§ 2761. Ratification by stockholders of acts of directors fixing or increasing compensation. As a general rule, any act of the board of directors may be ratified by the stockholders when they could have originally authorized such act.13 Under this rule it has been held that the voidable acts of directors in fixing or increasing their own salaries as officers may be ratified by the stockholders, it appearing that the act is not fraudulent or detrimental to the interests of the corporation.14 In such cases, the fact that interested stockholders vote will not affect the validity of the confirming resolution,15 it appearing that the salaries paid are reasonable.16 Other courts hold that it may well be doubted whether the rule permitting ratification of voidable acts, not fraudulent or ultra vires, applies to increases of salaries.17 Thus it has been held that there can be no ratification of payments to officers for services rendered without any express or implied agreement that they should be paid, such act being a taking of funds from the treasury without authority.18 And in on

salary. In such case the jury should
not have been confined to the mere
question whether the officer had ex-
pressly agreed to come under such
resolution. Clark v. Onaway-Alpena
Tel. Co., Mich. -
163 N. W. 44.
13 Russell v. Henry C. Patterson
Co., 232 Pa. 113, 36 L. R. A. (N. S.)
199, 81 Atl. 136.

14 Sotter v. Coatsville Boiler Works, Pa. 101 Atl. 744; Russell v. Henry C. Patterson Co., 232 Pa. 113, 36 L. R. A. (N. S.) 199, 81 Atl. 136.

Where stockholders ratify the action of directors in fixing salaries, the corporation, or a minority stockholder, is estopped from questioning the validity of payments or the right of officers to receive the salaries thus fixed. Lewis v. Matthews, 161 N. Y. App. Div. 107, 146 N. Y. Supp. 424.

Where a president and a managing director by certain proceedings allowed a salary of $5,000 per year to each officer and such salary was paid by the corporation for thirteen months, the corporation would not be heard to attack the validity of the arrangement on account of its ac

quiescence. Gale v. Canada, A. & P. S. S. Co., 187 Fed. 598.

15 Russell v. Henry C. Patterson Co., 232 Pa. 113, 36 L. R. A. (N. S.) 199, 81 Atl. 136.

When directors vote as stockholders in a stockholders' meeting they hold

no

trust relation to the company which deprives them of the right to vote as their interests dictate. Russell v. Henry C. Patterson Co., 232 Pa. 113, 36 L. R. A. (N. S.) 199, 81 Atl. 136.

Where the action of a board of directors is not fraudulent or unfair and may be ratified by the stockholders, the stock of a director who is benefited is to be counted, even though the vote would have failed had his stock not been counted. Russell v. Henry C. Patterson Co., 232 Pa. 113, 36 L. R. A. (N. S.) 199, 81 Atl. 136.

16 Russell v. Henry C. Patterson Co., 232 Pa. 113, 36 L. R. A. (N. S.) 199, 81 Atl. 136.

17 Godley v. Crandall & Godley Co., 212 N. Y. 121, 105 N. E. 818.

18 Lewis v. Matthews, 161 N. Y. App. Div. 107, 146 N. Y. Supp. 424.

case where a majority of stockholders received preferential payments under the guise of increased salaries and voted to ratify such payments, it was held that the rule would apply that even the majority could not for selfish purposes act in hostility to the interests of the corporation with the intent of defrauding non-assenting stockholders.19

§ 2762. Compensation for past services. It is a well-recognized and inflexible rule that directors or managing officers of a corporation cannot legally vote to themselves or other officers compensation for past services, where there is no agreement that such officers should be paid.20 The rule results from the general rule that the

officers are not impliedly entitled to compensation for services rendered, and accordingly a payment for services which have been voluntarily rendered is void as without consideration and is also ultra vires as a misapplication of the corporate funds.

