the corporation is not bound,47 such acts being considered fraudulent and subject to attack by minority stockholders.48 § 2753. Time of fixing compensation. The amount of salary or other compensation of an officer need not be fixed. If it is agreed or understood that he shall be compensated, the amount of his compensation may be afterwards fixed, or he may recover a reasonable compensation if no amount is fixed.49 It has been held that a by-law requiring the board of directors to fix salaries of officers before their election is merely directory, and action taken 47 Crocker v. Cumberland Mining & Milling Co., 31 S. D. 137, 139 N. W. 783; Greathouse v. Martin (Tex. Civ. App.), 91 S. W. 385, aff'd 100 Tex. 99, 94 S. W. 322. Where two directors constituting the majority of a board vote salaries to themselves as officers for the purpose of absorbing all the profits of the company, the plaintiff having refused to sell them his stock in the company, the action of such majority directors is void and they will be required to return the money received. Miller v. Crown Perfumery Co., 57 N. Y. Misc. 383, 109 N. Y. Supp. 760. Where the salary of a president was increased by vote of the board of directors, and three of the four directors at that time had contracted to sell all of their stock except one share to the president, taking notes for a portion of the selling price, they were interested in the payment of such notes, but such interests were not incompatible or necessarily in conflict with their interests for the success of the corporation, and there being no satisfactory evidence of fraud or corrupt or false motives, it could not be held that the increase of salary was fraudulent. McMillin, 177 Fed. 25. 48 See § 2755, infra. Cowell v. 49 Stewart v. St. Louis, Ft. S. & W. R. Co., 41 Fed. 736; Rosborough v. Shasta River Canal Co., 22 Cal. 556; Robson v. C. E. Fennimore Co., 83 N. J. L. 453, 85 Atl. 356; Bagley v. Car- Where a director was appointed consulting engineer, his salary to be determined subsequently, and such salary was never determined, he could recover on a quantum meruit, the services being outside of his duties as director and secretary, especially where it appeared that the company had paid such director another bill for similar services while holding such position. Bogart v. New York & L. I. R. Co., 118 N. Y. App. Div. 50, 102 N. Y. Supp. 1093, aff'd 191 N. Y. 550, 83 N. E. 1106. ་ The fact that the amount of the salary is determined after the officer's election to the office instead of before, is immaterial where there is no claim that it is excessive. Robson v. C. E. Fennimore Co., 83 N. J. L. 453, 85 Atl. 356. Where, by a resolution of the directors, the salary of an officer is fixed for a year, and shortly after the commencement of the year a person is elected to the office with the understanding that the resolution fixes his salary, no formal confirmation of the resolution is necessary to entitle him to the benefit of it, and the directors cannot afterward rescind the resolution. Kimball v. New England Roller Grate Co., 168 Mass. 32, 46 N. E. 432. after the election is not invalid.50 Also, when it is customary to fix salaries in the month of January for officers previously elected, the failure of the directors to act does not terminate their power. Such directors may act at any time during their term of office.51 But if a by-law requires the board of directors to agree annually as to the salaries to be paid officers, such board has no power to fix the salary of a secretary for a longer period than one year. Especially is this true, where such secretary is also a director and presumed to know the by-laws.52 A failure to act does not operate to give the officer affected any right to fix his own compensation.53 If no salary is fixed or claimed for a number of years, the officer may be deprived of his compensation even when the by-laws require his salary to be fixed.54 In such cases, the matter comes within the rules forbidding compensation for past services.55 It has even been held that salaries cannot be left for adjustment until after the services are performed, where the charter requires the directors to elect officers and fix their compensation.56 An application for the fixing of salary and its refusal are usually necessary before an officer can sue upon a contract for compensation.57 § 2754. Manner of fixing compensation. As a general rule, directors must act as a board in fixing compensation; 58, and it has been said that a formal resolution, passed before the services are rendered, is necessary, a mere understanding or agreement among themselves being insufficient. This is undoubtedly the rule where the salary or compensation of directors is involved; 59 but in the case of officers deserving of very little consideration. McLean v. Hayden Creek Mining & Milling Co., 25 Idaho 416, 138 Pac. 331. As to limitation of actions, see § 2772, infra. 