#### Zwolanek, Appellant, vs. Baker Manufacturing Company, Respondent.

*September 18*

October *8, 1912.*

*Corporations: By-laws: Offer of reward: Profit-sharing with employees: Contracts: Acceptance: Statute of frauds: Withdrawal of - offer: Discharge of employee: Fraud: Contract of employment.*

1. As a general rule, the hy-laws of a corporation are made for its . internal government and regulation, and third persons can assert no rights thereunder.

2. But a hy-law, of a manufacturing corporation providing that any person who should have been in the regular employ of the company for a certain time should thereupon begin to share in the surplus earnings of the company, provided he did not quit or was not discharged prior to January 1st of any year, was, when communicated to the employees, an offer of a reward for constant and continuous service and, when accepted by an employee by substantial compliance with the terms of the offer before its withdrawal, became a complete and valid contract.

3. It was not essential in such a case that the employee should have informed the company that he relied upon the offer in continuing his work.

4. The statute of frauds relating to contracts not to be performed within one year has no application to such a case, because when the contract comes into existence-the only obligation is that of - the company to pay what is due under it.

5. As a general rule, a person making an offer of a reward may withdraw it before it is accepted; but he must be held to the exercise of good faith and cannot arbitrarily withdraw the offer for the purpose of defeating payment when to do so would *518result in a fraud upon those who in good faith have attempted to perform the service for which the reward was offered.

6. Thus, in the case stated, discharge of an employee one day before he had earned the reward, where the sole purpose of such discharge was to prevent him from securing his share of the profits offered, would not take away his right to such share.

7. The fact that an employee had been hired under a regular contract running for one year, subject to renewal, but terminable by either party on three -months’ notice, would not affect his right to the reward.

Appeal from a judgment of tbe circuit court for Rock county: Geobgke Gbimm, Circuit Judge.

*Reversed.*

Tbe plaintiff and the defendant entered into a written contract whereby tbe plaintiff agreed to work for tbe defendant from June 1, 1907, to June 1, 1908, at tbe agreed price of twenty cents an hour to October 1, 1907, twenty-five cents an hour thereafter to January 1, 1908, and thirty cents an hour thereafter. Tbe contract provided that it could not be terminated by either party during tbe period stated, without tbe consent of tbe other,- except that, if either party failed in the performance of duty, then tbe other party might terminate tbe contract by giving one month’s notice. It further provided that if the contract was not renewed at the date fixed for its expiration, then it was to continue indefinitely, but could be terminated by either party giving three months’ notice to the other, except that if either party failed, in the performance of his duty the contract might be terminated upon one month’s notice by the other.

The plaintiff went to work under this contract. No new contract was made on June 1, 1908, but the parties continued their relations under the terms of the original contract. This original contract was apparently modified on December 31, 1908, by increasing the wages of the plaintiff to thirty-five cents an hour. The plaintiff continued in the employ of the defendant until December 30, 1909, when he was discharged. About January 3,1910, the plaintiff went to work under what is claimed to be a new contract, and continued to work until *519the 25th of the same month, when he quit the defendant’s employ. Plaintiff was paid the amount which it was stipulated in the contract he was to receive, as well as the amount which he was entitled to recover under the subsequent modifications of that contract.

On February 24, 1899, the defendant adopted what is referred to as a by-law, which recited that the *Baker Manufacturing Gompam/*recognized “that the earnings of capital and labor are determined by competition, and believe that after both have been paid the prices so determined all surplus earnings should be divided between capital and labor in proportion to the amounts received by each.”- The alleged by-law then proceeded to state the manner in which the surplus earnings were to be divided between capital and labor, and provided among other things that “any person who shall have been in the regular employ of the company for 4,500 hours during 100-■consecutive weeks shall thereupon begin to participate in profit sharing, provided he does not quit the employ of the company or is not discharged prior to January 1 of any year.”

