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(-- Minn. 189 N. W, 586.) be done in the conduct of the busi- been procured for somewhat less. ness. There is no reason why a cor- Were it otherwise efficient execuporation may not use the services of tives, able to command in competition its directors and pay for them. large salaries, risking their capital Commonly in the case of small cor- on the faith of control and a steady porations like this, where the stock employment, would find themselves is closely held, the capital is invested and their capital periled by the unwith the intent that the majority certain view which a court might shall have the responsibility of man- take. The right of majority control agement, and it would not be in- must be given effect, and the minorvested otherwise; and the intention ity cannot, through the courts, inis that the owner who risks his cap- terfere with an honest and fair maital and assumes management shall jority policy. Thus, in Matthews work out the business project for a v. Headley Chocolate Co. 130 Md. number of years and have employ- 523, 100 Atl. 645, a suit by a corment and adequate compensation. poration to require its officers to acHe would not invest except upon the count for excessive salaries, the condition that he have control and court said: “The court would not be compensation. He would not in- authorized to substitute its judgtrust his money to another, nor ment for theirs [directors] as to would he invest it unless, in connec- what are proper salaries, provided tion with its use, he was getting an they acted in good faith, within opportunity to engage his activities their powers, and the salaries fixed and receive compensation. This is by them were not clearly excesthe practical fact commonly met in sive.” small corporations.

In Fillebrown v. Hayward, 190 If the officers, acting, as they do, Mass. 472, 77 N. E. 45, the court, rein a fiduciary capacity, fix exorbitant ferring to an allowance of salary to and unreasonable salaries so as to a woman who was treasurer, said: absorb earnings which should go in "But if the amount of compensation dividends or remain with the com- compared with her actual duties pany as surpuls, they are not exer- seems to be unduly large, yet it is cising the fidelity which the law re- stated in these findings that she and quires, and a court of equity will the directors, acting in good faith, give relief at the suit of a minority regarded the salary as a fair valuastockholder by compelling restora- tion of her services to the company, tion. In determining whether sal- which, during the time, was doing aries are excessive and unreason- a profitable and extensive business. able, so that there should be a res

That she was a member of toration, courts proceed with some the board, which also included her caution. An intolerable condition daughter, would not invalidate its might result if the courts should too action, for there is no evidence of lightly undertake the fixing of sal

any purpose to appropriate corpoaries at the suit of dissatisfied stock.

rate profits unlawfully under the holders. An issue as to the reason- guise of salary, the abstraction of able value of the services of officers which would impair either the solis easily made. It is not intended vency of the company, or the right of that courts shall be called upon to minority stockholders to a reasonmake a yearly audit and adjust sal- able division of surplus earnings in aries. The dissenting stockholder dividends." should come into court with proof In Beha v. Martin, 161 Ky. 838,

of wrongdoing or 171 S. W. 393, where the right of a -voting excessive salaries oppression, and minority stockholder to relief, where liability.

should have more excessive salaries are allowed, is recthan a claim based on mere differ- ognized, the court said: “In a case ences of opinion upon the question like this, where the compensation is whether equal services could have fixed by the board of directors, who

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also are a majority of the stock- of a fair part of the earnings. This holders, it does not devolve upon the purpose I find manifested in the libdirector whose compensation is in eral salaries paid and the accumulaquestion to prove that the compensa- tion of a large, unnecessary surtion is fair; but the objecting stock- plus.” holder must establish affirmatively The memorandum was directed to that the salary or compensation is a discussion of the question whether unreasonable and oppressive.” a dividend should be ordered, and

We do not stop to review the is, of course, not a finding upon the cases. The holdings are in confu- issue of excessive or unreasonable sion and not always in accord with salaries. Upon an application by the rule we adopt. Sometimes stat- the plaintiff for amended findings utes affect the result. Sometimes the court found this: "Said Clarthe question arises when the officer

ence B. Michel, as assistant manager has participated in the fixing of his to said Schmitz, was paid a salary salary, or when a salary is voted as of $2,325 for the year 1918; said an incident to an office where no Henry J. Kaim, as superintendent of more than ordinary and largely said corporation, was paid the folformal duties are performed, or lowing salaries during the followwhere there is manifest wrongdoing ing years, to wit: 1914. $2.075; or fraud, and sometimes where the 1915, $2,100; 1916, $2,100; 1917, officer seeks recovery in implied as- $2,100; 1918, $2,575; 1919, $3,225; sumpsit. We are content to hold, 1920, $3,375; and in addition to the under the facts before us, that the salaries so paid, said Henry J. Kaim salaries were regularly fixed, and

was paid additional salaries based that a dissenting stockholder attack

upon a percentage of the net profits ing them has the burden of proving of the business, and known as that they are unreasonable and ex- bonuses, for the following years, in cessive, so that a substantial wrong the following amounts, to wit; 1914, is done him if they are retained. $67.14; 1915, $169.68; 1916, $538.

