Evidence, Competency, Relevancy and materiality. Corporation, What constitutes corporate action, Officers and agents. Contract, What constitutes, Validity. Practice, Civil, Requests, rulings and instructions, Judge's charge.
In an action of contract against a Massachusetts merchandising corporation for services as general manager from April 1 to November 30, 1918, the plaintiff contended that the defendant had agreed to pay him for a year's services one half of the net profits realized by the defendant. It appeared that the defendant was incorporated in 1914. Its only stockholders were the president, his daughter, who was treasurer, the plaintiff and the plaintiff's wife, who was clerk. These four constituted the board of directors with full general powers to manage the affairs of the company, which included the making of contracts, the employment of agents, and the establishment of their compensation, the president being given by vote of the board full power to employ and fix the compensation of employees. The plaintiff was chosen general manager. Subject to exceptions of the defendant there was admitted in evidence an agreement in writing of March, 1914, by all the stockholders that the net profits should be divided equally between the plaintiff and the president, the other two stockholders consenting to be excluded from participation, the evidence being admitted to explain a vote of the directors, which was in evidence, confirming the arrangement and referring to it. Subject to further exceptions by the defendant, evidence was admitted tending to show that, in the succeeding years, in conversations with the president, the plaintiff was told that his services were satisfactory and that it was agreed between them that the arrangement previously made should continue, such conversations in 1916, 1917 and 1918, occurring at the directors' meetings, although no formal action to that effect was taken by the directors. Held, that
(1) The exceptions to the admission of evidence must be overruled;
(2) It was a question of fact for the jury whether the directors, at their board meetings where the discussions relating to the plaintiff's continuance of employment and division of net profits took place, acquiesced in the arrangement in evidence, even if no formal vote to that effect was passed and recorded.
At the trial of the action above described, there was further evidence tending to show that an amount also was voted annually to the plaintiff "as a drawing account as a clerk working for the company." In April, 1915, the directors voted a division in accordance with the agreement of March, 1914, providing that neither the plaintiff nor the president should "be paid any cash on account of said dividend except by a unanimous vote of the board of directors." On November 6, 1918, the board, knowing that the plaintiff was going into the army, voted to accept his resignation to become effective November 30, empowered the president to hire a new manager, and voted to approve the previous distributions of net profits. In April, 1919, the board, after a discussion, evidence of which was admitted subject to an exception by the defendant, arranged for the division of profits as before and voted to pay the plaintiff for salary as general manager a certain amount therein stated, "up to and including November 30, 1918, he resigning effective that date to enter the U.S. Army," and, at the suggestion of the defendant's counsel, who was present, the president gave the plaintiff his note for an amount sufficient to make the amount paid equal to the fifty per cent which was the basis of the former distributions. Afterwards, the salary not being paid, this action was brought without a demand. There also was evidence that the plaintiff's duties were well performed and his general management of the company's affairs was satisfactory to the stockholders till the time of his resignation. Held, that
(3) The evidence warranted a finding that the plaintiff, whose employment on a salary while he was a director had been with the full knowledge and assent of all the stockholders, had fully performed the contract for which payment had been voted;
(4) The vote of April, 1919, was a direct recognition and statement of the defendant's liability, and its contention that his resignation which had been accepted operated as a cancellation of the defendant's indebtedness could not be sustained;
(5) The contract in the circumstances was terminated by mutual consent after substantial performance by the plaintiff of which the defendant had the benefit, and the action was not prematurely brought;
(6) No demand was necessary before the bringing of the action;
(7) A verdict for the plaintiff was warranted;
(8) A ruling asked for by the defendant, that the plaintiff could not recover because he voluntarily gave up his employment on November 6, 1918, could not be given.
BRALEY, J.
