New York & New Haven Railroad v. Ketchum

27 Conn. 170

• Court: Supreme Court of Connecticut
• Decided: February 15, 1858
• Status: Published

Opinion

Ellsworth, J.

' It has been assumed throughout the argument, and we think correctly, that the grant made to Mr. Ketehum by the vote of the 8th of April, giving him and his family a free ticket over the plaintiffs’ road, can not be sustained and made available to the defendant, unless it was made on a valuable and adequate consideration. As a gratuity it is not claimed that it can be upheld. We shall therefore turn our attention to the question of consideration, or indebtedness of the company to Mr. Ketehum, passing by other questions which have been discussed, however interesting or important they may seem to be.

The plaintiffs insist that the grant was a pure gift or gratuity, founded on no consideration beyond personal respect and esteem towards Mr. Ketchum on the part of the directors, for his devotion to the company as a fellow director, while on the other hand the defendant insists that the company were his debtors, for services rendered in their business, to an amount much larger than the value of the thing granted, and that he received the consideration not only as an honorable testimony of respect, but in payment and satisfaction of his claim. This is the issue between the parties.

/ The plaintiffs say in the first place, in support of their view, that the defendant has at no time rendered service to them, but that whatever was done by him was done in behalf of three or four individuals, who, together with himself,- undertook to accomplish certain ends of their own, before the plaintiffs were a corporation, and for which the company was-not liable, and in fairness to those who afterwards became stockholders ought never to be held liable, either with’or without a vote of the directors. / They say secondly, that if it be otherwise, and the services/were rendered to the plaintiffs, they were not performed under any agreément or understanding with .the plaintiffs that the defendant was to be paid for them; and that he was a mere director, chosen because of his position, experience and financial ability, and especially his great pecuniary interest in carrying the road through, and in all that he did was merely acting as such director. They insist that he did nothing beyond what his official relation to the company required him to do, and no more than was expected of a director. (They say thirdly, that directors have no right by grants, free tickets, commissions or otherwise, to remunerate themselves for official services.] These objections, involving as they do important questions of a somewhat general nature, cover substantially the whole ground of controversy, and, if sustained by the facts"in the case, make a decisive answer to the defendant’s claim. Let us then look at the facts.

It appears that from the 13th day of August, 1844, when certain persons attempted to form a company under the charter granted by the legislature, to December, 1846, when the stock was really taken up by bona fide stockholders, and the company perfected, the corporation was in an anomalous and inchoate state. (/Nothing had been done that was binding upon the so calleff stockholders, beyond the payment of one dollar per share,/ The proceedings thus far seem to us to be open to very serious objection in their relation to the existence of the corporation, if the legislature had seen fit to interfere in that stage of the affair; but it did not do so, and since we have no occasion to inquire into the validity of these incipient proceedings, we shall look at them only in their relation to the other objections already stated.

The services for which it is claimed that the plaintiffs were liable to pay the defendant, were rendered between the first of October and the last of December, 1846, at a time before the stock was taken up in conformity to the, charter, and before the company had a proper existence. | Hence it is not easy to see how they could be rendered for or at the request of the company, (or rather perhaps the first bona fide stockholders, for they must be looked at as the company,) and if they were not so rendered, then how the company could be liable for them, upon any known principle of law/; We are aware that it is no uncommon practice for corporations to assume and pay these preliminary and antecedent charges, after the company has become organized, but we do not see how the company, if it should object, could be compelled to pay them, and in some cases it would be most inequitable to require it. Can a few persons combine for their own interest to get up a railroad,—agree with one of their number to give him a large commission or bonus for every stockholder he can allure into the company,—and privately make this commission or bonus a charge on the corporation when formed? This would be a breach of faith towards honest and unsuspecting stockholders who pay the charter price for their stock and expect to take it clear of all incumbrance. The effect would be the same as if commissioners should enter into a private bargain with subscribers, to let them subscribe on terms which the charter does not allow. Se getters-up of projects to be carried by such means, may 11 be supposed, as is generally the fact, to be influenced by a w to their own special benefit; for certainly they do not act in behalf of the corporation itself, j 'We do not say that the present is such a case, but such is tne natural consequence of the doctrine claimed by the defendant’s counsel, and we can not give it our approval or countenance. It is soon enough for corporate bodies to enter into contracts incumbering their property, when they are duly organized according to their charters and have their chosen and impartial directors to conduct their business. If a vote was necessary in this case to make these charges a debt against the company, the grant for that very reason can not stand, for the directors had no power to assume or to create such a debt for such a service.

