Opinion
Nos. 20640 and 20641
Decided November 15, 1948.
Corporations — Contract with executive officer — Valid under implied powers, when — Mutuality of agreement for additional compensation — Whether compensation excessive determined by equity court, how — Directors' power to "fix" compensation of officers — Power to name specified salary plus additional amount upon contingency — Implied contract to pay additional compensation — Payment of additional amount not ultra vires, when — Evidence — Directors' testimony admissible to show what transpired at meeting — Minority shareholder executing proxy — Estopped to deny validity of plan adopted, when.
1. A contract between a corporation domiciled in New Jersey and its chief executive officer, executed in pursuance of a general pension plan adopted by the corporation, was a valid exercise of corporate powers where the plan was expressly approved by a requisite vote of shareholders at a meeting, and the board of directors authorized carrying the plan into effect, and all proceedings in respect thereto were in accordance with statutes of New Jersey, and the plan was lawfully adopted under implied powers of the corporation even if not expressly authorized by New Jersey statutes.
2. A minority shareholder, executing a proxy covering her shares which by her authority were voted in favor of a pension plan, was estopped from thereafter questioning the validity of such pension plan and contract pursuant thereto.
3. Where the chief executive officer of a corporation relied on a promise of the directors for additional compensation in some amount to be fixed by the directors in their discretion prior to the end of the year, contingent on increased earnings for such year, such mutuality existed as would support an agreement for additional compensation.
4. In determining whether compensation paid an executive officer of a corporation is excessive, a court of equity must consider each case separately on its merits.
5. The word "fix," in a New Jersey statute and bylaws of a New Jersey corporation permitting directors to fix compensation of corporate officers, means to "determine" or to "allow" or to "settle," and permits directors to adopt a resolution paying a chief executive officer a specified salary for ensuing year plus an additional amount to be fixed by the directors in their discretion, prior to the end of the year, contingent on increased earnings for such year.
6. A resolution of the directors of a New Jersey corporation fixing the salary of its chief executive officer at a designated amount for the year "plus any additional amount, if any, as the board of directors may determine prior to" the end of the year, constituted an implied contract for the payment of reasonable compensation in addition to the stated salary, contingent upon discretion of the board members as to amount and conditioned upon whether earnings of company justified such action.
7. The action of the board of directors of a New Jersey corporation in fixing the salary to be paid to its chief executive officer for the ensuing year and reserving the right to award, before the end of the year, additional compensation contingent in amount within the discretion of the board and dependent upon and commensurate with corporate earnings with actual notice to such officer and acceptance by him, and the action of the directors near the end of a year, authorizing payment of additional amount to such officer, were not ultra vires acts under New Jersey statutes or corporation's bylaws or principles of equity jurisprudence, where the amount of additional compensation was reasonable in view of the services rendered and corporate earnings and there was no fraud in the transaction.
8. Where an agreement between the chief executive officer of a New Jersey corporation and the board of directors was consummated at a meeting of the board by adoption of a resolution which related to compensation of such officer and which was in briefest form and merely prima facie evidence of conclusions reached at meeting, testimony of directors was admissible, not to vary the terms of the written agreement between the directors and officer, but to show what actually transpired at the meeting.
APPEALS: Court of Appeals for Cuyahoga county.
Mr. David Perris, for appellee and appellant Godfrey Holmes, administrator.
Messrs. Jones, Day, Cockley Reavis, Mr. Earl W. LeFever and Mr. Curtis C. Williams, for appellants and appellees Republic Steel Corporation and Tom Mr. Girdler.
Mr. Thomas F. Patton, for Republic Steel Corporation.
This is a derivative action in equity for cancellation, accounting and equitable relief, commenced in the Court of Common Pleas of Cuyahoga county by Hannah S. Holmes, who was then the owner of 12 shares of the common capital stock of the Republic Steel Corporation, against the corporation and Tom M. Girdler, chairman of the board of directors and chief executive officer. While the suit was pending in the Common Pleas Court the plaintiff died and the action was revived in the name of Godfrey Holmes, the administrator of her estate, as substitute plaintiff. For purposes of convenience we shall hereinafter refer to the individual defendant as Girdler and the corporate defendant as Republic.
