Stout v. Oates
| Citation | 234 S.W.2d 506,217 Ark. 938 |
| Decision Date | 11 December 1950 |
| Docket Number | No. 4-9302,4-9302 |
| Parties | STOUT v. OATES et al. |
| Court | Supreme Court of Arkansas |
Thad Tisdale and U. A. Gentry, Little Rock, for appellant.
Quinn Glover and E. R. Parham, Little Rock, for appellees.
This is an action brought by W. I. Stout, minority stockholder in the Southern Mattress Co., an Arkansas corporation, to compel J. Carl Oates, Elsie P. Oates, and Sam C. Oates, officers and majority stockholders, to repay to the corporation certain sums received by them as 'salaries' during the years 1941-48. The Chancellor found for the defendants and dismissed Stout's complaint. He appeals.
The Southern Mattress Co. was dominated by J. D. Oates, its president, until his death in 1941. Of the 1000 shares of its stock, J. D. Oates owned 608 shares; his son J. Carl Oates owned 25 (of which 9 were later transferred to J. Carl's wife, Elsie P. Oates); Sam C. Oates (not a relative of J. D. Oates) owned 167 shares; and the remaining 200 shares were owned by H. S. Nixon (100), J. F. Walker (50), and W. I. Stout (50). Shortly before the present suit was filed W. I. Stout purchased the stock held by Nixon and Walker, thus becoming the owner of 200 shares. After the death of J. D. Oates his 608 shares were technically owned by his estate, of which J. Carl Oates was administrator and principal beneficiary.
After his father's death J. Carl Oates was elected president of the corporation and actively administered its affairs until he became ill with tuberculosis in 1947 and went to the Sanitarium at Booneville, at which time his wife Elsie P. Oates was elected vice-president and thereafter shared the work with him. This work involved not only the management of the mattress factory operated by the corporation but also the handling of all purchases of materials and the making of all sales. In their capacities as officers of the corporation Mr. and Mrs. Oates made many trips to 'call on the trade.' No other salesmen were employed. Sam C. Oates was secretary of the corporation, and from 1919 on through the period of this litigation he was bookkeeper, payroll clerk and general office manager at the factory. During the later years he was also consulted frequently on matters involving administration of the business, particularly after J. Carl Oates became ill in 1947.
The system used in paying salaries to the corporate officers was one whereby they each received $150 a month throughout the fiscal year, which was the same as the calendar year, then at the end of the year when corporate profits were known they (the officers) themselves determined what additional salary payments for the past year were justified by the business done and profits made. Prior to his death in 1941, J. D. Oates made these determinations by himself for all the officers. After 1941, J. Carl Oates had the principal voice in making the determinations, though he was assisted by Sam C. Oates and, from 1947 on, by Elsie P. Oates. The corporation made a profit on its operations, after salaries were paid, each year during the entire period in question, and substantial dividends were paid for each year up to but not including 1948.
For many years annual meetings of the corporate directors and of the stockholders were held soon after the first of January. It seems that these were regularly attended by all or almost all of the stockholders as well as the directors. At these meetings Sam C. Oates, the secretary, regularly handed out to each director and stockholder copies of a 'financial statement' listing the assets and liabilities of the corporation and summarizing by items the income and outgo from the year's operations. The minutes of the meetings do not show that there were formal approvals of these financial statements or of the transactions summarized by them, but it is undisputed that there was never any question raised concerning them.
The last of these annual meetings was held on Feb. 22, 1947, at which the 1946 financial statement was circulated, a board of directors consisting of all the stockholders was elected, and officers were named as already indicated. No meetings were held in 1948 and 1949, but financial statements were sent to all stockholders in the same form as for previous years.
The total amounts paid by the corporation to the various officers for the years in question are as follows:
Year President J. Carl Vice-president Secretary Sam C. Total
Oates Elsie P. Oates Oates
1941 $3,000.00 $3,000.00
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1942 6,382.50 4,017.50 $10,400.00
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1943 6,778.12 4,121.88 10,900.00
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1944 6,778.12 4,121.88 10,900.00
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1945 6,778.12 4,121.88 10,900.00
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1946 12,000.00 4,800.00 16,800.00
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1947 6,600.00 $4,800.00 5,400.00 16,800.00
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1948 4,250.00 4,250.00 5,100.00 13,600.00
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The annual financial statements, under the head of 'Salaries', gave total figures only, and not the amounts paid each officer. Actually, the amounts shown under the head of 'Salaries' each year were larger than the total sums paid to the officers, the figure given for 1948, for example, being $14,216.50, instead of the $13,600.00 shown above, and for 1947 $17,234.00 instead of the $16,800.00 shown above, the difference being apparently attributable to salaries paid to temporary employees. Amounts paid to hired workmen, however, were shown under the separate heading of 'Payrolls'. There is no showing in the evidence that any of the directors or stockholders ever doubted that the 'Salary' figures set out therein represented payments made primarily to the officers of the corporation, J. Carl, Elsie P., and Sam C. Oates. In fact, it cannot be denied that they knew this.
The records of the corporation, however, show that not all of the payments made to the corporation's officers were in fact paid as salaries. The corporation's books, kept by Sam C. Oates, designate a part of the payments made during the four years 1942-45 as 'stock bonuses', and it appears to us that these so-called 'stock bonuses' were not salary payments but were preferential dividends paid to the officers as majority stockholders, and not paid to the minority stockholders. Here are the figures:
J. Carl Oates Sam C. Oates
Year Salary Bonus Total Salary Bonus Total
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1942 $4,800.00 1,582.50 6,382.50 3,600.00 417.50 4,017.50
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1943 4,800.00 1,978.12 6,778.12 3,600.00 521.88 4,121.88
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1944 4,800.00 1,978.12 6,778.12 3,600.00 521.88 4,121.88
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1945 4,800.00 1,978.12 6,778.12 3,600.00 521.88 4,121.88
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It will be seen at a glance that in each year the basic salaries are fixed in round numbers, just as they were in every other year in question, but the inclusion of the bonuses makes the total payments end in odd cents. The amount of these bonuses can be arrived at to the penny by giving these men a 10% dividend on their respective stock holdings in 1942 and a 12 1/2% dividend in the other three years.
These amounts were included in the salary totals tabulated above, and in the salary reports on the annual financial...
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