3. The court said nothing in its 60; 1917, $1,247.41; 1918, $1,997.original findings about the unrea- 85; 1919, $2,343.95; 1920, $4,948.sonableness of the salaries. Its at- 53. Each and all of the foregoing tention was directed to the right of salaries and additional salaries or the plaintiff to a dividend and the bonuses were fixed by and paid puramount of it. In its memorandum, suant to resolutions passed by the which can be used only in interpret board of directors of said defendant ing or explaining the findings, the corporation. The said salaries paid court said that the business of the to said officers and managing heads corporation had been capably and of said corporation are not so unreahonestly conducted; that Theodore sonable and excessive under the cirMichel was the dominating force; cumstances as to be deemed frauduthat it was a one-man corporation; lent and requiring restoration therethat the bonus allowed for 1919 and of, or any part of the same, to the 1920 made the compensation of Clar- corporate treasury." ence B. Michel beyond what it ordi- It may be noted here, without furnarily should be; that the amount of ther quotation from the findings, bonus was caused by the unprec- that Theodore Michel received a saledented amount and profits of the ary of $3.600 for many years. Clarbusiness; but that fraud was not ence B. Michel started in 1917 with shown. And in the course of its $1,850, and in 1920 received $2,950. memorandum the court said this: Kaim received $2,075 in 1914 and "I am forced to the concluusion that $3,575 in 1920. From 1914 a bonus the Michels, in their administration was given the managing officers of the affairs of this corporation, ex- first of 2 per cent and later it was hibit a purpose to unjustly deprive increased to 10 per cent, except that the unsalaried minority stockholders. Theodore Michel received no bonus. (- Minn. 189 N. W. 586.) The bonus was computed on the net ligation resting upon the plaintiff of profits after deducting 6 per cent on presenting facts justifying restorathe capital and surplus. Kaim and tion; and it did not intend, as the Clarence received the same bonus defendant claims, that actual fraud for the years both worked.

independent of the fiduciary relaMany findings were requested and tion must be shown. This concludenied. One request was to the ef- sion necessarily results if effect is fect that the purpose of the two given to the finding that the salMichels was “to cause said corpora- aries were not unreasonable or extion to pay unreasonable and exces- cessive. sive salaries to the managing officers 4. The salaries with the bonuses and directors thereof, with the in- added seem large. Aside from the tention of distributing a considera- bonus they seem moderate. The ble portion of the surplus earnings bonus was contingent and uncertain. and profits to such officers and di- The management was capable, condirectors as salaries and bonuses, and tions were unusual, and there were thereby depriving plaintiff of any large profits. The court so finds. participation in such surplus earn- The evidence of

Evidenceings.” It was denied. Others were competent witness

sufficiency. to the effect that the salaries paid es sustains a finding were "unreasonable and excessive. that the salaries were not excessive. They were denied. The plaintiff The net profits of 1919 and 1920 claims that the court should have were abnormal. That is what made found whether they were unreason- the bonus large. It is not likely that, able and excessive by saying direct- when business commenced, in 1919 ly that they were or were not. The and 1920, the company anticipated trial court, when requested, must so large a business and so great find one way or the other upon ma- profits. It was a time when busiterial issues. Turner v. Fryberger, ness ventures for the future were 99 Minn. 236, 108 N. W. 1118, 109 thought risky. N. W.229; Orr v. Sutton, 127 Minn. The trial court worked out the 37, 148 N. W. 1066, Ann. Cas. 1916C, difficulties of the parties with fair527; First Nat. Bank v. Towle, 118 ness. The defendants were told that Minn. 514, 137 N. W. 291. Here, they must not oppress a minority however, a refusal to find, as re- stockholder by accumulating profits quested by the plaintiff, upon whom and neglecting to pay dividends, and was the burden of proof, that the that they might easily be in trouble salaries were unreasonable and ex- through taking too liberal salaries. cessive, was equivalent to a finding Majority stockholders, in charge of that they were reasonable. Mal- a corporation, and making it a suce chow v. Malchow, 143 Minn. 53, 60, cess, too readily think that it is 172 N. W. 915.

enough if the minority stockholders The finding that the salaries were get 6 per cent return, and that the not "so unreasonable or excessive rest is properly taken as a reward under the circumstances as to be for successful management. The deemed fraudulent and requiring plaintiff was told that majority rule restoration thereof, or any part of controls, and that, as a minority the same, to the corporate treasury," stockholder, he could not control its Appeal-con

It is has given trouble. policy or too freely complain.