The issues as presented to this court for decision arise by reason of two separate appeals on questions of law and fact as follows:
Appeal No. 20640 is by defendant Girdler and is from the judgment of the Common Pleas Court which held invalid and without corporate authority a payment of $51,000 to him by Republic in addition to his salary of $175,000 for the year 1940.
Appeal No. 20641 is by the plaintiff and is from that part of the judgment of the trial court which held valid a pension plan set up on April 15, 1937, by Republic for 80 corporate officers and their employees including the individual defendant Girdler.
In the original action the plaintiff also attacked the legality of the fixed salaries paid by Republic to Girdler, alleging that the same were "excessive, unreasonable and unconscionable." The trial court found for defendants on this issue and from that portion of the court's judgment no appeal has been filed.
These appeals are submitted de novo upon the pleadings as amended and upon the testimony taken and evidence presented before a master commissioner appointed by this court for that purpose upon application duly made and allowed.
The record before us is voluminous and presents a wealth of factual data contained in three large volumes of testimony and documentary evidence in the form of numerous exhibits. Many witnesses testified for defendants before the master commissioner who were not called to testify in the trial below, so that by reason of the additional evidence presented in this court, we have before us a much more extensive record than that produced in the original trial of the case in the Common Pleas Court.
There are two principal questions for our determination:
1. Whether the additional compensation paid by Republic to Girdler at first in the form of an annuity, later reduced to cash, in the sum of $51,000 was unlawful as an ultra vires act (20640).
2. Whether a contract between Republic and Girdler executed in the year 1937 in pursuance of a general pension plan adopted by Republic was a valid exercise of corporate powers (20641).
As hereinbefore indicated, the trial court decided the first question in favor of plaintiff and rendered judgment against defendant Girdler for the benefit of Republic in the sum of $69,225.86 (which included interest) and costs as having been paid "illegally and without authority."
The Common Pleas Court decided the second question in favor of defendant Girdler, finding that "the pension plan entered into is a valid, binding and enforcible contract."
In arriving at its conclusions on the second question, the Court of Common Pleas held the pension plan valid, including the contract with defendant Girdler on three grounds, namely:
(1) That the plan was expressly approved by the requisite vote of the shareholders at a meeting at which approximately 5,500 shares were represented in person and 3,000,000 shares were represented by proxy and that thereafter, the board of directors by appropriate action authorized the execution of the necessary documents to carry into effect the plan approved by the shareholders and that all the proceedings in respect thereof were in accordance with the applicable statutes of New Jersey, the domiciliary state of defendant Republic.
(2) That the plan was lawfully adopted under the implied powers of Republic, even if it were not expressly authorized by the statutory law of New Jersey.
(3) That the doctrine of estoppel applied in that plaintiff's decedent had executed a proxy covering her shares which by her authority were voted in favor of the plan.
We have examined the record, considered the arguments and briefs of counsel and have unanimously concluded that the contract between Republic and Girdler, executed in the year 1937, in pursuance of a general pension plan adopted by Republic, was a valid exercise of corporate powers and that therefore the decree should be for defendants as in Common Pleas Court on appeal No. 20641 on the three grounds aforestated, and upon authority of the statutes and cases cited and quoted in the opinion of Orr, J., on this phase of the case, as follows:
Title 14:9-1, General Corporation Law of New Jersey; Watson v. Watson Mfg. Co., 30 N.J. Eq. 588; Gurney v. Atlantic Great Western Ry. Co., 58 N.Y. 358; Title 14:7-1, General Corporation Law of New Jersey; Heinz v. National Bank of Commerce, 237 F., 942; Gilbert v. N. W. Ry. Co., 114 W. Va. 344, 171 S.E. 814; Mabley Carew Co. v. Borden, 129 Ohio St. 375, 195 N.E. 697.
