Joy v. Ditto, Inc.

• Decision Date: 06 June 1934
• Docket Number: Nos. 22148–22150.,s. 22148–22150.
• Parties: JOY et al. v. DITTO, Inc., et al.
• Court: Illinois Supreme Court

356 Ill. 348

190 N.E. 671

JOY et al.

v.DITTO, Inc., et al.

Nos. 22148–22150.

Supreme Court of Illinois.

April 21, 1934.

As Modified on Denial of Rehearing June 6, 1934.

Error to Second Branch Appellate Court, First District, on Appeals from the Circuit Court, Cook County; William V. Brothers, Judge.

Suit by Charles H. Joy and others against Ditto, Incorporated, and others. Decree in favor of complainants was reversed on separate appeals taken to the Appellate Court (271 Ill. App. 395), and complainants bring certiorari.

Judgments of Appellate Court affirmed.

DE YOUNG, J., dissenting.

Cattell & Waldron, of Chicago (Vernon W. Foster, of Chicago, of counsel), for plaintiffs in error.

Knapp, Beye, Allen, Cochran & Cushing, of Chicago (William Beye, R. C. Stevenson and Walter H. Velde, all of Chicago, of counsel), ofr defendants in error.

STONE, Justice.

Plaintiffs in error, Charles H. Joy, Mary G. Joy, Charles H. Joy, Jr., and A. L. Joy, filed in the circuit court of Cook county their bill for accounting against defendant in error Ditto, Incorporated, and its officers and directors, alleging that certain of its officers, Guy H. Abbott, Joseph M. Cheney and H. M. Henderson, received and retained, in violation of law, certain secret bonuses over and above their respective ‘substantial, known, fixed annual salaries.’ The bill prayed that restitution be made and that the amount so restored be distributed as dividends, or, in the alternative, that the individual officers so receiving such bonuses be required to restore to the individual complainants their proportionate share of the amount received. Prior to the entry of the decree in the cause, it was stipulated that payment, if any, should be made direct to the individual complainants. A decree was entered in accordance with the prayer of the bill, directing that defendants pay to complainants, in the proportion in the decree specified, the following amounts: Abbott, $12,675.88, Cheney, $5,407.56, and Henderson $1,969.79. Separate appeals were prayed from the decree to the Appellate Court, and the causes were there consolidated for hearing. That court reversed the decree of the circuit court, with directions in each case to dismiss the bill of complaint as to the appellant. The consolidated causes are here on writ of certiorari.

Plaintiffs in error (hereinafter referred to as complainants) base their case on the theory that Abbott, Cheney, and Henderson (hereinafter referred to as defendants) were officers and directors of the corporation, and as such received certain bonus compensation over and above their fixed salaries without antecedent authority from the board of directors, and that such bonuses were therefore illegally paid to them. The defense is based on the proposition that none of the compensation received by Abbott, Cheney, of Henderson was paid for services as officer or director of the corporation; that all their compensation, consisting of fixed salary and a percentage of net earnings, was paid them for services not official in character and outside the duties imposed upon them as officers and directors; that such services were rendered and the compensation was paid under valid, binding contracts of employment entered into between them and the corporation by its chief executive; and that the contracts were made pursuant to the power of the chief execuitve and in accordance with the corporation's customary method of doing business, and were ratified and approved by the board of directors and the stockholders.It is also contended that the complainants are barred by laches.

The corporation was organized in 1910 under the laws of West Virginia (Code W. Va. 1923, c. 53, § 1 et seq.). The evidence shows that it was at first unsuccessful. Some time during that year one J. A. Joy (who it appears, is in no way related to the complainants) and T. W. Robinson took over the operation of the company and reorganized it, putting in money to insure success. J. A. Joy was made president. The corporation thereafter gained steadily in its business success, but paid no dividends until 1917. From 1920 to the time of filing the bill herein it showed remarkable success, and during the ten years from 1920 to 1929 paid dividends ranging from 16 per cent. to 90 per cent. of the par value of the capital stock. For this period it paid an average yearly dividend of 42.3 per cent. J. A. Joy acted as president from 1910 to 1928, at which time he became chairman of the board, vested with the same powers, however, as president. J. A. Joy and Robinson were directors from 1910 until the filing of this suit. Together they owned 72 per cent. of the stock. Complainants own about 12 per cent. of the stock.

