author: Pitney, V. C.

text:
    The German Pioneer Verein v. George A. Meyer, executor, &c.
    [Heard and decided January 29th, 1906.]
    1. In construing a will, parol evidence as to the situation and surroundings of testator, and the objects and persons with whom he was familiar and on whom his affections rested, is competent to show what testator meant by the words employed.
    2. In an action to construe a will, evidence examined, and held to show that, in giving a legacy to the German Turner Home, Jersey City, testator intended complainant, the German Pioneer Verein, as beneficiary.
    3. Where there was abundance of property to pay a legacy, a surplus of nearly $30,000 in the executor’s hands being shown, he was liable for interest on a legacy amounting to $1,000, payment whereof he deferred; the fact that the surplus consisted mainly of real estate, which, as residuary legatee and devisee, the executor desired to hold for better prices, not excusing the non-payment.
    On final hearing on bill, answer and proofs.

      Mr. Robert S. Hudspeth, for the complainant.

      Mr. Francis Scott, for the defendant.
   Pitney, V. C.

The complainant is a benevolent society, incorporated as such on the 17th day of May, 1888, by the name of The German Pioneer Verein of Jersey City, New Jersey.

The declared object is

“the relief of such of the members thereof as shall, by sickness, old age or other cause, be rendered incapable of their usual occupation or calling; to give and extend benevolent and charitable relief and assistance to persons who are not members or incorporators, and other charitable objects that may be provided for in' the constitution and by-laws of such incorporation.”

The defendant is the executor of one George A. H. Meyer, a German who lived for many years in Jersey City, and died on the 5th day of October, 1900, testate of a will wholly in his own handwriting, in which he gives various legacies; among others, one in these words: “The German Turner Home, Jersey City, one thousand dollars.”

The complainant by its bill claims that it is the legatee intended by the testator.

The defendant, who is also residuary legatee and devisee, by his answer does not deny that he has assets sufficient to pay all the legacies given by the will, but simply denies that the complainant is properly described as or can be properly held .to be the legatee intended, and further sets out as follows:

‘‘Ancl your defendant further says that said legacy fails by reason of the fact that there is no German Turner Home in Jersey City, and what the deceased meant by this term cannot be ascertained with reasonable certainty and accuracy so that the court can safely make a decree that the said legacy should be paid to any person or corporation.”

The complainant produced convincing proof of the allegation of fact in the answer that there is no “German Turner Home” in Jersey City, but alleged in its bill ancl sustained by proof the following facts: Some time before the date of the complainant's incorporation an old German gentleman by the name of Raymond Rath, a resident of Jersey City, died testate of a will in which he left a fund of $20,000 to be paid to any society which would purchase land in Jersey City fit to be occupied by a building for a home for old people and devote it to such purpose and erect a home on it. Whereupon some benevolent Germans in Jerse}r City formed themselves legalty into the association, the complainant herein, raised funds among themselves sufficient to purchase the necessary land, and did purchase it, and altogether qualified themselves to receive and did receive this bequest of $.20,000, and with it erected a suitable building, which they, in memory of Mr. Rath, named the Rajunoncl Rath Altenheim. The word “altenheim” is a German word, which means “home for old people.”

The institution has been maintained ever since, and is known as “the home,” and it is the only institution of its kind in Jersey City.

At and before the time of the complainant's organization there was in Jersey City a hall occupied by a turner association. The word “turner” in German means “athletic,” and “turner hall” means an “athletic hall.”

It was clearly proven that there is not and never has been anything in common between a “turn verein”—athletic association—and such an association as the complainant.

The distinction is stated by an elderly German witness, Mr. Eingle, thus:

“I don’t think there is a turn verein in the world that has a tendency to support poor people; every turn verein that ever X heard of has a tendency of socialistic or anarchistic propensities, and learn ybung men liow to drink beer and liquor of large quantities; that is about the tendency; now, you have the whole thing in a nutshell.”

But it so happened that the complainant association, both before and after its organization, while engaged in raising money to buy land to qualify itself to be the legatee of Mr. Eath’s $20,000, and in the erection of the building, met in a turner hall in Jersey City, and issued circulars with a printed head as follows: “Deutschen Pioneer Verein. Headquarters, Turner Hall, 259 First street, Jersey City.” Hence the idea came to be entertained by some persons that the “home” which the complainant was seeking to establish could be properly. known and designated as the “Turner Home.”

The complainant continued its meetings at that Turner Hall until it—the hall—was abolished.

The complainant was organized in May, 1888, and the will herein was executed in January, 1900.

The testator, according to the proofs, was interested from the start in the complainant association and its objects. He attended meetings of the society in Turner Hall, and later on, after the homo was built, in the home. He was a frequent visitor at the home and' made contributions in money to its support, and was elected and made an honorary member thereof, and always expressed great interest in its welfare.

The proofs further show that the institution was commonly spoken of as “the home/”

Now 1 think when we consider three or four circumstances in the present case all difficulties vanish.

In the first place, all the parties are German. In the next place, there is no such thing in Jersey City or elsewhere known as a “Turner Home.”

In the next place, the complainant's “home” is the only institution of the kind in Jersey City.

Now if we apply to that situation two maxims—the first one expressed in the words ut res magis valeat quam pereat, expressing the desire of the court that the legacy should take effect rather than that it should lapse, and the other, falsa demonstratio non nocet cum de corpore constat—the whole difficulty vanishes. Here the false description lies in the use of the word “turner,” an adjective.

Parol evidence to show the situation and surroundings of the testator, and the objects and persons with whom he was familiar, and upon whom his affections were resting, is always competent in these cases. It does not contravene the general rule of law against the use of parol evidence to supplement wills. It does not attempt to show what the testator meant to say, but simply to show what he meant by what he did say, or, as was said by a learned English judge, in Richardson v. Watson, 4 Barn. & Ad. 787, “such evidence is admissible to show not what the testator intended, but what he understood to be signified by the words he used in the will.”

A„ large number of illustrative cases are collected by Vice-Chancellor Wigram, in his essay on “Extrinsic Evidence in Aid of the Interpretation of Wills,” fourth edition, by Knox Wigram.

I will only mention Beaumont v. Fell, 2 P. Wms. 140; Fonnereau v. Poyntz, 1 Br. Ch. C. 472; Boys v. Williams, 2 Russ. & M. 689, Wilson v. Squire, 1 Younge & Coll. C. C. 654.

The case in hand comes peculiarly within Vice-Chancellor Wigram’s Third and Fifth Propositions.

I will content myself with quoting the author’s conclusion (at p. 88 § 96) that the authorities lead to the following proposition :

“Every claimant has a right to require that a court of construction, in the execution of its office, shall, by means of extrinsic evidence, place itself in the situation of the testator, the meaning of whose language it is called upon to declare.”

Misdescriptions of benevolent and charitable corporations have been a fruitful cause of the exercise of the power of the court in cases like the present.

The list of English cases will be found in 2 Chit. Eq. Index 1160, lit. “Charity.” I cite the following: Coldwell v. Holme, 2 Sm. & G. 31; 18 Jur. 396; 23 Law Jour. Ch. 594; King’s College Hospital v. Wheildon, 18 Beav. SO; 23 Law Jour. Ch. 587; Bunting v. Mariott, 19 Beav. 163; Bradshaw v. Thompson, 2 Younge & Coll. C. C. 295; 7 Jur. 386; Re Maguire, 39 Law Jour. Ch. 710; 9 L. R. Eq. Cas. 632. In the United States a list is found in Mr. Ránclolph’s edition of 1 Jarm. Wills 760. In New Jersey, in 3 Stew. Dig. 393.

For these reasons I conclude that the complainant is entitled to the said sum of $1,000, with interest from one year from the date of the testator’s death.

At the hearing a faint attempt was made to show that interest shotild not be allowed, and that the payment of the legacy should be deferred, but I think it failed. I have said that the defendant executor is also residuary legatee and devisee. By his answer he shows that there is abundance of property to pay the legacy, and he was also met by an affidavit made and filed by him in answer to an application herein for an interim injunction which gives the detail of the proper!}" and the legacies already paid and those remaining to be paid, showing a surplus of nearly $30,000. The only objection to present payment was that the surplus consisted mainly of real estate, which the defendant desired to hold for better prices. This, of course, is no excuse.

