2.

3.

Findings of fact by trial court are considered excepted to; and the making and entering of findings of fact without notice to opposite party, and without giving him an opportunity to except to same, or to propose other findings, is not prejudicial

error.

Corporations-Contracts With Directors-Validity.

While a fair and equitable contract between a corporation and a director, where the corporation was represented by a majority of its directors acting under no controlling influence on the part of the contracting director, is binding upon it, yet if the contract is unfair, it will not be binding; and even if fair, it will be void unless a majority of independent directors did not represent the corporation.

Same-Contract for Compensation.

A contract between a corporation and a director for his compensation is not binding on the corporation, if carried by vote of such director, or of another director under his controlling influence, or where, without the presence of such directors a quorum of the directorate would not have existed.

(Opinion filed February 10, 1913. Rehearing denied April 22, 1913.) Appeal from Circuit Court, Pennington County. Hon. LEVI MCGEE, Judge.

Action by Frank C. Crocker against the Cumberland Mining & Milling Company. From a judgment for defendant and from an order denying a new trial, plaintiff appeals. Affirmed.

Samuel C. Polley, for Appellant.

The court erred in making and entering findings of fact and conclusions of law; and entering judgment without the said findings having been served on plaintiff, and without plaintiff's knowledge; or giving plaintiff an opportunity to be present, or to be heard at the time of making said findings and entering said judgment. (Transcript, page 359.) Section 279, Code of Civil Procedure

This is to give the opposite party an opportunity to prepare and submit other findings, to make suggestions, take exceptions if so desired, to take whatever steps he may see fit to protect his interests. This is a valuable right, given by statute, and no court or party has a right to ignore it. It is more than a mere question of practice.

They were named as directors in the original articles of incorporation, and thus became the legal board, regardless of whether they held any stock or not, and after the board was thus created its members remained the legal board until their successors were

elected. Welch v. Importers & Traders Nat'l. Bank, 25 N. E. (N. Y.) 269.

It is also certain that no steps were ever taken by the board of directors, or any stockholder, to repudiaté plaintiff's contract. This would amount to a ratification and make the contract legal, even though there had been no contract in the beginning. Kelly v. Newburyport, 6 N. E. 745; Alex. v. Culbertson Co., 85 N. W. 283; Burgess v. St. Louis Co. R. R. Co., 12 S. W. (Mo.) 1050. The fact that this contract was one between a director and the corporation did not render it void. It is true that courts scrutinize such contracts more closely than when made with a stranger, but where they are fairly entered into and are within the authorized scope of the company, they are as valid as any contract. While some courts take the view that such contracts are void per se our court recognizes the principle that a director of a corporation may enter into a contract of employment with the corporation, and if the contract is one that is authorized by the company's charter and is carried out in good faith it is binding upon the company. Calkins v. Seabury Calkins Consol. Min. Co., 5 S. D. 299.

Such contracts are presumably valid and will stand until overthrown in a proper proceeding by a corporation or its stockholders, and the burden of showing their unfairness rests upon the challenging party. 10 Cyc. 810, and cases cited.

IN REPLY.

There is nothing in any of these resolutions to indicate that plaintiff was to receive his pay only during such times as the mine. was in actual operation, or that others were at work on the property. The resolutions, taken as they are, indicate that his pay was to be continuous. And one resolution, August 14th, 1905, declares that up to that time at least, plaintiff had devoted all of his time to the company's business. The entries on the cash book show that his pay was continuous, and it is not possible that any stockholder of the company did not know that he was receiving his pay right along, whether any one else was at work or not.

In this case plaintiff is entitled to recover his full ten dollars per day. This the court found to be the reasonable value of his services. This was, also, the amount fixed by contract between the plaintiff and defendant and he would be entitled to recover that amount even though it had not been specifically agreed upon

when the contract was originally made. This amount was paid the plaintiff for years. It was acquiesced in by the stockholders and directors without objection for a sufficient length of time to amount to a ratification even though it had not been agreed upon in advance. Warren et al. v. Para Rubber Shoe Co. et al., 44 N. E. 112 (Mass.)

This case should be governed by the rule laid down in Calkins v. Seabury-Calkins Mining Company, 5. S. D. 299.

It seems as though the words "ten dollars per day," are plain enough so that judicial construction is unnecessary. We submit that these words, used in this contract, are to be construed according to the general rules of construction, and by giving them the meaning that the parties themselves gave them. In this case it is plain that "ten dollars per day" meant that the superintendent was to receive ten dollars per day for all time put in at the mine, regardless of whether any one else was at work there or not.

Nichols & Wilson, and Frank D. Bangs, for Respondent.

