ices. Presidio Min. Co. v. Overton (1920) 261 Fed. 1023; Beha v. Martin (1914) 161 Ky. 838, 171 S. W. 393; SEITZ V. UNION BRASS & METAL MFG. Co. (reported herewith) ante, 293.

But it is well settled in New Jersey and in New York that where the directors vote excessive salaries to themselves as officers, the burden of proof is upon them to show that such salaries are reasonable. Davis v. Thomas & D. Co. (1902) 63 N. J. Eq. 572, 52 Atl. 717; Raynolds v. Diamond Mills Paper Co. (1905) 69 N. J. Eq. 299, 60 Atl. 941; Lillard v. Oil, Paint & Drug Co. (1905) 70 N. J. Eq. 197, 56 Atl. 254, 58 Atl. 188; Godley v. Crandall & G. Co. (1912) 153 App. Div. 697, 139 N. Y. Supp. 236, modified upon another point in (1914) 212 N. Y. 121, L.R.A.1915D, 632, 105 N. E. 818; Carr v. Kimball (1912) 153 App. Div. 825, 139 N. Y. Supp. 253, affirmed without opinion in (1915) 215 N. Y. 634, 109 N. E. 1068; Davids v. Davids (1909) 135 App. Div. 206, 120 N. Y. Supp. 350.

II. Manner of interference; character of relief.

A court of equity has power to compel officers of a private corporation who have been voted excessive salaries by the board of directors, to restore to the corporate treasury the amount of such salaries which exceeds reasonable compensation for their services.

United States. Sellers v. Phoenix Iron Co. (1881) 13 Fed. 20, 15 Mor. Min. Rep. 388; Wight v. Heublein (1916) 151 C. C. A. 337, 238 Fed. 321. Alabama. - Donald v. Manufacturers' Export Co. (1904) 142 Ala. 578, 38 So. 841.

Illinois. Bixler V. Summerfield (1902) 195 Ill. 147, 62 N. E. 849. Kentucky.-Beha v. Martin (1914) 161 Ky. 838, 171 S. W. 393.

Maryland.-Matthews V. Headley Chocolate Co. (1917) 130 Md. 523, 100 Atl. 645.

Minnesota. Seitz v. Elite Laundry Co. (1922) Minn. -, 189 N. W. 589; SEITZ V. UNION BRASS & METAL MFG. Co. (reported herewith) ante, 293.

New Jersey.-Raynolds v. Diamond

Mills Paper Co. (1905) 69 N. J. Eq. 299, 60 Atl. 941.

New York.-Godley v. Crandall & G. Co. (1912) 153 App. Div. 697, 139 N. Y. Supp. 236, modified without affecting this point in (1914) 212 N. Y. 121, L.R.A.1915D, 632, 105 N. E. 818; Carr v. Kimball (1912) 153 App. Div. 825, 139 N. Y. Supp. 253, affirmed without opinion in (1915) 215 N. Y. 634, 109 N. E. 1068; Atwater v. Elkhorn Valley Coal-Land Co. (1918) 184 App. Div. 253, 171 N. Y. Supp. 552, affirmed without opinion in (1919) 227 N. Y. 611, 125 N. E. 912; Davids v. Davids (1909) 135 App. Div. 206, 120 N. Y. Supp. 350; Williams v. McClave (1914) 85 Misc. 184, 148 N. Y. Supp. 93, affirmed in (1915) 168 App. Div. 192, 154 N. Y. Supp. 38; Tilton v. Gans (1915) 90 Misc. 84, 152 N. Y. Supp. 981, affirmed without opinion in (1915) 168 App. Div. 910, 152 N. Y. Supp. 1146; Townsend v. Winburn (1919) 107 Misc. 443, 177 N. Y. Supp. 757; Schall v. Althaus (1923) 120 Misc. 204, 198 N. Y. Supp. 694.

If the directors of a private corporation, who act in a fiduciary capacity, vote exorbitant and unreasonable salaries to the officers, so as to absorb earnings which should go in dividends, or remain in the corporation's treasury as surplus, a court of equity will give relief at the suit of a minority stockholder, by compelling restoration. SEITZ v. UNION BRASS & METAL MFG. Co. (reported herewith) ante, 293; Schall v. Althaus (N. Y.)

supra.

And in People's Trust Co. V. O'Meara (1922) 204 App. Div. 268, 197 N. Y. Supp. 795, where the directors voted to themselves as officers such salaries as practically resulted in a division among themselves of the earnings of the corporation, the court compelled them to restore to the corporation so much of their salaries as was in excess of reasonable compensation for the actual services rendered by them.

