Putnam v. Juvenile Shoe Corporation

• Decision Date: 17 February 1925
• Parties: ANNA A. PUTNAM, Appellant, v. JUVENILE SHOE CORPORATION et al
• Court: Missouri Supreme Court

269 S.W. 593

307 Mo. 74

ANNA A. PUTNAM, Appellant, v. JUVENILE SHOE CORPORATION et al

Supreme Court of Missouri

February 17, 1925

Appeal from Jasper Circuit Court; Hon. Joseph D. Perkins Judge.

Affirmed.

McReynolds & McReynolds and John H. Flanigan for appellant.

(1) The directors had no authority to give a bonus. 4 Fletcher on Corp. p. 4012, note 76. Directors are trustees, answerable as such. 14a C. J. 97-99. (2) Plaintiff, as a non-consenting minority stockholder, was entitled to sue in equity for the benefit of the corporation, making the corporation a defendant, where, as here, the corporation was dominated by the individual defendants. R. S. 1919, secs. 10169-10171; Ward v. Davidson, 89 Mo. 445; Proctor v Farrar, 213 S.W. 469; Von Ardin v. American Tube Works, 74 N.E. 680; Kleinschmidt v. American Mining Co., 139 P. 785; Eaton v. Robinson, 29 L. R. A 100; Smith v. Rader, 173 P. 970; Albers v Merchants Ex., 45 Mo.App. 206; Hingston v. Montgomery, 121 Mo.App. 451; Bulkley v. Iron Co., 77 Mo. 105. (3) The pretended oral agreement was, in substance, that "if the corporation makes money some additional compensation will be paid you. It is optional with the corporation to pay it or not to pay it, and the amount is wholly indefinite and uncertain and may be determined in the future by discretionary and optional action of the board." Such agreement is unenforceable, it being void for uncertainty and lack of mutuality. Burks v. Stam, 65 Mo.App. 455; Mackintosh v. Thompson, 58 A.D. 25, 68 N.Y.S. 492; Fairplay School Twp. v. O'Neill, 27 Ind. 95, 26 N.E. 686; Butler v. Kammerer, 218 Pa. 242, 67 A. 332. Since it was void the directors had no right to recognize it by giving away the corporate funds. Directors, as a matter of law, may be compelled to restore to the corporation moneys they have expended on invalid claims. 14a C. J. 108, note 35; Sleet v. Farmers Mut. F. Ins. Co., 19 L. R. A. (N. S.) 421; Butts v. Wood, 38 Barb. 181, 37 N.Y. 317; Adcock v. New Crystal Ice Co., 234 S.W. 336. (4) The bonus of $ 18,800 allotted by President Reith to himself should be restored to the corporate treasury for several reasons: (a) The corporate board of directors consisted of nine shareholders; a majority were necessary to constitute a quorum for transaction of corporate business. Reith was present as the fifth director at the board meetings of January 18, 1919 (when he claims the other board members orally promised to pay him a bonus later in the year if the corporation made money), and of November 29, 1919 (when the "melon was cut" and $ 50,000 of the stockholders' money was given away). If he had been absent there would have been no quorum, and the meetings, for lack of a quorum, would have been futile and not binding on the corporation. He had to be counted to constitute a quorum. He could not lawfully or morally represent both the corporation and himself. A director can claim no compensation under board action where he had to be counted to make up a quorum. In re McCarthy Port. El. Co., 120 C. C. A. 261, 201 F. 923; Steele v. Gold Mng. Co., 42 Col. 529, 95 P. 349; Camden Land Co. v. Lewis, 101 Me. 78; McConnell v. Combination Mng. Co., 30 Mont. 239, 31 Mont. 563; Butts v. Wood, 37 N.Y. 317, 38 Barb. 181; Fields v. Victor Co., 175 P. 529; Burton v. Lithic Mfg. Co., 73 Ore. 605, 144 P. 1149. While the courts of this State have not discussed the question from just the above angle, they have held that if a director's own vote was essential to passage of a resolution fixing his salary, such resolution is void and not binding on the corporation. Ward v. Davidson, 89 Mo. 445; Davis Mill Co. v. Bennett, 39 Mo.App. 460; Bennett v. St. Louis Roofing Co., 19 Mo.App. 349; Remmers v. Seky, 70 Mo.App. 364; Hill v. Rich Hill Coal M. Co., 119 Mo. 9. (b) That Reith performed any services outside the scope of his duties as president is a mere fiction and sham. The by-laws provide that the president "shall have general and active management of the business of the corporation." Under these circumstances it cannot be said that he performed any service which, as president, he was not bound to perform. Note, L. R. A. 1917 F, pp. 326-330. (c) His compensation was fixed at $ 6,000 for the year 1919 as shown by the minutes of the meeting of January 18, 1919. This solemn record cannot be impeached by parol. Davis Mill Co. v. Bennett, 39 Mo.App. 461. (d) The only definite contract which Reith had in advance of the rendition of his services was for a salary of $ 6,000 for 1919. Under the law, a director may only recover for services when the compensation is definitely fixed in advance by board action. Rose v. Carbonating Co., 60 Mo.App. 28; Bennett v. Car Roofing Co., 19 Mo.App. 349; Besch v. Western Carriage Co., 36 Mo.App. 336; Ward v. Davidson, 89 Mo. 454; Remmers v. Seky, 70 Mo.App. 364; Pfeiffer v. Brake Co., 44 Mo.App. 59; Beach v. Stouffer, 84 Mo.App. 395; Taussig v. Ry. Co., 166 Mo. 33; Welden v. Farm Loan Co., 213 S.W. 54. (e) The board permitted Reith to be the sole judge of his own worth to the corporation. Irrespective of written authorities, this immoral arrangement should not be permitted to stand. Reith gave himself two-fifths of the bonus and another two-fifths to four of his intimates. The five of them pocketed $ 41,000. Less than one-fifth he apportioned among thirty-one of the smaller employees. His conduct would have been only a little less defensible and a little more reprehensible if he had taken it all. (f) The resolution of January 18, 1919, fixing Reith's salary at $ 6,000 was binding on him by way of estoppel and he is estopped to claim compensation in excess of that amount. Voorhees v. Mason, 245 Ill. 256. (5) The ratification was not binding on plaintiff. Not all the other stockholders can deprive her of her rights -- they ratified for themselves alone. Brick Co. v. Schoeneick, 65 Mo.App. 283; Von Arnim v. American Tubeworks, 74 N. E. (Mass.) 680; Godley v. Crandall, L. R. A. 1915D, 632; Flinn v. Brooklyn St. Ry. Co., 53 N.E. 520; Klein v. Brewing Assn., 83 N.E. 441; Continental Security Co. v. Belmont, 51 L. R. A. (N. S.) 112; Bagshaw v. Eastern Union Ry. Co., 7 Hare, 114; 4 Fletcher on Corps. sec. 2755, p. 4010; 4 Fletcher on Corps. sec. 2507, note 29; Theobald v. U.S. Rubber Co., 146 N.Y.S. 597; Endicott v. Marvel, 81 N.J.Eq. 378; Brown v. DeYoung, 47 N.E. 863; Matthews v. Headley, 100 A. 645; McConnell v. Com. M. & M. Co., 76 P. 194. (6) If plaintiff, in view of the ratification by other stockholders, is not entitled to a decree requiring defendants to restore the misappropriated $ 50,000 to the corporate treasury, at least she is entitled to a judgment in her own favor for her proportionate part, as stockholder, of the misapplied fund. Matthews v. Headley, 100 A. 645; Brown v. DeYoung, 47 N.E. 863; Emerson v. Gaither, 64 A. 26; Eaton v. Robinson, 29 L. R. A. 100; Proctor v. Farrar, 213 S.W. 469.