Under this rule it has been held that directors cannot vote increases of salary to themselves for services already performed under a contract where a stipulated salary was fixed; 21 and claims for compensation which are evidently afterthoughts will not be allowed.22 In the case of the sale or transfer of a corporation, it has been held that an officer who failed to assert his claim at the time of the transfer could not assert such claim against the buying company subsequently; 23 and in one case where a sale had been effected, except for the ratification of the contract by the directors, it was held that a situation of trust and confidence arose, and the selling company could not deplete its assets and pay an officer for services. in effecting the contract of sale.24

The rule forbidding payment for past services does not apply where there is an understanding that the services are to be paid for, or where the circumstances are such as to raise an implied contract. In such cases the payment of compensation is based on sufficient consideration.25 The payment for services performed by an

back pay or compensation therefor; and it is beyond the power of the board of directors, after such services are rendered, to pay for them out of the funds of the corporation, or to create a debt of the corporation on account of them."

The court will look with suspicion on dealings between a president or superintendent of a corporation and such corporation, where the object is to pay for services rendered in the past. McLean v. Hayden Creek Mining & Milling Co., 25 Idaho 416, 138 Pac. 331.

21 Jones v. Morrison, 31 Minn. 140, 16 N. W. 854; Godley v. Crandall & Godley Co., 212 N. Y. 121, L. R. A. 1915 D 632, 105 N. E. 818.

22 Utica Fire Alarm Tel. Co. V. Waggoner Watchman Clock Co., 166 Mich. 618, 132 N. W. 502; Sidway v. Missouri Land & Live Stock Co., 187 Mo. 649, 86 S. W. 150.

IV Priv. Corp.-42

23 Dodge v. Lansing & S. Traction Co., 152 Mich. 100, 115 N. W. 1004.

24 Atlantic Suburban Gas & Fuel Co. v. Johnson, 81 N. J. Eq. 351, 514, 88 Atl. 163.

25 National Loan & Investment Co. v. Rockland Co., 94 Fed. 335; Stewart v. St. Louis, Ft. S. & W. R. Co., 41 Fed. 736; St. Louis, Ft. S. & W. R. Co. v. Tiernan, 37 Kan. 606, 15 Pac. 544; Huffaker v. Krieger's Assignee, 21 Ky. L. Rep. 887, 46 L. R. A. 384, 53 S. W. 288.

Where an officer served for two years under an understanding that he was to receive compensation and at the beginning of the third year a resolution was passed fixing his salary at a certain sum per month, it was held that it constituted an agreement to pay for past as well as future services at that rate. Rosborough v. Shasta River Canal Co., 22 Cal. 556.

officer prior to his assumption of the office may be authorized,26 and in some cases, a payment for past services may prove to be, in reality, a payment for the future services of the officer, to induce his continued employment.27

§ 2763. Recovery of expenses and money advanced by officers. An officer, such as a secretary, is entitled to recover, as on an implied contract, money advanced to pay bills of the company, when the arrangement is known and acquiesced in by the directors.28 And a corporation which claims the benefit of a contract which its vice president has in part executed at his own expense must pay him the reasonable advances thereon.29

Usually there can be no recovery by a president or vice president for expenses in attending stockholders' meetings or in visiting directors,30 but a corporation which authorizes an officer to do certain work is liable for the expenses which he incurs. In one case a bank which had temporarily suspended payment authorized an officer to resume business, and under such authorization the bank was held liable for expenses of the officer in operating his automobile (including necessary repairs) in furtherance of the bank's business.31 A corporation which owns all the stock of another company cannot fix a certain amount as expense money for an officer of such other company, it being entitled to its own board of directors.32 The doctrine of implied contracts may permit of a recovery in such a case, there being no engagement to expend the money gratuitously.33 Sums expended by a president for traveling expenses, dinners and entertainments are not recoverable where they were not authorized or agreed to be paid for and where it is not shown that such expenses

26 Rosehill Cemetery Co. v. Dempster, 223 Ill. 567, 79 N. E. 276.

27 Where directors of a corporation, considering the matter of an increase of salary of a treasurer, voted such increase and turned over certain stock of the company to him, the vote referring to past services under the evidence, the stock was not transferred as a bonus or gift, but in consideration of the future support and assistance of the treasurer. Knox Automobile Co., 229 Fed. 241. See § 2760, supra.

