Perata v. Oakland Scavenger Co.

This appeal by defendant from a judgment in favor of plaintiffs raises primarily the interpretation of the by-laws of defendant corporation as to a stockholder who desires to terminate his connection with the corporation, and the question of whether the monthly payments to working stockholders were solely wages or included dividends.

Pacts

Defendant is a California corporation engaged in the scavenger business. Each of its 208 stockholders owns 100 shares of stock. In 1935 plaintiff Gamba became a stockholder by purchasing 100 shares for $12,500; plaintiff Perata inherited in 1920 his 100 shares; plaintiff Rossi purchased his in 1933 or 1934 for $11,500; and plaintiff Perro purchased his in 1930 for $11,500. In 1939 the by-laws were amended in the present form and all stockholders, including plaintiffs, signed them. As required by the by-laws all stockholders worked in the company business. There were a number of nonstockholder employees, usually referred to as “helpers.” During 1943 these helpers were paid from $7.50 to $8.00 per day. May 1, 1944, the rate was changed to from $8.00 to $9.50. October 15, 1944, it was changed to from $8.50 to $9.50. Working stockholders were paid a monthly “basic rate” which, during the period here involved, was $400 per month. Prom this amount was deducted any collections made by the stockholder and not turned in, income tax withholding, unemployment insurance and deductions for time off. There was a period during which the basic rate was $350 per month

This controversy arose when each plaintiff respectively quit work, all except Perata without the express consent of the board of directors. Perata had broken his elbow in 1931, and because of it was bothered in his work. He told the director of men that he wanted time off as his doctor had told him to quit work. He was referred to the board. Later he was informed by the director that his request was granted. He left his employment November 30, 1943. Gamba went into the Merchant Marine, being given time off from March, 1942, until March, 1945. From March, 1942, until September, 1943, he received full pay less a deduction for employment of a substitute. For the balance of the period he received no pay. He returned to work June 1, 1945, and worked until March 1, 1946. In February he told the director and board that he was leaving because of his health and because he was dissatisfied. He was told that his stock could not be sold at that time. There was some talk to the effect that the only way he could get out of the company was to fight. He quit. Ferro quit December 31, 1945, giving notice to that effect at a regular monthly meeting in November, because he was dissatisfied. Rossi quit June 10, 1946. Prior thereto he presented to the board a letter from his doctor advising him to quit. He was told to wait a few months as the company was short of men. He refused. The stock of all plaintiffs was sold by the board on May 7, 1947. Each 100 shares brought $13,000, and that sum was paid by the company to each of the plaintiffs except Rossi. Approximately 16 months after Rossi quit he was notified that he was fined for not working $100 per month for the 16 months prior, from July 1, 1946, to November, 1947. Although fines were usually entered in the minute book of the board, no fines appear against any of the plaintiffs, not even Rossi. None of the plaintiffs received any pay or dividends from the date each quit work. Defendant’s president testified that the board decided not to fine plaintiffs for not working but merely not to pay them. No formal action in this respect appears in the minutes. There was evidence that when all other stockholders wanted to quit they continued working until their stock was sold by the board. Plaintiffs brought this action to recover dividends payable from the time each quit until his stock was

Findings

The court made extensive findings, the substance of which was that long established custom required that each stockholder must own 100 shares and that by such custom and the by-laws each stockholder must work for the corporation subject to the provisions of the by-laws as to time off from work; that the company during the period in question earned net profits which varied from month to month; that it was provided by long established custom that each stockholder except the president and vice-president must at all times receive the same amount of money monthly except for deductions provided by the by-laws; that the stock of each plaintiff, endorsed in blank, was held by the corporation from date of issuance to date of sale, for safekeeping and to enable defendant to enforce the provisions of article V of the by-laws; that until the sale of the stock of each respective plaintiff he was entitled to receive from defendant the same amount as paid by defendant to any other stockholder except the president and vice-president and except as such amount should be reduced for time off as provided in article VII, section 12 of the by-laws, and less such portion of said money as constituted a reasonable wage for the work performed by a stockholder ; that from November 30, 1943, to May 1, 1944, $8.00 per day and no more, from May 1, 1944, to May 7, 1947, $9.50 per day and no more, were reasonable wages to be paid each stockholder employed by defendant during the respective periods; that all monthly distribution to each of said stockholders over and above said sums were dividends to the extent they exceeded such reasonable wages; that such excess payments were made under the guise of compensation but were in fact not so paid but were paid without regard or reference to the services performed by each stockholder and in certain instances in the absence of the performance of any services; that such excess was paid out of the corporation earnings and was dividends; that each plaintiff was entitled to receive for the period between the time he quit working and the sale of his stock the difference between $400 per month and the reasonable wages of helpers above mentioned for all

Section 11 of article VII provides as follows: “Failure or Refusal to Follow Orders of the Board of Directors. Each employee or stockholder of this corporation who shall refuse or fail to carry out strictly the orders of the Board of Directors of this Corporation, or of the President, or other persons authorized to give such order, shall be fined Ten Dollars ($10.00) and shall be laid off from work for a period of one month, and during such period of layoff, he shall have no right to any wages, dividends, or other compensation from this corporation. ...”