The complaint alleges in substance that the plaintiff worked more than 4,500 hours during 100 consecutive weeks immediately prior to January 1, 1910, and that he was entitled to his *pro rata*share of the profits of the company for the year 1909, which share, it was alleged, amounted to $854.' The defendant by way of answer alleged that the written contract governed the amount of compensation which plaintiff was to receive for his services, and that he was not entitled to receive any other or further sum; that the by-law referred to was not a part of the contract of employment, and that the same was binding solely on the members of the corporation and did not affect third persons; alleged that said defendant had the right to and did discharge the plaintiff on December 30, 1909, and that the plaintiff consented to such discharge and agreed that the relation of employer and employee should cease at that time; that the plaintiff breached his contract by tendering his *520resignation on December 24, 1909, to take effect January 25, 1910; tbat tbe work performed by tbe plaintiff from January 3, 1910, to January 25, 1910, was performed under a new and independent contract, and tbat plaintiff was not entitled to participate in any share of tbe profits of tbe defendant earned during tbe year 1909. There was no testimony to tbe effect tbat tbe plaintiff when be entered upon bis employment relied on tbe alleged by-law or tbat the same furnished any inducement to him to enter into or to continue in tbe employment of tbe defendant. Tbe plaintiff did testify that, when bis contract was so modified in December, 1908, as to raise bis wages, be informed tbe defendant that such raise was satisfactory, provided be would be allowed to participate in tbe profits of tbe company in accordance with tbe terms of tbe alleged by-law, and tbat be was informed tbat be would be entitled to so participate.

At tbe close of tbe testimony tbe trial court directed a verdict for tbe defendant, because tbe written contract made no reference to any profit-sharing byfiaw or practice of the company. Tbe court further held tbat although tbe plaintiff was informed of tbe existence of tbe by-law when tbe original contract was made, be refrained from stating tbat it affected him or formed a consideration or an inducement to enter into tbe written contract, and tbat a by-law which ordinarily deals with tbe internal affairs of a corporation and affects tbe officers and stockholders thereof would not affect tbe plaintiff, in tbe absence of a showing tbat it formed some consideration or inducement to tbe plaintiff to enter tbe employ of tbe defendant. Tbe court further held tbat, if any contract was entered into between the parties in reference to profit sharing, it was not to be performed within one year and was therefore void under tbe statute of frauds. From a judgment dismissing tbe complaint on a directed verdict plaintiff appeals.

*Charles E. Eammersley,*for tbe appellant.

For tbe respondent there was a brief by *Olin, Butler & Cwrkeet,*and oral argument by *J. M. Olin*and *W. B. Owrkeet.*

*521Bauites, J.

There are a number of questions discussed, in the briefs of counsel which it is unnecessary to consider in view of the conclusion reached. The case deals with a transaction which is somewhat uncommon, but raises no novel points. 'While the practice initiated by the defendant is beneficial to its employees, it is- not difficult to see wherein it is also beneficial to the employer. It tends to induce employees to remain continuously in the employ of the same master and to render efficient services so as to minimize the possibility of discharge. It also tends to relieve the employer of the annoyance of hiring and breaking in new men to take the place of those who might otherwise voluntarily quit, and to insure a full working force at times when jobs are plentiful and labor is scarce.

It is argued at considerable length by -the respondent that the profit-sharing plan of the defendant was initiated by means of the passage of a by-law, and that by-laws are made for the internal government and regulation of the corporation and its stockholders, and that third parties can assert no rights thereunder. The general rule contended for has its limitations, and it is not claimed that it would apply to a case where the by-law was communicated to the employee with the design and purpose of having him act upon it and where he in fact did rely and act upon it. To allow the employer in such a case to repudiate liability on the ground stated would come perilously near conniving at the perpetration of a fraud, and no court should say that in such a case the by-law merely affected the corporation and not third persons. The rule contended for was not established to meet such a situation and does not meet it. If corporations desire to have their so-called by-laws affect only the corporation and its shareholders, then they should refrain from exploiting them to third persons for the purpose of inducing such persons to act in reliance thereon.

