Crocker v. Cumberland Mining & Milling Co.

WHITING, J.

This- action was 'brought to recover sums claimed to be due for services rendered defendant by plaintiff during a term of several years, during which time plaintiff was; the president and general manager of defendant. Plaintiff obtained a judgment by default against the defendant, which .judgment was afterwards opened up and the defendant allowed to answer herein. Such answer denied the express contract set forth by the plaintiff, and denied generally and specifically the claims of plaintiff to the amounts claimed under plaintiff’s several causes of action, and, by way of affirmative defense, alleged that plaintiff had received for defendant large sums of money, and had failed to account for the same, and that an accounting would show a large balance due the defendant; corporation from -the plaintiff. Defendant asked that such an accounting he had, and for judgment for such sum as should be found due it. To this answer a reply was interposed. The cause was tried to the court, without a jury, and findings made and entered in favor of the defendant, upon which findings conclusions of law were entered and judgment rendered fot defendant, from which judgment and order denying a new trial the plaintiff has .appealed.

[ i ] The appellant complains, in that the trial court made and entered findings of fact without notice to him and without giving him an opportunity to except to the same, or to propose other findings and conclusions. This court will consider such findings and conclusions excepted to thus putting the appellant -in a position where he cannot be prejudiced by the alleged error of which he complains. The appellant assigns a large number of alleged errors in the court’s rulings upon the admission and rejection of evidence, and specifies numerous particulars wherein he claims the evidence insufficient to support the several findings. In the absence of any printed abstract, we have carefully gone over the entire record herein, and believe that we have a clear understanding of the merits of this case as the same is revealed by such record. We have been unable to find any reversible error in the ruling of the court upon the admission or rejection of evidence, and we believe that the evidence received fully warrants the findings of the trial court.

The appellant bases his claims upon certain resolutions which, it is claimed, were passed by the directors of respondent corporation at some time during each year of the period from the organiza *145 tion of said corporation down to the year 19x0, and which resolutions each purported to grant to him a salary of $10 per day as general manager of said corporation. The respondent claims that $10 per day for each and every day, regardless, of whether its mine was in operation or not, was an excessive and unreasonable allowance for salary; that its stockholders were willfully kept in ignorance of the attempt on the part of the board of directors to allow such salary; that appellant had agreed and represented to the stockholders that no officer was receiving any salary, or would receive', any salary, until the corporation had been put upon a paying basis, which conditions had never existed; and also claims that, even if there were resolutions passed as maintained by appellant, it was the intent and purport thereof that appellant be allowed $10 per day as salary only for such days as the mine was in operation. It is conceded that appellant was at all times, the holder of a majority of the stock of said corporation, and that he, his son, and one Madill were, at all times, members of the board of directors of said corporation. This board, under the by-laws, was composed of four members, though' during a part of the time covered by appellant’s claims, there was an attempt to add to said board two more members.

It is unnecessary to recite in detail the findings of the trial court. Among other things, the court found that appellant’s son and Madill were selected and elected to the board of directors by appellant for. the purpose of advancing appellant’s interests; that they ‘acted under the influence and suggestion of appellant; that they never were the actual owners or holders of any stock in the corporation, and never paid any valuable consideration for any stock; and that they were directors merely in name and for the sole benefit of appellant. It is undisputed that these directors, received their stock without consideration therefor, the same being' given them, by appellant out of capital stock of the corporation not belonging to appellant; and it also appears that no certificates of stock were ever delivered to Madill or to appellant’s son. Certificates made out in their names appear in the stock book, but they were never detached. therefrom; nor were they ever signed by the officers of the company. The court found that the several resolutions allowing a.salary to appellant were passed at the request and direction of appellant, and by the votes of his son and Madill, and that their *146 votes were necessary to pass said resolutions. It appears that there never was a quorum of the directors of said corporation present, unless there be counted, as making up. said quorum, the appellant, his son, and Madill, or some one or two thereof. It also appears that at the directors’ meetings when nonresident directors were present no action was had on the question of salary of general manager. The court found that $10 a. day was a reasonable allowance to appellant as salary for those days when the mine was in operation, and that $50 a month was a reasonable allowance for his services at all other times; that the resolutions, as passed by said directors, were, under the circumstances surrounding the.company and the services to be rendered, unfair, unreasonable, and unconscionable. The court also found that appellant had not faithfully performed the trust imposed .upon him as president and general manager of said corporation, in that he failed to make certain reports. The court made findings in relation to the time for which appellant should be allowed a salary of $10 per day and the time for which he should receive $50 per month, as well as to the amount of money received and disbursed by him. It found that he .had been in truth and fact, not only the president and general manager of the corporation, but, during most of its existence, the real secretary and treasurer thereof; and it found a balance due from appellant to the corporation.

[2, 3] The appellant contends that the court’s conclusions of law were unsupported by the findings. These conclusions "were to the effect that appellant was not entitled to recover; that the alleged coxitracts growing out of the resolutioxrs allowing salary were illegal axrd void; that there was a certain sum due the corporation under the accounting; and that the default judgment should be vacated. The appellant is certainly in error in such contention. The law is that, while a director may enter ixito a binding contract with the corporation, when such contract is in- all things fair and equitable, and the corporation is represented by a majority of its dix-ectors, each of whom is actixig as a free agent and under no controlling influence or restraint on the part of the contracting director, yet, even if there is such majority of free and independent directors acting for the corporation, such contract will not be binding upon the corporation if it is unfair or unequitable; and, furthermore, no matter how fair and equitable the contract xnay be, *147 it will be void, unless there is a majority of free and independent directors acting for such corporation. It follows that, when a resolution is passed in which one of the directors is interested, if it is passed by the vote of such director, or by the vote of any other director who is under his controlling influence, without which vote or votes there would not have been a majority in favor of said resolution, or if, without the presence of such interested director and such directors as may be under his influence and control, there would not have been left a quorum of the board of directors, then, in either of such cases, such resolution would be absolutely void as against the corporation.