It is contended by the defendant that there was no evidence of any contract between the parties to pay the plaintiff for services as manager or one half of the net profits. The defendant is a domestic corporation with a capital stock of forty shares, of the par value of $50 each which had been fully paid, and was held during the period covered by the litigation by John T. Keefe twenty-five shares, his daughter Carrie L. Keefe five shares, the plaintiff nine shares, and his wife Agnes J. Fisk one share. The fiscal year began April 1 and ended on March 31 of the following year. The officers and stockholders from the time of incorporation in March, 1914, to May, 1919, were John T. Keefe, president, Carrie L. Keefe, treasurer, Agnes J. Fisk, clerk, and the president, the treasurer, the clerk and the plaintiff comprised the board of directors, who under the by-laws of the corporation had full general powers to manage the affairs of the company, which included the making of contracts, the employment of agents, and the establishment of their compensation. And March 16, 1914, the board voted "that the president be and hereby is authorized to employ and remove and fix the compensation and duties of all officers, agents, and clerks, and servants of the corporation not inconsistent" with the by-laws. The plaintiff by vote of the directors was chosen as general manager at their first meeting held March 2, 1914, and the jury on the record could find his duties were well performed and his general management of the company's affairs was satisfactory to the stockholders, who on March 9, 1914, executed an agreement which provided that the net profits for the fiscal year ending March 31, 1915, should be divided, fifty per cent to John T. Keefe and fifty per cent to the plaintiff, while the other two stockholders by their express consent in writing were excluded from participation. The directors voted April 14, 1915, that a division be made in accordance with the agreement by "placing to the credit of each, one-half the net profits of the company . . . subject however, pro rata to any debts occasioned to the business by losses on account of bad bills, depreciations or otherwise not now appearing as such, and subject to the further stipulation that said John T. Keefe and Joseph H. Fisk are not to be paid any cash on account of said dividends except by a unanimous vote of the Board of Directors. . . ." While there was no agreement in writing for the succeeding years, yet the evidence, which was admissible shows, and the jury could determine that at the beginning of each succeeding year down to 1918, although the surplus showed a constant increase, there was a mutual understanding that the plaintiff was to continue as general manager, and the surplus was to be divided equally between the plaintiff and the president. It was a question of fact under suitable instructions, which were given, whether the directors at their board meetings where all the discussions relating to the plaintiff's continuance of employment and division of net profits took place, acquiesced in the arrangement stated in evidence by the plaintiff, even if no formal vote to that effect was passed and recorded. Murray v. C. N. Nelson Lumber Co. 143 Mass. 250, 251. Beacon Trust Co. v. Souther, 183 Mass. 413, 417. When the fiscal year ended March 31, 1918, the board held a meeting April 10, 1918, at which all the directors and stockholders were present. It was voted that $9,500 should be paid to the plaintiff as salary and that a dividend of net profits be declared "on a share basis," the amount to be credited on the company's books, and the president gave to the plaintiff his personal check to equalize as between them the excess, so that the amounts received by the plaintiff and Keefe for that year were the same. It also is shown that at this meeting the president stated without any dissent being expressed, that he was satisfied with the plaintiff's performance of his duties, and that the division of profits would be continued as long as the plaintiff remained. The plaintiff had previously received "$25 a week as a drawing account as a clerk working for the company," and it was voted at this meeting that the amount be increased to "$35 a week." The plaintiff testified without objection, "that the directors knew that he was going into the army before November 6, 1918, and that none of them made any objections." It was on this date that the board held a special meeting attended by all the members. The board voted to accept the plaintiff's resignation as manager to become effective November 30, 1918, empowered the president to hire a new manager, settle the terms of his employment, and that an inventory of stock be taken as of that date "to determine the net profits." They also voted to approve the distribution of all net profits from April 1, 1915, to April 1, 1917, and their action was confirmed in writing by all the stockholders. The fiscal year of 1918 having closed the full board held a meeting in April, 1919, which was also attended by counsel for the company. The question of the plaintiff's salary, and the division of