Gettinger v. Heaney

• Decision Date: 20 March 1930
• Docket Number: 1 Div. 571.
• Citation: 220 Ala. 613,127 So. 195
• Parties: GETTINGER ET AL. v. HEANEY.
• Court: Alabama Supreme Court

127 So. 195

220 Ala. 613

GETTINGER ET AL. v. HEANEY.

1 Div. 571.

Supreme Court of Alabama

March 20, 1930

Appeal from Circuit Court, Mobile County; Joel W. Goldsby, Judge.

Bill in equity by N. Sproat Heaney against the Ransom Satsuma Company, Incorporated, and others, and cross-bill by the Ransom Satsuma Company, Incorporated. From the decree respondents Engs, Gettinger, Kraft, and Davison appeal, and Ransom Satsuma Company, Incorporated, cross-assigns error.

Reversed and remanded.

Outlaw & Kilborn and Smith & Johnston, all of Mobile, for appellants.

Gray &amp Pou, of Mobile, for Ransom Satsuma Co.

Harry T. Smith & Caffey, of Mobile, for appellee.

BROWN J.

This appeal is from the final decree granting relief to the complainant, on the bill as amended, filed by him as a minority stockholder in the Ransom Satsuma Company, Inc., a domestic corporation, engaged in the business of operating an orange and pecan orchard.

The relief sought and granted by the decree was the annulment of certain resolutions of the board of directors, constituted of the defendants, one of whom was the majority stockholder in the corporation, providing for the payment of salaries to the defendants, on the ground that said resolutions were the result of a covinous conspiracy to deplete the treasury of the corporation so as to avoid the payment of dividends compelling the defendants to account for the monies so wrongfully appropriated by them, and to this end a reference was ordered.

The decree removed the board of directors from office, appointed a receiver to take possession of the property and assets of the corporation, conduct its affairs, and "otherwise administer the trust resulting from the inability of this corporation to function through its board of directors, until the affairs of the corporation are liquidated, or until the further order of the court."

It is well settled that a court of equity has jurisdiction at the suit of a stockholder to correct abuses of the corporation management by the board of directors, whether by way of unauthorized or fraudulent allowance of salaries for themselves and those of their confederates, either as directors or officers of the corporation, or by way of appropriating the assets to their own private uses. Decatur Land Co. v. Palm, 113 Ala. 537, 21 So. 315, 59 Am. St. Rep. 140; Glass v. Stamps, 213 Ala. 95, 104 So. 237.

In Navco Hardwood Co. v. Bass, 214 Ala. 553, 108 So. 452, 454, the general rule was stated to be "that corporate offices *** are usually filled by the chief promoters of the corporation, whose interest in the stock or in other incidental advantages is supposed to be a motive for the execution of the duties of his office without compensation, and that this presumption prevails until overcome by an express prearrangement of salary." This holding is supported by the cases cited, Kilpatrick v. Penrose Ferry Bridge Co., 49 Pa. 118, 88 Am. Dec. 497; 14 A C.J. p. 136, § 1906.

This principle was in effect reaffirmed in Holcomb v. Forsyth, 216 Ala. 486, 113 So. 516, 520, where it was held that "the right of an officer [of the corporation] to receive a salary is a matter of contract," and that a director of the corporation, under the law governing the fiduciary relations, of principal and agent, cannot participate in or form a quorum of the board to enter into such contract. The rationale of the rule is that corporate officers "have ample opportunity to adjust and fix their compensation before they render their services, and no great mischief is likely to result from compelling them to do so, but, if, on the other hand, actions are to be maintained by corporate officers for services which, however faithful and valuable, were not rendered on the foot of an express contract, there would be no limitation to corporate liabilities, and stockholders would be devoured by officers." 7 R. C. L. 464, § 446; Kilpatrick v. Penrose Ferry Bridge Co., 49 Pa. 118, 88 Am. Dec. 497.

While the presumption of service without compensation does not obtain as to a superintendent or general manager who devotes all or practically all of his time to the business affairs of the corporation, yet his right to receive a salary must rest upon contract, express or implied. Navco Hardwood Co. v. Bass, supra.

"The rule to be deduced from the modern and best considered cases seems to be that a person, although a director or other officer of a corporation, may recover the reasonable value of necessary services rendered to a corporation, entirely outside of the line and scope of his duties as such director or officer, performed at the instance of its officers, whose powers are of a general character, upon an implied promise to pay for such services, when they were rendered under such circumstances as to raise a fair presumption that the parties intended and understood they were to be paid for," etc., 7 R. C. L. 464, § 446; Fitzgerald, etc., Const. Co. v. Fitzgerald, 137 U.S. 98, 11 S.Ct. 36, 34 L.Ed. 608; Corinne Mill, Canal, etc., Co. v. Toponce, 152 U.S. 405, 14 S.Ct. 632, 38 L.Ed. 493.

It is conceded by the appellants that there was no valid express contract authorizing the payment of salaries to the president, vice president, and secretary of the corporation, and on the principles stated, the payment of salaries to them as such was a misappropriation and misuse of the corporate funds.

And after careful consideration of the evidence, we are not of opinion that Fred G. Gettinger was entitled to a salary as general manager as upon implied contract.

It clearly appears that the duties of such office were, from the beginning, performed without the expectation of compensation therefor, and the services which he rendered were not of a character to warrant the inference that his services were performed under an implied contract.

It further appears without dispute that the first action of the board, constituted of Engs, Gettinger, and Mrs. Gettinger acting through her proxy, was superinduced by the design of Gettinger to "freeze out" the complainant as a minority stockholder, and the subsequent action of the board after the filing of the bill, and the transfer of one share of stock by each of them to Davison and Kraft, were in the furtherance of this purpose; that the transfer of said stock to Davison and Kraft was not in good faith-was but a means to the end of carrying out such fraudulent design-its purpose being to give legal color to the action of the board as a cover for such design; and this subsequent resolution of the board rests upon no better foundation than the first.

We therefore concur in the conclusion of the learned trial court that said resolutions should be annulled.

In respect to the distribution to the stockholders of the $11,000, as dividends, while the distribution of these dividends was irregular and not authorized by a resolution of the board of directors, the distribution was equitable, and was concurred in and in effect ratified by all the stockholders by their acceptance, without objection, and should be ratified in toto.

The subsequent contribution by the stockholders, made at the request of Mr. Gettinger as general manager, for the purpose of aiding the corporation to carry on, was but a loan to the corporation and should be treated as such, and, with accrued interest, credited upon the liability of Engs, Gettinger, and Mrs. Gettinger, arising from their misappropriation of the funds of the...