A court of equity can compel the president of a corporation, who, through his ownership of the majority of stock, forced the board of directors, controlled by him, to vote him an ex

cessive salary, to restore such salary to the corporate treasury. Townsend v. Winburn (1919) 107 Misc. 443, 177 N. Y. Supp. 757.

And legitimate ground for equitable interference by compelling restitution is shown by the allegation in a bill by a minority stockholder against its officers and directors individually, that the defendants, members of one family, and principal owners of the stock, have unlawfully combined to appropriate the property of the corporation and apply it to their own use in the form, among others, of excessive salaries as officers. Sellers v. Phoenix Iron Co. (1881) 13 Fed. 20, 15 Mor. Min. Rep. 388.

But it was held in Carr v. Kimball (1912) 153 App. Div. 825, 139 N. Y. Supp. 253, affirmed without opinion. in (1915) 215 N. Y. 634, 109 N. E. 1068, a representative action by minority stockholders seeking recovery from the directors of alleged excesses of salaries paid to the officers of the corporation, that a director who was not an officer, and did not himself draw a salary, should not be held responsible by the court for the repayment into the corporate treasury of the excesses of salaries voted to the other directors as officers, although he participated in the vote of such salaries.

And it was further held in the same case that the directors could not be held responsible for the repayment into the corporate treasury of the amount paid in excess of a reasonable salary for the treasurer, who was not a director, since, in voting such excessive salary to him, they were not fiduciaries dealing with themselves.

A court of equity, upon finding that the salaries voted to officers by the directors are excessive, is not confined, in granting relief, to requiring a refund to the corporation of the salaries already paid in excess of the amounts fixed by the court as reasonable, but has the power, in a proper case, to enjoin the future payment of more than such amounts. Wight v. Haublein (1916) 151 C. C. A. 337, 238 Fed. 321; Beha v. Martin (1914) 161 Ky. 838, 171 S. W. 393; Matthews v.

Headley Chocolate Co. (1917) 130 Md. 523, 100 Atl. 645.

And this is so where a board of directors votes excessive salaries to certain of its members who are also officers of the corporation, even though such action may subsequently be ratified at a stockholders' meeting. Sotter V. Coatesville Boiler Works (1917) 257 Pa. 411, 101 Atl. 744.

And where the president of a corporation through his ownership of the majority of the stock, compels his dummy directors to vote him an excessive salary, a court of equity will not only compel him to return such salary to the corporation, but will restrain his further receipt thereof. Townsend v. Winburn (1919) 107 Misc. 443, 177 N. Y. Supp. 757.

The court, in Carr v. Kimball (1912) 153 App. Div. 825, 139 N. Y. Supp. 253, affirmed without opinion in (1915) 215 N. Y. 634, 109 N. E. 1068, upheld an injunction perpetually restraining the directors from paying salaries to the officers exceeding the fair and reasonable value of their services.

And in Ziegler v. Hoagland (1889) 52 Hun, 385, 5 N. Y. Supp. 305, the court enjoined the payment of excessive salaries fraudulently voted by the directors to themselves as officers for the purpose of coercing the minority stockholder into selling his stock to one of such officers.

As there is no way of satisfactorily determining the value of services to be rendered in the future by officers of a corporation, when conditions, ex necessitate, may be essentially different from those in the past, therefore, generally speaking, a court of equity, on the complaint of a minority stockholder as to the excessiveness of the salaries of the officers, may deal only with the facts presently before it, and thus determine the reasonable compensation actually earned; but exceptional cases may arise where, contemplating a continuance of an ascertained state of facts, and guarding its decree accordingly, the court may determine compensation to be paid to

the officers in the future. Sotter v. Coatesville Boiler Works (Pa.) supra.

And the court, in granting such an injunction in Wight v. Heublein (Fed.) supra, said: "The circumstances here disclosed are peculiar, and, as it seems to us, of a somewhat aggravated character. It is not doubted that a court of equity has power in such a case to grant injunctive relief, and we are by no means persuaded that its exercise in this instance exceeds the limits of judicial discretion. Moreover, it must be assumed that the decree in question is based upon and has application only to existing conditions. If those conditions should undergo material change, so that large earnings were realized under efficient and capable management, it seems clear to us that the payment of proper and reasonable salaries, though greater than the amounts fixed by the decree, would not be prohibited by the injunction now in force."

