Stratis v. Andreson

Supreme Judicial Court of Massachusetts · 1926 · Corporations

254 Mass. 536 (1926)

Updated August 22, 2026

Corporationsdirectors' fiduciary dutiesexcessive salariesreasonable compensationminority stockholder suitderivative recoveryfair value of servicesdirector-officer compensation

Facts

Minority stockholders alleged that four officers of the corporation had been paid excessive salaries and sought recovery for the corporation. The master found that one non-director manager's salary, though large, did not exceed the fair value of his services, but that two directors had each received $2,000 annually above the fair value of their services. A third director, who served as treasurer, general manager, and clerk, received separate salaries for each office; although his total compensation was not excessive as a whole, the master found that the salary paid for his services as clerk exceeded the fair value of that specific office by $1,500 per year. The master also inferred from the corporation's figures that the salaries were paid in lieu of distributing profits by dividends, and the corporation did nothing after plaintiffs demanded that it seek recovery.

Issue

May minority stockholders recover for the corporation salary payments to directors that exceed the fair value of the services rendered, even absent actual fraud? When a director is paid separate salaries for separate offices, may an excessive amount allocated to one office be recovered even if the director's total compensation, considered as a unit, is not excessive?

Rule

Directors of a business corporation act in a strictly fiduciary capacity. Although directors may also serve as officers and receive reasonable compensation for services rendered, they cannot lawfully receive salaries exceeding the fair value of their work, and equity may examine the fairness of such salaries for the benefit of the corporation. Recovery rests on the excessive payment itself and does not require proof of actual fraud. Where compensation is divided into separate salary items for separate offices, each item must stand on its own footing.

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Blue Harbor Foods, a Massachusetts corporation based in Springfield, paid its three directors annual officer salaries. In a derivative suit by minority shareholders, a factfinder determines that Lena Ortiz, a director serving as president, was paid $18,000 more per year than the fair value of the services she actually rendered, even though no one can prove deception or bad faith.

Should the corporation recover the $18,000 excess from Lena Ortiz?

Explanation. Directors act in a strictly fiduciary capacity. They may serve as officers and receive reasonable compensation, but they cannot lawfully keep salaries exceeding the fair value of their work. Equity may order repayment for the corporation, and actual fraud is immaterial where the payment to the director is excessive.