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Show MONDAY, MARCH 19, 1973 THE DAILY RECORD PAGE THREE j T the of the State of Utah or directors -- - at least, as against the protest of stockholders way of compensation for services already rendered gratuitously or by way of increased compensation for services already rendered for a prescribed compensation. Certainly, the directors cannot, in the absence of special authorization, vote themselves "back-pay- " as compensation for services theretofore rendered or vote themselves retroactive increases of salary N, D, Thatcher, Jr,, Lawrence E, Thatcher and Winston L. --- by Thatcher, Plaintiffs and Respondents, v. Wasatch Chemical Company, a corporation. Defendant and Appellant. With m mm TUCKETT. Justice; This action was filed by the plaintiffs to recover bonuses claimed to be due by them from the defendant. Other issues of law and fact raised by the pleadings were disposed of by stipulation to trial. After a trial prior was had on the remaining issues, the court found in favor of the plaintiffs and from that decision the defendant has brought the case here. The defendant, Wasatch Chemical Company, is a Utah corporation and has been doing business in the state of Utah for a long period of time. The corporation was closely held and all of its stock was owned by the Thatcher family and the Bradshaw family with approximately 50 per cent of the shares owned by each of the families. For a number of years it had been the practice of the defendant corporation to award annual bonuses to deserving employees. The annual bonuses were awarded by the directors to the directors, officers and employees at the close of each of the company's fiscal years. It appears from the evidence that the company policy was to fix salaries on a conservative basis and to supplement the salaries by the giving of annual bonuses the amounts to be determined by the amount of income and profits earned by the corporation during the year. The plaintiffs were employed in the management of the corporation and had continued their employment from year to year with the understanding and expectation that their salaries would be augmented by an annual bonus. The net income and profits from business operations during the year 1966 were the highest in at least ten years. On April 20, 1967, the board of directors of the defendant unanimously adopted a resolution that the plaintiff Lawrence E. Thatcher be paid a bonus of $4, 000, and the plaintiff Winston L. Thatcher a bonus of $2,000. The directors who approved the bonuses, together with their wives, represented a majority of the outstanding shares of capital stock of the defendant corporation. At a meeting of the board of directors held on July 7, 1967, a resolution was adopted which rescinded the prior action of the board in approving the bonuses. The court below found that the bonuses had been earned by the plaintiffs and that payment of the same was unlawfully withheld by the defendant. It appears from the record that the plaintiffs rendered valuable services to the defendant with the understanding that they would receive proper compensation therefor. We are of the opinion that the action of the trial court is amply supported by the record and the decision of that court is affirmed. , Respondents are entitled to costs, WE CONCUR: E. R, Callister, Jr. , Chief Justice J. Allan Crockett, Justice 1. Church v. Hamit, 35 F. 2d 499. HENRIOD. Justice: (Concurring) I concur because it appears that over an extended period of time, the stockholders had approved and ratified, by silence or otherwise, the action pursued. Otherwise I would have some reservations, since generally the directors have no authority, without stockholder consent, to set either their salaries or any kind of fringe emoluments, including bonuses for themselves at Yuletide. On the other hand, the stockholders, particularly in a sort of to a family hassle as appears to be the case here, silently cannot consent without of sense a security, only suddenly, practice that invites procedural of notice. kind some without to rebel warning, effectively ' 1. regard to corporate employees, as distinguished from directors or officers, there is some authority that bonuses for past services paid to the employees, in addition to their fixed salaries, are unauthorized. However, according to other cases, the granting of a bonus to employees for services rendered in the past is not ultra vires where properly awarded. Emphasis added. Zwolanek v. Baker Mfg. Co., 150 Wis, 517, 137 N.W. 769 (1912)., While our statute provides that the board of directors can fix the salof ary directors, giving a bonus is something else. An individual director, however, is disqualified from voting when he has a pecuniary interest in a resolution. The law on'that point is stated in 19 C. J.S. , Corporations, S 805: . . . Directors are precluded from fixing, increasing or voting compensation to themselves for either past or future services by them as directors or officers, unless they are expressly authorized to do so by the charter or by the stockholders, . . . The director who claims compensation for his services, being disqualified from voting on the question, if he is necessary to make up a quorum of the board, or if his vote is necessary to the result, the resolution will be void or . Also where the interested director or officer voidable; at the