Lewis & Rice and Howard Gray for respondents.

(1) The appellant's first point is that the directors had no authority to give a bonus. It will be noticed that only one case is cited in support of the proposition. This case, when examined, does not support the proposition. The general rule is to the contrary. 2 Fletcher's Encyclopedia on Corporations, p. 2151; Roberts v. Mays Mills, 114 S.E. 530; Payne v. United States, 269 Fed 871; Kenicott v. Wayne County, 16 Wall. 471, 21 L.Ed 322; Zwolanek v. Manufacturing Company, 137 N.W. 769. (2) The facts disclosed by the testimony do not bring the plaintiff's case within the decisions cited under appellant's second point; furthermore, the evidence shows that both a majority of the directors (in fact, all, as shown by their action at the stockholders' meeting) and a majority of the stockholders (all but appellant) approved the payment. Vogeler v. Punch, 205 Mo. 558. (3) Answering appellant's point that the oral agreement to pay the bonuses was so indefinite and uncertain that it was void for uncertainty and lack of mutuality, it is sufficient to say that this is not a suit on the contract, but the contract has been fully executed by both parties. The only thing left uncertain was the amount to be paid as a bonus, and this was made definite by the corporation paying a sum for that purpose, which was accepted by the employees. In other words, after a contract has been performed it is too late to raise the question of uncertainty or lack of mutuality. Reynolds v. Wash-Griffith Tie and Lumber Co., 227 S.W. 438; Eaton v. Coal Co., 125 Mo.App. 194; Laclede Construction Co. v. Tudor Iron Works, 169 Mo. 151; Eldorado Ice & Planing Co. v. Kinard, 131 S.W. 460; Stanley v. Sumrell, 163 S.W. 697; Boyd v. Brown, 34 S.E. 907; Willets v. Insurance Company, 45 N.Y. 45. (a) It was urged all through the trial by the appellant that the contract with these employees had to be evidenced by records of the board of directors. This is not the law. Taussig v. St. Louis & Kirkwood Railroad Co., 166 Mo. 28; O'Brien v. O'Brien Boiler Works Co., 154 Mo.App. 183; 4 Fletcher's Cyclopedia Corporations, secs. 2739, 2760, 2754; Brown v. Creston Ice Co., 85 N.W. 750; Politz v. Wabash Railroad Co., 100 N.E. 721; Altavista Cotton Mills v. Lane, 112 S.E. 637. (b) Instead of the officers being guilty of a fraud in carrying out these agreements with these employees, they would have been conniving at a fraud if they had refused to carry out the agreement. Zwolanek v. Baker Mfg. Co., 137 N.W. 769; 4 Fletcher's Encyclopedia on Corporations, sec. 2394; Cummings v. Parker, 250 Mo. 427. (4) Appellant says that the $ 18,800 allotted to Mr. Reith should be returned to the corporation. (a) As to her first proposition, the contention is settled adversely to appellant by the following authorities: Taussig v. Railway Company, 166 Mo. 68; 4 Fletcher,...