Summary
Appeal from the Circuit Court, No. 2, of Baltimore City, when the following opinion was delivered by Gorter, J.
The Brigham-Hopkins Company, of Baltimore City, at the time of the occurrence of the acts in this suit complained of, viz., in the years 1905 and 1906, was a corporation duly incorporated under the General Laws of Maryland, having become so in the year 1890, when its certificate of incorporation was filed in the clerk’s office of the Superior Court of Baltimore City.
Its business was that of manufacturing hats; - its capital stock at the time in question was $300,000 divided into 3,000 shares at the par value of $100 each, and were held as follows:
Robert D. Hopkins.......... Shares 1327
Walter Hopkins............. 158
Isabel L. Hopkins........... 175
Robert D. Hopkins, Jr..... 30
William M. Hopkins........ 8
R. D. Hopkins, Guardian 80
Mrs. P. M. Brock............ 16
Mrs. MaryJ. Platner........ 37
Walter C. Brigham......... 58
William T. Brigham........ 11
Estate — I. H. Francis............... 1000
W. Harry Francis........... 50
I. H. Francis, Jr.............. 50
Under the charter of this company its affairs were to be managed by four directors, and under its by-laws these were to be elected for one year at the general stockholders’ meeting held on August 1st, of each year.
The directors for the year 1903 were: Robert D. Hopkins, Isaac H. Francis, William H. Francis and Walter Hopkins.
At the meeting of the directors on August. 5th, 1903, all the directors being present, Robert D. Hopkins was elected president and treasurer, Isaac H. Francis was elected vice-president, Walter Hopkins was elected secretary, and the salary of each was fixed at $7,000 per annum.
The same directors were elected on August 1st, 1904, for the years 1904 and 1905. On the second of August, at the directors’ meeting held'next day, the testimony does not show who were present, the same officers were elected and the same salaries fixed.
We now come to the proceedings held in 1905, the validity of which is called into question by the bill of complaint in this case. The stockholders’ meeting was duly held and the same directors were re-elected.
On August 3rd, 1905, the directors’ meeting was held. Those present were Robert H. Hopkins, Walter Hopkins, and William H. Francis. Isaac H. Francis, who was ill at the time, was not present.
The board elected: Robert D. Hopkins, president and treasurer; Isaac H. Francis, vice-president; Walter Hopkins, secretary, and fixed the salary for the president and treasury, Robert D. Hopkins, at $10,000, and the salary of the secretary, Walter Hopkins, at $8,000, thus increasing the former $3,000 more than the previous year and the latter $1,000 more than he had received the previous year.
The following motion or resolution was adopted:
“Owing to the present condition of the vice-president, his inability of rendering any assistance to the business for a period of two or more years, making it necessary for his son, to take his place, so far as the management of the male help is concerned and the general overlooking of that part of the business, we deem it just to both our vice-president and his son that the question of salary of each be left unsettled for future determination.”
On September 25th, 1905, Isaac H. Francis died. On October 21st, 1905, a special meeting of the board was held to take action on Mr. Francis’ death. Fitting resolutions were passed by the board. Robert H. Hopkins, Jr., was elected a director to fill the vacancy caused by the death of Isaac H. Francis.
Robert D. Hopkins resigned his position as treasurer, and! Walter Hopkins resigned his position as secretary. W. Harry Francis was elected vice-president, the position formerly held by his father. Walter Hopkins was elected treasurer and Robert D. Hopkins, Jr., was elected secretary.
The salaries were fixed as follows:
President............................................................ $10,000
Vice-president................................................... 3,000
Treasurer............................................................. 8,000
Secretary........................................................... 2,600
from July 1st, 1905, to June 30th, 1906. The salaries had always in the past been from July 1st to June 30th in each year.
The bill filed on May 20th, 1907, by Isaac H. Francis, Jr., a stockholder of the company, owning 50 shares of stock, attacks the increase of salary of $3,000 allowed to Robert D. Hopkins and the increase of salary of $1,000 allowed to Walter Hopkins upon the following grounds:
First, because the same is excessive and unreasonable.
Second, because each of the Hopkins was essential to the quorum only three being present.
Third, because contrary to the by-laws of the company which says: “That each shall receive for their salaries such compensation as shall be designated by the board previous to their election.”