It is shown without dispute in the evidence that from the time he became president it was the fixed custom of Joy and Robinson, with acquiescence on the part of the board of directors and without the participation of the board therein, to determine all questions of policy relating to business, make all employment contracts, and determine compensation to be paid thereunder and to have general supervision and management of the business and affairs of the company. On October 21, 1924, the board of directors amended the by-laws to provide for the appointment by the board of an executive committee, consisting of the general manager of the company as chairman and two other members of the board of directors. The duties of the executive committee, as provided by this amended by-law, were (1) to pass on all loans, (2) purchase all securities, and (3) authorize all contracts, at all times when the board of directors is not in session. J. A. Joy thus became chairman and Robinson and Abbott were appointed members of this executive committee, and they thereafter so acted until the beginning of this suit. The evidence shows, without dispute, that all contracts of employment were made by J. A. Joy. The only compensation that was ever fixed or considered by the board of directors was the compensation of J. A. Joy as president and later as chairman of the board, and a provision for a fee of $10 per meeting for directors attending meetings of the board. It is also shown, without dispute, that the matter of the salaries to be paid to employees of the corporation was left entirely in the hands of the committee, without reference to or action by the board of directors.

The connection of each of the defendants with this corporation began as an employee engaged by Joy. Abbott became also an officer in 1912 and a director in 1920. Cheney became also an officer in 1920 and a director in 1922. Henderson became also an officer in 1923 and a director in 1928. The offices filled by the defendants were vice president, secretary, and treasurer. Abbott became president in 1928 when J. A. Joy became chairman of the board. Their compensationas heads of departments was from time to time increased by Joy and Robinson. The record shows that this was done in accordance with the increasing value and responsibility of their services and the increasing business of the corporation. Abbott became general manager, Cheney sales manager, and Henderson production manager. The evidence shows that, when they became officers and directors, no increase of salary was given them, that their duties as such were negligible, and that they received no salary as officers of the corporation.

From time to time these defendants, as well as other heads of departments, requested an increase in salary. J. A. Joy, upon consideration of this matter with T. W. Robinson, decided upon a plan of compensation whereunder these heads of departments would receive a fixed salary and in addition thereto a percentage of the net profits of the business. This plan was put into effect and was continued up to the time of the bringing of this suit. It first applied only to Abbott, later to six department heads, and still later to nine, of whom defendants were the only officers or directors of the corporation. It is shown in the record that the reasons for such arrangement were tow: (1) That such an arrangement would tend to interest the department head in economical operation of his department and in the increase of profits; and (2) it avoided carrying large fixed liabilities of the corporation for salaries. The spreading of this plan to other department heads was occasioned by demands from them for salary increases, together with attempts of competitors to get some of these men away from the corporation. The plan adopted and followed was to fix, in addition to the stated salary of such department heads, a certain percentage of the net profits. The fixed salary and a percentage of the net profits to be received in addition thereto were fixed at the close of each year for the following year. The bonus or percentage was fixed as a part of the total compensation which these defendants and other heads of departments were to receive for their services as such department heads for the following year. The only claimed exception to prospective fixing of participation on net earnings occurred in 1925 concerning Abbott's compensation for that year. Abbott testified that early in that year he applied to Joy for an increase in such percentage and that Joy for an increase in would attend to it, but because of absence of Joy, he (Abbott) did not learn what percentage of net profits he was to receive for 1925 until December of that year. This, however, does not show a substantial departure from the plan of fixing compensation in advance. The record does not show when the percentage for Abbott was, in fact, fixed by Joy and Robinson. This record clearly shows that throughout all the term involved in this suit the business was conducted first under the management of J. A. Joy and Robinson, and later under the management of those two, with Abbott, as members of the executive committee. This was in direct accord with the authorization of the board. Joy received a...