In re

28 In re Gouverneur Pub. Co., 168 Fed. 113.

29 Krauss Engineering Co. v. McKinnon, 66 N. Y. Misc. 181, 121 N. Y. Supp. 396.

30 McConnell v. Combination Mining & Milling Co., 31 Mont. 563, 79 Pac. 248, 30 Mont. 239, 104 Am. St. Rep. 703, 76 Pac. 194.

31 Seadale v. Montgomery, 113 N. Y. Supp. 600.

32 Atlantic Suburban Gas & Fuel Co. v. Johnson, 81 N. J. Eq. 351, 514, 88 Atl. 163.

33 Atlantic Surburban Gas & Fuel Co. v. Johnson, 81 N. J. Eq. 351, 514, 88 Atl. 163.

inured to the benefit of the corporation.34 A claim for living expenses cannot be sustained where other officers of the corporation directly deny such a claim. Recovery for such expenses was sought in one case of a corporation which succeeded a partnership by a partner who became an officer. The court would not permit recovery in view of the evidence, and also in view of the improbability that the other partners would enter into an agreement so elastic.35

§ 2764. Extra compensation to officers. According to the general rule, when the salary of an officer or employee of a corporation is fixed by the charter, by-laws or agreement, he cannot recover additional compensation, in the absence of special agreement, for extra services performed in the course of his office or employment, although they may not have been contemplated at the time of his appointment or employment.36 The rules as to the necessity of express contracts in general apply,37 but such rules do not prevent the stockholders from making a contract with an officer to pay him for extra services, where creditors are not defrauded.38 And usually directors are authorized to fix the salaries or compensation of officers for duties performed by them which are outside and beyond the usual scope of their duties.39 It has been held also that extra compen

34 Ebner v. Alaska Mildred Gold Min. Co., 167 Fed. 456.

35 Kwapil v. Bell Tower Co., 55 Wash. 583, 104 Pac. 824.

36 Willard v. Pittsburgh, C., C. & St. L. Ry. Co., 162 Ill. App. 427; Trimble v. Guardian Trust Co., 244 Mo. 228, 148 S. W. 934; Martindale v. WilsonCass Co., 134 Pa. St. 348, 19 Am. St. Rep. 706, 19 Atl. 680; Carr v. Chartiers Coal Co., 25 Pa. St. 337. See also Fowler v. Great Southern Telephone & Telegraph Co., 104 La. 751, 29 So. 271; Gill v. New York Cab Co., 48 Hun (N. Y.) 524, 1 N. Y. Supp. 202. Where litigation of a corporation arose in a county in a district which an attorney under his general employment was bound to handle, he was not entitled to extra compensation for taking charge of such litigation, even though the action was afterwards transferred to another county. Willard v. Pittsburgh, C., C. & St. L. Ry. Co., 162 Ill. App. 427.

An officer such as a general counsel, receiving a stated salary, is not entitled to recover extra compensation during such period, when not authorized by his employer. If he is a holdover officer, and is paid the same salary as in previous years, this is the limit of his compensation. Trimble v. Guardian Trust Co., 244 Mo. 228, 148 S. W. 934. See § 2758, supra.

37 See § 2734, supra.

38 Caho v. Norfolk & S. R. Co., 147 N. C. 20, 60 S. E. 640.

39 Williams v. Little Falls Water Power Co., 99 Minn. 4, 108 N. W. 289; Godley v. Crandall & Godley Co., 212 N. Y. 121, 105 N. E. 818.

Where the board of directors votes a certain compensation for all special services performed by any director, a director cannot recover higher compensation for any services which could only have been performed by a director. Hodges v. Rutland & B. R. Co., 29 Vt. 220.