Noyes v. Irving Trust Co. ( 1937 )

O’Malley, J.

The judgment appealed from imposes liability upon the defendant trustee in bankruptcy of the McLellan Stores Company in the sum of $5,897.29, claimed by the plaintiff, an employee of the bankrupt (continued in the employ of the trustee), to be due him as a bonus. He asserts that under his contract of employment with the bankrupt he was entitled, in addition to a salary of $400 a month, to a bonus based upon a percentage of profits, and that the defendant trustee assumed this obligation.

The appeal of the defendant trustee is predicated upon the ground that it was entitled to a dismissal of the complaint as a matter of law for the reasons (1) the bankrupt itself was never obligated to pay the bonus; and (2), assuming the bankrupt to have been so obligated, the defendant trustee did not assume the obligation.

Plaintiff entered the employ of the bankrupt as a buyer of merchandise on August 1,1932. He was engaged by Fred F. Taylor, merchandise manager, with whom he had been at one time associated in the employ of the W. T. Grant Stores. Concededly Taylor, to induce plaintiff to leave a position which he then had with the Grant Stores at New Bedford, Mass., told him that in addition to his regular compensation of $400 a month he would share in a bonus plan similar to that maintained by the Grant Stores, on the basis of twelve and one-half per cent of the operating earnings of the company, to be divided among executives, department heads and buyers, in proportion to their salaries.

Plaintiff’s testimony was supported by that of Taylor, who testified that, before engaging him, he discussed thei ’matter of his employment with Powdrell, president of the bankrupt; that Powdrell told him that plaintiff would share in a bonus plan which was to be submitted by him to the board of directors for approval; that later, and before he employed the plaintiff, Powdrell told him that the plan had been adopted and that he, Taylor, so informed plaintiff when he engaged him.

McLellan Stores went into bankruptcy on January 12, 1933, the defendant being appointed receiver. In the meantime plaintiff had received his regular salary of $400 a month without bonus. On January 26, 1933, the defendant was appointed trustee, and thereafter operated the business of the bankrupt for the period embraced within the complaint.

The plaintiff continued in the defendant’s employ until February 21, 1935, when he was discharged. He was paid salary up to March 31, 1935. During all of this time plaintiff was paid only his regular salary, with the exception that he received $250 on December 29, 1933. This payment, as claimed by the defendant, was a Christmas present, other employees having received similar gifts at the same time. None of such payments was shown to have been based upon a percentage of profits.

Moreover, it appears that plaintiff at no time during his employment either by the bankrupt or by the defendant, demanded or made claim for any bonus. His first complaint with respect thereto was contained in his letter of March 27, 1935, written after his discharge, to the defendant trustee.

Before considering the question of whether the plaintiff was entitled to a bonus under his contract with the bankrupt, the evidence upon which he predicates his right to recover from the defendant trustee will be considered. It appears that in February, 1933, after the trustee had been operating the business for a period of three or four weeks, one Simpson (a representative of the trustee, deceased at the time of the trial) called together the buyers and executives, numbering some fifteen or twenty persons, and, according to the plaintiff, Simpson stated: “ He told us that we were to know that we were now employees of the Irving Trust Company. In other words, there was to be no change at all in our standing or in the set-up. We were to go right on in our work just exactly as we were doing it for the McLellan Stores Company. The only difference was we were now employed by the Irving Trust Company instead of the McLellan Stores Company.”

There seems to be no dispute but that this alleged statement of Simpson is the sole basis of the plaintiff’s claim that the defendant bound itself to pay the bonus, if any, which the plaintiff was entitled to receive from the bankrupt. It is to be noted that the subject of bonus was not mentioned, nor is there any evidence tending to show that Simpson or any other representative of the defendant had express knowledge that any specific bonus had been adopted by the bankrupt.

