for by charge assigned them under the the duties as corporation made laws, unless the was successful money. MISSOURI, OP COURT SUPREME Shoe

Putnam v. Juvenile A. further state that the E. said “The defendants per- B. B. A. L. Scheurer Bean, L. MoCall Alden, request the defendant and with formed, at understanding same should be services' for, that the corpo- entirely duties as оfficers of outside of their said extra all who received ration; compensation part received, of their com- aas same employment'; that pensation their the time of fixed president had the said F. Reith as O. by- prescribed by fixed as such officer his duties eighteen thousand laws eight ($18,800) dollars distributed to hundred him was compensation corpo- which he rendered services selling traveling goods in the ration- different, salesman in understanding the Union and with the states of part corporation- agreement its and on the the and compensated officers he was to be and that therefor, that eighteen eight the thousand hundred dollars said paid fifty per ($18,800') himto than cent of so was less corpo- fairly and the worth, services were what what such any pay have had to for the to ration would same sales- would have to the amount man who sold merchandise by said Reith.” value that was sold the defendant general reply denial. was -following judge finding of facts trial made the in the case: persons the

“The court that the who received finds paid pursuant to the of the them to resolution $50,000 performed the 29, 1919; of November board directors payments with the made, for which such services previous understanding payments that such would prosperous pay, company able if and to made the was payments the made under said resolution that and by performed were for services officers respective their offices; of the duties of them outside ‘‘ company during prosperous year That the was the largely prosperity due the that 19191and such by performed of the the outside duties officers services departments and by the heads of offices and their Yol. OCTOBER TERM, resulting understanding: office if force, from company prosperous, was' receive extra would compensation; “ the court And finds that under the conditions and circumstances, the amounts evidence, shown such extra are that the services and were reasonable, adopted policy company as shown the action of the board of directors the stockholders policy, exceedingly and that was an wise evidence, oral company policy the not have earned but for said would money distributed under resolution, said opinion clearly that at the close the court is year adopt company had 1918*,if the declined policy of Mr. Reith it it have lost did, would services through would of Mr. Reith as the loss salesman, procured Mr. McCall, Alden, have of Mr. not the services manage experienced persons, and conduct and other company, result would and as a business money all meet ob- failed its have to earn ligations and con- pay to its dividends money advertising program duct its extensive treasury do, did in its to meet losses left probability to success- been unable all would have but in depression fully and business the financial storm weather of 1920. adopted policy opinion that the

“The court is company resolution as evidenced as said well 1919, as board of directors on November com- the but void, resolution, fraudulent, pany policy, of directors adopting the board in and said good faith for' -passing in acted resolution, in said and company stockholders, and its best interest of the that after said of di- payments and the board made were making president such in the act rectors ratified meeting assem- payments, in later the stockholders and all vote of payments an affirmative bled, ratified such not be plaintiff, except it should the stock that held illegal, held fraudulent or void. SUPREME COURT MISSOURI, OP

Putnam Juvenile Shoe finding “The court directs that this of facts and opinion part of the court he filed become of the rec (Signed) Judge, ord this case.” D1. “J. Perkins, Jasper County Division One, Circuit Court.” findings judge We think of the trial are abund supported antly weight ap of the evidence. pears gross profits from the evidеnce that Something for 1919 exceeded over $200,000. depreciation patterns for $26,000 $24,000' lasts, charged reducing appears dies have to been off, profits approximately net to Mr. Reith fixed $150,000. earnings” “gross charged at $213,000. $51,000 If earning’s off of amount the net If $162,000'. this profits, figure lower the net re be taken there as paying per mained, after seven cent dividends on preferred payment ($50,- ($14,000),-and the stock bonus 000), applied could been $86,000, sum which have upon in excess 24.5 common stock or dividends per a divi the record does not show cent. However, min common The to been on the stock. dend have January on show of the directors’ utes quarter for the stock, the common that the dividend per ending or at the cent, was two December 31, per year per eight 1920'was annum. cent rate of unprofitable apparently all of the some or an one, year. surplus in that absorbed of 19191was Reith de- defendant duties, his other In addition of sell- portion the business large time to of his voted corporation. He product of the ing the manufactured ap- sold very salesman, apparently a. successful sub- in 1919. The proximately shoes worth $2,000,000' departments, who shared heads officers ordinate salary are shown payment, deferred bonus or in the 1919 unusually loyal cor- been evidence it. rendering earnestly service poration devoted Sundays. The nights Many them worked manifestly regard judge this finding trial the evidence. in accord with petition follows: is as plaintiff’s prayer