We take it that the easy for a minority stockholder to findings.

court had in mind see faults in the management which the fiduciary relation and the obli- would not exist were he in control. gations attendant upon it; the ob- Order affirmed.

struction of

ANNOTATION.

Right of court to interfere with amount of salaries voted to officers of private

corporations by directors.

I. In general, 300.

253, affirmed

affirmed withont opinion in II. Manner of interference; character (1915) 215 N. Y. 634, 109 N. E. 1068, of relief, 302.

remittitur amended without affecting III. Reasonableness of salaries, 305.

this point in (1915) 215 N. Y. 714, 109 1. In general.

N. E. 1069; Godley v. Crandall & G. While it is obviously not in the Co. (1912) 153 App. Div. 697, 139 N. province of a court of equity to act

Y. Supp. 236, modified in (1914) 212 as the general manager of a private

N. Y. 121, L.R.A.1915D, 632, 105 N. E. corporation, or to assume the regula- 818; Davids v. Davids (1909) 135 App. tion of its internal affairs, it has the

Div. 206, 120 N. Y. Supp. 350; Wilpower, at the instance of persons in

liams v. McClave (1914) 85 Misc. 184, terested in the corporation, to review

148 N. Y. Supp. 93, affirmed in (1915) the resolution of the board of direc

168 App. Diy. 192, 154 N. Y. Supp. 38; tors, fixing the salaries of its officers,

Tilton v. Gans (1915) 90 Misc. 84, 152 and to inquire into the reasonableness

N. Y. Supp. 981, affirmed without opinof such salaries, considering the na

ion in (1915) 168 App. Div. 910, 152 ture and extent of the services, and,

N. Y. Supp. 1146; Atwater v. Elkhorn if found to be excessive, to afford ad

Valley Coal-Land Co. (1918) 184 App. equate relief.

Div. 253, 171 N. Y. Supp. 552, affirmed United States.-Sellers v. Phoenix

without opinion in (1919) 227 N. Y. Iron Co. (1881) 13 Fed. 20, 15 Mor.

611, 125 N. E. 912; Townsend v. WinMin. Rep. 388; Wight v. Heublein

burn (1919) 107 Misc. 443, 177 N. Y. (1916) 151 C. C. A. 337, 238 Fed. 321.

Supp. 757; Schall v. Althaus (1923) Alabama.-Decatur Mineral Land

120 Misc. 204, 198 N. Y. Supp. 694. Co. v. Palm (1896) 113 Ala. 531, 59

Pennsylvania-Sotter v. Coatesville Am. St. Rep. 140, 21 So. 315.

Boiler Works (1917) 257 Pa. 411, 101 Illinois. Bixler v. Summerfield

Atl. 744; Lowman v. Harvey R. Pierce (1902) 195 Ill. 147, 62 N. E. 849.

Co. (1923) 276 Pa. 382, 120 Atl. 404. Kentucky.—Beha v. Markin (1914)

But the directors, especially where 161 Ky. 838, 171 S. W. 393.

they own a majority of the stock of a Maryland. — Matthews v. Headley corporation, are invested with large Chocolate Co. (1917) 130 Md. 523, 100 powers in the matter of the salaries to Atl. 645.

be paid the officers, and with this Michigan. Miner v. Belle Isle Ice

broad discretion the courts will not Co. (1892) 93 Mich. 97, 17 L.R.A. 412,

ordinarily interfere. Beha v. Martin 53 N. W. 218.

