Source: http://courts.mrsc.org/supreme/048wn2d/048wn2d0695.htm
Timestamp: 2019-04-22 04:15:06
Document Index: 215656063

Matched Legal Cases: ['§ 9582', '§ 16', '§ 9579', '§ 9581', '§ 4', '§ 9582', '§ 25', '§ 7', '§ 9583', '§ 3', '§ 9583', '§ 9588', '§ 9581', '§ 9581', '§ 9581', '§ 1', '§ 6', '§ 9592']

48 Wn.2d 695, H. D. BAKENHUS et al., Respondents, v. THE CITY OF SEATTLE et al., Appellants
[No. 33406. En Banc. Supreme Court April 19, 1956.]
H. D. BAKENHUS et al., Respondents, v. THE CITY OF SEATTLE
[1] MUNICIPAL CORPORATIONS - PENSIONS - EMPLOYEES - PENSION FUNDS - CONTRACTUAL OBLIGATION. A pension granted to a public employee is not a gratuity but is deferred compensation for services rendered.
[2] SAME. In determining the extent of the contractual undertaking of the public authority which has promised a pension, the obligation of the employer is based upon the promise which is made at the time the employee enters employment.
[3] SAME - ESTOPPEL - WAIVER OF PENSION RIGHTS. It cannot be held that a policeman waived his pension rights under his contract of employment or consented to a modification thereof by accepting salary advances beyond twice the amount of the maximum pension allowed under a statute (Rem. Rev. Stat. (Sup.), § 9582) reducing his pension and by not objecting to the deduction of contributions based upon that maximum pension.
[4] SAME - PENSIONS - MODIFICATION OF PENSION PLAN - PERMISSIBLE CHANGES. An employee who accepts a job to which a pension plan is applicable contracts for a substantial pension and is entitled to receive the same when he has fulfilled the prescribed conditions; and his pension rights may be modified prior to retirement only for the purpose of keeping the pension system flexible and maintaining its integrity.
[5] SAME - PENSIONS - RIGHT TO PENSION - FULFILLMENT OF CONDITIONS. A policeman who, under the pension system provided by law when he entered his employment, was entitled to receive one half of the salary which he received during the last year before his retirement, and who has complied with the provisions of his contract, cannot be deprived of his right to a pension so calculated by subsequent legislation which limited the total amount payable to a pensioner to $125 per month, where it appears that, by such legislation, approximately one third of his anticipated pension was removed with no corresponding benefit, and there is no showing that the reduction was necessary to preserve and perfect the system or that it bore any reasonable relation to the purposes of the pension plan.
[6] SAME. In such a case, the policeman did not lose his right to assert that he had been deprived of his pension rights by such legislation by waiting until the conditions of his contract were fulfilled; since, until he had established his right to receive a pension by fulfilling such conditions, he could show no injury to himself by subsequent legislative changes and consequently could not complain.
HAMLEY, C. J., and HILL, J., dissent.
«1» Reported in 296 P. (2d) 536.
[1] See 40 Am. Jur. § 16; 37 A. L. R. 1162.
696 BAKENHUS v. SEATTLE. [48 Wn. (2d)
A. C. Van Soelen, Glen E. Wilson, and C. V. Hoard, for appellants.
B. A. Farley, Paul F. Schiffner, W. C. Timothy, Elwood Hutcheson, John C. Tuttle, Richard G. Patrick, C. M. Boyle, Marshall McCormick, Omar S. Parker, Lester T. Parker, O. M. Nelson, Kenneth W. Hill, D. D. Schnatterly, Leslie R. Cooper, Arthur L. Haugan, W. V. Wells, Roy A. Holland, and Kenneth A. Cole, amici curiae.
This is an action by H. D. Bakenhus, a retired policeman, and his wife to compel the city of Seattle and the board of police pension fund commissioners of that city to pay him henceforth a pension of one hundred and eighty-five dollars a month and to recover judgment for the difference between one hundred and eighty-five dollars a month and the pension of one hundred and twenty-five dollars a month which he has been paid since his retirement on August 9, 1950. We shall refer to Mr. Bakenhus as the plaintiff.