I will a.dvise a decree for the payment of the legacy, with interest, against the defendant, both as executor and individually, with a counsel fee of $50.


source: Caselaw Access Project

author: Emery, Y. C. Emery, Y. C.

license: Public Domain

text:
    Benjamin Lillard et al. v. The Oil, Paint and Drug Company et al.
    [Decided October 31st, 1903.]
    1. A. court of equity has the power to review the question of the reasonableness of salaries for the personal services of directors as corporate officers, though fixed by the stockholders, especially where the salary was fixed by the vote of the director as a majority stockholder for his own benefit.
    2. The permanent annual salary of the president and manager of a corporation was fixed in 1895 by resolutions or by-laws, and was paid to 1900. In 1900 a minority stockholder filed a bill to secure relief against the salary on the ground that it was excessive, and claimed reimbursement from the time the salary was fixed. In 1896 complainant, as a member of the board of directors, endeavored to secure relief, but without success, and made like efforts at a stockholders’ meeting in July, 189S. Since July, 1S98, no meetings of the corporation stockholders have been held. Alter .1895 negotiations for the sale of the minority stockholder’s stock took place between him and other stockholders.—Held, that complainant’s relief could not, because of his laches, extend further than the setting aside of the resolutions fixing the .salary, with an accounting for any excess of salary received for the year commencing next after the filing- of the bill up to the hearing and submission of the cause.
    3. The question of the reasonableness of the compensation for services as manager of a corporation depends on what the services of a competent manager are reasonably worth, and not on what the manager could make in a different business. Evidence examined and salary held excessive.
    4. P. L. 1S96 p. 293 § 41, providing that the directors of every corporation created under the act shall, after reserving over and above its capital stock paid in as a working capital for the corporation such sum as shall have been fixed by the stockholders, declare a dividend among its stockholders of the whole amount of its accumulated profits exceeding the amount as reserved, gives to the stockholders discretionary power to fix the amount reserved, and so long as the capital reserved is retained for the benefit of the whole corporation, equity will not interfere.
    5. Where a stockholder of a corporation sued in its behalf to recover salaries paid certain officers in excess of the amount to which they were entitled, and on other grounds, and recovered an amount as having been illegally paid as salary, but failed to substantiate the other charges of the bill, he was entitled to receive out of the money recovered a reasonable amount for counsel fees, but not the whole of his counsel fees and disbursements.

      Heard on bill, answer and amended answer, replication and proofs.

      Mr. Flavel McGee and Mr. Robert L. Lawrence, for the complainants.

      Mr. Charles L. Corbin and Mr. H. M. Brigham (of the New York bar), for the defendants.
   Emery, Y. C.

This is a stockholders’ bill filed against three corporations and their several directors (other than one of the complainants), bringing in question the general management of the corporations by the defendant directors, and two specific acts—the reservation o.f working capital and the payment -of excessive salaries to one of the defendants—are attacked as illegal and fraudulent. This reservation of working capital and payment of excessive salaries are also the facts principally relied on at the hearing to sustain the charge of fraudulent management of the companies, it being insisted that the general purpose of the defendants’ management of the company has been to reduce its profits and dividends for the purpose of lessening complainant Dillard’s income and compelling him to part with his stock at a loss.

In relation to these specific charges, which are the principal matters for determination in the cause, the relief sought is the distribution among the stockholders, as dividends, of the working capital alleged to have been wrongfully reserved, the setting aside of the by-laws and resolutions fixing the salaries, and the repayment by the defendant Allison to the treasury of the eompanies. of so much of the salary received as is in excess of a fair compensation. Two of the defendant companies—the Oil, Paint and Drug Publishing Company and the Druggists’ Circular—are corporations of this state, and each of these companies is engaged in the publication of a trade paper, while the third company is not engaged in the business of publishing, but holds substantially all of the stock of the New Jersey companies. This holding company was incorporated under the laws of West Virginia and is called the Oil, Paint and Drug Company. Eor convenience, I will designate the companies as the West Virginia Company, the Drug Publishing Company and the Druggists’ Circular. The Drug Publishing Company publishes a paper entitled “The Oil, Paint and Drug Reporter,” and the Druggists’ Circular publishes a paper called “The Druggists’ Circular.” The entire capital stock of the Drug Publishing Company ($50,000) is five hundred shares of $100 each, of which the West Virginia Company holds four hundred and eighty-five shares; the complainant Benjamin Lillard, four shares; the complainant Mrs. Lillard, one share; the defendant Allison, eight shares, and the defendants Bell and Mrs. Allison, one share each. The capital stock of the Druggists Circular is $25,000 (two hundred and fifty shares of $100 each), of which the West Virginia Company holds two hundred and thirty-five shares, the other fifteen shares being held by the same parties, and to the same amount as in the Drug Publishing Company. The complainant Mrs. Lillard is a stockholder only in the New Jersey companies. The West Virginia Company was incorporated August 28th, 1890, and, although incorporated for the purpose of manufacturing books and periodicals, has never as yet carried on that business, or any business other than such as is purely incident to that of a holding company. Its entire capital stock was $750,000 (one-third preferred and two-thirds common), and of this the complainant Benjamin Lillard received two thousand five hundred shares (eight hundred and thirty-three shares in preferred and one thousand six hundred and sixty-seven common), and the defendant Allison five thousand shares. Two hundred and twentj'-seven shares of complainant Lillard’s preferred stock and four hundred and fifty-four shares of common stock were received by Lillard in exchange for one hundred and fifty shares of stock (par value, $15,000) which he then held in the Druggists’ Circular, while for the balance of his stock (six hundred and six preferred and one thousand two hundred and thirteen common) Lillard gave his notes to Allison for about $90,000, upon receiving the stock. These notes have since been paid, mainly, if not altogether, out of the dividends declared by the West Virginia. Company, the source of these dividends being the dividends received from the ( New Jersey companies. Lillard, who has always been and still ¡is a director of the West Virginia Company, was vice-president and general manager of this company, and in this capacity per- ! sonally managed the business of both New Jersey companies \ connected with the publications from the time of its incorporaj tion (August, 1890) up to about September, 1893, at a yearly \ salary of $7,800, without any further compensation from either of the New Jersey companies, nor did any other person receive \ any salary from the New Jersey companies for the management 'of their business. This salary was fixed by a resolution of the 1 board of directors of the West Virginia Company. From September, 1893, to March, 1895, defendant Allison, as the president of the West Virginia Company, and Lillard, as vice-president and general manager of that company, together managed the business and publications of the New Jersey companies, each receiving $5,300 yearly from the West Virginia Company, but no salary from the New Jersey companies. These salaries ! were fixed by a resolution adopted by vote of the stockholders of the West Virginia Company, at a meeting in January, 1894. | In March, 1895, previous to the meeting of the stockholders ■l of the West Virginia Company, an arrangement was made be- ' tween the defendant Allison, who owned and held in his own : name the majority of the stock of this company, and Mr. John L. Riker, who held three hundred shares of its stock and was a director of the compan}', that the defendant Allison should assume charge of the management of the business of all the companies for a salary of $18,000, and the further arrangement :was made that this salary should be equally divided between the three companies. Allison and Riker controlled the West Virginia Company, which in turn controlled both the New Jersey companies, and the arrangement was formally carried into effect as follows: By the existing by-laws of the West Virginia Company (article 31) there could be no compensation for services rendered by the president or any director unless it was allowed by the stockholders, and previous to this time no salary had been given to the president. The by-laws directed (article 33) that the president should have general charge and supervision over the business of the company, but up to this time ■ this general charge had not been taken to .include services as general manager of the company, having charge, as such, of the entire business of the publications carried'on by the New Jersey companies. Article 12 of the by-laws provided that the board of directors should have the management ■ and control of the ■ affairs and business of the corporation, and should appoint such officers and agents of the corporation as they might deem proper, and prescribe their duties and compensation, the officers and agents to hold their places during the pleasure of the board; and article 18 required the board to choose one of their members president, and that they should choose also a vice-president, treasurer, a secretary and a general manager, any director being authorized to hold more than one of these offices. At a meet-j ing of the board held September 3d, 1890, Lillard was elected j vice-president and general manager,- and by the vote of the! directors (other than himself) the salary for his services as ’ such was fixed at $7,800 per annum, and by a subsequent resolution of the board, passed December 4th, 1890, it was resolved that he should receive this salary of $7,800 as vice-president and general manager, for the term of three years, from September 1st, 1890,- and he was yearly elected by the board as vice-president and general manager, his last election being on January 23d, 1894, and for the ensuing year. At a meeting of j the stockholders- of the West Virginia Company- held March ' 19th, 1895, a resolution was passed that the company pay to its 1 president, as compensation for his services, a salary of $6,000 ", per year. This was passed by the votes of Allison, holding a j majority of the stock (three thousand seven hundred and eighty- ; nine shares); Mrs. Allison, his wife, eight hundred and fifty j shares; Riker, three hundred shares, and thirty-five shares by j defendant Bell, Lillard voting two thousand five hundred shares! against the resolution. Allison was then elected president at the directors’ meeting following the stockholders’ meeting by the unanimous vote of the five directors, Allison, Hewitt, Riker, Bell and Lillard, and was also, by the same vote, elected general manager of the company ffor the ensuing year. At this fixing ■ of the president’s salary no addition to his previous duties was ; . made either by the stockholders or directors; neither was there . any provision by either stockholders or directors that, as compensation for this salary thus permanently fixed at a large sum ¡ by the by-laws of the company, the duties of general manager' of the business, either of the West Virginia Company or of the ¡ New Jersey companies, should be included, either wholly or in 5 part, as the duties of the president of the West Virginia Company.