55 See § 2762, infra. 56 Caho v. Norfolk & S. R. Co., 147 N. C. 20, 60 S. E. 640. 57 McLean v. Hayden Creek Mining & Milling Co., 25 Idaho 416, 138 Pac. 331. 58 Chabot & Richard Co. v. Chabot, 109 Me. 403, 84 Atl. 892. 59 Butler v. Cornwall Iron Co., 22 Conn. 335; Rockford, R. I. & St. L. R. Co. v. Sage, 65 Ill. 328, 16 Am. Rep. appointed or employed by the directors, or where extra services are required, an understanding that compensation shall be paid will be held binding on the corporation. The passage of a resolution or a formal vote and the recording of such acts are not necessary; and if no compensation is fixed, the corporation will be held liable for reasonable compensation.60 A resolution providing for the employment of an officer and for his compensation is evidence of such facts.61 An officer's right to compensation is not affected because the resolution states that he is "elected" instead of "appointed" even though the by-laws provide for the appointment of such officer.62 If a resolution is passed and acted upon, a formal contract is not 587; Besch v. Western Carriage Mfg. Co., 36 Mo. App. 333. See also Eakins v. American White Bronze Co., 75 Mich. 568, 42 N. W. 982. 60 United States. National Loan & Investment Co. v. Rockland Co., 94 Fed. 335; Stewart v. St. Louis, Ft. S. & W. R. Co., 41 Fed. 736. Kansas. St. Louis, Ft. S. & W. R. Co. v. Tiernan, 37 Kan. 606, 15 Pac. 544. Kentucky. Huffaker v. Krieger's Assignee, 21 Ky. L. Rep. 887, 46 L. R. A. 384, 53 S. W. 288. Maine. Chabot & Richard Co. v. Chabot, 109 Me. 403, 84 Atl. 892. Michigan. Dodge v. Lansing & S. Traction Co., 152 Mich. 100, 115 N. W. 1004. See also Reynick v. Allington & Curtis Mfg. Co., 179 Mich. 630, 146 N. W. 252. New York. Young v. United States Mortgage & Trust Co., 214 N. Y. 279, 108 N. E. 418; Bagley v. Carthage, W. & S. H. R. Co., 25 App. Div. 475, 49 N. Y. Supp. 718, aff'd 165 N. Y. 179, 58 N. E. 895; Outterson v. Fonda Lake Paper Co., 66 Hun 629, 20 N. Y. Supp. 980. An arrangement whereby a plaintiff was to manage a corporation's business on a certain basis will be held conclusive when it appears that such arrangement was knowingly ac quiesced in by the corporation's officers. Luin v. Chicago Grill Co., 138 Iowa 268, 115 N. W. 1024. If an officer of a corporation is called before the board of directors or a duly authorized committee and informed by one of their number that they have decided to make a stated increase in his salary to induce him to continue in the service of the company and he assents to the proposition and acts upon it, it is not essential that the agreement be reduced to writing or embodied in a formal resolution. Young V. United States Mortgage & Trust Co., 214 N. Y. 279, 108 N. E. 418. A conversation between two of the incorporators of a company prior to incorporation, wherein one of them told the other, who later became president of the corporation, that he always deducted wages before computing profits, did not form a sufficiently definite basis upon which to found a claim of express contract to pay the president a salary for his official services. Dial v. Inland Logging Co., 52 Wash. 81, 100 Pac. 157. 61 Fraker v. A. G. Hyde & Sons, 127 N. Y. App. Div. 620, 111 N. Y. Supp. 757. 62 Dodge v. Lansing & S. Traction Co., 152 Mich. 100, 115 N. W. 1004. necessary.63 Where a general manager is appointed to render services for ten years by a resolution which is adopted, entered in the records and signed by the president, the statute of frauds is complied with, the corporation being the party to be charged.64 Where a stockholder and director is employed for a year's service and the contract is renewed from year to year, it is not within the statute. 65 Stock § 2755. Necessity of good faith in fixing compensation. holders or directors cannot take advantage of their ownership of a controlling interest in the corporation to vote to themselves excessive salaries or to cause excessive salaries to be voted to them by persons under their control. Both the stockholders and directors in fixing compensation of officers must act in good faith and reasonably.66 63 Sotter v. Coatsville Boiler Works, Pa. -, 101 Atl. 744. 64 Maune v. Unity Press, 143 N. Y. App. Div. 94, 127 N. Y. Supp. 1002. 65 Reynick v. Allington & Curtis Mfg. Co., 179 Mich. 630, 146 N. W. 252. See § 2743, supra. 