On August 7th, 1906, the general meeting of the stockholders took place at the corner of German and Paca streets, resulting in the election of the following directors:
By vote.................................................................. 1,399
By proxy.............................................................;. 1,427
2,826
Robert D. Hopkins, William H. Francis, Robert D. Hopkins, Jr., Walter Hopkins, notice being given each and acceptance of each received.
(Signed) Robert D. Hopkins,
Acty. Secretary. .
The directors’ meeting was held on August 14th, 1906, and the minutes thereof are as follows:
Baltimore, Md., August 14th, 1906.
. A meeting of the directors of the Brigham-Hopkins Company took place this day at their office. Owing to the absence of two directors it could not have been held before.
Present: Robert D. Hopkins, William H. Francis and Walter Hopkins.
Mr. William H. Francis was called to the chair and Walter-Hopkins made secretary. Minutes of the last meet-
ing read and approved, as well as annual meeting.
An election of officers to serve for one year took place,, resulting in the following: Robert D. Hopkins, president;; William H. Francis, vice-president; Walter Hopkins, treasurer^ Robert D. Hopkins, Jr., secretary.
Salaries were fixed for president, at........................ $16,000
Vice-president..................................................... 7,000
Treasurer............................................................. 11,000
Secretary......................................................... 3,600
a year.
The plaintiff, Isaac H. Francis, Jr., in his bill of complaint,, objects to the increase of salaries of the president and the_treasurer over $7,000 a year.
First, because they are excessive and unreasonable.
Second, because as only three of the board were present,, the presence of the president was essential to a quorum when.; a salary was voted, and the presence of the treasurer was, essential to the existence of a quorum when his. was voted.
Third, because they were passed in disregard of the by-laws..
(1 j Was the increase of salaries of R. D. Hopkins and Walter Hopkins for the years 1905-6 1906-5 reasonable ?
It seems to me that the first question that should be considered, is the unreasonableness vel non of the increase of salaries of the president and treasurer for the years 1905-6 andi 1906-7.
Because, if such salaries are unreasonable and. excessive,. and the directors have abused their trust by voting to themselves or in any way assisting in getting the funds of the corporation for themselves, they would be held to-account by a._ Court of equity. If on the other hand, the increase was just, and proper, and only a fair compensation for the work done,, the plaintiff must rely on some irregularity or invalidity in, the proceedings to sustain his position, based upon some general principle of law, that the courts would feel bound to enforce, regardless of the merits or justice of the particular case;..
This company was born out of the partnership of Brigham-Hopkins & Company. Mr. Brigham, Mr. Hopkins and Mr. Francis were prior to 1890, equal partners. They incorporated, and each took a salary of $100 per week, or $5,200 a year. The directors’ minutes for 1891, shows that, Mr. Brigham was the president; Mr. Francis, the vice-president; Mr. Hopkins, the treasurer; Mr. W. I. Hopkins, brother of Robert D. Hopkins, was the secretary. They composed the board. The salary of the first three was fixed at $5,200 per .year, and of the last at $2,340.
The directors’ meeting for the year 1892, shows the same officers and the same salaries.
The directors’ meeting for the year 1893, shows the same officers, and the same salaries, except that the secretary’s salary was increased from $2,340, to $2,600. The directors’ meeting for the year 1894 shows the same officers and the same salaries.
The directors’ meeting of August 5th, 1895, shows those present, Messrs. Brigham, Francis and R. D. Hopkins. Mr. W. I. Hopkins having died.
The same officers were elected except that Mr. Hopkins assumed the office of secretary in addition to that of treasurer, and salaries of $7,000 each were voted.
The directors’ meeting of August 7th, 1896, show the same three present, the election of the same officers and the same salaries.
The directors’s meeting of August 3rd, 1897, show the same officers, except that Walter Hopkins is made secretary. The salaries of the vice-president and treasurer are increased to $7,000 a year and that Mr. Brigham’s salary as president is reduced to $2,600. The reason was that Mr. Brigham had ceased to take an active interest in the business, having previously thereto moved to New York, and as the other two assumed the labor and responsibility of his duties, their salaries are increased.
The directors’ meeting of August 5th, 1898, shows the same salaries were fixed.