Vol. OCTOBER TERM, Corporation. plaintiff equitable power invokes the “'Wherefore, require of the court to the individual as direc- defendants corporate tors defendant to make and render an accounting plaintiff, corporate defend- misappropriated so diverted and funds ant, as corporate hereinbefore described, defend- against judgment as ant the individual defendants have jоint recovery moneys for the tortfeasors wrongfully appropriated so and diverted plaintiff the individual defendants, or that the judgment against joint the individual defendants tort- part wrong- proportionate feasors for her of the funds so fully appropriated equity and diverted as aforesaid as require, may proper for costs and for all relief.” judgment, plaintiff upon

For reversal of the relies following contentions: That defendant Reith’s sal- ary board fixed $6,000' 1919', and there formal was no action of the board in advance fixing compensation; agreement additional that the oral compensation for additional to Reith was void for lack mutuality uncertainty and for and indefiniteness and imposed obligation corporation; on the that the serv- performed by wholly scope ices Reith were within presidential compen- duties he his is entitled to no agreed except therefor, sation such as was in writ- ing in advance formal action of the board of directors; agreement pretended that the between Reith as a direc- January tor the rest of the board 18, 1919', November void because was au- same morally legally vote, thorized his own is void him,- represent Reith could not at the same because time corporation; legally morally self that it and the permitted wrong for Reith board direc- appraise services; value of his own tors participated having in the board Rleith, postponed which fixing salary definite of his and which fixed actually amount named at is entitled .no $6,000, estopped more. more and is to claim SO COURT OF SUPREME MISSOURI,

Putnam Juvenile Shoe to Sclienrer, As defendants Bean it is Alden, contended, they that were officers directors and re- regular salaries, and neither of any ceived them had' for further written if such agreement salary; that, serv- the of their scope ices within were en- duties, they titled no additional because com- compensation, tо such was not authorized the of pensation associa- articles of the or . or evidenced formal by-laws tion action of board before ren- written the services were the scope that services outside dered; if rendered alleged their oral indefi- understanding of duties was not formally unmutual and entered into nite, uncertain, is alleg’ed agreement and the board board, action in to $6,400' board’s void; appropriating that his defendant Alden immoral because illegal, was to make necessary the board presence the quorum. up to other employees, plain-

As to distributed $8,900' is the board made agreement contention that tiff’s oral and that same, alleged covering writing uncertainty void for indefiniteness, agreement mutuality. lack of finding are that contentions general

Plaintiff’s that party; decree are for the bonus wrong away of constituted the giving payment deferred-salary be ratified which could the assets аt least stockholders; plaintiff is less than all misap- proportionate part recover her entitled (cid:127) . plied $50,00,0. au- a bonus, appropriately when payment stock- dissenting a fraud is not itself thorized, large among common has become holders. The practice faithfulness, loyalty, tends to stimulate employers real them a and gives in employees activity energy the ex- employer beyond in the of the interest business where expected to be tent of qualities reasonably em- is all such compensation unfluctuating definite and ten- natural right anticipate.. have the ployees up- contingent is which dency the amount bonus, of a OCTOBER. TERM, Yol. Corporation quality esprit profits, up known as de bnild beyond produce profits may

corps. what tends expected. where the amount of the Hence, otherwise unreasonably large, it to increase the tends bonus is not compensation profits employer аs the as well employees employed. wasteful It tends to make less of the interests more watchful of materials and employer, employees thereby their own conserve because employees experienced serv- It tends hold interests. employment plentiful scarce, when ice, thereby mak- the annual turnover labor, and to reduce employees, personnel ing permanence avoids in the training necessity in re- incurred of new the and loss average efficiency up of skill the and builds cruits, things employed. ‍​​‌‌‌‌​‌​‌​‌​​‌​‌​‌‌​‌‌‌​​​‌​‌​‌‌‌‌‌‌‌‌‌​​‌​‌‌​​‍ad- are to the evident All these those vantage employer. of practice hoary is with form or another In one