66 United States. Gale v. Canada, A. & P. S. S. Co., 187 Fed. 598; Davis v. Memphis City Ry. Co., 22 Fed. 883; Hubbard v. New York, N. E. & W. Inv. Co., 14 Fed. 675; Sellers Phoenix Iron Co., 13 Fed. 20. V. Alabama. Decatur Mineral Land Co. v. Palm, 113 Ala. 531, 59 Am. St. Rep. 140, 21 So. 315. Georgia. Burns v. Beck, 83 Ga. 471, 10 S. E. 121. Indiana. Green v. Felton, 42 Ind. App. 675, 84 N. E. 166. Iowa. Schoening v. Schwenk, 112 Iowa 733, 84 N. W. 916. Michigan. Miner v. Belle Isle Ice Co., 93 Mich. 97, 17 L. R. A. 412, 53 N. W. 218. Minnesota. Jones v. Morrison, 31 Minn. 140, 16 N. W. 854. New York. Davids v. Davids, 135 App. Div. 206, 120 N. Y. Supp. 350; Copeland v. Johnson Mfg. Co., 47 Hun 235; Butts v. Wood, 38 Barb. 181, at'd 37 N. Y. 317. Pennsylvania. Schaffhauser v. Arnholt & Schaefer Brewing Co., 218 Pa. 298, 11 Ann. Cas. 772, 67 Atl. 417. Tennessee. Harris V. Lemming. Harris Agr. Works (Tenn. Ch. App.), 43 S. W. 869. Washington. Boothe V. Summit Coal Min. Co., 55 Wash. 167, 19 Ann. Cas. 1255, 104 Pac. 207. The fact that directors Own a majority of stock, enabling them to elect themselves as directors, gives them no right to vote themselves salaries, as in so doing they are not occupying the impartial position the law requires. Davids v. Davids, 135 N. Y. App. Div. 206, 120 N. Y. Supp. 350. An attempt by directors in control of a corporation to contract for such corporation with themselves individually, to their benefit and to the detriment of the corporation, is presumptively fraudulent and in bad faith. Kreitner v. Burgweger, 174 N. Y. App. Div. 48, 160 N. Y. Supp. 256. The rule that majority stockholders cannot deal with the assets of a corporation so as to divide them between themselves to the exclusion of the minority does not require that directors who are active officers shall donate their services to the corporation. Beha v. Martin, 161 Ky. 838, 171 S. W. 393. If the by-laws provide that officers shall be entitled to salaries, and require such salaries to be fixed by the board of directors, such directors must act fairly and honestly, not only towards the corporation and the stockholders, but also towards the officers who are affected.67 § 2756. Amount of compensation or salary-In general. The amount of an officer's salary or compensation may be limited by charter provisions, or by the by-laws.68 When the directors are authorized to fix salaries, their power is confined to fixing a recompense or reward for the services performed, considering the value of the services, the results accomplished, and similar circumstances.69 The fixing of salary at a certain sum per month has been held not to operate as a fixing at that rate for the year.70 Where the term of office and the salary of an officer are annual and co-extensive, an incumbent who serves in the office during the full term is entitled to the full salary.71 A corporation has the right to pay employees. for services by a percentage of the business obtained.72 A resolution providing for the payment of certain salaries with the express stipulation that they are to be paid out of the net proceeds of the business, has only one possible interpretation. Under such a resolution the salaried officers are not entitled to draw their salaries all the time, regardless of the profits of the corporation.73 But a resolution providing for the payment of salaries from the proceeds of bonds sold has been held to operate merely as an appropriation of such fund for such purpose.74 A resolution fixing salaries of directors at an exorbitant and grossly excessive figure has been held effective to rebut the presumption that the services rendered were gratuitous, and the directors were entitled to reasonable compensation.75 Co., Md. 100 Atl. 645. 70 Bennett v. St. Louis Car Roofing Co., 23 Mo. App. 587. 71 Robson v. C. E. Fenniman Co., 83 N. J. L. 453, 85 Atl. 356. 67 Where a by-law provided that 954; Mathews v. Headley Chocolate the directors should fix all salaries and a president was elected and subsequently his salary was reduced from $25,000 to $10,500 a year, the changes in the salaries of other officers being slight, it was held that the reduction was not a fair and honest execution of the by-law, and that he was not prevented thereby from recovering what his services were worth. Banigan v. United States Rubber Co., 22 R. I. 452, 45 Atl. 739. 68 See § 2745, supra. 69 McNulta v. Corn Belt Bank, 164 Ill. 427, 56 Am. St. Rep. 203, 45 N. E. 72 Rollins 73 Mutual Adjustment Co. v. Ouellette, 70 Wash. 693, 127 Pac. 301. 74 Indianapolis, E. River & S. W. R. Co. v. Hyde, 122 Ind. 188, 23 N. E. 706. 75 Miller v. Doyle, 211 Pa. 59, 60 Atl. 496. |