This leaves for our further consideration only the first principal question above set forth, namely the matter of the additional compensation paid to Girdler by Republic during 1940.
There are certain facts concerning which there appears to be no dispute and which may be detailed briefly as follows:
A company known as Republic Iron Steel Company was organized in 1899 under the laws of New Jersey. Thereafter on April 8, 1930, a merger was effected which included Central Alloy Steel Corporation, Interstate Iron Steel Company, Donner Steel Company, Inc., and The Bourne-Fuller Company, with the corporate name of Republic Steel Corporation. Thereafter Republic acquired a number of other companies so that it now ranks as the third largest steel company in the world.
Plaintiff's exhibit 17 which is the annual report of Republic for the fiscal year ending December 31, 1940, shows that the business of Republic ranges from the mining of iron ore, coal and other raw materials to the manufacture, sale and distribution of a widely diversified line of finished and semi-finished iron and steel products and by-products.
The same annual report also shows that in 1940 the corporation had a gross income in excess of $300,000,000, a gross profit in excess of $62,000,000, a consolidated net income after all charges in excess of $21,000,000 and a pay roll in excess of $97,000,000 and that in the same year it paid taxes in excess of $16,000,000 and paid dividends on its three classes of stock aggregating in excess of $6,000,800. It had assets of a value in excess of $400,000,000 and employees numbering in excess of 60,000 persons who were employed in 35 different states.
The report shows also that the corporation has plants in Cleveland, Youngstown, Warren, Niles, Canton, Massillon, Newton Falls and Elyria, Ohio; Buffalo, Brooklyn and Troy, New York; Chicago, South Chicago and Moline, Illinois; Gary and Indianapolis, Indiana; Monroe, Michigan; Pittsburgh, Beaver Falls and Philadelphia, Pennsylvania; Hartford, Connecticut; Birmingham and Gadsden, Alabama; and Hamilton, Ontario, Canada. It had warehouses and sales offices in nearly every state of the Union. It had 11 iron ore mines in Minnesota, Michigan, New York and Alabama and eight coal mines in Pennsylvania and Alabama. It also owns or controls 15 subsidiary companies engaged in allied businesses, and has a substantial investment in several others. According to the same report, in 1940 Republic had outstanding 282,303.5 shares of its prior preference stock, 119,597 shares of its convertible preferred stock and 5,834,289.9 shares of its common stock.
The defendant, Girdler, came to Republic on April 8, 1930, as chief executive officer. At first he was president and chairman of the board of directors; in 1937 he gave up the office of president and was retained in his position as chief executive officer of the corporation in the capacity of chairman of the board of directors and chairman of the executive committee. Since 1930 to the time of trial herein (except for an interim during World War II) he devoted his entire time to the duties of his office and the business of the corporation.
The record before us discloses in great detail the activities of the defendant in the active management of the affairs of the corporation and in the direction of the officers of Republic so that there can be no doubt on the uncontradicted testimony that defendant Girdler was in fact, as well as in name, the directing head of Republic's business at all times during the period under consideration, under the authority of the board of directors.
At a meeting of the board of directors held on April 10, 1940, in New York City, the following resolution was adopted:
"The chairman submitted a list of the officers of the corporation, with their present salaries; Mr. T.M. Girdler, retired from the chair and Mr. R.J. Wysor presided. Upon motion duly made, seconded and carried, Mr. Girdler not voting, the salary of Mr. T.M. Girdler as chairman was fixed at the rate of $175,000 per year, plus any additional amount, if any, as the board of directors may determine prior to December 31, 1940." (Emphasis added.)
Thereafter, in a meeting of the board of directors held on December 23, 1940, in New York City, the following resolution was adopted:
"The chairman stated that he desired to present to the meeting the desirability of having the corporation purchase deferred annuity contracts, having no cash surrender value, on the lives of the five chief executive officers of the corporation in an aggregate amount not exceeding $149,500 and the delivery of such contracts to said officers as additional compensation for the calendar year 1940."