When the plaintiff became a member of the Seattle police department in 1925, chapter 39 of the Laws of 1909, p. 59, as amended to that year (Rem. Comp. Stat., §§ 9579-9592, and Rem. Comp. Stat. (Sup.), § 9581), and particularly § 4 thereof as amended (Rem. Comp Stat., § 9582), provided that a member of the police department was eligible to retire on a pension after twenty years service if he had attained age sixty or after twenty-five years service if he had not reached that age. The pension was equal to one half the salary attached to the rank held by him for the year next preceding his retirement. The members' contributions to the pension fund were (and are) made by compulsory, nonrefundable deductions from their salaries. At that time,
Apr. 1956] BAKENHUS v. SEATTLE. 697
the contribution amounted to 1.5 per cent of their salaries. (In 1929 it was increased to 2 per cent.)
The plaintiff obtained a judgment directing that he be paid pension of one hundred eighty-five dollars a month, and also judgment for two thousand eight hundred and eighty dollars, that being the difference between the pension he had been paid from the date of his retirement to the date of the trial and the amount he would have received had he been paid at the rate of one hundred eighty-five dollars a month during that period. The defendants appeal.
The defendants contend that, under the rule adopted by the majority of courts in this country, the existence of legislation making pension and retirement provisions for
698 BAKENHUS v. SEATTLE. [48 Wn. (2d)
members of a police department and the acceptance or retention of employment does not establish a contract between the employee and the city; and that until the employee has fulfilled all of the conditions necessary to entitled him to a pension, he has acquired no vested right which can be impaired by intervening legislative changes in the pension system.
[1] In this state, a pension granted to a public employee is not a gratuity but is deferred compensation for services rendered. The contractual nature of the obligation to pay a pension when the employee has fulfilled all of the prescribed conditions was recognized in Luellen v. Aberdeen, 20 Wn. (2d) 594, 148 P. (2d) 849 (1944), in Benedict v. Board of Police Pension Fund Com'rs, 35 Wn. (2d) 465, 214 P. (2d) 171, 27 A. L. R. (2d) 992 (1950), and in Ayers v. Tacoma, 6 Wn. (2d) 545, 108 P. (2d) 348 (1940). Had we held in those cases, or were we to hold now, that the pension statutes provide for the payment of gratuities, we would be bound to hold further that such statutes are contrary to the provisions of Art. II, § 25, and Art. VIII, § 7, of the Washington constitution and are therefore void.
For this reason, the cases from those jurisdictions which follow the so-called majority rule cannot be persuasive here, for, as was pointed out in Kern v. Long Beach, 29 Cal. (2d)848, 179 P. (2d) 799 (1947), they were apparently decided under different constitutional provisions. The constitution of California, like that of this state, forbids the giving away of public funds; and in that jurisdiction, the rule is stated as follows:
"A pension is a gratuity only where it is granted for services previously rendered which at the time they were rendered gave rise to no legal obligation. . . . But where, . . . as here, services are rendered under such a pension statute, the pension provisions become a part of the contemplated compensation for those services and so in a sense a part of the contract of employment itself." O'Dea
Apr. 1956] BAKENHUS v. SEATTLE. 699
v. Cook, 176 Cal. 659, 169 Pac. 366, quoted in Kern v. Long Beach, supra.
"The pension provisions of the city charter are an integral portion of the contemplated compensation set forth in the contract of employment between the city and members of the police department, and are an inseparable part of that contract. Also, the right to a pension becomes vested upon the acceptance of such employment by an applicant. (Dryden v. Board of Pension Commissioners, 6 Cal. 2d 575, 579 [59 P. 2d 104].)"
City firemen and policemen who were appointed before the effective date of a statutory amendment changing pension rates and terms, were held to be unaffected by that amendment in Bowen v. Los Angeles, 118 Cal. App. (2d)297, 257 P. (2d) 672, the court saying:
"As of the time he joined the fund, his right to continued membership therein, under the same rules and regulations existing at the time of his employment, was complete and vested. The legislature could not thereafter constitutionally alter the provisions of his already existing contract of membership. His rights in the fund could only be changed by
700 BAKENHUS v. SEATTLE. [48 Wn. (2d)
mutual consent: Marshall v. Pilots Assn., 206 Pa. 182, 55 A. 916."
