
    Theodore B. Gaul, Respondent, v. Kiel & Arthe Company, Appellant.
    First Department,
    July 13, 1909.
    Corporations — salary of officer — contract essential — suit to recover percentage of profits — when salaries cannot be deducted, from profits — burden of proof.
    An officer of a corporation is not entitled to a salary in the absence of an agreement of the corporation to pay the same, even though he owns nearly all of the capital stock. In the absence of such agreement it is presumed that the services are performed gratuitously.
    Hence, where the employee of a corporation brings action on a contract entitling him to a percentage of the profits, the defendant cannot deduct from the profits salaries paid to officers in the absence of proof of an agreement by the corporation to pay such salaries.
    In such action the burden to show an agreement entitling the officers to salary is upon the defendant. The plaintiff is not required to show that there was no such agreement.
    Ingraham and Laughlin, JJ., dissented in part, with opinion.
    Appeal by the defendant, Kiel & Arthe Company, from a judgment of the Supreme Court in favor of the, plaintiff, entered in the office of the clerk of the county of Hew York on the 14th day of December, 1908, upon the verdict of a jury, and also from an order entered in said clerk’s office on the 11th day of December, 1908, denying the defendant’s motion for a new trial made upon the minutes.
    
      
      Ralph S. Rounds, for the appellant.
    
      Mayer J. Weinstein, for the respondent.
   McLaughlin, J.:

This action was brought to recover commissions alleged to have been earned under a contract with the • defendant by which, it agreed to pay plaintiff, in addition to a specified salary, six and one-half per cent of the profits realized by the defendant in its business ” during the year 1906. Defendant denied that it agreed to pay plaintiff such commissions. At the trial it appeared from the plaintiff’s testimony that prior to January 1, 1906, he was in the employ of the defendant as a salesman at a stated salary; that about that time he proposed to terminate his relations with it, and to induce him to stay another year, the defendant offered him in addition to a specified salary a commission of six and one-half per cent of the profits of the business for the year 1906. From the testimony of'the' defendant’s witnesses Kiel and Arthe, who owned substantially all of the stock of the defendant (Kiel being the president and Arthe the. vice-president and treasurer), the agreement was to pay him five per cent of the profits.' It was conceded, or at least the fact was not disputed, that the profits of the business for the year in question were $3,317.56. It also appeared that Kiel and Arthe each had drawn a salary of $3,500 for the yean, which was charged in the expense account. No proof whatever was offered showing, or tending to show, that the defendant had ever agreed to pay either of them this salary or any salary, and in the absence of such proof the trial court held that the plaintiff was entitled to a commission of either five or six and one-half per cent (whichever the jury found the contract to be) on the conceded profit of $3,317.56 plus the $7,000 drawn out as salaries, or in other Words, on $10.317.56, and the jury- was so instructed, to which an exception was taken. The jury rendered a verdict for $705.64, and the defendant appeals.

Whether the plaintiff was entitled to five or six and one-half per' cent was clearly a question of fact and the finding of the jury in plaintiff’s favor cannot be disturbed.

Nor do I thin k the court erred in instructing the jury that'the plaintiff was entitled to a commission on not only ■ the conceded profits, but also on the $7,000 drawn out. by- Kiel and Arthe for salaries. As stated, Kiel was president, Arthe vice-president and treasurer of tlie defendant, and they held a majority, of its stock, but because of such facts they had no mpre right to take the defendant’s money than a stranger had. The defendant had to agree to pay them a salary before they were" entitled to use its money for that purpose, and this, like any other agreement, presupposes corporate action. It is a mistaken notion that the officer of a corporation, even though he owns nearly all of the stock, can, in the absence of an agreement, draw any sum whatever as salary. When he assumes the duties of the office and performs them without any agreement or provisión for compensation, the legal presumption is that he performs such services gratuitously.

As was said in Mather v. Eureka Mower Co. (118 N. Y. 629)

“ If the officer expects to have compensation, and the corporation intends to. pay him for his official services, it may easily be provided for by resolution or agreement before he enters upon his services. This is at all events a salutary rule, as applied to an officer who is a stockholder of the corporation.”

