Massoth v. Central Bus Corp.

• Decision Date: 30 July 1926
• Citation: 104 Conn. 683,134 A. 236
• Court: Connecticut Supreme Court
• Parties: MASSOTH ET AL. v. CENTRAL BUS CORPORATION.

134 A. 236

104 Conn. 683

MASSOTH ET AL. v. CENTRAL BUS CORPORATION.

Supreme Court of Errors of Connecticut.

July 30, 1926

Appeal from Superior Court, Fairfield County; Arthur F. Ells, Judge.

Action by Jacob B. Massoth and others for the appointment of a receiver for the Central Bus Corporation, and for other equitable relief, was tried to the superior court and judgment rendered in part for plaintiffs, but denying their prayer for the appointment of a receiver, and they appeal. Error in form of judgment, and cause remanded for entry of judgment in accordance with opinion.

David S. Day, of Bridgeport, for appellants.

Clifford B. Wilson, of Bridgeport, for appellee.

MALTBIE, J.

The defendant is a corporation organized about December 1, 1921 under the laws of Connecticut, with an authorized capital stock of $50,000, the par value of the shares being $25, and 432 being outstanding. Its business is the transportation of persons by jitney bus over a certain route in Bridgeport. The original subscribers to the stock were eight men who had been individually engaged in the same business, and two attorneys plaintiffs in this action, who advised and assisted them in the organization of the corporation; the bus operators each subscribing for 48 shares and the attorneys together for the same number. Of the operators, five at once paid in their subscriptions in full by each turning over to the corporation a bus owned by him at an appraised value of $1,200, and to each 48 shares of stock were issued; each of the other three turned over to the corporation a bus owned by him, and these were valued at $650, $700, and $900, respectively, and to each there was issued sufficient shares of stock to equal in par value the value of the bus transferred, that is, 26, 28, and 36 shares. The attorneys rendered their services in organizing the company under an agreement to receive their pay in stock, and, after the corporation was organized, 48 shares were issued to them; the consideration stated in the vote being a certain service contract made by them with the corporation. In this contract the corporation agreed to employ them as attorneys, and they agreed to perform certain legal services for it for a period of two years; and they were to receive as compensation a sum equal to the excess over $40 a week paid as salary to any person as " a director and bus driver," the compensation in any event not to be less than $200 a year.

The subscribers to the stock of the corporation became its directors, and all except the attorneys actively engaged in the operation of the busses. It was necessary to employ other operators, and these men were paid sums ranging at different times from $21.50 to $25 a week. The director-operators received at first $35 a week, and this was increased later to $40, and finally to $50 a week, which continued to be the salary paid to them down to the time of the trial. At the expiration of the two-year contract with the attorneys, it was not renewed, and shortly after they ceased to be directors of the corporation. They still own the 48 shares of stock originally issued to them, and one of them has acquired an additional 48 shares from another of the original subscribers. The only other change in the holdings of stock in the corporation has resulted from the issuance to the three director-operators, who did not pay for their stock in full at the organization of the corporation, of sufficient shares of stock to make up the 48 for which each subscribed. There have been no changes in the directorate of the corporation, except that the two attorneys have ceased to be directors, as has the other plaintiff in this action, Massoth. None of the plaintiffs have received anything from the corporation since ceasing to be a director.

The plaintiffs seek in this action the appointment of a receiver and such other relief as to equity appertains. They allege various grounds for this relief, but, as the case comes to us, only two could avail them. These are stated in the complaint as follows: That the directors are disbursing to themselves money which really constitutes profits of the corporation; and that, to exclude the plaintiffs from any participation in the affairs of the corporation, the directors have caused 54 shares of stock to be issued to certain of their number, without the payment therefor required by law.

Taking up the first ground, the plaintiffs contend that the burden rested upon the director-operators to justify the payment of weekly salaries of $50 to each of them as reasonable compensation for services rendered to the corporation; and that this burden was not sustained. The services performed by the director-operators in the actual operation of busses, in preparing them for use and caring for them, and in the oversight and direction of the hired drivers, were entirely apart from any duties resting upon them as directors, were performed in the expectation of the receipt of compensation, and with knowledge on the part of the corporation and every one connected with it that such was the situation. The court has found that the payments made to them were reasonable compensation to them, and has made certain findings as to the nature and extent of those services. These findings the plaintiffs attack. Aside from the actual operation of the busses, wherein their work was of like nature to that of the hired drivers, no precise statement of the nature of the services they had performed would be possible. The court has found that they have, from the organization of the business, frequently been on duty 18 hours a day; that they have substituted at odd times for the hired drivers, have exercised general supervision over their conduct, have been ready to and have assisted in making repairs on the road or in the garage, and have checked up the moneys received; and that they have constantly worked for the success of the enterprise, and have in every way facilitated and made possible that success. These findings are supported by the testimony offered and the reasonable inferences which could be drawn from it, and cannot be disturbed. In addition, the trial court placed reliance upon the fact that the plaintiffs themselves acquiesced and shared in the payments, construing that conduct as evidencing an honest purpose on their part that reasonable compensation be made for services rendered, rather than a desire that they might participate in a diversion of assets, a construction of the evidence which the court was entitled to make. To be sure it does find that the director-operators were " on duty practically all the working hours" and were " constantly" working for the success of the enterprise; but, read in the light of the evidence brought before us to correct these findings, they obviously mean that these men were on duty at all times when there was need of their services. The conclusion of the trial court that the payments made represented reasonable compensation to the director-operators for services rendered must stand.

The contention of the plaintiffs, however, involves the further claim that the directors could not by their own votes establish a contractual obligation on the part of the corporation to pay this compensation to them. They refer particularly to our decisions in Mallory v. Mallory Wheeler Co., 61 Conn. 131, 138, 23 A. 708, and Sisk v. Jordan, 94 Conn. 384, 389, 109 A 181, 519. In those cases we pointed out that every director of a corporation stands in a fiduciary relation to it, occupies toward it a position of the highest trust and confidence, and in all his relations with it is bound to use the utmost good faith and fair dealing; if he deals with it as an individual, not himself participating in the transaction on behalf of the corporation, the burden rests upon him to show the transaction was entirely fair, made in good faith, for an adequate consideration, and upon a full understanding; but if he makes with it an agreement the execution of which could not be authorized by its board of directors except with his vote, alone or in conjunction with that of other directors having a like interest, the agreement is voidable at the election of interested parties, without regard to the good faith of the directors or the fairness of the transaction. The case before us falls within the latter principle and not the former. That principle we did not base upon the ground that there was any legal incapacity on the part of directors to authorize a contract in behalf of the corporation with themselves as individuals, for that seems hardly a tenable position. Minnesota Loan & Trust...