net profits was debated and fully considered. It was competent for the plaintiff to testify, that after this discussion counsel for the company said, "Now we will put that amount one side that is due you, and we will vote or have the directors vote a salary to you and use as a basis of figuring on this salary your salary for the previous year which was $9,500 and as you worked two thirds of the year we will of course take two thirds of $9,500 and then vote that to you as a salary and then we will just vote to you the regular amount that is coming to you as a stockholder and, of course those two amounts will be much less than what really belongs to you," "but to make up that difference Mr. Keefe will give you a personal note." The board thereupon voted to pay the plaintiff for salary as general manager "up to and including November 30, 1918, . . . $6,633.33," and to declare a dividend from net profits to the shareholders of record for the same period, and Keefe at the request of the company's counsel gave the plaintiff his note for an amount sufficient to equal fifty per cent which was the basis of the former distributions. The evidence warranted a finding that the plaintiff whose employment on a salary while he was a director had been with the full knowledge and assent of all the stockholders had fully performed the contract for which payment had been voted. Foster v. C. G. Howes Co. 230 Mass. 43. The vote itself is a direct recognition and statement of the defendant's liability, and the argument that his resignation which had been accepted operated as a cancellation of the defendant's indebtedness cannot be sustained. The contract under the circumstances was terminated by mutual consent after substantial performance by the plaintiff of which the defendant had the benefit, and the action was not prematurely brought. Nor was any demand necessary before bringing suit. A general verdict for the defendant could not have been ordered and the first motion and the fourteenth request were denied rightly. Fitzgerald v. Allen, 128 Mass. 232, 234. Rogers v. Steele, 24 Vt. 513. Lamburn v. Cruden, 2 Man. Gr. 253. The defendant's twenty-third request could not have been given. It could not be ruled as matter of law that the plaintiff voluntarily gave up his employment on the understanding that he waived all claim for services rendered. The fourth, fifth, sixth, seventh and fifteenth requests in so far as appropriate are sufficiently covered by the instructions. It is argued that the plaintiff cannot recover under the second count because the weekly payments must be treated as full compensation for his services as general manager, and the jury should have been so instructed. There was abundant evidence however that the salary voted for the period in issue was independent of the "drawing account." It was a question of fact, even if no express contract was found, whether the services were of benefit to the defendant and were accepted under such circumstances that the president and directors must reasonably have understood that they were not gratuitous. Apsey v. Chattel Loan Co. 216 Mass. 364, 366. Hooker v. Eagle Bank of Rochester, 30 N.Y. 83. A verdict could not have been directed on the third and fourth counts. The evidence warranted the jury in finding that under the votes of the directors, and the ratification of their doings by all the stockholders, and the entries on the books of account of the corporation, the arrangement with the plaintiff as to salary as well as division of profits was with the knowledge and assent of the company. It was therefore bound. Beacon Trust Co. v. Souther, 183 Mass. 413, 417. We have examined all the exceptions to the admission of evidence not previously referred to, and in so far as argued no prejudicial error is shown. The defendant also excepted to certain portions of the instructions. The instructions concerning the plaintiff's resignation and its effect, as well as the instructions relating to the contractual relations of the parties on all the evidence were appropriate and unexceptionable. It is also urged that the judge assumed, and told the jury to assume, that the defendant admitted the existence of a contract, but claimed that its terms called for payment in the future, while the defendant's real contention was that no contract ever existed. The instructions are to be read as a whole. Conners Brothers Co. v. Sullivan, 220 Mass. 600. The defendant on the record contended that even if there were a contract the money was payable only when the assets appropriated had been converted into money. The judge at the opening and throughout his instructions told the jury that the first question to be decided was whether the plaintiff had satisfied them that there was an enforceable contract. It was proper for him to state the respective contentions of the parties, and in so doing he did not depart from the evidence. It was not a binding instruction that a contract actually existed as the defendant now claims. The judge immediately said, "Now it is for you to say what the terms of that contract were, . . . if there was a contract."
Exceptions overruled.