Brigham, President................................................ $2,600
Francis, Vice-President........................................... 7,000
R. D. Hopkins, Treasurer..................................... 7,000
Walter Hopkins, Secretary................................... 2,600
At the directors’ meeting August 8th, 1899, same officers were elected. The president’s salary is reduced to $1,200 a year, and the amount taken off is added to the salary of the secretary, making the salaries as follows:
President............................................................. $1,200
Vice-President................................................... 7,000
Treasurer........................................................... 7,000
Secretary.......................................................... 4,000
At the directors’ meeting August 8th, 1900, R. D. Hopkins was unanimously chosen president and treasurer; Isaac H. Francis was chosen vice-president, and Walter Hopkins was chosen treasurer. The salaries of R. D. Hopkins and Francis remain the same. The $1,200 from the salary of Mr. Brigham seems added to the secretary who got $5,200.
The diretors’ meeting for August 6th, 1901, shows the same officers elected and the same salaries.
The directors’ meeting for August 16th, 1902. shows the same officers, and each a salary of $7,000.
The directors’ meeting for August 5th, 1903, shows the same officers were elected and same salaries fixed as previous year.
The directors’ meeting for August 2nd, 1904, shows same officers and same salaries as preceding year.
We thus see the changes in salaries from the year 1890 to 1905. We see that as Mr. Brigham first began to take a less active part in the business, his salary lessened, going to the others who assumed the work and duties that he had ceased to perform. When Mr. Brigham’s salary first drops from $5,200, to $2,600, we see the other two officers’ salary increased from $5,200, to $7,000, half the amount taken off the the president’s salary plus $500, added to the salary each of the other original members of the firm, who remained active.
In 1899, when the salary of the president, Mr. Brigham, is again reduced to $1,200, we see the $1,400 added to the salary of the secretary, whose activity in the business no-doubt then began to be shown.
In 1900 when Mr. Brigham drops out entirely, we see his-salary added to the secretary’s, brings it up to $5,200.
In the following year, we see Mr. Walter Hopkins’ salary-increased to equal that of Mr. Francis’ and his father’s. The testimony shows the value of his services to the company at the time, as well as the fact that the Hopkins family had purchased the great majority of the Brigham stock. So the salaries remained for the next three years.
When we come to the year 1905, the testimony shows that by reason of sickness, certainly for one year, but I find for the period of two years, Mr. Francis had ceased to take an active part in the business, and the work and responsibility of Mr. R. D. Hopkins and Mr. Walter Hopkins had been thereby increased. No steps were taken during these two years to-lessen the salary of Mr. Francis, although his services to the-company had practically stopped. The resolution of the board of directors at their meeting of August 3rd, 1905, states-that he had been sick for two years, and that it was fair between him and his son, who was to some extent taking his-father’s place in the factory, to defer action. If the company had continued to make the same profits after the sickness of Mr. Francis that it did before, I think that he being totally disabled from attending to business, and his work and the responsibility of the business falling thereby more on Mr. R. D.. Hopkins and Mr. Walter Hopkins, they in justice would have-been entitled to a greater compensation; and this as I have-shown in regard to Mr. Brigham, had been the policy of the-company, in which Mr. I. H. Francis, had taken part and by which he had properly benefited. But if I am right, the profits for the year 1904 — 5, had increased from $35,000, in 1903 — 4 to $60,000. To háve given Mr. R. D. Hopkins am increase of salary of $3,000, and Mr. Walter Hopkins an increase of salary of $1,000, with such increase as the other two-officers received, that is, W. H. Francis and R. D. Hopkins,. Jr., probably not altogether amounting to the $7,000, given. to Mr. Francis before his death, was not only not unreasonable and excessive, but under the circumstances of the case, most reasonable.
When we come to the directors’ meeting of August 14th, 1906, we find that the profits of the company for the previous year, have again greatly increased, amounting to $90,000. The controlling spirit in the management of the company for that year was certainly Mr. R. D. Hopkins, and next to him his son, Walter Hopkins. Therefore, it .strikes me, that the increase of the salary of one $6,000, and of the other, $3 ,000, over the previous, years was not unreasonable or excessive. This was a corporation that depended for its success upon-its management, justas much as the firm of Brigham-Hopkiris & Co. had done prior to 1890. Mr. Brigham had passed away, Mr. Francis, had died, and Mr. R. D. Hopkins, assisted by his son, Walter, had produced the splendid results just spoken of. After the death of Mr. Francis, Mr. Hopkins alone endorsed the paper for the company, and controlled its policy. Walter Hopkins on the other hand, had done so well in his department, that had he for these and the previous years, taken the usual commissions on his sales instead of the salary allowed him, would have received a sum of $14,000 in excess of what he did receive. The facts as disclosed by the evidence and which are not contradicted, without regard to the expert testimony, which was, however, clear and convincing, have brought me to the conclusion, that the increases of the salaries of R. D. Hopkins and Walter Hopkins for the years 1905-6 and 1906 — 7 were not excessive and unreasonable, but just and proper. Were the acts of the board of directors on August 3rd, 1905 and August 14th, 1906, increasing the salaries of R. D. Hopkins and Walter Hopkins, invalid, because the presence of each was necessary to make the quorum.