At the same meeting the following resolution was adopted:
"Resolved, that Republic Steel Corporation purchase deferred annuity contracts, having no cash surrender value, on the lives of the following named officers of the corporation, in the respective amounts set opposite the name of each officer, to wit:
Tom M. Girdler 50,000 Rufus J. Wysor 37,000 Norris J. Clarke 25,000 Charles M. White 25,000 Myron Arms Wick 12,500."
The resolution then provided for the execution of the contracts and payments of the premiums required and concluded:
"Resolved, further, that the treasurer of the corporation be * * * authorized and directed to pay to Tom M. Girdler as further additional compensation for services rendered by him to the corporation during the calendar year 1940, the sum of $1,000."
The record shows that later the annuities being found taxable, they were surrenderd and cash paid to the various officers, including Girdler, in lieu of the annuities. On this basis the total additional compensation paid to defendant Girdler was $51,000 during the year 1940.
During the course of the trial the general counsel for Republic explained the nature of the annuity contract and how it was entered into and terminated, as follows:
"In 1940 the directors, in accordance with the reservation they made at the time they fixed the salary for the year, voted additional compensation because of the excellent showing of the company for that year; but instead of paying it in cash they delivered an annuity contract for which the company expended $50,000. That was done mainly on my advice to the directors in the hope that there would be no immediate income tax payable on that, but the income tax would be deferred until the annuity was received later under certain existing rules. I thought that could be done. However, when the returns were examined, the Federal Revenue Inspectors assessed the deficiency, claiming that it was additional compensation taxable immediately. We went to the Board of Tax Appeals and the Board upheld the Commission. As a result these men were called upon to expend considerable money in paying the deficiency taxes, so they surrendered the annuity to get the money to pay the tax, so it wound up as though they got the money and paid the tax in the first instance."
In this appeal we are not called upon to determine whether the total compensation paid to defendant Girdler during 1940 was reasonable under all the circumstances because the parties themselves have stipulated in respect thereof as follows: (Stipulation No. 2, page 645 of record):
"That the total of the amounts received by the defendant Tom M. Girdler for the year 1940 — consisting of the sum of $175,000 paid to him in regular monthly installments during that year 1940, and consisting further of the annuity purchased for him at a cost of $50,000 as well as the further sum of $1,000 paid in cash during December of 1940 — was wholly reasonable in amount, having regard to the value of the services rendered by him as chairman of the board of directors of the defendant Republic Steel Corporation, and that there is no issue whatsoever herein, either as regards the reasonableness of the sum of $175,000 mentioned in the minutes of the meeting of the board of directors of April 10, 1940, or as regards the total figure of $51,000 mentioned in the minutes of the meeting of the board of directors of Dec. 23, 1940."
Neither do we have any question of claimed fraud or deceit in respect of the action taken, there being no charge by plaintiff that the conduct of the directors in awarding additional compensation was a fraud upon the corporation or its shareholders in any manner whatsoever. On the contrary it was stated positively that no such claim was being made.
However, counsel for plaintiff contends that the sum of $51,000 was paid Girdler without authority; that such amount by way of additional compensation "was not fixed according to law and was otherwise illegal"; and that in the allowance and payment thereof the directors were guilty of ultra vires acts. On the other hand, the defendants contend that the 1940 plan of additional compensation was lawful and not ultra vires; that the rate of Girdler's compensation was properly established; and that it was "wholly proper for the board of directors by prior resolution to reserve the right to award additional compensation commensurate with corporate success."
At the time of this action by the directors, Chapter 3 of the general corporation laws of the state of New Jersey as revised in 1937, defining the powers of New Jersey corporations in respect of appointment of officers and the fixing of their compensation, read in part as follows:
"14:3-1 Powers Generally: Every corporation shall have power to:
"e. Appoint such officers and agents as the business of the corporation may require and fix their compensation * * *."