As already appears, the subject of bonus was at no time mentioned during the time that the plaintiff continued in the defendant’s employ. At the time that he received the sum of $250, on December 29, 1933, he testified that Mr. McLellan, who was chairman of the board of directors of the bankrupt, and who continued in the employ of the trustee, stated that “ I got a little present for you. It isn’t much, but it will help a little.”

As already noted, the bonus claimed was to be based upon a percentage of profits of the bankrupt’s business. It is well settled that a contract of this character is not the usual and ordinary contract which one authorized to employ agents and servants may make. It would require express authority. (Chard v. Ryan-Parker Construction Co., 182 App. Div. 455; 1 Mechem on Agency [2d ed.], § 988, pp. 711, 712.) The rule is founded upon sound business considerations, and one entering into such a contract is bound to inquire as to the agent’s authority. (Howard v. Winton Co., 199 Cal. 374; 249 P. 511.)

Under the principle of these authorities, Taylor, the bankrupt’s manager of sales, did not have authority to bind the bankrupt to pay the bonus here in question; nor would the bankrupt’s president himself have authority so to do. (Chard v. Ryan-Parker Construction Co., supra.) It is true that if the bonus plan submitted by Powdrell to the board of directors of the bankrupt had provided for payment of a bonus upon the basis and for the period of time claimed by the plaintiff, and had been approved, the bankrupt would be bound, and also the defendant as trustee, if it had agreed with plaintiff to continue him thereunder.

However, the plaintiff failed to show that the bonus plan upon which he bases his cause of action, or, in fact, any bonus plan, was ever formally adopted by the bankrupt’s board of directors. While it appears that on March 16, 1932, the stockholders of the bankrupt approved a plan to distribute as a bonus to the employees of the bankrupt’s New York office twelve and one-half per cent of the net profits made on “ the common stock of the company for the calendar year of 1932,” it is to be observed that this plan was not predicated upon the net operating earnings of the company, as claimed by the plaintiff, nor was it to operate for any year but the year 1932.

Furthermore, it appears that this plan was not adopted and authorized by the bankrupt’s board of directors. The plan approved by the stockholders was referred to the chairman of the board, the president, the treasurer, and to one Sherman as a committee for the purpose of making definite and complete those features thereof which called for further specifications and to submit the completed plan to the next meeting of the board.

This committee appears to have reported to the board on June 22, 1932, and its report was accepted and directed to be filed with the records of the corporation. What that report was does not appear. It was not offered in evidence, and the defendant claimed that the report could not be found among the records of the bankrupt.

However, if this report had been introduced and found to contain merely the plan which had been recommended and adopted by the stockholders, it would not aid the plaintiff; for, as already noted, that plan was to operate only during the year 1932, and the bonus was to be based, not on the net operating earnings of the company, but upon profits to be made upon common stock.

It is significant that the plaintiff failed to show that any other employee, either of the bankrupt or of the trustee, ever received a bonus as of right based upon any specific bonus plan. No extra compensation either by way of bonus or gift was paid to any employee in the year 1932. Extra payments ranging from $250 to $1,000 were paid to some nine employees in December, 1933, including the payment to the plaintiff of $250. In March, 1935, after the plaintiff’s discharge, bonuses for the year 1934 ranging from $375 to $1,250 were paid to seven employees.

Whatever bonus plan existed as shown in this record, appears to have been as testified to by McLellan, the chairman of the board, a mere allotment made up at the end of the year predicated upon services rendered, the length of employment and the worth of the employee to the company. No specified bonus plan existed, however, especially one to which any employee would be entitled as of right by virtue of a contract.

It is our conclusion, therefore, that plaintiff failed to show that he was entitled to be paid a bonus, either by the bankrupt or by the defendant, and that the complaint should have been dismissed.

It follows that the judgment and order should be reversed, with costs, and the complaint dismissed, with costs.

Martin, P. J., McAvoy and Untermyer, JJ., concur; Glennon, J., dissents and votes for affirmance.