The next question to be considered is the question as to the validity of the acts of the directors at their meetings in August 3rd, 1905,and August 13th, 1906,in increasing the salaries ofR. D. Hopkins and that of Walter Hopkins. In addition to the objection that the salaries were not fixed until afterthe officers were elected, an objection that I will consider hereafter, it is strongly urged upon me that the fixing of the salaries of R. D. Hopkins and Walter Hopkins, was invalid as the salary of each was voted at a meeting of the board of directors when the presence of each was necessary to make a quorum. The testimony in the case shows that R. D. Hopkins did not vote .on the question of his salary, but the other two did. It seems to me, that it would make no difference had R. U. Hopkins voted with the other two for his salary, and it would have made no difference had Walter Hopkins voted for his salary. It might not have strengthened the positions, but it certainly would not have weakened it.
So that after all, the question which must be decided is, under the circumstances of this case, were the salaries of R. D. Hopkins and Walter .Hopkins legally increased at the directors’ meetings of 1905 and 1906, disregarding for the present the operation and effect of the by-law, as to the time of fixing the same.
. In the first case that I am referred to by the plaintiff’s counsel, that of Santa Clara Mining Company v. Meredith, 49 Md. 400, I find the law laid down as follows:
To entitle a president or director of a corporation to recover for services rendered his corporation, he must prove an express contract of employment, if the services for which he claims compensation are within the line and scope of his duties as president or director.
But if the president or director of a corporation renders services to his corporation which are not within the scope of, and are not required of him in his duties as president, or director, but are such as are properly to be performed by an agent, broker or attorney, he may recover compensation for such services upon an implied promise.
Under which class of cases does this case actually fall?
In 1890, when the partnership was turned into a corporation, each partner became the holder of practically one-third of the stock. As between themselves it made at that time no difference whether they received their profits in the form of salary or of dividends. They continued to devote their full energies to the management of the business. Mr. Brigham did the buying and financiering; Mr. Hopkins did the selling, and Mr. Francis did the manufacturing. They were not only directors, supervising the running of the business, but personally engaged, by their unremitting toil in the actual creation and prosecution of the business. To it they gave their whole time and undivided attention. In the late nineties Mr. Brigham sold out most of his stock, and most of it passed to Mr. Hopkins’ family, some to Mr. Francis’ family. Fifty shares has passed into the hands of the plaintiff. As such share-. holder the plaintiff has his rights. But the question we now are considering is: is the relationship of Mr. R. D. Hopkins and Mr. Walter Hopkins, to the plaintiff and the other stockholders of the company solely that of president and directors, or are they something more? Do the services they have been rendering to the company only give them rights to compensation as president and director under the first class of cases in the report first quoted? Or have they rights in addition, thereto by reason of their relationship to the company, and the services they have rendered thereto, bringing them within the principle of the second. Is it the duty of the president of a company to buy all its goods; attend to all its finances; en-, dorse its paper to the extent of over $200,000 and to spend every minute of his business life in its service? Or is it the duty of a director to take the active management of its great volume of sales, amounting to thousands of dollars? In other words, no matter how much money these gentlemen may have made for the company by their ability, industry and energy, if it turned out that when their salaries were fixed, there was an irregularity or illegality in the manner of fixing them, they would be forever precluded from .receiving a just or, indeed, any compensation for their work, but the fruits thereof would pass, unjustly into the pockets of others. The officers of this company were never really paid salaries as directors or as officers. Mr. Brigham was paid for the work he did, in buying goods; Mr. Francis for his work in manufacturing goods, and Mr. Hopkins for his work in selling goods. So long as these gentlemen had the same interest in the business, and their labor and responsibilities were the same, no question could arise; but as soon as Mr. Brigham ceased to take an active part, we see his salary lessen, although he still remained president. As his salary was reduced, the salaries of the others were correspondingly increased, not because their obligations or duties as directors were changed, but because the work they did in the running of the business was increased. When Mr. Brigham dropped out altogether, and Mr. Hopkins took both the office of president and that of treasurer, his salary was not increased, it remained the same as Mr. Francis, who continued to hold the one office although Mr. Hopkins and his family owned considerably more of the stock than Mr. Francis and his fathily. In other words looking squarely at the matter, those who are paid salaries in this company are not paid because they are the president, and directors of the company, because of their labors; but because of the exercise of business sagacity; because of their* industry and ability* in the actual work of conducting the business of the company.