In Barril v. Calendar Water-Proofing Co. (50 Hun, 257) it was said: “ The rule has become quite well settled that an officer of a corporation is not entitled to receive compensation, in the absence of an agreement securing it, for his services performed in the legitimate discharge of the duties of his office.”

And in Stout v. Security Trust & Life Ins. Co. (82 App. Div. 129): “ It has been our settled policy not to create a liability as against a corporation in favor of an officer who renders services upon the theory of an implied contract, our view being thajt the services will be presumed to be rendered gratuitously unless there is an express contract upon which the right to compensation is based.” (See, also, Eakins v. White Bronze Co., 75 Mich. 568, and Alston Mfg. Co. v. Squair, 105 Ill. App. 238.) Here, as already said, no evidence was offered to show that the defendant had ever agreed to pay either Kiel or Arthe any salary whatever. It is 'suggested, however, that the burden was upon the plaintiff to show that no such agreement had been made. On the contrary, the burden was upon the defendant. It was endeavoring to reduce the profits realized by showing the disbursements made^and obviously only such disbursements as were legally made could be used for that purpose.

I am of the opinion that the plaintiff was clearly entitled to commissions on the amounts drawn out as salaries.

The jury evidently reached the conclusion -that' the agreement was to pay the plaintiff six and one-half per cent commission, and awarded that amount on the conceded profits, plus the seven thousand dollars drawn out as salaries, but, in computing the amount, it appears they made an error of thirty-five dollars in plaintiff’s favor, and for that reason the judgment and order must be reversed and a new trial ordered unless the plaintiff stipulates to deduct from the verdict the thirty-five dollars; and if süch stipulation be given, then the judgment and order appealed from are affirmed, without costs to either party. .-

Clarke and Houghton, JJ., concurred; Ingraham and Laughlin, JJ., dissented in part. "

Ingraham, J.

(dissenting in part):

This action was brought against a foreign- • corporation for the compensation agreed to be paid plaintiff for his -services; as an employee of the corporation for the year 1906: The- complaint alleges that the defendant agreed to pay to the plaintiff six and one-half per cent of the .profits realized by the defendant in its business during the said period -. that the defendant realized large profits, and that six and one-half per cent thereof amounted to upwards of $1,300; that the plaintiff has duly performed each and every term, condition and provision.of liis said agreement With the defendant on his part to be performed, and has faithfully rendered all the services pertaining to his position. The answer denies the allegations of the complaint and sets up a counterclaim for $125.54. The jury found a verdict for the plaintiff for $705.64.

The plaintiff testified to an agreement between himself, the president, secretary and ■ treasurer of the corporation in December, 1905, at which the treasurer of the defendant said to him. that they would propose to make the plaintiff a director for the year 1906, and then said to him, “ Oh, we will give you-six, yes, six and a half per cent of the profits,” and, turning to the president said, “ Won’ t we, Ed % ” and Ed (the-' president) • said, “ Tes,” ■ when the plaintiff said,-“ Since you take that attitude, Í will accept the proposition,” He subsequently testified that this six and one-half per cent was to be in addition to Ms salary ; that he continued in the employ of the company during the year and received his salary right along, but no commissions; that he subsequently demanded an account of the profits, which was not delivered. The plaintiff seems to have admitted the amount of these two counterclaims, and the defendant seems to have admitted that the plaintiff was prom-, ised five per cent of the profits. The jury evidently found that the agreement was for six and one-half per cent, and the remaining question was as to what were the net profits to which this percentage should apply. The court, as a matter of law, charged that the plaintiff was entitled to recover either five or six and one-half per cent, as the jury found the contract to be, on the profits as appeared by the statement as admitted by the.defendant of $3,317.56, to which the jury should add 'the amount of $7,000 of salary, making the sum of $10,317.56, and that the plaintiff is entitled to recover either five or six and one-half per cent on that.