The pertinent part of the bylaw adopted by the board of directors of Republic, under the provisions of the New Jersey statute above quoted is bylaw No. 11 as follows (Excerpts from Bylaws of Republic Steel Corporation, May 30, 1930, defendant Girdler's Exh. 18):
"The officers of the company shall be a chairman of the board of directors, a president (the foregoing to be chosen from the directors) one or more vice-presidents * * *. The term of office of every officer shall be from the date upon which he shall be chosen, until the first meeting of the directors after the next annual meeting of the stockholders, and until his successor in office shall be chosen. * * * The compensation of all officers shall be fixed by the board of directors or executive committee."
Bylaw No. 12 defining the duties of the chairman of the board is as follows:
"No. 12. The chairman of the board shall be the chief executive officer of the corporation. He shall preside at all meetings of the stockholders and of the board of directors and of the executive committee and shall perform all such other duties and exercise all such other powers as are usually incident and pertain to the chief executive officer of a corporation, as well as such other duties and powers as the board of directors may from time to time prescribe."
The general counsel of Republic explained also the action taken in the directors' meeting of April 10, 1940, based upon the discussion which took place in his presence at that meeting, and in respect thereof he testified as follows:
"The directors * * * stated that the company had been doing increasingly well and that the outlook for the year was very good. They thought that the key people of the company should be rewarded for the performance of the company if their expectations were realized. They did not, however, want to increase the fixed minimum obligations of the company until they saw what the results of the year would be."
The same witness testified further:
"The directors discussed among themselves and with me, and in my presence, the fact that the prospects for the year looked good and they expected to make a considerable amount of money unless something unforeseen developed. I recall one or two mentioning the fact that war had broken out in Europe and that if that should cease suddenly or something should happen, the realization might not come true and they stated that if the company did better than the year before, they wanted to and would pay extra compensation for the year to the key employees of the company and they said that they did not at that time want to determine the amount; they wanted to wait until the year's results were ascertainable before they fixed the amount that they would pay in the event the company did better than the year before."
With respect to the preparation of the corporate minutes after the action taken at the meeting, the witness testified:
"The words `if any' were inserted, of course, by myself. I intended by those words in a clear and concise manner to indicate that if the company had a good year in 1940, that is as good a year or a better year than they had in 1939, the corporation by this action would unequivocally and definitely bind itself to pay additional compensation to Mr. Girdler and to the other eleven people involved, in December, 1940, based on the results of the year, the amount to be determined by the board on the basis of the efforts set forth by the employees and the results of the year; and that if the corporation did not have a good year in 1940, that is, if the year was less prosperous than it was in 1939, there would be no obligation on the part of the directors to pay additional compensation to Mr. Girdler or the other men involved in 1940."
We have thus detailed the testimony of the general counsel for Republic at some length because we find upon an examination of the entire record complete corroboration thereof in substance by all the directors present at the meeting of April 10, 1940, who testified on this appeal.
With respect to defendant Girdler, we find credible evidence undisputed in the record that during 1929 his last year with Jones Laughlin Steel Company, he received a total compensation in excess of $359,000; that there was a general understanding when he came to Republic at a reduced salary of $150,000 per annum in 1930, that, dependent upon the success of his efforts and the financial success of the corporation, there would be compensation in addition to the regular salary; and that a plan of additional compensation would eventually be established, dependent upon results accomplished by way of increased corporate savings. The defendant Girdler, testified in substance to the effect that he was absent from the meeting room on April 10, 1940, when the subject of his own compensation was under consideration; that when he returned to the room he was informed by the spokesman for the board that his compensation had been fixed at $175,000 and that the directors had decided that if the corporation had a "good year" and prospects looked very good, there would be additional compensation for the key employees of the company, but that no amount was fixed and there was no discussion of the amount; and that he considered himself a key employee and that he worked in reliance on that statement and that he fully anticipated he was going to have additional compensation for the year 1940.