It, therefore, seems to me that if no salaries had been fixed, for these two gentlemen, Mr. Walter Hopkins ought to have been entitled to commissions on the goods he has sold, or a reasonable compensation, and Mr. R. D. Hopkins for work he has done distinct from and outside of the duties pf a president or director. Walter Hopkins sold for the year 1905-6, goods amounting to $183,129.50 the usual commissions on which would have been at 6 % $ 10,987.77, and he sold for the year 1906-7, goods amounting to $241,878.06, the usual commission on which would have been $13,512.68, and Mr. R. D. Hopkins by his efforts, his experience and ability produced for the stockholders $90,000 in net profits, after paying all salaries. Surely they should be entitled to compensation for this work without conflicting with the principle that “the president or director must prove an express contract of employment, if the services for which he claims compensation are within the line and scope of his duties as president or director.” Did Mr. Francis get $7,000 a year for his duties as vice-president or director, or did he get it for his services in the factory? Were not the duties of Mr. Walter' Hopkins the same as director and secretary, when he got $2,600, as when he got $5,200 or $7,000? Identically the same but his value as a salesman had increased. Waters v. Am. Finance Co., 102 Md. 212,
It is said in Morawetz on Corporations, vol. 1. sec. 508, “Directors are not entitled to any compensation for their official services as directors unless compensation is provided by the charter or by-laws adopted by the majority. But if a director is properly employed to perform services which do not pertain to his office as director he is entitled to such compensation as js agreed upon or as the services are reasonably worth.” Is this not all that the Hopkins are asking? Are not really the services for which they claim compensation of the character that do not pertain to the office of directors? I think if fixed at all, under the circumstances of this case, Mr. R. D. Hopkins and Mr. Walter Hopkins would have been entitled to reasonable compensation for their services to the company. Again, were the acts of the board of directors in August 1905 and 1906, in voting R. D. Hopkins an increase in salary and Walter Hopkins an increase of salary illegal upon the grounds that the presence of each was essential to a quorum?
Article 2. Entitled “Board of Directors and their powers P
Section 1. — Provides “there shall be elected from the stockholders, at each general meeting a board of four directors who shall have charge and management of the property and business of the company for one year, and until their successors shall have been elected and accepted office, each of whom shall be subject to removal by a majority of the board; they shall have power to fill all vacancies from death or otherwise; elect from their members a president, vice-president, secretary, and treasurer, who shall each serve for one year and until their successor shall be elected and shall have accepted office, or until their said offices shall be declared vacant by the board of directors, and shall each receive for their services such compensation as shall be designated by the board previous to their election, and shall incur such expenses as in their judgment will best promote the business of the company, they may make such rules and regulations for the government and conduct of the clerks and other employees of the company and the transaction and conduct of its business as they shall deem proper. At their regular y early meetings in August of each year they may declare such dividends to the stockholders from the net profits of the business as in their judgment is proper. At all meetings of the board of directors, three members thereof shall constitute a quorum.
Here we have a by-law, making the board of directors to consist of four members; with power to select a president, vice-president, treasurer and secretary; with power to declare any one of these offices vacant; with power to fix their compensation; and concluding with the express provision — “at all meetings of the board of directors, three thereof shall constitute a quorum.”