Section 12 of article VII provides as follows: “Time Off. Any employee or stockholder of this corporation desiring to have time off, must advise the Director of Men the day before, and such person shall not take any time off without the consent of the Director of Men. Failure to observe this rule shall subject the employee to a fine of Five Dollars ($5.00). Each stockholder or employee desiring time off shall be charged Six Dollars ($6.00) per day for all time off up to and including fifteen (15) days, and Eight Dollars ($8.00) per day for all time off in excess of fifteen (15) days, and such amounts shall be deducted from the salary, dividends or other compensation to be paid by this corporation to said stockholder or employee.”

Section 13 of article VII provides as follows: “Payment of Fines. No stockholder or employee of this corporation who has been fined . . . shall receive any wages, dividends or other compensation from this corporation until said fine has been paid. Said employee or stockholder shall be suspended from doing any work for this corporation from the time said fine is assessed, until it has been paid.”

A study of the by-laws shows (1) that it was contemplated that all stockholders would work in the business; (2) that such work should be continuous except when excused by the director; (3) that for infractions of the rules or orders of the board, the stockholder could be fined, the fine to be de

Member Mat Quit

Although there is a provision for expelling a member, in which event he will receive the reasonable value of his stock, no provision is made in the by-laws for a member voluntarily severing his connection with the company. Although it would appear from article V, section 2, which requires the stock to remain with the board during the member’s lifetime, that a member will work indefinitely for the corporation, defendant concedes that there legally could be no requirement that a member could never quit and must work for the corporation for the balance of his life. Such a requirement would constitute a form of peonage. All parties agree that by signing the by-laws and acceptance of stock a contractual relationship is formed between the member and the company and his fellow members. There is nothing, however, in that contract that prohibits, or could prohibit, a member from terminating that relationship. Nor does that relationship require, as contended by defendant, that after a member quits and while his stock is still being held by the corporation, he be not entitled to dividends. He still has a financial interest in the corporation. His money is still working for the corporation. As he is not rendering any service, he, of course, is not entitled to compensation, as distinguished from dividends.

In construing the by-laws it is necessary to give them such an interpretation as to permit a stockholder who, for any or no reason, wants to quit, the right and opportunity to do so. Nor should any penalty be exacted unless there is a clear and definite provision authorizing such penalty. The by-laws provide none. Therefore, a member having the right to quit, and the by-laws providing no penalty therefor, the board had no right to impose a penalty. Particularly is-this so, when it is remembered that under the bylaws and the practice of the corporation, a stockholder has

In the Rossi case, the board, approximately 16 months after he quit, attempted to levy a retroactive fine against him of $100 per month. The provisions of the by-laws authorizing fines obviously contemplate nonexcused layoffs, violations of orders, etc., during the time the stockholder is still an employee of the corporation. They do not contemplate punishment for terminating service. There is a provision that if a stockholder refuses to carry out orders strictly he may be fined $10 and laid off for a period of one month. There were no orders which plaintiffs violated. If it be deemed that refusing to work after quitting constituted a violation of orders, still the by-laws cannot be interpreted to permit either a fine to be imposed on such member or a denial of his right to receive dividends with the other members as long as the board neither sells nor permits him to sell his stock. A reasonable interpretation of the by-laws is that a member may quit without penalty; that, on quitting, he is no longer entitled to compensation for work, as he is no longer working. He is, however, entitled to whatever dividends are being paid other stockholders until such time as his stock is sold. This brings us to the question—

Did the Monthly Payments Include Divídenos?

The court found that they did and that the amount thereof was the difference between the payments and the going price for helpers who were paid on a daily wage basis. The monthly payments were carried on the books as wages and from them were deducted federal withholding, social security, and state unemployment taxes. Thus, there was no segregation of any portion to dividends. Nevertheless the evidence supports the court’s finding that, at least, some portion was a dividend. Although there is testimony that some of the members did not get the basic monthly rate,

In our case, it manifestly would be unfair to deprive the

Having determined that the basic monthly pay includes dividends the next question is—

What Were the Dividends Included?