In Fitchett v. Murphy (1899) 46 App. Div. 181, 61 N. Y. Supp. 182, where the judgment of the lower court, in an action by a minority stockholder to restrain officers of the corporation from paying to themselves certain salaries claimed to be excessive, provided that thereafter the corporation be authorized to pay such sums for salaries for the officers as it might deem proper, not to exceed an aggregate and specified amount per year, which sum was declared to be a fair compensation for all of the officers, and was to be divided among them according to their actual services in the company, as they might decide, it was held that it was not within the power of the court to fix even a gross sum to be divided as salaries among the officers, upon the ground that the fixing of the salaries was a matter within the powers of the directors themselves, subject, of course, to review and approval or disapproval by a court of equity.

A court of equity has power to enjoin the board of directors from voting unreasonable or excessive salaries to the officers of the corporation. Decatur Mineral & Land Co. v. Palm

(1896) 113 Ala. 531, 59 Am. St. Rep. 140, 21 So. 315.

And may set aside the resolution fixing the excessive salaries. Lillard v. Oil, Paint, & Drug Co. (1905) 70 N. J. Eq. 197, 56 Atl. 254, 58 Atl. 188. A court of equity has the power to review a resolution of the stockholders fixing the salary of a director as manager of the corporation, and may determine the reasonableness of such salary, and set aside such resolution if disadvantageous to the minority stockholders. Booth v. Beattie (1922) - N. J. Eq. 118 Atl. 257.

In Carr v. Kimball (1912) 153 App. Div. 825, 139 N. Y. Supp. 253, affirmed without opinion in (1915) 215 N. Y. 634, 109 N. E. 1068, the court upheld the judgment below, which rescinded the resolution of the board of directors, fixing excessive salaries for the officers of the corporation.

And in Giguère v. Colas (1915) Rap. Jud. Quebec 48 C. S. 198, the court annulled the vote by the directors of an excessive salary to the president, not justified by his services.

A court of equity also has power to cancel notes held by the officers against the corporation for unpaid salaries in excess of what they should be allowed as reasonable compensation for their services. Decatur Mineral & Land Co. v. Palm (Ala.)

supra.

While the court may interfere by compelling the restoration to the corporate treasury of excessive salaries voted by the directors to themselves as officers, the payment of such salaries alone is not ground for the appointment of a receiver by the court to collect from the officers the unearned salaries. Donald v. Manufacturers' Export Co. (1904) 142 Ala. 578, 38 So. 841.

But a receiver was appointed in Green v. National Adv. & Amusement Co. (1917) 137 Minn. 65, L.R.A.1917E, 784, 162 N. W. 1056, where all the profits of a corporation were consumed by excessive salaries to the officers. It further appeared, however, that such officers, who were chosen by stockholders representing

and holding one half of the stock, intentionally, in collusion with such stockholders, managed and conducted the corporation in the exclusive interests of those so electing them, and wrongfully excluded the stockholders owning the other half of the stock from participation in the profits or property of the company, and that there was such enmity and hostility between the contending stockholding factions as to render harmonious management of the corporation impossible; and it was held that, under such circumstances, a court of equity, in the absence of statutory authority, had power and jurisdiction, at the suit of the excluded stockholders, though the corporation was not insolvent, to wind up the affairs of the corporation, to convert its property into money for distribution to those entitled thereto, and to appoint a receiver to conduct its affairs pending such dissolution proceedings.

A court of equity has power, in the exercise of its general equity jurisdiction, to wind up a corporation, at the suit of a minority stockholder, and to appoint a receiver for such purpose, with an order for an accounting, where the corporation has utterly failed of its purpose because of fraudulent mismanagement and misappropriation of its funds by a director who is the president, treasurer, and manager, principally in the form of excessive salary, which he has been able to accomplish by reason of ownership of a majority of the stock, and by the packing of the board of directors with his dummies, whom he has furnished with stock for such purpose. Miner v. Belle Isle Ice Co. (1892) 93 Mich. 97, 17 L.R.A. 412, 53 N. W. 218.

And in Schall v. Althaus (1923) 120 Misc. 204, 198 N. Y. Supp. 694, which was an action by a minority stockholder to compel the officers of the corporation to restore to the corporation excessive salaries and bonuses, and asking for an accounting and a receiver, the court said that it was a case for the interposition of a court of equity to protect the plaintiff's rights as a stockholder, and, if the officers 27 A.L.R.-20.

refused to do justice, to put a receiver in charge; and directed restitution of the bonuses, and suggested that the directors scale down the salaries of the officers; and further said that it did not see any reason for directing an accounting at the time, and would not appoint a receiver, but that the judgment might contain a provision for an application for a receiver at the foot thereof if it should appear to be necessary.