Is this last clause not equivalent to saying, that at the general meeting of the directors when they select officers and fix salaries, three shall constitute a quorum? Is not this meeting at which not only the officers are selected and the salaries fixed, but the dividend to the stockholders, declared the most important meeting of the board? And must this not have been fully in the minds of the stockholders when they adopted this by-law? What escape is there from the conclusion that when in the same by-law these powers are given to the directors, and the number constituting the quorum is fixed, that, the stockholders meant to say, that three of the board if present can do all the things authorized by the board to be done in this by-law. The plaintiff invokes the equitable principle that a man cannot occupy two inconsistent positions; he cannot act in a representative capacity in a matter where his personal interest is involved. The whole object and purpose of this, principle is to safeguard those represented. But it
they authorize one to act for them or after the act is performed ratify it, what becomes of the principle. Now, of course, the power conferred by this by-law for three to act, is only to act within the bounds of honesty and fair dealing; but when they have so acted, can it be said that their act is illegal, simply because they have done that which those they represented expressly authorized and directed them to do? I do not understand it that way.
It seems to me that this by-law expressly authorized three of the board to constitute a quorum of the board, at a meeting when the board elects officers and fixes salaries.
It is said in Cent. Digest, vol. 12, sec. 1340, quoting from McNab v. McNab, 62 Hun 25, “Where the directors of a manufacturing corporation being also its officers, have by their management raised the company from insolvency to a high degree of prosperity, so as to pay large dividends and accumulate a handsome surplus their action in voting themselves an increase of salary as officers of the corporation, each one voting for the increase of all the others, but not voting for his own, is valid, in the absence of any evidence of combination or previous agreement or that the increases were unreasonable though the increases were all voted at one meeting of the board.” This case in its facts bears a strong analogy to the case under consideration. But there were five directors present out of a board of six. So that the man not voting was not necessary to the quorum.
In the case of Bassett v. Fairchilds, 61 Pac. Rep, 794, it is said on p. 795: “The contention of the respondent that the act of the board on November 9th, was invalid because the presence of Fairchilds was necessary to make a quorum is not maintainable. There is a broad statement of this proposition of respondents in Thompson on Corporation, sec. 3929, but the authorities do not sustain the text. In Miner v. Ice Co. 93 Mich. 97, it is decided that the majority of the quorum of the board must be disinterested in respect to the matter voted on.
“The Code (California) provides a majority is sufficient to form a board for transaction of business, and every decision of a majority of the directors forming such board made when duly assembled is valid as a corporate act.” The by-law of the B.righam-tlopkins Company just quoted declares the same thing.
There are but two cases to which I have been referred that hold, that or rather state, that an act of a board of directors is invalid, when the presence of a member, who is personally interested in the act is necessary to make a quorum. The first is the case of Butts v. Wood, 37 N. Y. 318. In this case the .effect was to allow an invalid claim, at a meeting of a, board of directors consisting of five, at which only three were present. D. W., the party to whom the claim was. allowed, his father, and a relative.
In the opinion of the Court it is said “A careful examination of the testimony in this case shows that D. W. could not have enforced his claim against the company, and the circumstances under which it was allowed and paid was a fraud upon the stockolders.”
The second case that states this doctrine is the case of Martin v. Santa Cruz, Arizona (36 Pac. Rep. 36). In that case three directors of a board of five on February 3rd, 1891, elected one of their number secretary,’ at the same time passing a by-law creating the office, but fixing no salary.. The same three directors met again June 20th, and fixed the salary at $1,800 a year to begin in February, 1891, five months prior thereto. “The appellant cast his vote for this resolution, otherwise it was never passed at all, for his vote was essential to its adaption. This sufficiently appears from the record.” Then further on in the opinion we find the dictum, for it was not necessarily involved in the decision of the case, the following, “They cannot properly act on nor form part of a quorum to act on, a proposition to increase their compensation. Bank v. Collins, 7 Ala. 75.” An examination of the case of Bank v. Collins, shows an expression of opinion upon the point now being considered. .
-The plaintiff’s counsel contends.that the act of the board in. August, 1906, in regard to the salary of R. D. Hopkins was invalid, indeed void, because Mr. R. D. Hopkins’ presence was essential to a quorum, and the act of the board in' regard to the salary of Walter Hopkins was void, because his presence was necessary to a quorum.
And this notwithstanding the fact that the action of the board in voting such salaries, was proper and just; that the compensation was only such as should be reasonably allowed for the services, that the by-laws, had directed the board to fix the salaries, and declared three to be a quorum, and that in all probability if the other director had been present the result would have been exactly the same and the salaries were practically fixed in advance, so that any stockholder would be at liberty to inquire into the reasonableness of the amounts. I do not think that public policy requires a doctrine so inflexible to safeguard the rights of stockholders. I think there is a wide distinction between a person voting for something that is to his personal advantage, when that vote is essential to his getting such benefit, and his constituting a quorum, a bare majority of a board, when it is considering a subject in which he is interested.