v promise age. man to his hired The farmer knows early buggy for quitting a horse and loan of and the of day’s long* evening-off produce big before a work will early quitting teacher knows time. The half-holiday, prospect of tardi if are cases a there of every pupil, eаrly of arrival school ness, will insure displeasure So upon pain students". his fellow expected results industry. bonus based in An it is employees in expose are discourage who to' tends thoughtless, wasteful. lazy, inefficient, clined he payment Experience of a bonus that the has demonstrated employee employer and, alike benefit of works to the advantageous to stockhold bounds, within reasonable recog employing corporations Courts labor. ers of practice. given to the sanction their and have nized this C.) (N. 530; Zwolanek Mays Mills, 114 E. [Roberts S. v. 769.] (Wis.) Mfg. 137 N. Co., v. Baker W. Corpora- Cyclopedia of 2 of Fletcher’s In volume ‘‘ may be cir- p. There sec. said: tions, corpora- property by gift a which a under cumstances carry- increasing legitimate or means of a tion would not be ultra would ing case such business, its on SUPREME COURT OF MISSOURI, v. Putnam Juvenile Shoe vires.” The text then cites an pay- as illustration the wages ment profits. extra out of undivided English by (Hutton In an сase, cited Fletcher Ry. Chancery West 654), Cork syllabus, Div. supported by “A, opinion, company carrying reads: power, general business meeting, has the vote of a expend portion gratuities funds in its to servants provided grants pur- directors, are made for the pose advancing company.” interests Cyclopedia 4th Corpo

Plaintiff cites Fletcher’s page contrary. authority rations, This, power is in however, In connection with the of directors. says: payment the same connection the author “The of such bonuses has been sustained some cases, how ever, connection with increases of salaries and as extra compensation.” denying power case pay cited bonuses, Fletcher, is Mc Nulta Corn Belt 164 Ill. 427. Bank, There the bonus illegal was held because authorized the directors un illegal by-law alleged subsequent der an and because the ratification the stockholders was not voted bona nothing fide hоlding stockholders. There is in the case payment illegal of proper bonus when under authorized purpose. circumstances and for lawful payment conclude We, therefore, that the of a bonus may legal illegal according purpose or to the for which and the under circumstances which same au- agree thorized. We with the trial court that the bonus deferred-salary payment, or made in case at bar, was beneficial to the not itself a fraud dissenting stockholders. judgment Courts will not their substitute for that of good policy as to stockholders what is business or as to what is beneficial to the absent evi- upon minority dence of fraud stockholders. There is no only evidence of fraud in this case. When one stock- objecting payment holder is to the of the bonus out of large preferred number of and common stockholders 93 TERM, OCTOBER Yol. v. Shoe Putnam Juvenile only dissenting of shares stockholder and the owns 2,000 of 3500 shares of commоn and stock ont common convincing proof, preferred it is the most stock, shares of of benefits of but also not of absence fraud, reasonably expected from honestly to be to flow such practice. large of cited a number cases

Plaintiff has payment point by stock- ratification of the bonus that the binding plain- not was holders on November slightest if ratifi- doubt that, tiff. We petition, prior filing to the of occurred cation had dissenting binding upon consenting been would have authori- one cited alike. Not cases stockholders subsequent tatively, question of ratification touches filing All are of fraudulent con- the suit. cases duct. N. E. Tubeworks,

In Arnim American Von corporation upon regular (Mass.) a of the officers years corporate property salary misappropriated by-law misappropriation. purposely No concealed such or stockholders shown and sanctioning vote directоrs corporate The court assets. of the such use majority consented said: “Even if illegal ratify assent would their funds, use of an its prevent minority, ob- protesting them from not bind taining equitable There the use appropriate relief.” clearly corporate fraudulent. funds made Grodley 1915D, Godley L. A. R. & In v. Crandall fraudulently majority in themselves voted the suit, the commencement creased salaries. After consisting majority who re of those stockholders, ratify payments, the ac preferential voted ceived the that such held board directors. tion of the fraudulent bind payments so as to could not be ratified making Nothing non-assenting was said stockholders. any after before and suit ratification between distinction was filed. App. 283, Schoeneich, 65 Mo. Brick

In Co. Pressed deposited funds corporation wrongfully an officer SUPREME; COURT OF MISSOURI, corporation of the partnership, the account aof corporation which he was a member. pеrmitted The partnership recover from the administrator of the es- partner, after notwithstanding the death of tate, such corporation majority a of the directors ratified the action of officer. It held this could he done by the unanimous vote of the stockholders.