In the case of Camden Land Co. v. Lewis, 101 Me. 78 , 63 Atl. 523 , a case very similar in many respects to the case at bar, the court, in speaking of certain directors who-, in their relations to the controlling officer and director were in much the same position as appellant’s son and Madill were to him, said: “It is very evident that Adams and Stephenson were in the employ of Lewis, and acting solely by his direction. It is alleged in one of the bills that they.became directors at his solicitation and for his accommodation and voting as he directed. They were there to represent and act for him, and had no real interest in the corporation or its purposes otherwise. Although cash appears by the records to have been paid for their shares, under the circumstances we think it ■should not be found that they paid their own cash. They were what the cases call ‘nominees’ of Lewis, and their stock interests are not to be considered. Old Dominion Copper Co. v. Bigelow, 188 Mass. 315 , 74 N. E. 653 [ 108 Am. St. Rep. 479 ].”

In Adams v. Burke, 201 Ill. 395 , 66 N. E. 235 , the court says: “The law is that, where a salary or compensation is voted to an officer, the resolution is illegal if it is carried by his vote or produced by his influence, where he has a controlling interest. McNulta v. Corn Belt Bank, 164 Ill. 427 , 45 N. E. 954 , 56 Am. St. Rep. 203 ; Cook on Stock and Stockholders, § 657. It makes no difference that there are enough directors voting for the resolution without counting the officer, if it is really 'his act and the product of his influence. In Cook on Stock and Stockholders, supra,, it is said: ‘And where the chief stockholder, who is -the president, induces his “dummies” to vote a large salary to him, the corporation may defeat the action at law to recover it.’ ”

*148 The following from the words of the court in the case of Miner v. Belle Isle Ice Co., 93 Mich. no, 53 N. W. 222 , 17 L. R. A. 412, are directly applicable to the facts as found by the court in this case: “The present case is clearly within the exception referred to by Campbell, J. Defendant Dorman must be held to -have made these contracts with himself. He directed, influenced, and controlled the board. They 'had no personal interest in the affairs of the company, and exercised, not their own judgment and discretion, but Dorman’s will. All the authorities agree that it is essential that the majority of the quorum of a board of directors shall be disinterested in respect to the matters voted upon. I Beach, Corp. 276; Smith v. Association, 78 Cal. 289 , 20 Pac. 677 [12 Am. St. Rep. 53 ]. 'Where a town board of three are authorized to make a grant 'to a railroad, and two of them, one being director of the railroad, make the grant, the court will set it aside. San Diego v. Railroad Co., 44 Cal. 106 ; Bill v. Telegraph Co. [C. C.] 16 Fed. 14 . A salary voted to the president by a quorum of three, directors, two being absent, and the president being one of the three, is not enforceable. Copeland v. Manufacturing Co., 47 Hun [N. Y.] 235. Where the chief stockholder', who is president, induces the directors, his dummies, to vote a large salary to him, the corporation may defeat the officer’s action at law to recover it. Davis v. Railroad Co. [C. C.] 22 Fed. 883 .”

We also quote with approval the following from the syllabus to the opinion in the case of Church v. Church Cementico Co., 75 Minn. 85 , 77 N. W. 548 : “A stockholder in a corporation, and acting as its president, may enter into' a salary contract for his services with it; but 'he cannot use his position, when making such contract, to his own advantage, or to- the disadvantage of the corporation ; nor can he bind it to pay 'him a greater salary than his services are reasonably worth; and a contract of this kind between such president and the acting- secretary and treasurer of the corporation will be scrutinized with great care.”

To the same effect is the following from the case of McNulta v. Corn Belt Bank, 164 Ill. 427 , 45 N. E. 954 , 56 Am. St. Rep. 203 : “The law is that, where a salary or compensation is voted to a director, the vote is illegal, if it 'is carried only by including the vote of the director who receives the pay or salary. 2 Cook, Stock, Stockh. &. Corp. Daw, § 657. Where the chief stockholder, who is *149 president, induces the directors to vote a large .salary to> him, the corporation may defeat the officer’s action at law to recover it. Id.; also Miner v. Ice Co., 93 Mich. 97 , 53 N. W. 218 [17 L. R. A. 412]. Directors cannot vote a salary, much less a large bonus or compensation in addition to a salary, to one of their number, as president, when he takes part in the proceeding, or his vote is .essential to the adoption of the resolution. Wickersham v. Crittenden, 93 Cal. 17 , 28 Pac. 788 , and cases cited; Gridley v. Railway Co., 71 Ill. 200 .”

We also cite Graves v. Mono Lake Hydraulic Mining Co., 81 Cal. 303 , 22 Pac. 665 ; Curtin v. Salmon River Hydraulic Gold Mining & Ditch Co., 130 Cal. 345 , 62 Pac. 552 , 80 Am. St. Rep. 132 ; Smith v. Dos. Angeles I. & L. Co-Op. Association, 78 Cal. 289 , 20 Pac. 677 , 12 Am. St. Rep. 53 ; Strouse v. Sylvester, 66 Pac. 660 .

.The judgment and order appealed from are affirmed.

PODDEY, J., having been of counsel, takes, no part in this decision.