We regard this by-law as being simply the offer of a reward to employees for constant and continuous service. The defendant made an offer of extra or additional compensation to *522any employee who performed a certain number of hours’ service within a given period, provided net profits wfere earned and provided the employee did not quit or was not discharged before a stated time. There is no dispute upon the point that this offer was communicated to the plaintiff when he made his original contract of employment, and the evidence tends to show that when the contract was modified in December, 1908, the plaintiff advised the defendant that the raise made in wages was satisfactory, provided he would be permitted to share in the profits, and that he was informed that he could participate therein.

“A reward is a sum of money or other compensation offered to the public generally, or to a class of persons, for the performance of a designated service.” 34 Oyc. 1730.

A reward is a recompense or premium offered by the government or. an individual in return for special or extraordinary services to be performed, and may be made in writing or orally, either to a particular person or class of persons, or to any and all persons complying with its terms. *Kinn v. First Nat. Bank,*118 Wis. 537, 95 N. W. 969.

A binding and enforceable contract to pay a reward rests on one side upon a valid offer, and on the other side upon an acceptance of such offer, including its terms and conditions, by a performance of the services requested in the offer before the offer lapses or is revoked. Until acceptance by performance of the services it is merely a proposition, but when accepted by performance it becomes a binding contract, subject to the laws governing contracts generally. *Reif v. Paige,*55 Wis. 496, 503, 13 N. W. 473; 34 Cyc. 1731, and cases cited in notes 4 to 11 inclusive.

. An offer and promise to pay a reward is a proposal merely, a conditional promise on the part of the offerer, and not a con-' summated contract.. *Haskell v. Davidson,*91 Me. 488, 40 Atl. 330; *Janvrin v. Exeter,*48 N. H. 83; *Pierson v. Morch,*82 N. Y. 503; *Cummings v. Gann,*52 Pa. St. 484; *Wilson v.*
      *523
      *Stump,*103 Cal. 255, 37 Pac. 151; *Williams v. West Chicago St. R. Co.*191 Ill. 610, 61 N. E. 456; *Besse v. Dyer,*9 Allen, 151.

The offerer may prescribe whatever terms be sees fit, and such terms must be substantially complied with before a recovery can be bad. *Gardner v. Hartford,*14 Conn. 195; *Williams v. West Chicago St. R. Co., supra; Haskell v. Davidson, supra; Besse v. Dyer, supra; Jones v. Phœnix Bank,*8 N. Y. 228; *Freeman v. Boston, 5*Met. (Mass.) 56.

Performance constitutes acceptance of tbe offer, and after performance it cannot be revoked 'so as'to deprive a person wbo bas acted on tbe faitb thereof of compensation. *Bronnenberg v. Coburn,*110 Ind. 169, 11 N. E. 29.

An offer of a reward *may*be accepted by .any part of tbe public if it be offered to the public, or by any particular person or class of persons if such proposition is made to them. *Campbell v. Mercer, 108*Ga. 103, 33 S. E. 871; *Butler Co. v. Leibold,*107 Pa. St. 407; *First Nat. Bank v. Hart,*55 Ill. 62.

It is not necessary that tbe person performing tbe service for which a reward is offered generally should give notice to the offerer that be accepts tbe offer,-for in such case tbe party making tbe offer impliedly dispenses with actual notice, and tbe doing of tbe act completes the contract. *Reif v. Paige, supra; First Nat. Bank v. Hart, supra; Wilson v. McClure,*50 Ill. 366; *Hayden v. Souger,*56 Ind. 42; *Morse v. Bellows,*7 N. H. 549; *Patton’s Ex'r v. Hassinger,*69 Pa. St. 311; *Shuey v. U. S.*92 U. S. 73.