Flynn Brooklyn Ry. City (N. Y.) 53 N. E. leasing prop- awas case of fraudulent of street railroad erty by authority majority of a of the stockholders. The petition allege taking steps by appropriate did not procure minority stockholders to relief within the cor- poration petition to annul the lease, in- held sufficient. Independent Brewing

In Klein v. Assn., 83 N. E. 434, purchased fraudulently prop 23 Ill. 594, the directors erty paying for the from themselves, more property than majority was worth. attempted ratify purchase stockholders after point suit was No was made as time of such filed. purported ratification. But the court said: “It to be tolerated that the of a directors cor- poration owning controlling majority a stock its permitted shall be to cause their unlawful acts to rati- by calling meeting, they fied a stockholders’ which con- effectually trol as do hoard directors, causing majority stock to be voted favor of complained the ratification. If the acts of were unaf- by any fected unlawful and fraudulent motive con- question simply and it were a duct, whether directors good judgment exercised had the for the best interests perhaps apply, rule different would majority the directors and

right manage corporation.” control, direct,

In Continental Securities Co. 51 L. Belmont, R. (N. S.) A. N. 99 N. 206 Y. E.

fraudulently transferred stock defendants for a grossly inadequate consideration. New York Court OCTOBER TERM, 1924. Yol. Corporation. v.

Putnam Juvenile Shoe subsequent hy Appeals held that ratification bound assenting estoppel only the stockholders. Ry. Bagshaw Eastern Union 114 Hare, Co., In 7 v. 46), Rep.

(68 Reprint, illegally Eng. directors used funds railroad construction. It was held in unauthorized majority Re stockholders ‍​​‌‌‌‌​‌​‌​‌​​‌​‌​‌‌​‌‌‌​​​‌​‌​‌‌‌‌‌‌‌‌‌​​‌​‌‌​​‍was no defense. ratification ferring Harbottle, Foss v. 2 the vice-chan Hare, to : cellor said apprehend, point, not,

“That I this case does though go this: that if the act, further than be act only, general meeting be one which a of the directors hy company a bill some of the share- sanction, could impeach to behalf of themselves and others, holders, general be because sustained, that act cannot might immediately give company confirm and va- lidity complains.” of which the bill the act excerpt may indicates that ratification be made capable if the act is filed, been of ratifica- after suit has ' tion. In Rubber N. Y. Co., Theobald v. States 146 United charged Supp. “wrongfully directors were with money retaining corpora unlawfully” taking and charged per directors were with and certain other tion, purported mitting was a ratification such action. There corpora that misuse held stockholders. was gain private purposes not for could be tion funds ratify may an thаt stockholders ratified. The rule so merely void, not hut void directors which act fully recognized. was able, Eq. there was J. Marvel,

In Endicott 81 N. of directors of the action stockholders ratification body money the cor permitting to loan of their some pro taking security poration, collateral without double by dissenting redemption. Action vision for accounting hy to redeem was an stockholders (cid:127) power of the assumed The court sustained. (that ratify was after suit is, existed still stockholders filed) ratified. could be the action if 96 SUPREME OF COURT MISSOURI,

Putnam Juvenile Shoe Young, (Ill. Brown v. De N. E. Sup.) awas against suit an officer who and director salary. an non- unauthorized It was held that plaintiffs assenting pro were entitled to recover their portion. general rule that such refund should recognized, peculiar but the facts a distinction in that case. made Headley (Md.)

In Matthews v. Chocolate Atl. partici 645, transferees of stock, owned who holders pated payment fraudulently in the excessive bonuses permitted to officials, salaries share recovery offending Following from officials. Brown Young, supra, non-assenting per v. De stockholders were proportionate part individually, mitted to recover their recovery corporate treasury since to the en would have previously by abled such transferees of held as stock, senting recovery. was in to share There directors, ’ question no in the case of ratification a stockholders meeting.