"Pension annuities . . . are in the nature of compensation for the services previously rendered for which full and adequate compensation was not received at the time of the rendition of such services. They are in effect pay withheld to induce long-continued and faithful service." Giannettino v. McGoldrick, 295 N. Y. 208, 66 N. E. (2d) 57.
[3] The contention is made that the employee waived his rights under the contract or consented to a modification by accepting salary advances beyond twice the amount of the maximum pension allowed under the 1937 statute ($125), and by not objecting to the deduction of contributions based upon that maximum pension. A similar contention was flatly rejected in Atlanta v. Anglin, 209 Ga. 170, 71 S. E. (2d) 419, a suit for a declaratory judgment brought by the city against certain retired firemen, wherein the court was asked to declare pension statutes enacted in 1924 and 1931 unconstitutional. The complaint alleged that the firemen had been paid pensions in accordance with a 1945 amendment to the pension statute, which provided for pensions not to exceed one hundred dollars per month, but had applied for an increase in the amount of their pensions based upon the provisions of the 1924 and 1931 acts.
Apr. 1956] BAKENHUS v. SEATTLE. 701
"An employee's vested contractual pension rights may be modified prior to retirement for the purpose of keeping a pension system flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system. [Citing cases]. Such modifications
702 BAKENHUS v. SEATTLE. [48 Wn. (2d)
must be reasonable, and it is for the courts to determine upon the facts of each case what constitutes a permissible change. To be sustained as reasonable, alterations of employees' pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages. [Citing cases.]"
It was held in these cases that an increase in the amount of an employee's contribution without a corresponding increase in benefit payments was unreasonable. The court further held, and here the holding is even more in point, that a change in method of computing benefits which rendered the system less flexible was disadvantageous to the employee and unjustified under any showing made by the city. There the previous system had provided that pension benefits would be payable on a fluctuating basis - one half of the salary currently attached to the position which the employee had held one year prior to his retirement. The subsequently adopted system provided for the payment of a flat amount - one half the average monthly salary earned by the employee during the five years preceding his retirement or death.
The appellants have not shown wherein this arbitrary limitation was justified. It is true that other benefits were
Apr. 1956] BAKENHUS v. SEATTLE. 703
added under the 1937 act, but they are not the benefits to which the respondent has become entitled by fulfilling the conditions necessary to receive a retirement pension. Approximately one third of the anticipated pension has been removed with no corresponding benefit, and no showing by the appellants that the reduction was necessary to preserve and perfect the system, nor that it bore any reasonable relation to the purposes of the pension plan.
HILL, J. (dissenting) - If I understand the argument of the plaintiff aright, it is that the legislature, by subsequent enactment, can modify the original pension contract between him and the city and pension fund board only if he consents thereto. And if a change is favorable to him, by his silence and continuing employment he assents to the modification; if a change is unfavorable to him or subsequent events make it so, his silence and continuing employment have no effect whatsoever, and he can at any time, however remote, assert that he never consented to the change and that it impairs the obligations of his contract. To be more concrete, let us take a look at chapter 24 of the Laws of 1937, p. 62, which made several changes in the police relief and pension fund act as it existed when the plaintiff coined the Seattle police force and, so he claims, entered into a contract with the city.
704 BAKENHUS v. SEATTLE. [48 Wn. (2d)
Section 2 of the 1937 act, p. 63 (Rem. Rev. Stat. (Sup.), § 9583), limited pensions given to police officers disabled in service to one hundred twenty-five dollars a month and deleted from § 3 of chapter 18, Laws of 1911, p. 58 (Rem. Rev. Stat., § 9583),the words, "but on the death of such pensioner his heirs or assigns, shall have no claims against or upon such police relief or pension fund."
Section 5 of the 1937 act, p. 64 (Rem. Rev. Stat. (Sup.), § 9588), made it possible to continue a pension or allowance to a retired police officer's dependents or his legally appointed guardian even though, under the terms of that section, the retired officer himself would have no further right to receive the pension or allowance. (Loss of his rights might be occasioned by his conviction of a felony, becoming an habitual drunkard, failing to report for examination as required, or disobeying requirements of the board.) That
Apr. 1956] BAKENHUS v. SEATTLE. 705
section also eliminated continuing residence within the state as a requisite to eligibility for a pension and removed limitations on the powers of the board as to its requirements which could lead to loss of pension rights.