The status of the New Jersey companies in reference to the change was as follows: The by-laws of the Drug Publishing Company directed that the directors should appoint and might ; remove at pleasure all officers, agents and employes of the company, prescribe their duties and fix their compensation, and it I was made their duty (article 4, section 10) to conduct, manage and control the business of the company. They were to elect ' annually one of their members president, who should have, subject to the advice of the directors, a general direction of the affairs of the company. The by-laws could be amended by the affirmative vote of three-fourths of the stockholders at a meeting, or by all the directors at any regulár meeting or meeting specially called.

On July 6th, 1891, after the purchase of the stock of thé company by the West Virginia Company, Allison was elected president and publisher, and Lillard vice-president and manager, for the ensuing year, and each was re-elected annually to these offices until July, 1894, when Allison was elected treasurer, and Lillard vice-president, for the ensuing year. Up to July, 1895, neither Allison nor Lillard received any compensation as publisher or manager of the company. In reference to the other New Jersey company, the Druggists’ Circular, the same condition of affairs existed, except that the by-laws of the latter company could be amended by a majority vote of the stockholders.

j On July 1st, 1895, at a meeting of the directors of the West ■ Virginia Company, Mr. Henry M. Brigham, the New York : attorney of the company, was made its proxy at the annual meetings of the two New Jersey companies, and was directed . to vote for Allison and his wife and the defendant Bell as directors of those companies, and was then, by the same resolu- j tion, further directed to vote at these meetings in favor of an amendment of the by-laws of each of the Few Jersey companies which should provide that the salary of the respective presi- j dents, from and after the 1st of July, 1895, should be $6,000- / per annum. This' resolution was passed by the vote of all the t directors of the West Virginia Company except Lillard, who-opposed it. These resolutions of the West Virginia Company board were carried out at the annual meeting of the two Few Jersey companies held on July 3d, 1895, and their by-laws- were, so amended, Lillard voting against the resolution at each meet- > ing of the stockholders. Mr. Allison, his wife and Mr. Bell were elected as the three directors of the Few Jersey companies, and Mr. Allison, at the subsequent meeting of the directors of each of the Few Jersey companies, was elected president,- treasurer and publisher of each company, and was re-elected in July, 1896. Since that date he has not been elected to these offices in the Few Jersey companies by the directors of either of those companies, so far as appears by their minutes. Under the Cor- ) poration act, section 13, the president and treasurer continue* j in office until others- are chosen. In 1896 Allison was, by the • directors of the West Virginia Company, elected president and l appointed general manager of that company, and since that ’ time has apparently held both these offices and his offices in the ; Few Jersey companies without any further election or appoint- ¡ ment by either stockholders or directors. For services in all the offices he has received the aggregate salary of $18,000,. each company paying $6,000. The proofs show that since the passage of the resolution and amended by-laws, Allison has for these : salaries actually rendered all or most/of the services in the management of the publications formerly -performed by the general manager of the West Virginia Company and the publishers and managers of the Few Jersey companies. There have í been no meetings of the stockholders of the West Virginia Company since January, 1896, or of the Few-Jersey companies since July, 1898, and Mrs. Allison having died in 1899, Allison and ' defendant Bell have acted as the only directors of both Few Jersey companies since that date. .

fe¡ The first question raised in reference to the salary is the .¡right of the court to consider or review the question of their i fairness or reasonableness, it being claimed that inasmuch as t the salaries have been fixed by the by-laws or resolutions of the stockholders themselves, this action is final and conclusive upon i all stockholders and upon the court.

It is settled in this state beyond question that where the salary of the president or of any other member of the board of directors, for his personal services in the general management of the business of a company of this character, is fixed by the directors, the amount of compensation fixed by the board is not final as against any dissentient stockholder promptly applying for relief. The mere employment of a director to perform the services is not reviewable to any greater extent than any other act of the board in managing the business of the corporation under the statute, but the agreement for employment is in such cases considered as distinct and separable from the : agreement for compensation, and the compensation, when properly called in question, is determined by the court, at its fair value, and the burden of establishing the value of their services is upon the directors. Gardner v. Buller, 30 N. J. Eq. (3 Stew.) 702 (Court of Eirors and Appeals, 1879), and Fougeray v. Cord, 50 N. J. Eq. (5 Dick.) 185 ; S. C. on appeal, 50 N. J. Eq. (5 Dick.) 756, 759 (1892), are adjudications expressly upon this point of salaries or compensation for services in the management of the ordinal business of the company where the salary was fixed by the board of directors, and in each of these eases the review of the compensation was made at the instance of a single stockholder of a solvent going corporation to compel repayment of excessive compensation fixed by directors. Hayes, Receiver, v. Pierson (Vice-Chancellor Stevens, 1899); affirmed on appeal, 45 Atl. Rep. 1091, was a suit by a receiver of an insolvent corporation, in which all of the stockholders, except one holding three shares, had assented to fixing $4,000 as the salary of the president, who managed the entire business of the company. This compensation, as appears from an examination of the record on appeal, was fixed by the stockholders at a stockholders’ meeting, and the point was raised on appeal that the company and the receiver were bound by this action. .But the compensation was reviewed and set aside as excessive by the vice-chancellor, and his decision was affirmed on appeal. In Davis v. Thomas & Davis Co., 63 N. J. Eq. (18 Dick.) 572 (Vice-Chancellor Reed, 1902), repayment of excessive salary was directed on a bill by a receiver representing only the creditors of an insolvent corporation, and on the ground that it was a misappropriation of the assets. It does not appear in the report of this case whether the stockholders fixed or approved the salary, or whether it was fixed by the directors. The contract for compensation of a director, like any other contract made by the board in which a director is personally interested, is a contract which is voidable but not void, and may therefore be ratified. Such contracts are voidable, however, as against the company, considered as composed of the whole body of stockholders, not voidable against each stockholder in his own individual right, and the general rules established as to affirpiing or ratifying such voidable contracts are (1) that the stockholders, as a body, may, bv a majority vote, ratify the contract, and (2) that as the individual stockholders are not trustees for each other, the director whose contract is in question may voté as a stockholder on the ratificati on, and that the ratification is valid, even if his vote is necessary to make the majority. These general rules were recognized and approved in Hodge v. United States Steel Corporation, 64 N. J. Eq. (19 Dick.) 307 (Court of Errors and Appeals, 1902). They were there applied to the case of the approval of a contract, in which a majority of the directors were interested, which was not in the ordinary or usual course of management of the business, but was a contract for compensation to directors and others for special services and guarantees connected with the conversion of two hundred thousand shares of the preferred stock of the company into bonds. In this case, also, the by-laws of the company, .adopted before complainant purchased his stock, expressly provided for the approval, by a majority vote of the stockholders, of any contract which the directors desired to submit to their approval, and the contract was approved under this by-law.

In the present case there are no provisions, either in the charter or by-laws, limiting the power of the board of directors or increasing the power of the stockholders in the management , of the ordinary business of the company, and the compensation ; which is questioned in this case was fixed directly, and in the j first instance, by the stockholders, either by resolution or bylaw. Our statute (Corporation act, § 1&) provides that “the business of every corporation shall be managed by its directors,” but it also provides (Corporation act, § 1) that the corporation “may make bj'-laws providing for the management of its property and the regulation and government of its affairs,” jfand (section 8) that the certificate of organization may conjtain provisions limiting and regulating the powers of the dij rectors and stockholders, if they are not inconsistent with the I act.