There was considerable evidence concerning the relative duties of members and helpers. While there was some evidence that the helpers did not do the same character of work as the members, such as driving trucks and making collections, there is substantial evidence that as regards some of the helpers the character of the work was the same. The main differences between the helpers and the members are the following: a member is bound by the obligations of the by-laws; the members take care of most of the money collections ; the member is subject to fine if he does not take care of his truck and equipment, and is liable for any loss of tools or equipment or for any damage to persons or equipment done by his truck; members might work longer hours in order to make the collections and to drive the truck to and from the disposal plant (generally, however, the helpers worked at least as long if not longer than the members); members are required to wash their trucks once a week; members are required under penalty of fine to attend monthly meetings; members are required to do certain Sunday work not required of helpers (they receive extra pay for this but are fined if they do not do it). The rules required that only a member drive a truck, although this rule was broken in practice. While helpers did some collecting of service charges, the route books were kept only by members. The latter were responsible for the correctness of the collections and for proper accounting to the corporation. Plaintiff Gamba testified that while on the whole the helpers did the same character and amount of work as the members, the members had extra responsibilities, and therefore their value to the corporation was worth the difference between the amounts paid the helpers and the amounts the members received.

The trial court based its determination of what were dividends upon the difference between the monthly payments and the highest sum paid for helpers at a particular time. The court evidently did this on the basis that there was evidence which showed that on the whole, the type and amount of work done by the members and by the helpers were the same. As that evidence is substantial we are bound by the court’s determination to that effect. There is no direct finding to that effect but it is implied in the court’s findings that the reasonable daily wage of each member is no more than the sums mentioned, which sums are the highest wages paid helpers at the specified time. There is evidence that some stockholders performed less work than did the helpers, just as some stockholders did more, and as some helpers did less work than other helpers. But there is no evidence that taking the members as a whole they did any less work than the helpers as a whole. In Nichols v. Olympia Veneer Co., supra, 246 P. 941 , where the court required that, over and above the amount of work done, consideration be given to the stockholders’ responsibilities, the services rendered by the members were unequal in value. The court said (p. 943) : “Of the 90 or more working in the plant the far larger number do only routine work of .the same character as that performed by the nonstockholders. It does not necessarily follow, however, that the services of these are not of greater value to the corporation than is the service of the nonstockholder.” If in our case the court’s implied finding is a finding that the services and responsibilities of a member are of no greater value than the wages paid helpers,

This difference of the value to a corporation of a member over that of an ordinary worker is, of course, somewhat of an intangible nature. We believe that its determination comes within the rule concerning the value of certain types of work, namely, that it is a matter of common knowledge. (See Collier v. Landram, 67 Cal.App.2d 752 [ 155 P.2d 652 ]; Schwartz v. Premium Products Co., 98 Cal. App.2d 780 [ 221 P.2d 334 ]; Seedborg v. Lakewood Gardens Civic Assn., 105 Cal.App.2d 449 [ 233 P.2d 942 ].) A fair and just determination of the value of a member’s services over those of a helper (assuming as we are required to do under the trial court’s findings that the time and amount of services are the same, but taking into consideration all the matters hereinbefore discussed), would be the

The trial court is directed to amend the findings, conclusions of law and judgment accordingly. This will require a new computation of the amounts due each plaintiff and the interest thereon. The determination by the trial court of the amount of moneys paid to stockholders by the corporation as designated dividends is in nowise changed.

Findings On Consent

In addition to the findings made on the evidence herein-before discussed, defendant contends that the evidence fails to support the findings in which the court found that each of the plaintiffs had obtained the necessary consent to take time off and hence brought themselves within the provisions of the by-laws which entitled them to their pay less only a specified deduction per day. So far as plaintiff Perata is concerned, there is substantial evidence that because of his injured arm he was given consent by the director of men that he not work while awaiting the sale of his stock. As to plaintiff Gamba, the evidence shows that the time he was off during his service in the Merchant Marine was with consent. As to all plaintiffs, although there is no direct evidence of consent, the fact that the board and director of men knew that they had quit, and that no fines or other punitive action (except the attempted fine of Rossi 16 months later), might justify an inference of consent. However, whether these findings are supported or not is unimportant. The evidence shows that whether plaintiffs received consent or not, they were actually quitting the corporation and hence did not need any consent, and as we have heretofore shown, the penalties for time off provided in the by-laws do not apply. As to the period plaintiff Gamba was in the Mer

It is contended that there is some confusion in the findings as to whether plaintiffs had stopped working pursuant to article VII, section 12, or are not subject to the provisions of that section. Inasmuch as we have determined that that section does not apply to stockholders terminating their employment, such confusion, if it exists, is immaterial.

As herein set forth, the trial court is directed' to make the necessary amendments to the findings of fact, conclusions of law and judgment to accord with the views herein expressed. As so modified the judgment is affirmed. The parties shall bear their own costs.

Peters, P. J., and Wood (Fred B.), J., concurred.

The petitions for a rehearing were denied June 27, 1952, and appellant’s and respondents’ petitions for a hearing by the Supreme Court were denied July 24, 1952. Sehauer, J., was of the opinion that the petitions should be granted.