In the one case he takes part in a matter in which his duty and his interest may conflict, in the other he only makes possible a body, that is able to pass upon the question in a disinterested and impartial manner.
Suppose there were a board of 21 directors, and 11 were present at a meeting, 11 being necessary to a quorum, and the salary of one is fixed by a vote of the other 10, is there any reason why such an act should be void? When there would have been the same result had 19 been present and 9, including the person interested, voted against the salary.
It seems to me that even where one votes for his salary in a board where he is given the authority to act by the by-laws adopted by thé- stockholders, and his vote is essential, the act so done should not be absolutely void, but should be subject to close scrutiny by the Courts, with the burden of proof upon the person benefited by the act, to show that it was just and proper, and that no advantage was taken of the stockholders.
But I do not have to go so far to decide the question we áre now considering. I am of the opinion, bearing in mind the nature of the services and the by-law of the company, that salaries voted to R. D. Hopkins and Walter Hopkins in August, 1905, and August, 1906, were not rendered invalid because only three members of the board of directors were present at such meetings.
It might be added that the minutes of the meetings of the board of directors at which salaries were fixed, were composed in a number of instances of only three members.
(j) Should the offices be filled before salaries fixed?
It is also contended as the election of the officers took place before the fixing of the salaries, the proceedings are illegal, as being in conflict with the by-laws already quoted. The bylaw after providing for the election of the president, vice-president, treasurer and secretary, and for the term of their office adds, “and shall each receive for their services such compensation as shall be designated by the board previous to their election.”
A great deal that I have already said bears upon this question. I do not think, that this provision of the by-laws as applicable to this company is mandatory. Certainly those in charge of its affairs, who at one time were the holders of all the stock have never so considered it. For from the beginning the minutes of all the meetings disclose that the officers were elected before the salaries were fixed.
Indeed, as I have endeavored to show the salaries were not adjusted according to the duties of the offices, but according to the usefulness and work of the person who happened to hold the office. Mr. Walter Hopkins would have sold just as many goods had he been secretary instead of treasurer or held n.o office at all. Mr. R. D. Hopkins, would have rendered practically the same services, had he been vice-president instead of president, and Mr. Francis would have had control of the factory during his life, no matter which of the offices he might have filled. I can see no purpose, that under the circumstances of this case, would be subserved in compelling the directors to fix salaries before officers were elected. Indeed, in a company like this, what possible difference can it make, whether the salaries are fixed immediately before, immediately after or simultaneously with the election of the several offices. In other words, it is not the place, under the facts as they have existed since the incorporation of this company, that controls, or should control the salary, but the man that fills the place.
The duties of the office of president were the same, whether occupied by Mr. Brigham when he bought all the goods for the company as when he took no active part in its affairs. But in the first instance he was entitled to $7,000 a year and only $ 1,200 in the last.
(4) If I understood the plaintiff’s attorney, he contended that as the salaries were fixed in August, to relate back to July 1st, this could not be done. If such were his contention I think it is answered by an examination of the by-laws.
Article'1, section 1, requires the stockholders’ meeting to be held on the first Monday in August.
Article 3, section 3, requires the treasurer to furnish at said meeting a full statement of the business of the company of the preceding year.
Article 4, section 2, provided that at the meeting of the stockholders the directors shall be re-elected.
It, therefore, seems clear that the by-laws contemplated the fiscal year to have closed prior to the first Monday in August, a sufficient time intervening to have made up the statement of the business of the company.
The directors could of course only assemble after they had been elected, and fix salaries, which would have to relate back to the beginning of the fiscal year which then must have been under way.
In conclusion I think that while the action of a board of directors, constituted as this was, in fixing their salaries, should be subjected to careful scrutiny by the Courts, yet, if the Court should reach the conclusion as I have in this case, that the salaries were reasonable and just, and only a fair compensation of the work done, they should not be interfered with.
It follows from the conclusions reaehed upon the several points so ably presented by the counsel in the case, that the bills should be dismissed. I will sign a decree so ordering.
Syllabus and headnotes are prepared by the reporter or publisher, not the court, and are not part of the opinion.