The regulation of official duties and the salaries therefor is a proper subject of by-laws within the power of stockholders under the statute, and although it may be doubtful whether the stockholders, against the consent of the board of directors; have the power under our statute to direct the employment of the .agents to manage the ordinary business of the company outside of the official duties, and fix their compensation for such service, there would seem to be no question that, in the absence of statutory or charter provisions to the contrary, the stockholders, .as a body, must have the general power to direct or ratify the employment of a director for that purpose and fix the compensation. Otherwise the corporation might not be able to employ any director as such agent against the objection of any stockholder.

In reference to the power of stockholders, the general rule is •declared to be thit where there is no statutory of other provision regulating the constitution and powers of the managing body, the majority of the stockholders must determine how its affairs ■are to be conducted, and to whom and under what restrictions the management of those affairs shall be entrusted. Lind. Comp. 5th ed.) 298. The exercise of this right of the majority of the ■stockholders, either to originally direct or to affirm a contract between the company and a director or directors personally interested in the contract, is not, however, absolute and unqualified, but is subject to a necessary qualification declared in North west Transportation Co. v. Beatty, L. R. 12 App. 589 (Jud. Council, 1887), the leading English case, in which the general power of the stockholders was affirmed. This qualification is (Northwest Transportation Co. v. Beatty, L. R. 12 App. 593, 594.) that the affirmance or adoption must not be brought about by unfair or improper means, and must not be illegal or fraudulent or oppressive towards those stockholders who oppose it. As was said in a later case, Menier v. Hooper’s Telegraph Works, 9 Ch. App. 353 (1874), the majority of the shareholders, although they may deal with the assets of the company, cannot so deal with them as to divide the assets, more or less, between themselves, to the exclusion of the minority.

The fixing of his salary by the solo vote of the majority stockholder in his own favor is, in effect, an appropriation of the assets to his own use, and under this necessary qualification or limitation of the power of the stockholders it,is subject to the review of a court, when properly questioned, and if fraudulent or oppressive should not be allowed to stand. This protection to the minority stockholder, in relation to contracts for services between the company and a director who is also a majority stockholder, is not only equitable and just, but is, in my judgment, vital to the usefulness of the system of corporate management. In the Hodge Case the contract (which had been previously considered in the Berger Case) was held not to be fraudulent or unreasonable, and while it is true that the court declined to review the question of alleged excessive amount of compensation under the contract, or to reserve the -consideration of this question for the final hearing, as I had done when the cause was before me, it must be noted that the contract was a special contract with the directors and third persons, and may therefore have been considered as a voidable contract which was to be affirmed or rejected in ioto, both as to the services and compensation of the directors as well as the third persons. It was not, as in the present case, a transaction merely between the company and a director for the management of the company’s ordinary business which must be carried on, and one in which, as our decisions have uniformly held, the employment and the compensation are justly and properly separable contracts between the company and the director. In Hayes, Receiver, v. Pierson, supra, the compensation fixed by the stockholders as the salary oi one of its officers was reviewed by the court, and the case is an adjudication in favor of this right of review, although the point was not specially considered in the opinions. In respect | to the burden and amount of proof, the status of the opposing ] stockholder may in some cases be different when the majority | of tlis stockholders, and not merely the board, direct or approve ■the compensation or salaries, and instead of requiring the cli- ; rector to prove that the compensation is fair—our rule where j the board fix the salary—the objecting stockholder may be re- ! quired to establish affirmatively that the salary or compensation \ fixed by the stockholders is unreasonable and oppressive.

If the method o£ fixing the annual salaries of its officers for ] the performance of official duties and the management of the company’s business is by an alteration of the by-laws instead of a contract with the company through the directors, and directed or approved by the stockholders from time to time, then the power of the majority stockholder to fix his salar}', either as officer or agent of the company, by his solo vote, is not so broad. This results from the fact that by-laws are the permanent regulations of the business of the company, intended for the common benefit of all the stockholders, and however widely the powers of alteration may be given, cithet by the statute or articles, these powers must, in the words of Master of Rolls Lindley, in Allen v. Gold Reefs of West Africa (1900), 1 Ch. 666, 671, “be exercised subject to those general principles of law and equity which are applicable to all powers conferred on majorities and enabling j them to bind minorities. It must be exercised, not only in the manner required by law, but also bona fide, for the benefit of the company as a whole, and it must not be exceeded. These conditions arc always implied and are seldom, if ever, expressed.” .The same principle would apply to permanent regulations in the form of resolutions of .the stockholders. Under the evidence in this case, I have no doubt that the resolution and the alterations in the by-laws of the respective companies were not made bona fide with, a view to common benefit of the company as a whole, but for the purpose of securing to the director who controlled the appointment to the office, and making permanent as long as j he controlled the stock, an arrangement for compensation in the ; offices which, in the usual and ordinary course of management ' of the business for the common benefit, would have been within j the control of the directors elected from time to time, according , to their judgment, as the business or exigencies of the company ; might require, subject to review from time to time by the stock- ‘ holders. This form, therefore, of fixing a director’s salary by his own vote or control, on an alteration of by-laws or general resolution, not only did not givejan additional sanction against " an existing minority stockholder, but required on the part of the majority stockholder the exercise of a good faith toward the interests of the company, considered as a whole, which might not hare been required of him as a stockholder voting upon a contract for compensation between the company and himself, which was to be renewed or approved yearly or from time to time by the directors, and, if they desired, to be submitted to the stock-1, holders. These alterations of the by-laws and the resolution in fixing the salaries of the presidents of the companies made no addition to their official duties, which up to this time did not include the personal management of the business of publishing, which had been under the control of agents called the general manager or publishers, and if these large salaries are merely and strictly salaries for official duties under the existing by-laws, they are manifestly misappropriation of the company’s funds for the sole benefit of the director. The only theory upon which they can be retained by the defendant Allison is that they were in fact intended as compensation, to be given mainty, if not altogether, for the performance of the duties of general manager or publisher of the papers. These duties had been previously performed by agents approved by the directors, who fixed the compensation, and in the absence of any alteration or addition to the by-laws attaching these duties of general manager or publisher to the office of president, the services must perhaps strictly be considered as performed under an implied contract with the compam-, made with the directors. In either aspect of the case, therefore, whether the duties of the presidents assumed after the alterations be taken to include the duties of manager and publisher, and the salaries therefor be taken as fixed by by-law or resolution, or whether the services as manager or publisher after the alterations be considered as performed under implied contracts with the companies, made with their directors, I conclude that the fairness and reasonableness of the salaries can be reviewed by the court.

If the court has .the right, in a proper case, to review the action of the stockholders or directors in fixing the salaries, the objection is next made that this right is not to be exercised in this case because of the complainants’ laches in applying for relief. The salaries were fixed in 1895, and have been paid Bince that time, and the bill was filed in March, 1900. .

In July, 1896, Lillard, as a member of the board of the West Virginia Company, endeavored to secure relief against the salaries, but without success, and like efforts were made by him at the stockholders’ meetings of the New Jersey companies held in July, 1898. Since July, 1898, no meetings of the stockholders of either of the New Jersey companies have been held, and the stockholders of the West Virginia Company have held no meeting since January, 1896. The directors in office continue, under the respective charters, until their successors are elected.

