232 Pa. 113 | Pa. | 1911
Opinion by
The Henry C. Patterson Company was incorporated January 20, 1904, under the laws of Pennsylvania, and is engaged in the lumber business. It has a capital stock of $50,000, divided into 500 shares of the par value of $100 each. From September 1, 1908, to the date of the hearing by the court below, the stock was held as follows: Edwin PI. Coane, 348 shares; C. Conde Freas, one share; Bertram L. Kimball, one share; and Henry A. Russell, 150 shares. The by-laws fixed the number of directors at four and the board is composed of the plaintiff and the three defendants. At the annual meeting of the stockholders, held February 9, 1909, Coane, Freas, Kimball and Russell were re-elected directors for the ensuing year, and at a meeting of the board of directors held on the same day Coane was re-elected president, Kimball vice president, and Freas, secretary and treasurer. Article 3, sec. 4, of the by-laws of the corporation provides as follows: “The board of directors shall have charge of the general conduct of the business affairs of the company, and establish such rules and regulations, and from time to time alter or amend the same, as in their opinion are expedient to the welfare of the company. They shall, from time to time, fix the compensation of the officers.” At the time of the election of the officers in February, 1909, the salary of the president and of the secretary and treasurer was $1,200 each per annum, said amounts having been fixed
At the annual meeting of the stockholders of the company, held February 8, 1910, which was their first meeting held after the resolution of the board of directors adopted February 9, 1909, increasing the salaries, a resolution was passed ratifying and confirming the action of the board
On January 10, 1909, Russell filed this bill to restrain the officers of the company from further paying the salaries, and to compel Coane and Freas to return into the treasury of the company the excess of salaries above $1,200 per annum. The bill averred, inter alia, that the salaries were exorbitant, unreasonable and unfair, and that the increase was illegal because it could not have been made without the votes of Coane and Freas, the incumbents of the offices. The learned judge held that the resolution of the board of directors increasing the salaries was void, and that the resolution adopted by the stockholders ratifying and affirming the resolution of the board was also void and of no effect, and entered a decree restraining the officers and directors of the company from carrying into effect the motion of February 9, 1909, increasing the salaries of Coane and Freas, and directing them to return to the treasury of the company such sums as they had received as salaries in excess of $1,200 per year. The defendants, Coane, Freas, and Kimball have appealed.
The defendants requested the court to find that the “increase of salaries was reasonable and a just compensation for the services rendered.” The court declined to affirm the point in the form in which it was submitted. The learned judge, however, in answering the point said: “The amount of the salaries of Coane and Freas as increased to $2,000 per annum each is probably not more than reasonable compensation for the services rendered, particularly in the case of Coane who appears to have devoted much more of his time to the work of the company after the withdrawal of the plaintiff from an active part in the management of its affairs, and it probably would have cost the company quite as much to employ other persons to perform that part of the labor now done by Coane and Freas, which does not strictly pertain to their
The learned court below held that the question in controversy in this case was settled by our decision in Schaffhauser v. Brewing Co., 218 Pa. 298. We there held as stated in the syllabus that “the president of a corporation cannot, against the protest of a minority of the board of directors, and as against stockholders who choose to challenge the action, sustain a claim for an increase of salary, the right to which, if it exists, is secured by his own vote as a member of the board which allows it.” In his ruling, the learned judge failed to distinguish the facts of the case cited from those of the present case. The question involved in the Schaffhauser case was whether the directors may bind the corporation or a minority stockholder by voting a salary or compensation to one of their number who either is or is not an officer of the board; in the present case, the question is whether a majority of the stockholders, who are also the directors, may at a regular stockholders’ meeting ratify and confirm against the vote and protest of a minority stockholder a resolution of a majority of the board of directors increasing the salaries
The single question for consideration here, therefore, is whether under the circumstances of the case the ratification of the action of the majority of the directors by a majority in interest of the stockholders bound the corporation as against a dissenting stockholder to pay the salaries of the president and of the secretary and treasurer of the company. The answer to the proposition depends upon (a) whether the action of the directors in increasing the salary of the two members of the board was void or voidable, and (b) whether the two directors whose salaries were increased and whose votes were necessary to pass the resolution increasing the salaries could vote at a stockholders’ meeting held to ratify the action of the directors.
The salaries of $2,000 given each of the officers were not only compensation for services rendered as executive officers but also to compensate for such services as would be rendered by clerks 'and other employees of the corporation. As suggested above, the effect of the learned judge’s findings is that the salaries were not excessive or unreasonable but, on the contrary, not more than reasonable compensation for the services rendered. These facts, which appear by the record, eliminate any actual or intentional fraud on the part of the directors in voting compensation to the two officers. There is nothing in the case which would warrant the finding that there was
We do not think the act of the directors in making an increase in the salaries was void but voidable. The directors of a corporation are its agents and occupy a fiduciary relation to it. They are governed by the rules applicable to such relationship. They are not technically trustees, yet they occupy a fiduciary relation towards the corporation which prevents them from dealing with themselves to the detriment of its interests. A director cannot contract with a corporation when its interests conflict with his private interests. His action in such cases, however, may be accepted or rejected at the option of the corporation. If he has contracted with himself the corporation may deem it expedient and to its interest to approve and accept his action. This is frequently done and this the corporation has the authority to do. On the other hand, the corporation clearly has a right to repudiate his act when for any reason it desires to do so.. It follows, therefore, that the act is voidable at the election of the corporation: Ashhurst’s Appeal, 60 Pa. 290; Graves v. Mono Lake Hydraulic Mining Co., 81 Cal. 303; Stewart v. Lehigh Valley R. R. Co., 38 N. J. Law, 505; U. S. Steel Corporation v. Hodge, 64 N. J. Eq. 807; Barr v. Railroad Co., 125 N, Y. 263; Hedges v. Paquett, 3 Ore. 77; Nye v. Storer, 168 Mass. 53; 2 Thomp. on Corp. (2d ed.), sec. 2043; 2 Cook on Corp., secs. 649, 657.
The well-settled general rule is that any act of a board of directors may be ratified by the stockholders which they
We are of opinion that the resolution of the stockholders ratifying the action of the directors in increasing the salaries was not invalid because it was done by the votes of the same individuals by whose votes the resolution of the board of directors was passed and two of whom were the recipients of the salaries. At the meeting of the board, the voting was done by the directors as agents of the corporation, occupying a fiduciary relation to the corporation
We have disposed of the important and controlling question in the case. We do not deem it necessary to determine the other question suggested by the appellee that the resolution adopted at the stockholders’ meeting is invalid because it makes salaries effective as of a past date. It is not exactly clear whether the appellants received any salary for the few days prior to the date of the resolution of the board of directors increasing their salary, but if they did it may be regarded as disposed of under the maxim de minimis. The court below did not discuss the question, neither has appellant’s counsel.
For the reasons stated, the decree of the court below is reversed and the bill is dismissed at the cost of the appellee.