meeting and in this manner controls its deliberpresides the resolution is invalid. Where the directors vote ations, themselves salaries by means of different resolutions, or by voting oh the same resolution in parte, the fact that each director refrained from voting on the resolution fixing his own salary will not validate the transaction. . . . See Angelus Securities Corporation v. Ball, 67 P. 2d 152 (Cal. App. Chevrolet Corporatipn, 179 P. 2d 147 (Okla. 1946); 1937); Adams v. Mid-We- st and Polychronis v. Palace Meat k Grocery Company, 102 Utah 201, 129 P. 2d 879 (1942). ' 3 In the case of Wonderful Group Mining Co. v. Rand it was held that a resolution of the trustees (directors) of the plaintiff corporation granting com- pensation to themselves was void, and plaintiff corporation was permitted to recover judgment for the amount of money which had been paid pursuant to the void resolution. The trustees attempted to evade the law by severing the motions and having each member refrain from voting on his particular matter. In holding the scheme void, the court said: Granting that the board of trustees might compensate officers, but not trustees, for past services, it is the rule that where concerted action of this kind is taken the passing of a resolution awarding such pay must be had without the vote of any one pecuniarily interested in the resolution. The board of trustees consisting of five members, it was necessary for three disinterested members to vote for the passage of each resolution. The record shows that of the four voting for each resolution three were pecuniarily interested in the general scheme, although the scheme was divided into three resolutions. . . . In the instant matter the resolution in question gave to each director not on the payroll a bonus of not less than,' $300. Each such director was dis- qualified from voting on the resolution and, therefore, it was void absent a showing that a majority of the directors were on the payroll. Besides, the resolution was rescinded by the stockholders before payment was made. I would reverse the case and award costs to the appellant. ELLETT, Justice: (Dissenting) I dissent. The Thatcher family owned 50 per cent of the stock of the defendant. The other 50 per cent was owned by the Bradshaw family and J. Vernon Monson. Lawrence E. Thatcher was' vice president and general manager of the defendant and manager of operacorporation, and Winston L. Thatcher was the secretary 2. Sec. 3. 191 U. C. A. 1953 (Replacement Vol. 2). 633 P. 631, (Wash. 1920). 33, Financing Statements - Reed N. Peterson, 1930 Cecelia Circle SLC to G.M.A.C. boat 357 854 tions. 20, 1967, Lawrence E. Thatcher to himself and to Winston L. Thatcher moved that bonuses of $3, 000 be awarded and that $300 be awarded to each of the other directors who were not on the payroll. The motion was amended to give Lawrence E. Thatcher $4, 000 and Winston L. Thatcher $2, 000, and as amended it was unanimously adopted. Immediately thereafter Lawrence E. Thatcher and Winston L. Thatcher resigned from thei Before payment was made, the respective offices in the defendant corporation. stockholders rescinded the purported bonuses by a vote of 2851.50 to 1110.50. . At a directors meeting held April 874 - Ronald & Margo Sellers, 3272 Orchard Dr. Bntfl to City Flnce Co; hhg - .Blaine A. Laub, 2583 Helony Dr. SLC to Con Bk & Trst Co; cabin cruiser 855 856 - Lynn S. 406 E. 500 S. - 875 - Naomi Heugly, 2220 E. 4800 S. SLC to Contln Thrft & Ln Co; sec agremnt Carol Robb, Bntfl to Intrlk & Thrift; furniture 857 - W. David & Sheila Royall 386 S. 850 W. Bntfl to Fldelty Indus Cred Co; hhg & rings The minutes of the defendant show that small bonuses were given for the the years 1959 through 1964 are silent years 1947 through 1958. The minutes for were given for those years. Bonuses on the matter, and presumably no bonuses were given again in 1965 in the amount of not exceeding $300, and in 1966 bonuses of $1,000 were given to Lawrence E. Thatcher and Winston L, Thatcher. These bonuses were all given for past services and were nothing more than an attempted 866 - Monte Scott Hill, 983 H. Yucca Dr. SLC to Valy BK & Trst Co; Wurlltser - 876 W. j, William Taylor, 179 2900 S. Thrft & Bntfl to Mury Frst car equip Ln Co; BUILD ON YOUR LOT OR OURS O We quote exact costs thru our cost data control system O We build immediately O Let us help you with your plans gratuity. When a corporation adopts bylaws providing for regular bonuses or some to be rendered, it form of profit sharing which is reasonably related to services matter is not such instant The is binding when accepted by continued service. of the appellant a case. The granting of bonuses to themselves by the directors There for services. extra themselves past pay corporation was an attempt to give of the immediate respondents resignation waa no offer to be accepted. In fact, the the rescinded stockholders the While mere a was gratuity. shows clearly that it to do so. was no need bonus resolution before payments were made, there really follows: as 1414, The better law is stated in 19 Am. Jur.2d, Corporations, or IF YOU ARK CONSIDERING AN EXISTING HOME 9 Take advantage of the Gallery of Homes unique marketing concept and simp 200 homes in the convenient relaxed atmosphere of The Gallery. 521-600- 177 0 East 1st South There is authority that bonuses cannot be granted to officers J I t 4 |