As to the right of Crocker to recover a salary based on these resolutions, we submit to the court that the evidence conclusively shows that he was the owner of 8-15 of the capital stock; that as the president and general manager, and by reason of exercising all of the functions of secretary and treasurer in addition to being a member of the board of directors, he held a fiduciary relation to the company. That by reason of his holdings in the company and of his official connection with it,, he selected its board of directors, the majority of whom were directors merely in name, always under his influence and who acted solely for his benefit. The stock of two of these directors, his son and Mr. Madill, were presented to them by Crocker as a gift; for which the company never received any consideration; that it was treasury stock; that Crocker never charged himself with the stock so given; that the certificates for this stock were never in fact delivered to the parties, and now appear in the stock book cancelled, and bearing a date not according to the the fact but filled out after May 19th, 1902, as is conclusively shown by the certificate numbers.

At the time many of these resolutions were passed, the Board consisted of the plaintiff, his son, Madill and Graham. Under the cvidence, it appears that the plaintiff and Graham did not vote upon. the resolutions fixing the plaintiff's salary. If then Jackson Crock

er and Madill were disqualified and the resolutions were passed by only their votes, the resolutions were never legally adopted and there exists an entire absence of any action by the board of directors on the question of salary.

The only person who was qualified to vote upon the question of salary was Graham, and director Brown at the time he was a member. A quorum never consisted of less than three, and a portion of the time four were required, so that there never was a time in the history of these transactions when there were enough directors present, who were qualified to act in the matter of Crocker's salary, to constitute a quorum, and for that reason, in addition to the other, the passage of these resolutions was illegal, and they are not binding upon the company.

If one director, whose presence is necessary to constitute a quorum or whose vote is necessary to constitute a majority of the quorum upon a common resolution, is disqualified by reason of his interest, then the act done is invalid and voidable at the election of the corporation. 10th Cyc. 777, Curtain v. Salmon; R. & Co., 62nd Pac., 552.

As to such resolution, he is not a director but a stranger.

A director cannot be counted in forming a quorum for the consideration of matters with regard to which he is not entitled to vote. Thompson on Corporations, Section 1150.

A resolution passed at a meeting of the directors at which a director, having a personal interest, voted will be voidable at the instance of the corporation or shareholders without regard to its fairness, provided the vote of such director was necessary to the result. 10 Cyc. 790; Graves v. Mona & Company, 22nd Pac. 665, (Cal.); Troy Mining Company v. White, 74th N. W. R. 238; Smith v. Los Angeles Assn., 20th Pac. 677, (Cal.)

An officer cannot even in connection with other officers, bind the corporation to pay him a greater salary than his services are fairly and reasonably worth, such a contract will be scrutinized with great care. Thompson on Corporations, Sec. 1748; Wayne Pipe Company v. Hammons, 27th N. E. 487 (Ind.); Quintance v. Farmers Mutual Aid Association, 77th S. W. 1121, (Ky.); Camden Land Co., v. Lewis, 63rd Atl. 523 (Me.), Church v. Church Cementico Co., 77th N. W. 548, (Minn.)

A resolution fixing the salary of an officer will be illegal where it is carried by the vote of the officer or where having a controlling interest, it is produced by his influence.. "It makes no difference that there are enough directors voting for the resolution without counting the officer, if it is really his act and the product of his influence." Thompson on Corporations, Sec. 1748; McNulta v. Green Belt Bk., 45 N. E. 954 (Ill.); Adams v. Burke, 66 N. E. 235 (Ill.); Crichton v. Webb Press Co., 36 So. 926; 67 L. R. A. 76.

Board of directors of corporations have no power to give the officers unreasonable or excessive salaries for their services. Thompson on Corporations, Sec. 1762; Decatur, etc., Land Co., v. Palm, 21 So. 315, 59 Am. St. 140 (Ala.).

Officers who own the controlling stock and who elect themselves to office are not permitted to vote themselves excessive salaries. Miner v. Bell Isle Ice Co., 53rd N. W. 218, (Mich.); Hardee v. Sunset Oil Co., 56th Federal 51; Strouse v. Sylvester, 66 Pac. 660, (Cal.).

A director or executive officer who claims compensation for services must prove either a prior agreement or resolution providing for the performance of the services and the compensation, or must prove that such services were out of the scope of the regular duties of his office, and that the services were performed under circumstances sufficient to show that it was understood by the corporation, and that it was intended, on his part, that the services were to be paid for by the corporation. Thompson on Corporations, 1744 and cases cited.

The wrongful allowance or improper payment of compensation to an officer, will not prevent the corporation, or a stockholder, to compel the officer to refund the money so paid. Generally where money is paid or voted to an officer as compensation in the absence of a valid agreement made in advance, the payment is wrongful and may be recovered. This rule rests upon the same foundation as that which compels the restoration of corporate funds or property when wasted or squandered by the directors, or when received by third persons with knowledge of the want of power to transfer it. So, compensation paid an officer for past services, without a prior and valid provision or contract, is without consideration and can be recovered. Thompson on Corporations, 1763; Danville, etc., R. Co., v. Kase, 39 Atl. 301 (Pa.).