(Ky.) 'supra. Minnesota.-Green v. National Adv. And a court of equity is not au& Amusement Co. (1917) 137 Minn. thorized to substitute its judgment for 65, L.R.A.1917E, 784, 162 N. W. 1056; the judgment of the directors as to SEITZ V. UNION BRASS & METAL MFG. what are reasonable salaries for the Co. (reported herewith) ante, 293; officers, provided the directors act in Seitz v. Elite Laundry Co. (1922)

good faith within their powers, and Minn. 189 N. W. 589.

the salaries fixed by them are not New Jersey.-Raynolds v. Diamond clearly excessive. Matthews v. HeadMills Paper Co. (1905) 69 N. J. Eq. ley Chocolate Co. (Md.) supra. 299, 60 Atl. 941; Lillard v. Oil, Paint And the

the court, in determining & Drug Co. (1905) 70 N. J. Eq. 197, 56 whether the salary voted a corporate Atl. 254, 58 Atl. 188; Booth v. Beattie officer is excessive and unreasonable, (1922) N. J. Eq. —, 118 Atl. 257. should proceed with some caution,

New York.-Carr v. Kimball (1912) since it is not intended that the court 153 App. Div. 825, 139 N. Y. Supp. should be called upon to make a year

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ly audit and adjust salaries, and the 535. We cannot accept the proposiright of the majority to control must tion that, by the adoption of such a be given effect, and a minority can- by-law, a corporation, its directors not, through the court, interfere with and its affairs, can be divorced from an honest and fair 'majority policy. the well-established equity jurisdicSEITZ V. UNION BRASS & METAL MFG. tion. We cannot believe that, during Co. (reported herewith) ante, 293. all the years the courts have been

And if the chosen directors, without elaborating and strengthening the fiinterests in conflict with the interests duciary principle for the protection of of stockholders, act in good faith in stockholders, they were oblivious of fixing salaries, their judgment will the controlling jurisdictional prinnot ordinarily be reviewed by the ciple propounded by appellants, courts, however unwise or mistaken it which, if it exists, nullifies and demay appear; but equity will not re- stroys the fiduciary." fuse to redress the wrong done to a The action of directors in voting stockholder by the action or policy of excessive salaries to officers must directors in voting themselves exces- amount to fraud upon the corporation sive salaries as officers, which op- or stockholders before the court can erates to their own personal advan- interfere. Poutch v. National Fountage, without any corresponding bene- dry & Mach. Co. (1912) 147 Ky. 242, fit to the corporation under their con- 143 S. W. 1003. trol. Wight v. Heublein (1916) 151 But that does not mean that actual C. C. A. 337, 238 Fed. 321.

fraud must be shown to justify interThe contention in Carr v. Kimball ference by the court, since, although (1912) 153 App. Div. 825, 139 N. Y. the directors may act in good faith in Supp. 253, supra, was that the courts fixing the salaries of the officers, such have no authority to disturb the de- salaries may be so excessive, so disliberate decisions of the board of di- proportionate to the value of the servrectors, made in the exercise of its ices rendered, that their continued lawful powers, under the general payment under existing conditions principle of the lack of power in the will be such an injustice to minority courts to interfere with the discre- stockholders as to amount to a legal tionary powers of public officers and fraud. Wight v. Heublein (Fed.) suboards, but the court answered that pra; SEITZ V. UNION BRASS & METAL no case could be found holding that a MFG. Co. (reported herewith) ante, court of equity was powerless to in

293. vestigate the transactions of a trustee The fact that the corporate by-laws dealing with himself, or a board of provide that the salaries of the officers directors voting salaries to its mem- may be fixed by the board of directors bers, and, in this connection, further does not deprive the court of its said: “The laws of this state have equitable jurisdiction to inquire into always conferred upon corporations the reasonableness of the salaries votthe power to appoint such officers and ed by the directors to themselves as agents as its business shall require, to officers of the corporation. Carr v. fix their compensation, and to make Kimball (1912) 153 App. Div. 825, 139 by-laws not inconsistent with any ex- N. Y. Supp. 253, affirmed without opinisting law. Yet, with such provisions ion in (1915) 215 N. Y. 634, 109 N. E. in force, the courts have again and 1068; Tilton v. Gans (1915) 90 Misc. amain said: 'It is against public poli. 84, 152 N. Y. Supp. 981, affirmed withcy to allow persons occupying fidu- out opinion in (1915) 168 App. Div. ciary relations to be placed in such 910, 152 N. Y. Supp. 1146. positions as that there will be con- The burden is upon the dissenting stant danger of a betrayal of trust by stockholder attacking the reasonablethe vigorous operation of selfish mo- ness of the salaries of the officers, tives. The rules upon this subject are regularly fixed by the directors, of illustrated in many cases. Earl, J., proving that such salaries are excesin Barnes v. Brown (1880) 80 N. Y. sive and out of proportion to the sery

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