“■While a mere offer not assented to d'oes not constitute a contract, an acceptance of tbe terms of an offer of a reward by any person wbo complies therewith by performing tbe service creates a complete and valid contract, provided tbe performance takes place prior to tbe withdrawal of tbe offer.” 34 Cye. 1739, $nd cases cited in notes 67, 68, and 69.

Acting upon an offer and complying with its terms and con*524ditions constitute an acceptance. *Wilson v. Stump,*103 Cal. 255, 37 Pac. 151; *Bull v. Talcot,*2 Root (Conn.) 119; *Vigo A. Soc. v. Brumfiel,*102 Ind. 146, 1 N. E. 382; *Haskell v. Davidson,*91 Me. 488, 40 Atl. 330.

Literal performance is not necessary. *Haskell v. Davidson, supra; Besse v. Dyer, supra.*

Substantial compliance witb tbe terms of tbe offer is in general sufficient. *Gilkey v. Bailey,*2 Harr. (Del.) 359; *Williams v. West Chicago St. R. Co.*191 Ill. 610, 61 N. E. 456; *Louisville & N. R. Co. v. Goodnight,*10 Bush, 552; *Salbadore v. Crescent Mut. Ins. Co.*22 La. Ann. 338.

Substantial compliance witb tbe conditions of tbe offer must be shown in order to authorize recovery. *Burke v. Wells, F. & Co.*50 Cal. 218; *Williams v. West Chicago St. R. Co., supra; Smith v. Vernon Co.*188 Mo. 501, 87 S. W. 949; *Shuey v. U. S., supra.*

And it has been held that where tbe claimant has performed part of tbe service and is prevented by tbe offerer, or by those for whose acts be is responsible, from completing tbe work, be is entitled to tbe whole reward, or at least to compensation on *quantum meruit.*34 Oye. 17 50.

. It 'is manifest that tbe statute of frauds has no application to tbe case. Until tbe offer made was accepted by performance there was no contract, executory or otherwise. When the contract came into existence the only remaining obligation was that of the defendant to pay at once what was due under it. Neither was it essential that the plaintiff should inform tbe defendant that be relied on tbe offer in continuing bis work.

The only obstacle in the way of the plaintiff’s right of recovery is the fact that he was discharged one day before he had earned his reward, the further fact that defendant contends that he was discharged for sufficient cause, and the still further fact that it is asserted that plaintiff consented to his discharge.

*525•We bold tbat tbe jury might have found from tbe evidence tbat tbe plaintiff bad substantially performed bis contract at the time of tbe discharge and was entitled to recover on this ground. Tbe jury might also have found that tbe defendant violated its contract with tbe plaintiff in discharging him when'it did; tbat there was no justification for tbe discharge, and tbat defendant’s sole object and purpose in making it was to prevent plaintiff from securing bis share of tbe profits offered to its employees; and finally that tbe plaintiff did not consent to bis discharge. Under-such a state of facts tbe plaintiff is entitled to recover. It is true as a general proposition tbat a party making an offer of a reward may withdraw it before it is accepted. But persons offering rewards must be held to tbe exercise of good faith and cannot arbitrarily withdraw their offers for tbe purpose of defeating payment, when to do so would result in the perpetration of a fraud upon those who in good faith attempted to perform tbe service for which tbe reward was offered. *First Nat. Bank v. Hart,*55 Ill. 62, and cases heretofore cited.

Tbe fact tbat tbe plaintiff bad a written contract does not change tbe situation. Tbat contract ran for one year subject to renewal, but might be terminated by either party on three months’-notice. Tbe plaintiff was not obligated by this contract to remain in defendant’s employ until tbe reward was earned, unless be saw fit to do so. Tbe reward related to an independent subject not covered by tbe contract, and one tbat did not affect its terms in any way.

*By the Ooutrt.*— Tbe judgment of tbe circuit court is reversed, and tbe cause is remanded for a new trial.