The record shows that similar resolutions were adopted in favor of the president, the vice-president in charge of sales; the vice-president in charge of operations; and that each officer respectively refrained from voting on the resolution which affected him. All this testimony stands undisputed in the record. However, counsel for plaintiff points to an answer by Girdler while under cross-examination in the trial below, incorporated in the record before us, to the effect that he did not have an agreement for additional compensation and argues that there was not an agreement either express or implied, for want of mutuality. We think this point is not well taken on the facts. The question asked of Girdler called for a conclusion of mixed law and fact and Girdler by way of explanation of his answer on this appeal clearly indicated a reliance upon the promise of the directors for additional compensation in some amount to be fixed by the directors within their discretion, contingent upon increased earnings for the year in question. This explanation is entirely compatible with the facts, as shown by the record on this appeal.
We hold the view which was also expressed by the trial court, that courts of equity in consideration of issues such as are here presented, must consider each case separately on its merits, based entirely upon the particular set of facts as disclosed by the evidence, applying thereto well defined principles of equity jurisprudence.
Considerable discussion was had by counsel in this case with respect to the words "fix their compensation" as the same appears in the general corporation laws of New Jersey and the words "compensation shall be fixed" as the same appear in bylaw No. 11 of Republic. Counsel for plaintiff argues in effect that the meaning of the word "fix" is such as to render void that part of the resolution adopted by the board of directors in April, 1940, which leaves as a matter of discretion with the board the allowance of additional compensation within the year. We do not agree with this contention.
In our opinion the word "fix" as here used, taking into consideration the entire context, merely connotes "to determine," "to allow," "to settle," or words of like import. If we construe the resolution in its entirety, giving to the words their plain ordinary meaning, we must give effect to the words "plus any additional amount, if any, as the board of directors may determine prior to December 31, 1940." Hence the word "fix" which by the terms of the resolution applied to the words "salary * * * at the rate of $175,000 per year" must have equal application to the words "plus any additional amount * * *."
It is our conclusion, based upon the evidence, that the additional compensation provided for by the words "plus any additional amount, if any, as the board of directors may determine, prior to December 31" constituted nothing less than an implied contract for payment of reasonable compensation, in addition to the stated salary, which was considered the minimum contingent upon the discretion of the members of the board of directors as to amount and conditioned upon whether the earnings of the company justified such action based upon the factors involved.
The facts of the instant case are closely analogous to the facts in the case of Church v. Harnit, 35 F.2d 499, decided by the Circuit Court of Appeals, 6th Circuit (Certiorari denied 281 U.S. 732, 74 L. Ed., 1148, 50 S. Ct., 247), the sixth paragraph of the syllabus being as follows:
"6. President of corporation held entitled to retain bonus payment, even though allowances made by board of directors were void, where total compensation paid was reasonable, and there was no fraud, since under such circumstances president should not be required to refund bonus payment and seek relief on theory of quantum meruit."
In the same case, commencing on page 501, the court, through Hickenlooper, J., says:
"From the very inception of defendants' association with the company it was understood by each of them, as well as by the boards of directors from time to time, that the fixed salary should be considered as the minimum compensation for services rendered, and that each of the defendants should be entitled to receive additional allowances, more fully compensating them for their services, in the event that the affairs of the corporation prospered. Bonuses of varying amounts were paid to one or more of the defendants each year from 1901, increased in amount with the increasing success of the business, and may be said to have no more than brought the total compensation paid, salaries and bonus, to a close approximation of what was paid elsewhere for similar services in the same line of business. There is no contention on the part of the plaintiff-appellant that the defendants received more in the way of salary and bonus than the fair value of their services. The business was managed with marked efficiency. Each of the defendants applied himself with peculiar energy and ability to his particular task. Each served through the succeeding years with the understanding and expectation that he would receive additional compensation if his loyalty and industry merited, and the success of the business warranted, such allowances. The company would now be estopped to deny that such was the contract of employment. Letta v. Cincinnati Iron Steel Co., 285 F., 707 (C.C.A. 6). Otherwise expressed, the agreement of employment was not for a fixed salary but for a minimum salary, with the maximum to be determined upon principles of quantum meruit and consistent with the success of the business.