After defendant Allison took charge negotiations or conferences took place in reference to the sale of Lillard’s stock, and the pendency of these is an explanation, to some extent, of the delay in filing the bill. Promptness in a stockholder’s application for relief in a case of this kind is one of the essential conditions on which it is granted, and the question in each case is as to the application of the rale. Where the contract or act complained of is one. which relates to separable annual payments, but is continuous in its operation, and the illegality1' or oppression will be permanent, unless it is set aside or restrained .by the court, delay may not be a bar to relief against the continuance oh the salaries, although it may bar a recovery of the excess paid previous to the time of filing the bill. Delay is made effective. as a bar to relief mainly upon the ground of acquiescence, but acquiescence in one illegal act, or invalid act, should not be held to bind the stockholder to submit to a continuance'of similar illegal or invalid acts. The office of president of these companies is an annual office, and the salaries are payable yearly, and the minority stockholder’s substantial grievance here is that the salary claimed to be excessive is attached permanently to the office by means of by-laws and stockholders’ resolutions, and that this annual salary to the presidents cannot be terminated at all, except by the consent of the majority stockholder, who holds the office at his will. So far as relates to the salary paid each year,'the stockholder may be barred from relief, if he delays beyond the year, and allows the company to pay the salaries, and the delay is not satisfactorily explained. But if the by-law or resolution is invalid, he is entitled to relief against its continuous operation, as fixing permanently the salaries of the presidents for the future. In the present case, I do not think the delay to take proceedings for relief against this salary has been satisfactorily accounted for. Disputes and contentions arose at once between Dillard . and the defendant directors in regard to the general management of the company from the time he ceased to be manager, and these continued up to the time of filing the bill, there being, in the meantime, negotiations or conferences in regard to the sale of his stock to the defendants, or one of them. Complainant’s hope or expectation of a settlement through such sale explains his delay in commencing this suit, which involves the whole general management of the companies’ affairs under the defendant Allison, including the matter of the alleged excessive salaries, but so far as the objection to the salary already paid is concerned, this is not a ■sufficient legal excuse for the delay in applying for a relief. The salary paid to Allison as president of the West Virginia Company was brought to Lillard’s attention regularly since 1898, on his attendance at the meetings of the board of directors, of which he was a' member, and so far as the payment of this salary was concerned he made no objections after 1896. Complainant’s relief in regard to the salaries, if he is entitled to any', being based on his rights as a stockholder of the company', cannot extend, therefore, further than the setting aside of the resolutions and byr-laws, with an accounting for any excess received for the year commencing next after the filing of the bill up to the time of the hearing and submission of the cause. If a recovery of the excessive salaries is sought by a receiver, representing creditors, and following assets which have been misappropriated by directors for their salaries,-other considerations may be applicable to the effect of delay.

As to the amount of salaries, my conclusion upon the whole evidence is that the compensation of $18,000 is excessive, by at least $5,000. In the preliminary arrangements for Allison’s compensation, the entire services in connection with all the companies were considered as embraced in this single sum of $18,000, which was to be equally divided among the three companies. The main question is as to the value of the services in managing and publishing the two periodicals, outside of the official services. The evidence as to the value of such services in the publication of other trade journals, so far as they can be a guide in this case, would not warrant the fixing of a larger sum than $10,000 a year. This evidence is produced by complainants, and the defendants, on their part, have not attempted to sustain this claim by any evidence of this character, but claim that it should not be given any weight, because, as is insisted, the management of each of such publications depends on its own peculiar conditions. For the official services as president and treasurer of each company, anything over $1,000 for each company is excessive.

Defendant’s claim that the salary of $18,000 is reasonable and fair, although the same services had been previously rendered to the company for about half that stun, is based mainly on the contention that the defendant, at the time of assuming' the management, was making as much or more in other business, and the conclusiveness of the previous smaller salary paid, is answered, or attempted to be answered, by the contention that the profits received by Dillard, through the receipts of which he paid for his stock, should be taken as really salary paid to him. Neither of these contentions is sound. The questions in relation to compensation are (1) what were the services of a competent manager fairly worth, and (2) were they in this case unreasonably excessive ? The amount defendant was making in another and entirely different business was undoubtedly a fair matter for his own consideration in determining whether he should give up his previous business and take charge of a business in which he and his wife owned substantially two-thirds of the stock, and which had been in the past very profitable to him as a stockholder, for a salary less than the profits of his business, but it is not, in my judgment, any fair basis or reason for requiring that the company or companies should, in the form of salary for managing théir business, guarantee him the continuance of his profits in another business, whether his services to the companies were worth it or not. The argument that the payment of dividends to Lillard was really a salary, and together with his salary amounted to much more than Allison received as salary, and the latter’s salary is therefore to be considered fair, is also unsound. This transaction was a purchase, for which Lillard gave his notes to Allison, and became his debtor. He owned before the purchase a large number of shares and the transaction as between Allison and Lillard was in all respects a purchase of the stock, and not an arrangement for salary. It was so considered and treated by both, and although the business under Lillard’s management was so profitable as to pay the notes for the purchase largely out of his dividends on the stock purchased, Lillard took the risk when he gave the notes that they might not be paid out of the profits, and Allison derived his proportionate benefits as stockholder by the dividends received on his stock under Lillard’s management. The payment of Lillard’s notes from this source is not now to be considered as a salary or as justifying Allison’s sure return, in the form of a large salary for management, of a sum approximating or proportioned to the dividends Lillard received on his stock while manager. I conclude that the amount of salarjr must depend primarily upon the value of the services of a competent manager, and tested either by the previous salaries of the companies, the salaries generally prevailing in the trades, or the actual results of a number of years under defendant’s management, as compared with the previous management under Lillard, I conclude, under all the evidence in the case, that the combined salaries of $18,000 are excessive. The resolution and by-laws of the respective companies, fixing the salaries of the respective presidents at $6,000, must all be set aside as invalid. For the purpose of determining the amount paid in excess, for which the defendant should account in this suit, the setting aside should take effect on July 1st, 1900, the expiration of the current salary year, during which the bill was filed (March, 1900), and the accounting should run to the end of the current salary year, during which the cause was heard and submitted—that is, to July 1st, 1902. Whatever salaries defendant received after the filing of the bill he took subject to any decree of the court up to the time of the hearing, and relief to this extent is incidental to setting aside the resolution and bjhLaws. The allowance for services for the-years subsequent to the hearing and submission depends, or may depend, upon evidence not submitted in this cause, and any adjudication upon this point should be reserved. In my judgment, $13,000 per year would be full and ample compensation to be allowed for the defendant’s entire services to all three companies—$10,000 for services as manager and publisher and $3,000 for the official salaries—$1,000 for each company. Defendant must account for all received over that amount of $13,000 during the two years, July 1st, 1900, to July 1st, 1902, being $10,000 of the whole salaries which have been received. As to the company or companies to whom the excess should be repaid, my present.view is that for the purposes of this adjustment the $6,000 paid 3rearly by the'West Virginia Company should be first applied to the pa3unents made —$1,000 for the official services as president and $5,000 for services as general manager of the West Virginia Company— and that $7,000 3rearlv be then applied equally between the two New Jersey companies upon the amounts respectively paid b3<them, being $1,000 for official services and $2,500 for services as publisher in each company. The amount to be reimbursed to cadi New Jersey company on this basis will be $5,000. I make this adjustment because the salary of the general manager of the West Virginia Company was from the beginning, and up to March, 1895, paid for the personal management of the prrbiicalions, which were actually made by the New-Jersey companies and its officers and agents, and was the only source of. salary; and further, because on making the change now brought in question the first source of payment indicated was the $6,000 from the West Virginia Company, the similar amounts from the New Jersey companies not being fixed until about four months later. Eór the purpose of adjustment between the three companies it seems equitable, therefore, that the excess should be considered as made by the later action of the New Jersey companies. As this point was not spoken to at the hearing, I will hear counsel, if desired, on application of either party.

In reference to the reservation of working capital, the facts arc that at a special meeting of all the stockholders of the Drug Publishing Company, held in October, 1897, they passed a resolution that the sum of $20,000 be retained out of the surplus earnings of the company as working capital. The resolution was passed by a vote of four hundred and ninety-five shares (four hundred and eightv-five of the West Virginia Company) to five shares of the complainants. On the same date a similar resolution was passed at a meeting of all the stockholders of the Druggists’ Circular by a vote of two hundred and forty-five shares against five. The West Virginia Company voted two hundred and thirty-five shares in the affirmative. It is contended that these reservations were illegal and invalid because the motive of them was to lessen the income from dividends to the shares of the West Virginia Company for the purpose of injuriously affecting or depressing the value of complainant Benjamin Dillard’s holdings in the shares of that company. At these meetings of stockholders of the New Jersey companies the vote of the West Virginia Company upon its shares was cast by Mr. Brigham, as its proxy, and he was appointed such proxy by a resolution of the board of directors of the West Virginia Company, held on October 6th, 1897, Mr. Lillard being present and voting against the resolution. Instructions were given in the resolution as to the proxy’s vote for directors of the New Jersey companies, but not upon the subject of the reservation of working capital. Nor does there appear to have ever been any formal action by the board of directors of the West Virginia Company upon this question. At the time of this reservation of their working capital the law in force was the Corporation act of 1896. Section 47 of this act (P. L. 1896 p. 898) provided that,

“the directors of every corporation created under this act shall (at certain times fixed), after reserving over and above its capital stock paid in as a working capital for said corporation such sum, if any, as shall have been fixed by the stockholders, declare a dividend among its stockholders of the whole amount of its accumulated profits exceeding the amount so reserved, and pay the same to such stockholders on. demand.”