But the next objection is still more decisive. As we have said, the services of the defendant were rendered between the first of April and last of December, while he was a director, and exerting himself together with others to get the company into being. In what exactly his services consisted beyond his advice and personal efforts to induce gentlemen to take stock in the company, does not appear. We see nothing of time spent, money expended or travel or other labor, except what may be implied from the fact that Mr. Ketchum was a banker and particularly accustomed to financial and railroad operations, and had an extensive and personal acquaintance and much influence with business and monied men,” and his having received from one of his associates, then acting as president of the association, a blank subscription list, accompanied with a request that he would get subscribers, which he promised to do,, and accordingly made application to persons and firms, and got subscribers to the amount of 9,480 shares, which, as the report says, were obtained “with difficulty and only on personal application.” ^ Nothing however was said, in the interview with his associates, so far as appears, as to this service being considered or treated as extra labor, ór as entitling him to a commission or reward; not a word appears to have been said about compensation, nor does it appear that it was so' much as alluded to; still it is found that Mr. Ketchum himself did not suppose the services were to be gratuitous. We suppose it may be so, but even he himself does not state in what manner he expected to be compensated. Doubtless a director may perform extra labor, and for it be justly entitled to a compensation for his time and expenses, and this may be made out even without an express promise, for a promise may be implied from the peculiar and extraordinary services rendered, but then the services must appear to be of an extraordinary character, and this beyond all question or doubt, for as director he agrees to give his services, and is entitled to make no charges whatever, however severe and protracted may be his labors. A different rule would lead to great abuses and corruption. (We can not but think it important in every case, that where a person, holding the position of a director, expects or may be fairly entitled to expect a compensation for his services, the services should appear to have been agreed for, or their nature and extent should appear to be such as clearly to imply that both parties understood they were to be paid for, and not rendered gratuitously within the scope of a.direct-

Mr. Ketchum, so long as he remained a director, was bound in good faith to make a proper use of his influence to induce persons to take stock in the company, if thereby he could fairly promote the interests of the company. He was chosen a director because of his ability, at the outset of this enterprise. Why did his associates select a man of his ■ character and experience, but that he might bring these capabilities into the discharge of his duties to the company? If Mr. Ketchum thought his aid and co-operation were too cheaply purchased by the incidental advantages which he expected to receive by carrying this road through, he should have said so, and then he might or might not have been chosen a director. Undoubtedly the other directors did what they could, and whether it was more or less than Mr. Ketch-um did does not appear. They did what they could, and we see no evidence that any one of them agreed for or was to receive compensation from the company when organized. All expected to be benefited in some way, and we- can not doubt that their expectations were realized. One became president, another was contractor and built the road, another the financier, and another perhaps had real estate on the proposed line of the road, the value of which would be enhanced. They all had their several objects arid ends, and probably secured them, and so far as this was properly done the company can not complain, but then such services, unaccompanied with a special contract, fall quite short of creating an indebtedness against the corporation.

The third objection, viz,, that directors have no right to charge for performing official duty, is a principle universally admitted to be sound law. We find it so laid down in the elementary books, and in several decided cases, and the reasons assigned most forcibly commend themselves to our approbation. In Collins v. Godfrey, 1 Barn. & Ald., 950, a director of a bank was prevented from receiving a reward offered by the bank for the recovery of stolen property, because he performed nothing but his duty in endeavoring to recover it. In Dunstan v. Imperial Gas Light Co., 3 Barn. & Ad., 125, a resolution formally adopted, allowing the directors certain compensation for attendance on courts, &c., was held insufficient to give a director a right to recover for such services. The same doctrine is held in the case of Loan Association v. Stonemetz, 29 Penn., 534. There a vote was passed by the directors to pay the chairman of a committee on short loans $200 for his services already rendered, but the court held that it created no debt, it being in favor of a director for services rendered by. him in his official capacity. The court say, “ Although the director performed the work faithfully, his labors fell within the. limit of his duty as a director, and the fact that he performed them with an exuberance of good faith imposed upon the corporation no moral duty to pay for them. The legal obligation was as defective as the moral. When the resolution was passed the consideration had been executed, for the services compensated by this verdict had been previously rendered, and there is no proof of a precedent or contemporaneous request. It is quite true that they were beneficial to the defendant, and a request might, in the liberal spirit of modern decisions, be implied, but in the instance of gratuitous services performed by a party in the line of his legal duty, there is no ease which authorizes such an inference. Our decision must be placed on yet higher ground. We regard it as contrary to all sound policy to allow the director of a corporation, elected to serve without compensation, to recover payment for services performed by him in that capacity, or as incidental to his- office. It would be a sad spectacle to see the managers of any corporation, ecclesiastical or lay, civil or eleemosynary, assembling together and parcelling out among themselves the obligations or other property of the corporation in payment of their past services.”

Were it.of importance to the result to which we have come to examine the language and spirit of the vote of the 8th of April, 1847, to see if it really furnishes evidence of an acknowledged indebtedness on the part of the directors, we would attempt it; but it is not. We think, however, that the vote implies little more than that the directors, feeling that Mr. Ketchum had rendered faithful and successful services in organizing the company, and was entitled to their respect and gratitude, wished to give him some suitable evidence of their sense of obligation and of their esteem; and accordingly the vote.speaks of his “zeal, activity and perseverance as a director,” and therefore “as permanent evidence of their esteem” and as a consideration likewise, “they grant,” &c. Neither of the parties acted, we think, as if the relation between them was- one of debtor and creditor, and as if as such they were making a final settlement and paying the debt.

For these reasons we advise judgment for the plaintiffs.

In this opinion the other judges concurred.

Judgment for plaintiffs advised.