"Under the foregoing circumstances, we are of the opinion that the corporation, in whose interest and on whose behalf the plaintiff files his bill, must be held to have contracted with the defendants for the payment of reasonable additional compensation or bonus. There is nothing illegal or against public policy in such a contract. Cf. National Loan Investment Co. v. Rockland Co., 94 F., 335 (C.C.A. 8); Metropolitan Rubber Co. v. Place, 147 F., 90 (C.C.A. 2); Tietsort v. Irwin, 9 F.2d 65 (C.C.A. 6); Rowland v. Demming Exploration Co., Trustees, 45 Idaho 99, 260 P. 1032; Girard v. Case Bros. Cutlery Co., 225 Pa., 327, 74 A. 201; Putnam v. Juvenile Shoe Corp., 307 Mo., 74, 269 S.W. 593, 40 A.L.R., 1412.
"The one essential requirement in such cases is that the services shall not only be valuable, but that they shall have been rendered with the understanding and intention that they were to be paid for or under such circumstances as would raise a fair presumption of such intention. Fitzgerald Mallory Construction Co. v. Fitzgerald, 137 U.S. 98, 111, 11 S. Ct., 36, 34 L. Ed., 608; Pew v. First National Bank, 130 Mass. 391, 395; St. L., Ft. S. W.R.R. Co. v. Tiernan, 37 Kan. 606, 621, 622, 15 P. 544."
Without repeating the facts at length, it would appear that the facts in the case at bar are even stronger in favor of the officer-director than those involved in Church v. Harnit, supra, particularly in view of the express language used in the resolution. It is true that the history of Girdler's relations with Republic does not extend over a like period, but in other respects the analogy is clear.
Another case in point is National Loan Investment Co. v. Rockland Co., 94 F., 335, decided by the U.S. Circuit Court of Appeals, 8th Circuit, where the court, speaking through Sanborn, J., says in part at page 338:
"But such officers, who have rendered their services under an agreement, either express or implied, with the corporation, its owners or representatives, that they shall receive reasonable, but indefinite, compensation therefor, may recover as much as their services are worth; and it is not beyond the powers of the board of directors to fix and pay reasonable salaries to them after they have discharged the duties of their offices. Missouri River Co. v. Richards, 8 Kan. 76, 81; Rogers v. Railway Co., 22 Minn. 25, 27; Railroad Co. v. Tiernan (Kan.Sup.), 15 P. 544, 553; Stewart v. Railroad Co., 41 Fed., 736, 739; Rosborough v. Canal Co., 22 Cal. 557, 562."
See, also, Dalton v. Brush Electric Light Co., 7 C.D., 141, 142, 13 C.C., 505, affirmed without opinion by the Supreme Court, 60 Ohio St. 594, 54 N.E. 1098, and the New Jersey cases of McKann, Jr., Prosecutor, v. Town of Irvington, 133 N.J. Law, 63, 66, 42 A.2d 391, 393; judgment affirmed 133 N.J. Law, 575, 45 A.2d 494 (1946); Tice v. City of New Brunswick, 73 N.J. Law, 615, 64 A. 108 (1906); and Warren v. Hudson County, 23 N.J. Misc., 252, 263, 43 A.2d 785, 792.
The record shows that the services of Girdler were valuable in his capacity as chairman of the board and chief executive of Republic and that the services were rendered in reliance upon the promises of the directors as indicated by their action at the meeting of April 10, 1940, and as exemplified by the resolution in evidence.
We have hereinbefore referred to the stipulation that the sum paid under color of the resolution under all the circumstances was reasonable and that it is conceded that there was no element of fraud in the transaction. We are, therefore, of the opinion that the action of the directors was not ultra vires either under the statutory law of New Jersey, the bylaws of the corporation, or under principles of equity jurisprudence.
It is our opinion as hereinbefore indicated, that the principles enunciated in the cases of National Loan Invest. Co. v. Rockland Co., supra, and Church v. Harnit, supra, fully support this conclusion. It should be observed we think, that the trial court, in attempting to distinguish between those cases and the facts of the instant case, did not have before it the additional evidence which we have before us on this appeal.