Before the passage of this act the amount to he reserved for working capital (up to one-half of the capital stock paid in) was to lie fixed by the directors. The power given to the stockholders, under the act of 1896, to fix the amount reserved is absolute, and it is discretionary. So long as the capital reserved is retained for the benefit of the whole company, and not distributed to the majority stockholders at the expense of the minority, I see no reason to interfere with or question the action of the majority of the stockholders in this case because of the supposed motive of reserving their own profits instead of dividing them. The complainants, therefore, are not entitled to any relief as to this reservation of working capital.

The general charges of mismanagement, outside of the two specific acts mentioned, have not been sustained by the proofs. Especially is this true as to the charges of misappropriation of mone.ys. The accounts and hooks of the companies have not been kept in as complete or satisfactory a method as its business requires, hut the main defects are those which have arisen from continuing the system of bookkeeping which formerly obtained under Lillard, and at the hearing the defendants offered and proposed the introduction of a new and thorough practical system. I will hear counsel, if they desire, as to whether any order should he made in the suit in reference to the hooks. The complainant is entitled to costs. The examination of the books and accounts in court—very long and expensive—was necessary, and in view of the fact that no stockholders'’ meetings of any of the companies have been held since 1898, and complainant has been unable to obtain the information to which he was entitled as a stockholder without resorting to the courts, he is entitled to the costs of tlie suit, including the costs made necessary by the examination of the accounts. A decree will be advised in accordance with these views, and the form of the decree will be settled.

[Decided June 11th, 1904.]

On subsequent application by the complainant for allowance of costs and counsel fee.

Mr. Charles D. Thompson, for the complainant.

Mr. Charles L. Corlin, for the defendant.

Emery, Y. C.

So far as complainant’s taxed costs of suit are concerned, direction for payment by all of the defendants will be made. On the result of the trial of all the issues this is equitable. But inasmuch as complainant’s action in relation to the salaries has resulted in a substantial benefit to the two Hew Jersey companies by the recovery for them of the amount paid1 in excess, and as this action was brought by complainant purely as a stockholder to protect the rights of the companies, he should not be compelled to bear the sole burden of its recovery, and is entitled to receive out of the moneys so recovered for the companies a reasonable counsel fee. Meeker v. Winthrop Iron Co., 17 Fed. Rep. 48. Upon consideration of all the circumstances of the case, I fix this counsel fee at $500. Having failed in all the charges of the bill except the one relating to salaries, complainant is not entitled to be made whole for all his counsel fees and disbursements in the suit. I have settled decree on this basis. In the taxation of costs complainant will be allowed for the sums paid stenographer for copies of the evidence, and special order to this effect will be made if necessary.


author: Emery, V. 0.

text:
    William T. Barclay v. Charles Roome Parmele Company.
    [Decided August 22d, 1905.]
    Defendant’s assignor agreed with complainant to manufacture and sell proprietary medicines suggested by complainant, who conveyed to defendant’s assignor and a firm formed by him all his right and title to certain formulae, and granted the exclusive use of his name as a trade mark, in consideration of an agreed royalty on sales. The contract was subsequently modified as between complainant and defendant, by which defendant agreed to pay a royalty on all sales of the preparations “suggested” by complainant and bearing his name, but the contract contained no covenant for forfeiture on non-payment of such royalties.—Held, that complainant is entitled io royalties on all the preparations which were at the time of the modified contract or thereafter sold by defendant as complainant’s preparations, even though he might not have invented or discovered the process for making them, but he is not entitled to rescind the contract for a mere failure to pay such royalties.
    On bills, answers, replication, proofs and stipulations.

      Mr. James E. Howell and Mr. Henry W. Goodrich (of the New York bar), for the complainant.

      Mr. Gilbert Collins and Mr. Joseph J. Balcer and Mr. Arthur W. Michell (of the New York bar), for the defendant.
   Emery, V. 0.

Two causes, between the same parties as complainant and defendant, are heard together. The first is a suit brought by Dr. Barclay, the complainant, to recover royalties upon the sale of proprietary medicines or compounds, claimed to be due from the defendant, company upon sales made by it under written contracts, one of which was dated October 23d, 1893, and made between complainant and one E. M. Johnson, the assignor of the Parmele company, and the other a supplemental contract, dated September 8th, 1894, made directly between complainant and defendant, modifying the former contract. Complainant received royalties 'from the defendant from October, 1893, up to about September, 1900, and the first bill, filed March 9th, 1903, is brought for an account of the sales made and royalties due up to February 10th, 1903. On this date the complainant served notice on the defendant of its rescission and abrogation of the contracts, by reason of the defendant’s failure to pay royalties or to perform its part of the contract.

The complainant asks that an account be taken, as well for the period during which the royalties were paid as for the subsequent period, upon the ground that the accounts rendered were incorrect and willfully misrepresented and understated the amount, of the sales upon which royalties were due to complainant. Ho proof to substantiate this claim has, however, been offered.

The object of the second bill (filed April 23d, 1903) is to have the contracts declared void and abrogated because of defendant’s renunciation of them by its refusal to pay royalties, and other acts set out in the bill, which were accepted by complainant as an abrogation of the contract, declared by its notice of February 10th, 1903. And as further relief following the rescission or abrogation of the contracts, complainant seeks by this second bill an account of profits since February 10th, 1903, a confirmation of complainant’s title to the trade marks under which the compounds have been sold, and injunctions against using or disposing of-the trade marks or disclosing the secret-process under which the compounds are made. The general defence applicable, to both suits is that the defendant never at any time manufactured the preparations under the formulas 'or processes furnished by complainant, and that the formula under which it has always manufactured were not the invention or discovery of the complainant, but of one Hays, or Haas, and of its own chemists; and that it has made no sales of any preparations the process of which was discovered or invented by complainant. It admits payment of royalties to complainant on sales of preparations made by it, and marketed under complainant’s name as preparations of Dr. Barclay, up to August, 1900, but says that these payments were made by mistake, under the .belief that complainant invented the process for the preparations, and under false representations made by complainant, and under a mistake as to its rights. In its answer to' the first bill, defendant denies the right to any account and asks that the contracts may be declared void. In the answer to the second bill, while admitting failure to pay any royalties after August, 1900, under advice of counsel, it denies any renunciation or abrogation of the contracts on its part, or that the complainant had any right to abrogate the contract by the notice of February 10th, 1903-, and at the hearing resists the rescission of the contract. It claims the exclusive right to the trade marks under which the several compounds have been sold, all of which, except one (Calcauro) have been copyrighted in its name, and denies any right to account or compensation, either before or since February 10th, 1903, upon the general ground that the compounds it has sold and is selling are not manufactured under any process or formula discovered or invented by complainant.

The first question for decision relates to the construction of the written contracts between these parties, and this is whether, under the facts proved in the case bearing upon the construction and application of the contracts, this defence, that the preparations have not been manufactured under any process discovered or invented by complainant, is an answer to the claim for royalties under these contracts, and especially to the claim for royalties uuder the contract of September 8th, 1894, modifying the original contract. For the decision of this question and the application of its terms to the subject-matter, it will be necessary to consider not only the terms or words of the contracts themselves, but also the circumstances under which they were made and the subsequent action of the parties under them. The first contract made between complainant and Johnson (October 23d, 1893) opened with the recital

“that whereas, said Barclay has discovered a new and valuable combination of gold and arsenic, also other combinations of gold with various metallic salts, and has invented a process for making the first-named of those preparations, and is desirous of securing the aid of a competent party to introduce the above to the medical profession and market the same through the world,”

and Barclay on Ms part then agreed (first section) to assign and did thereby assign and set over to Johnson

“all right, title, interest, claim and property of whatsoever nature that said Barclay now has or is now possessed of, or may hereafter acquire in said preparations of gold, including such letters-patent as said Barclay may obtain from the government of the United States, or from any other government, granting to him the exclusive right to manufacture and vend said preparation or preparations within the territory covered by. said letters-patent, to have and to hold the same for himself, his heirs, executors, administrators and assigns, during the life of this agreement” [fifty years].

Second. By the fifth section

“said Barclay agrees that during the existence of this agreement, his name may be attached by said Johnson or his assigns to the labels used on said preparations, and he hereby conveys to said. Johnson the exclusive right to use his name as a trade mark in connection with the said preparations, or any other preparations of gold for medicinal uses that said Barclay may devise, and said Barclay hereby agrees, both for himself and his heirs, executors, administrators and assigns, that during the life of this agreement he will not engage, either directly or indirectly, in the manufacture or sale of any preparation of gold for medicinal use.”

ft was also agreed (eighth section) that after the execution of the agreement, all orders for said preparation and all correspondence relating thereto should be referred by said Barclay to said Johnson or his assigns.