There seems to be no substantial dispute but ’ that there was a net profit of $3,317.56, and the plaintiff was entitled to commissions on that amount. But the court directed as matter of law that this amount should be increased to $10,317.56 by adding the sum of $7,000, which had been paid to the president and secretary as salary. The defendant requested the court to charge that in determining the profits of the' business under "the contract, reasonable compensation of the president and secretary of the company, whether by way of commissions or salaries, should be deducted as a part of the cost of the business. This was declined, and the defendant excepted. I think this was error which requires a reversal of the judgment. Both the plaintiff and the other employees and the officers of the company received fixed salaries for their services. It certainly wo'uld not be contended but that the salaries paid to the plaintiff and the other employees were to be charged as expenses of the business before the profits were ascertainable; and I can see no reason why the salaries of the officers should not also be charged as an expense of the business. There was no presumption in favor of the plaintiff that these officers in managing the affairs of the company were to work without compensation. It appeared from the evidence that these salaries were actually paid by the corporation and received by its officers as compensation for their services to the corporation. In an action where a stranger is suing a corporation, to justify a finding that salaries were paid to its officers, it is not necessary to prove a resolution of ■the directors fixing the salaries. It is sufficient if the salaries were actually paid by the corporation to the officers., and received by them. The corporation has never made any objection to its officers receiving the salaries,' or claimed . that they were paid without authority. ' If the corporation should dispute the right of its officers to receive compensation for .their services, the burden would then be upon the officers claiming the compensation to prove that the corporation had authorized salaries to be paid. The corporation here makes no objection but insists on its right to pay its officers a reasonable salary as a part of the expenses of the business before the profits of the corporation should be determined ; and to set aside such payments there should be at least some evidence to show that these stims were not paid to the officers as bona.Jide salaries, but for the-purpose of reducing the amount of net profits upon which the plaintiff would be entitled to estimate his commissions. It is not disputed but that the-plaintiff understood -that these officers were executive officers of the company and were devoting their entire time and attention to the business of the corporation. There would be no question but that if the corporation or its stockholders, acting on its behalf, objected to the payment of these salaries, or to its officers receiving salaries, the officers, as against the corporation, would have to prove a valid resolution of the board of directors to authorize them to receive the salary; and to that effect are the cases relied upon by the respondent. But here it is' a corporation that is claiming that it has paid in good faith its officers the salaries to which they are entitled, and there is no presumption, as against the corporation, in favor of a person contracting with it, that these salaries were not authorized by the corporation and, therefore, were not legally paid to its officers. It would seem that the deposition of the defendant was taken before trial, and the plaintiff adopted the' very unusual course of calling one of his attorneys to prove what the defendant’s president said upon that examination as to the profits, instead of reading the examination itself in evidénee. The. deposition of the defendant taken before trial, was made by the statute competent evidence to be read by either party on the trial; but there is nothing to show that these declarations of the. defendant’s president, long after the contract was made and after the year of the plaintiff’s, services had expired, were competent as admissions against the corporation. However, this was not objected to by the defendant and there was no dispute but that, crediting the salary of the president and secretary as expenses, there was a net profit of $3,317.56, ánd upon that amount the plaintiff was entitled to commissions. The jury apparently found in favor of the plaintiff as to the percentage to which he was entitled, and the plaintiff ‘was, therefore, entitled to six and one-half per cent on $3,317.56, which amounts to $215.64.

The judgment and order should be reversed and a new trial ordered, with costs to the appellant to abide the event, unless the plaintiff stipulates to reduce the amount of the verdict to $215.64. If the plaintiff so stipulates, the judgment as so reduced and the order appealed from should be affirmed, without costs.

Laüghlin, J., concurred.

Judgment and order reversed and new trial ordered, with costs to appellant to abide event, unless plaintiff stipulates to deduct from the verdict the sum of thirty-five dollars; and if such stipulation be given, then the judgment as so modified and the order appealed from are affirmed, without costs. Settle order on notice.  