The claim has been made by plaintiff that this court cannot consider the testimony of the directors as to that which was said and done at the meeting of the board of directors on April 10, 1940, on the ground that such parol evidence tends to contradict or vary the terms of a written agreement. We are not in accord with this view. The testimony of the directors was not introduced for the purpose of varying or contradicting the terms of a written contract. It is our view that the agreement of the parties was in fact consummated at the meeting of April 10, 1940, so that it is competent to show by parol evidence what transpired at the meeting. The corporate resolution was prepared at a later date by the general counsel, and is in briefest form merely prima facie evidence of the proceedings and the conclusions reached at the meeting. We do not find any provisions in the laws of New Jersey or the bylaws of Republic which would indicate that the resolution on its face is ultra vires. However, in a case such as this, where the action of the board of directors is challenged, evidence of that which was said and done at the meeting is competent to show the actual facts. This is particularly true in cases where the true meaning is indefinite, ambiguous, or if the minutes appear on the face to be incomplete or otherwise fail to show what actually transpired. See 5 Fletcher Cyclopedia Corporations, 532, 533, Section 2198.
Referring once again to the case of Church v. Harnit, supra, the court said (at page 502):
"In the instant case there was an express understanding between the corporation and each of the defendants as to additional compensation which is entirely consistent with the also express contract as to a minimum compensation. The evidence of this understanding was not introduced for the purpose of varying a written contract, but rather for the purpose of defining the true terms of employment. The contracts of all, with the possible exception of that with Harnit lay in parol, and it was permissible to show the extent to which the fixed salary was intended to compensate for services as establishing the terms of such contract. No formal action by the board was necessary. It is sufficient if there was a clear and well-defined understanding. Chabot Richard Co. v. Chabot, 109 Me. 403, 84 A. 892; Young v. U.S. Mort. Tr. Co., 214 N.Y. 279, 285, 108 N.E. 418; In re Super Trading Co., 22 F.2d 480 (C.C.A. 2)."
We have here a case of a prior resolution in April, 1940, reserving the right to award before the end of the year additional compensation or bonus, contingent in amount within the discretion of the board of directors and dependent upon and commensurate with corporate earnings with actual notice thereof to Girdler, and acceptance thereof by him. In our opinion the gross income of Republic in excess of $300,000,000, the gross profit in excess of $62,000,000, the consolidated net income, after all charges, in excess of $21,000,000 certainly would be sufficient to justify the additional award in December, based upon the previous resolution adopted in April.
In our opinion, the adoption of the prior resolution in April, 1940, evidentiary of the understanding of the parties providing for a minimum salary "plus any additional award, if any, as the board of directors may determine prior to December 31, 1940," had the effect of validating the action later taken in December, 1940, in pursuance thereof, so long as such action was free from any taint of fraud and the additional amount allowed by way of additional compensation or bonus was in all respects reasonable under the facts and circumstances then and there existing.
Furthermore, the record shows here, as in Church v. Harnit, supra, based on results accomplished, that the business was managed with marked efficiency; that the total compensation paid, both salary and bonus, was a close approximation of that which was paid elsewhere for similar services in the same line of business, and that there is no contention on the part of the plaintiff that Girdler received more in the way of salary and bonus than the fair value of his services.
We think that on principle and authority the action of the directors in awarding additional compensation, based upon the record before us must be sustained.
It is our conclusion based upon the evidence before us on this appeal that this court of equity would not be justified in setting aside the award of additional compensation in the absence of a claim that the same was unreasonable or that there was fraud in the transaction. It being stipulated that the amount was reasonable and it being conceded that there was no fraud involved, we are of the opinion that the defendants are entitled to a finding and decree in their favor on appeal No. 20640.
For the reasons stated, an order and decree may be entered finding for defendants on both appeals (Nos. 20640, 20641).
Judgment accordingly.
MORGAN and SKEEL, JJ., concur.