Barclay also agreed (sixth section) to use diligence in applying for patents for combinations of gold with manganese and other salts desirable for medicinal use.

As “conditions” under which the agreement and assignment of Dr. Barclay’s rights was made in section one of the contract, Johnson on his part agreed (1) (second section) to organize a firm or corporation with the benefit of Johnson & Johnson’s name and connections, and with sufficient capital for the purpose of marketing said preparations, within three months from date; (2) “to pay to Barclay as royalty the sum of ten cents per ounce ior cacli ounce of said preparations sold in one-ounce bottles/’ with a reduction of the royalty in proportion “in case said preparations are sold in bottles containing more than, one ounce at prices less than charged for the ounce size.” (3) (fourth section) On the last day of each month to furnish Barclay with a statement “showing the amount of said preparations sold during the previous month by said Johnson or assigns/’ and to pay during the month the amount of the royalties shown by the statement. Eo royalties were to be paid to Barclay on any ■of said preparations distributed gratis among the physicians or druggists as samples for advertising purposes. The agreement contained the following provision for cancellation by Johnson, but contained no express provision for cancellation by Barclay:

“9th. It is further agreed between the parties hereto that said Johnson or assigns may at any time cancel this agreement and all covenants hereunder by notice to said Barclay, in writing, of such intention to do so, if it shall appear that such preparations are possessed of materially less therapeutic value than claimed for them, or if they possess qualities that render their use so dangerous to life as to prevent their employment by physicians, and in case of such cancellation, all rights, interest or properly herein granted to said Johnson shall revert to said Barclay, who shall thenceforth enjoy them the same as though this agreement had never existed.”

The agreement (section 10) was to continue for fifty years, unless sooner canceled, in accordance with paragraph 9, and (section 11) was to lie binding upon the heirs, executors, administrators and assigns of the parties.

The modification of September 8th, 1894, made between complainant and the defendant company, under its seal and the signature of its president, Mr. Parmele, recites that it is supplemental to the agreement of October 23d, 1893, which was assigned by Johnson to the E. M. Johnson Company, now known as the Parmele Company', and then agrees

“that paragraph three of the contract of the 23d of October, 1893, relating to the amount of royalties to be paid said Barclay by said Johnson ■or assigns, shall be and hereby is canceled, and it is hereby agreed between the parties that said Barclay shall receive, in lieu of the royalties due hita under said paragraph and contract, each month, as royalty, the sum equal to seven and one-lialf Her cent, of the net sales of the gold preparations suggested by said Barclay, and bearing his name, made during said month by said O. R. Parmele Co.,”

the company also having the right to make such price per ounce -for the preparations. The difference in the words of the two contracts describing the preparations on which royalty is to lie paid is vital, for one of the principal disputes arising upon the evidence as to the discovery of the process is whether Dr. Barclay not only originally suggested the idea of the compound to Hays, but also directed or instructed Ilays as to the process, or whether Hays himself originated both the idea and the process. Soon after the making of the original contract, Hays, with Barclay’s consent, was employed by Johnson to make the preparations of gold with arsenic and other metallic salts, which were put on the market as the “Barclay preparations,” and under the trade mark names suggested by Johnson and consented to by Barclay. These were “Arscnauro” for gold and arsenic, “Manganauro” for gold and manganese, “Mercauro,” gold and mercurj% and “Calcauro,” gold and calcium. Dr. Barclay was not himself a chemist, and shortly after the execution of the original contract questions or doubts had arisen whether the process or formula for making the gold and arsenic preparations, given to Johnson by Barclay at the time of executing the original contract, was correct or efficacious, and also whether Dr. Barclay, even though lie might have suggested the original preparation of gold and arsenic, was able to give the chemical process by which it could be satisfactorily made, and whether anyone except Hays could make them. Johnson’s first contract of employment with Hays, which was in writing and dated November 21st, 1893, contained, among other things, an assignment by Hays of all information, formulae or interest Hays had “in the Barclay preparations,” and a provision for a certain royalty to Hays “from the sale of the Barclay preparations,” and at the time of the execution of the modified contract the defendant company had also an assignment of Hays’ right to the compound first suggested, that of gold and arsenic, then and afterwards -marketed, under the trade name “Arscnauro,” as one of the Barclay preparations. Hays was als.o, at the time of the modified contract, still in the employ of. the defendant, manufacturing all of the preparations for sale by defendant and put on the market as the Barclay preparations.

These circumstances, in cofinection with the othér evidence in the case, show that the first question to be settled is the true construction and application of the words used in the contract of 1894, agreeing to pay royalty'on the sales “of the-gold preparations suggested by said Barclay and bearing his name,” and whether, under the modified contract,1 the complainant is not still entitled to royalties on all the' preparations which were then or afterwards put on the market by the defendant as the Barclay preparations, even though he might not have invented or discovered the process for making tire preparations.

I anr inclined to think that the words of the contract of 1894-themselves have that construction, and: when the application of the descriptive words used in this contract is made to- the subject-matter, in connection with the situation of the parties at the time it was made, and their conduct up to that time, confirmed by their subsequent action under the modified contract, I think there can be no reasonable doubt that one of the purposes of this modification of the contract was tó secure to Dr. Barclay royalties on the sale of the preparations then sold under his name, notwithstanding the controversy which had previously arisen as to whether Dr. Barclay or Hays originated the process of making the preparations. The consideration given by Dr. Barclay for the modification was a reduction in the royalty paid to him under the original contract, which was probably greater than the amount of royalty the defendant company had agreed to pay Hays, which included only one preparation.1

Upon the evidence, I conclude that under the contract of September, 1894, the preparations upon which royalties were to be paid were the góld preparations, then or afterwards bearing Barclay’s name, and that all of these preparations then so sold were, within the meaning of this contract between these parties, preparations “suggested by Barclay.” The evidence bearing upon the execution and application of the original and modified contracts, and the action of the parties under them, both oral and documentary, is very voluminous, and I shall not here review it in detail, but will file with this opinion a summary of the evidence for the information and use of the parties. "Suggestion” of a compound or preparation is an entirely different thing from such an origination or discovery of a process for making the compound as would entitle the discoverer to letters-patent for the process. Neither Johnson nor Hays was able to procure letters-patent on the processes for making the preparations which they disclosed in their applications (one cf Johnson and four of Hays), and neither of them, so far as appears from the evidence, was ever entitled to a patent for their discoveries. The evidence also shows that from September, 1894, at least, any applications for patents were abandoned by the mutual consent of the parties, and that the "trade marks,” including Barclay’s name, were relied on as their sole protection. In this case, therefore, we are not deciding conflicting claims for an invention for which there are letters-patent, but are construing a business contract made and acted on for the primary purpose of marketing under Barclay’s name, if desired, certain defined proprietary medicines, which might or might not be patented, and the question is, what was the description of the medicines which were to be sold adopted by the parties, and to what medicines is the description applicable ? That Dr. Barclay originally suggested the preparations to Johnson, under whom defendant claims, seems clear, and that he also suggested the first preparation of gold and arsenic to Hays himself, in the presence of Mr. Hieber, the employer of Hays, is also satisfactorily established by the evidence of both Barclay and Hieber. Hays denies this, but his credibility' is altogether destroy'ed, not only by his conviction for larceny and burglary', and his general bad reputation, but also by his conduct in accepting employment at once under Johnson, for the purpose of preparing the compounds to be marketed as the Barclay preparations, arid continuing this for years. I conclude that all of the preparations which at the time of the modified contract were then sold under Dr. Barclay'^ name were preparations suggested by Dr. Barclay', with the possible exception of the preparation called "Calcauro,” as to which special reference will hereafter be made. And in reference .to the construction of the contract, I conclude, further, that under it royalties are to be paid on the preparations then or subsequently bearing the name of Barclay, even if the use of the name was afterwards discontinued.. The words of the contract referring to the preparations are descriptive only of their character; they are not words describing the conditions of the continuance of payment of royalties. They cannot therefore be construed as if the contract provided for payment of royalty on preparations “suggested by said Barclay so long as [or while] they bear his name.” The exclusive right to use Barclay’s name as a. trade mark on the preparations was secured to defendant company by the original agreement, and the name was so used up to August, 1900, or shortly prior thereto, and, as the evidence shows, this was a most valuable right, for the purpose of introducing the remedies to the profession and the public. Eor the purposes of applying this contract of 1894, the name “Barclay” on the preparations therefore becomes descriptive of the subject-matter of the royalties, and' on all preparations which are substantially the same as those then or subsequently sold under the name of “Barclay,” the complainant, in my judgment, is entitled to royalties, notwithstanding the name of Barclay, as part of the trade mark, was discontinued. There is no claim on the part of the defendant that the preparations made after' August, 1900, differ substantially or otherwise from the preparations previously made by it, which bore Dr. Barclay’s name. The precise formula or process under which defendant manufactures has not been proved, as the defendant declines to disclose it, and rests its whole case, so far as the question of identity of preparations is concerned, upon expert evidence and chemical tests showing that the solutions prepared by Dr. Barclay are not and cannot be chemically the same as those which have been made by defendant company from the time of its original manufacture. The principal practical chemical test employed was one called the ferrous-sulphate test. This substance, when applied to the genuine solutions prepared by defendant, results in an immediate or almost immediate deposit of the gold as a precipitate, while the liquid becomes clear. In the alleged spurious compounds, the result is a liquid more or less clouded or opaque, with, little or no precipitation. This practical test was referred to by Johnson in a letter to Barclay as early as December 21st, 1893 (Exhibit C J(£), while Hays was making the preparations. Parmele says this test has been applied to every single batch of goods made since the company became the Parmele company (August, 1894). This test operates in the same way upon all of the preparations made by the defendant company since it put them on the market, as well before as after the contract of 1894, and before and after August, 1900, when the use of Barclay’s name was discontinued. The conclusion, therefore, is justified that the defendant, since August, 1900, has continued to manufacture and sell, under the former trade mark names (with the exception of the use of Dr. Barclay’s name), substantially the' same preparations which up to that time had his name as part of their trade mark, and that they were therefore included in the contract for royalties of 1894, on preparations “suggested by' Barclay and bearing his name.” Mr. Parmele, it is true, stated, on cross-examination, that the method of manufacture at the time of the hearing and under Hays, who left in 1896, was different, but that he could not point out the differences in detail, and upon being directly asked as to what was their present process for making arsenauro, the question was objected to and overruled as not cross-examination. His mere general statement, therefore, that the method of manufacture is different, cannot overcome or affect the weight to be given to the practical test applied, as indicating that the preparations continued to be substantially the same as in 1894, and certainly the same as in August-, 1900.