In Pac. McConnell v. Combination Min. &Mill Co., 76 (Mont.) charged 194, defendants were with fraudulent misappropriation corporate plaintiff’s funds. On appeal judgment for defendant was Al- reversed. leged ratification stockholders suit was was after filed signification, given held have no because no notice %oas proposed. that such would be At stock- ratification only holders’ there a. attendance and was small represented by proxies. of the stock mоst foregoing by plain- cases are those relied authority proposition tiff as for the that the stockholders of the defendant in the case at bar not could ratify making the action the bonus directors deferred-salary payments Reith other directors employees. every will noted that in dis- It ease il- fraudulent or cussed the action of directors was disadvantageous legal corporation. Other á cases will defendants, eases are few which cited be noticed. TERM,

Yol. OCTOBER (N. J.) In Booth v. 118 Atl. Beattie, held 257, was fixing that a resolution of the stockholders extra com- pensation option directors was voidable at the dissenting and will stockholders, be sustained dis- .unless advantageous to them. It was there that additional said compensation “practical, commercially sound, and ob- corporate management.” tains in

In Russell Patterson Pa. action of voting directors increased salaries to two their num- ber was held if thе voidable, increase was reason- able and honest, and that such action could be ratified majority vote of the stockholders, as stock- that, right holders, interested directors had to vote upon such ratification.

In Sotter (Pa.) v. Coatesville Boiler Atl. Works, 101 voted bonuses to themselves and their ac meeting. tion was ratified aat stockholders’ held including that the .stockholders, such interested directors, power ratify had full toso where involved. fraud was . We are satisfied that the stockholders the case at power minority bar had full to bind their meeting, ratification at a stockholders’ called for that__ purpose. Primarily, brought by plaintiff the action corporation. is for the benefit The stockholders power dispose subject- must be held to have matter of suit such even after suit is ratification, the plaintiff right, illegal filed, unless had the because of majority fraudulent action of the directors stock- holders, to maintain an in her action own name for re- money covery proportion of her out bonus of as payment or deferred salaries. But the was not fraudu- honestly prudently lent. We think it was made for corporation. the benefit of the The action the direc- most, tors was could be ratified voidable, stockholders. proposition authority

Plaintiff to has cited dispose that after is ineffective- ratification, filed, suit ^ corporation. of a entirely is suit for the benefit of the filed just should reasonable- and 307 Mo —7. SUPREME COURT OP MISSOURI, Guardianship McMenamy. Angela

In re such, power ratify action of taken directors, for the benefit even after suit has filing plain- In been filed. a suit of that character subsequent tiff took the chances can- ratification and complain nothing not upon thereof. There left is, therefore., recovery by plaintiff can

which be based a for her part proportionate payment, of such bonus as alternate- ly prayed petition. for her unnecessary view of the case

This makes it con- plaintiff ' ground sider other contentions made as judgment urged, reversal of the below. The if reasons that the acts of the sound, show directors were void- judgment and not It follows that able, void. should affirmed. J., and is White, concurs; J., dis- Walker,. sents. foregoing opinion CURIAM:—The PER David adopted opinion J.,

E. of Court in Banc. Blair,, except Baglm%d, All who J., dissents, ‍​​‌‌‌‌​‌​‌​‌​​‌​‌​‌‌​‌‌‌​​​‌​‌​‌‌‌‌‌‌‌‌‌​​‌​‌‌​​‍Walker, concur, J., absent. McMENAMY; RE O F ANGELA

IN GUARDIANSHIP Appellant, KANE, Guardian, EMMET v. JOHN R. Co-guardian. McMENAMY, Banc, In March 1925. Question. case JURISDICTION": Constitutional In a APPELLATE instruction has found facts for an cover- circuit court in which the covering given questions ing and has instructions constitutional Appeals questions, has said a constitutional and the Court of those question transfers case to this court on that is involved respect ground, the case to the facts treat with should this court not, reviewing court, without and should trial found question involved. facts, constitutional that no rule Dispute: $7,500: Excess of Gift Insane Wife: Amount

-:2. guardian A Inventory motion to remove the husband as of Estate. ground wife, in he had" not insane his estate amounting $24,000 belonging her checks notes ventoried

Case Details

Case Name: Putnam v. Juvenile Shoe Corporation

Court Name: Supreme Court of Missouri

Date Published: Feb 17, 1925

Citation: 269 S.W. 593

Court Abbreviation: Mo.