III. Reasonableness of salaries. The question of the reasonableness of the salary of a corporate officer depends on what the services of a competent officer are reasonably worth, and not on what he could make at a different business. Beha v. Martin (1914) 161 Ky. 838, 171 S. W. 393.

Thus, a salary of $18,000 for acting as the president and manager of three related corporations was held by the court to be excessive, and cut down to $13,000, in Lillard v. Oil, Paint, & Drug Co. (1905) 70 N. J. Eq. 197, 56 Atl. 254, 58 Atl. 188, where the same services had been previously rendered to the corporation for about half of such sum of $18,000, and there was evidence to the effect that like services for similar corporations were paid for at the rate fixed by the court. It was sought to justify the payment of the salary of $18,000 upon the ground that such officer, at the time of assuming his duties, was making as much or more in another business; but the court said that the question to determine was what the services were reasonably worth, and that the amount that the officer was making in another and entirely different business was simply a matter for his own consideration in determining whether he should give up such position and take the one in question.

In Raynolds v. Diamond Mills Paper Co. (1905) 69 N. J. Eq. 299, 60 Atl. 941, the court, upon the complaint of a minority stockholder, reduced the salary of the treasurer, who was the son of the president and majority stock owner, from $5,000 to $4,000, where it appeared that he was a

young man, about twenty-six years of age, discharging the clerical duties pertaining to the office of treasurer, and managing one of the mills owned by the corporation, in which latter capacity he had displaced a foreman who received a salary of $4,000. The court, in reference to determining the reasonable compensation for such officer, said that the fact that his salary was fixed by the board of directors was, of course, of very little moment; and that the fact that his father, the president, voted for such salary, was not very helpful; the suggestion that his father himself paid more than one half of such salary because he owned more than one half of the capital stock also contained a fallacy; and that the question was simply how much ought such young man receive for discharging the duties of treasurer and superintendent at one of the company's mills.

Salaries of $16,000 for the president and $7,000 for the secretarytreasurer were held excessive, and cut down to $7,500 for the president and $5,000 for the secretary-treasurer, in Wight v. Heublein (1916) 151 C. C. A. 337, 238 Fed. 321, where it appeared that the company's business had been averaging about half a million a year, with a net income of about $70,000, but had fallen so low in recent years that for three years no dividends had been paid on the stock, and in the last year considered the surplus over expenses was insufficient, by upwards of $4,700, to pay interest on the outstanding bonds, without any charge for depreciation. It was so held although various reasons were given for such shrinkage of profits, and it was certain that not all of it could be laid to incompetent management; the court saying that, giving due weight to the explanations offered, the actual results of operation were still of significant bearing upon the reasonableness of the salaries in question.

In Raynolds v. Diamond Mills Paper Co. (N. J.) supra, the court held unreasonable an increase in the salary of the president from $12,000 to $15,000, and of the salary of the sec

retary from $6,000 to $9,000, which the incumbents of such offices, as directors, voted to themselves as officers, where there was no increase in their duties, and the salary received by them before such increase was held reasonable compensation for their services, and they were compelled to restore to the corporate treasury the difference. The reasons advanced by such officers to justify such increase in their salaries were that the corporation had got richer and was able to pay larger salaries, that its business had expanded, and that therefore the services of such officers, who were the managers of the business, should receive greater recognition and a higher rate of compensation because of the greater success or increase of the business and the growth of the corporate assets; and the court, in answer to these reasons, stated that they were based upon a mistaken idea of the value and significance of the mere enlargement of the corporate assets, and, in discussing this point, said: "The success of a great business or manufacturing corporation is measured by what the stockholders get, and not by mere accumulation of assets. Very often it would be far wiser for a manufacturer to stop with the one mill that he has and take in his profits during the few years perhaps in which profits can be made in that mill without expansion. Very often it is a fatal mistake for the manufacturer to go on and buy more mills. He may be blowing a bubble that after a time will burst. . . . I do not see that the aggregation of assets in the expansion of a business venture, when all the assets are left at the risk of the business and may never come to the stockholders, affords a very sure basis for enlarging the salaries of the corporate agents and officers. The idea is that they are to be paid for accumulating these large assets and exposing them to the risk of an enlarged business; but it is not assured as yet that any success will come out of it. Failure may come out. It seems to me that it would be high time for these gentlemen to enlarge their salaries