Some question has been raised as to whether the preparation • called “Caleauro” was suggested by Dr. Barclay, or came within the contract. A letter from Johnson & Company to Barclay, dated December 20th, 1893, requests the latter to give instructions to a physician in relation to the use of-“your preparations,” i. e., the particular sort of cases where “Manganauro,” “Caleauro,” “Arsenauro,” &c., are used. In another letter to Barclay, dated December 30th, 1893, Johnson says the name of Barclay combined with Arsenauro, Caleauro, &c., will' be invincible. But on February IGth, 1893, Johnson, in a letter of that date to Dr. Wood, says that although they have been paying Dr. Barclay royalty on “Caleauro,” he (Barclay) did not devise the formula, which was suggested by a Dr. Wight, of Brooktyn, but as Dr. Wight made no claim, they had thought it best to include the remedy under the head of the Barclay preparations. The company continued to pay Dr. Barclay royalty on the sales of caleauro, as well after as before the contract of 1894, and up to August, 1900. The name Barclay, however, did not appear on the bottles of “Caleauro,” and the principal evidence that this was included under the contract of 1894 as among the preparations “bearing his name” is the continuance of the statement of its sales and payment of royalties on it to Barclay, along with the other preparations, from 1894 to April, 1899. Mr. Parmele in 1900, when applying for another modification of the contract, again raises the question in a letter to Dr. Barclajq dated April 23d, 1900, where he asks Barclay to bear in mind that he (Barclay) was not the one who suggested the combinations “Cálcauro” and “Manganauro.” Subsequently, and apparently in settlement of this and other questions referred to in the letter, a deduction or allowance from the royalties was made, by consent of the parties, in June,-1900, by a letter from the defendant signed and written by Parmele to Barclay, dated June 26th, 1900, in which Parmele, “bringing their squabble to an end,” recites the agreement as to deduction from the royalty, and encloses a statement of sales from May, 1899, to April, 1900, the first since the dispute commenced in May, 1899. This letter was formally “approved” by Dr. Barclay, at Pannele’s request, making thus a third formal contract. This statement of sales apparently included all sales without distinction, and it is admitted by defendant that up to August, 1900, the sales of “Caleauro” were included, as well as those of “Arsenauro,” “Mercauro” and “Manganauro,” the three other preparations. Dr. Barclay claimed to have suggested the “Caleauro” compound of gold "and calcium, and I think that, referring to the conduct' of the parties in their dealings under the contract, as applying the words describing the preparation, royalty on the sales of “Calcau.ro” must also be included as a combination “suggested ’by Barclay.” The defendant was not by either contract required to use Barclay’s name as a trade mark, and the further words of description, "and bearing his name,” were not, in my judgment, meant to impose an additional limitation upon the right to royalties on compounds suggested by Barclay, but "and” in this respect should be construed as meaning "or.” The further contention of defendant’s counsel, that there was a total failure of consideration for the contracts, if there was in fact no invention or discovery by Dr. Barclay, as recited in the original agreement, ignores the important fact that other matters entered into the consideration, and that as to these there was no failure. These were the use of Dr. Barclay’s name as a trade mark, his agreement to give them the benefit of future discoveries, and his agreement not to engage in the manufacture or sale of gold preparations. His services and those of Dr. Wood, as physicians, in introducing and recommending the Barclay preparations to the profession and the public, and in advising as to their use, were also contemplated, as appears by the Wood contract and the voluminous correspondence, and this service and advice were at all times rendered. The case, therefore, does not come within the application of the rules relating to relief from the payment of any of the purchase price where there is a total failure of consideration. ,

The claim of the complainant under his second bill to rescind the contracts for non-payment of royalties and the breach of other covenants by the defendant, and other- relief incident to the rescission, is not well founded. Complainant, by the original contract, conveyed absolutely his interest in the invention or discovery for a term of fifty years, and also granted the exclusive use of his name as a trade mark in connection with the preparations for the same time. Johnson became, by these assignments, not a mere licensee of rights, as to which complainant still retained a legal interest or estate, but an assignee vested with complainant’s entire estate and interest in the subject-matter granted, both legal and equitable.

In consideration of these grants and of certain covenants of Barela}', Johnson, the purchaser, agreed to pay as the consideration for them a royalty on the articles sold. This was, in effect, an' agreement to pay the purchase price at a future time and a-sum to be determined by the number of articles. In the absence of any express provision in the conveyance itself for forfeiture of the estate granted on non-payment or other breach, the rights or interests in property actually conveyed cannot be revested in the grantor by a mere breach of the covenants by the grantee, and the only remedy is upon the covenants. There was in this case no such express conveyance upon condition or provision for forfeiture or revesting in Barclay the rights granted on default of the grantee. The words of the first section, declaring the assignment of Barclay’s interest to be “under the following conditions,” and which preceded a series of agreements by each party to the agreement, was not meant to create an estate terminable on the breach on Johnson’s part of either one of several conditions subsequent and to revest the estate in the grantor, but the word “conditions” was used as equivalent to. “covenant” or “agreement,” and must be so construed. Under a license providing for the payment of royalties as the sole consideration for the right to use a patent, the licensor may, perhaps, at his option, invoke the license for a failure to pay the royalties, followed by a repudiation of the license, and proceed against the licensee as an infringer upon a principle of forfeiture analogous to that applied between landlord and tenants on a repudiation of the tenancy, but a forfeiture of rights conveyed by an absolute assignment involves different considerations. Where the assignment expressly provides for forfeiture it may be enforced, but, as was said in a leading case, where there was such express clause in an assignment of a patent, the right of forfeiture is enforced upon conditions broken, and not upon the mere non-payment of (he consideration for the assignment. Littlefield v. Perry, 21 Wall. 205, 220 (1874). I have not been referred to, nor have I found in my examination of the case, any authority declaring a forfeiture in a case of this character.

As the relief asked in the second bill is based wholly on the right or claim of forfeiture, it must be dismissed.

The first bill prayed for an accounting only to the 10th of February, 1903, the date on which complainant claimed to have rescinded the contract. On the settlement of the decree I will hear counsel as to whether, under the general prayer for relief, the account should, under the usual practice, be taken to date, and also whether it should include an account for sales previous to September, 1900, and from the beginning of the contract.