Crocker v. Cumberland Mining & Milling Company

Supreme Court of South Dakota · 1913 · Corporations

31 S.D. 137 (1913)

Updated August 22, 2026

Corporationsdirectorsofficer compensationinterested-director transactionsindependent directorsquorumvoid resolutionsfairness

Facts

Plaintiff sought salary based on annual board resolutions that purported to grant him $10 per day as general manager over a period of years. Plaintiff at all times held a majority of the corporation's stock, and the board consisted of plaintiff, his son, and Madill as the active directors involved in these resolutions. The trial court found that the son and Madill were selected by plaintiff to advance his interests, acted under his influence, were directors merely in name, and that their votes were necessary both to pass the salary resolutions and to constitute a quorum. The court also found the resolutions unfair, unreasonable, and unconscionable under the circumstances, found reasonable compensation to be $10 per day only when the mine was operating and $50 per month otherwise, and found a balance due from plaintiff to the corporation on accounting.

Issue

Whether salary resolutions benefiting a director-officer are binding on the corporation when they were passed through the votes of directors under that officer's control and were necessary to create both the majority and the quorum. Also, whether such resolutions can stand when the compensation fixed is unfair or unreasonable.

Rule

A director may contract with the corporation only when the contract is fair and equitable and the corporation is represented by a majority of directors who are free, independent, and not under the contracting director's controlling influence. Even if a majority of free and independent directors acts, the contract is not binding if it is unfair or inequitable; and no matter how fair the contract may be, it is void unless approved by a majority of free and independent directors. Thus, if a resolution benefiting an interested director is passed by his vote or by votes of directors under his control, without which there would be no majority, or if without those persons there would be no quorum, the resolution is absolutely void as against the corporation.

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Blue Mesa Minerals, a Nevada corporation operating near Reno, has a five-member board. Its president, Victor Sloan, asks the board to approve a consulting contract paying him $180,000 a year. Three directors vote yes: Victor, his cousin Lena Ortiz, and Owen Pike, both of whom were placed on the board by Victor and routinely vote as he directs; the other two vote no.

If Blue Mesa later refuses to pay under the contract, which is the strongest argument about the resolution's validity?

Explanation. The rule is that a director's contract with the corporation is void unless approved by a majority of free and independent directors. If the interested director's vote or the votes of directors under his control are necessary to create the majority, the resolution is absolutely void as against the corporation. Here, the approving votes were Victor's and those of his controlled nominees, so the required independent majority is absent.