Thus it will be seen that the 1937 act, while it limited pensions of police officers to one hundred twenty-five dollars a month, liberalized the benefits payable in several particulars. Under the plaintiff's "Heads, I win; tails, the city loses" concept of modification of his claimed contract, he could and did approve the changes beneficial to him and, after sixteen years of silence (1937 to 1953), can say that he never assented to that portion of 1 of the 1937 act which limited his pension to one hundred twenty-five dollars a month.
It should also be noted that there have been several changes since 1925 relative to the city's payments into the
706 BAKENHUS v. SEATTLE. [48 Wn. (2d)
police relief and pension fund, changes which no doubt were necessary to keep the fund solvent. In 1925, the contract, if it was a contract, provided that the city of Seattle should transfer to the fund specified portions of its revenues received from certain taxes, sales, licenses, fines, and forfeitures. Chapter 54, Laws of 1923, p. 177; Rem. Comp. Stat. (Sup.), § 9581. By chapter 101, Laws of 1929, p. 199 (Rem. Rev. Stat., § 9581), the proportionate share of the pension fund from those sources was increased (and the members' contributions were increased from 1.5 per cent to two per cent of their salaries). And chapter 30, Laws of 1933, p. 180 (Rem. Rev. Stat. (Sup.), § 9581), directed the transfer into the fund each year from license fees, fines, and forfeitures (without the previous limitations) an amount which, together with the amounts deducted from salaries, would meet the financial requirements of the fund. This last would seem to amount to a practical guarantee of the solvency of the pension fund (which is, more accurately, a retirement pay, disability, and death benefit fund).
The general rule as to the contractual rights of contributing members in a government-supported pension system is as stated in Lickert v. Omaha (1944), 144 Neb. 75, 84, 12 N. W. (2d) 644:
"The existence of legislation making pension and retirement provisions for members of a police department and the acceptance or retention of employment as a member of a police department does not establish a contract, between the member and the city, that such members will thereafter be granted the retirement and pension benefits provided in such legislation
Apr. 1956] BAKENHUS v. SEATTLE. 707
However, in cases where participation in the pension plan is voluntary on the part of the employee, such payments have been held to constitute sufficient consideration to make the pension plan contractual. In re Sanborn (1930), 159 Wash. 112, 292 Pac. 259; Raines v. Board of Trustees of Illinois State Teachers' Pension & Retirement Fund (1937), 365 Ill. 610, 7 N. E. (2d) 489; Keegan v. Board of Trustees of Illinois Municipal Retirement Fund (1952), 412 Ill. 430, 107 N. E. (2d) 702.
There would also seem to be a basis for a very convincing argument for regarding the pension plan as contractual in those cases, such as the present, where the amount paid by the employee, even though compulsory, is not returnable to him if his employment is terminated, by death or otherwise, prior to his eligibility for retirement. The distinction between the refundable payment and the nonrefundable payment is that the employee making the former has, until his right to a pension accrues, an opportunity to evaluate the payments made against the pension provided, and to make his choice between a refund and a pension, while the employee making nonrefundable payments has no such choice. It could well be argued that the pension in the latter case is presently contractual because a nonrefundable payment is as much a consideration as the first payment on an annuity contract, and, whether the plan be called a pension plan or an annuity contract, the person paying is entitled to benefits on the terms of the plan existing at the time of the first payment, or upon any modification thereof agreed to by the parties. The fact that the payments may be smaller than those required by insurance companies under experience and mortality tables to mature policies for similar amounts should not detract from the contractual relation in
708 BAKENHUS v. SEATTLE. [48 Wn. (2d)
such a case, the wisdom of the rates not being within the province of the courts but a matter for the legislature. Acquiescence in any proposed modification as indicated by legislative changes would probably have to be assumed unless prompt notice was given of a refusal to agree to any proposed change.
However, a determination of whether the plaintiff did or did not have a contract is not necessary in the present case, as their decision would be the same under either the general rule or the suggested exception thereto, because the plaintiff assented to the modifications, which precludes the recovery he seeks.
I believe that he did. It has already been pointed out that chapter 24, Laws of 1937, p. 62, while it placed a limit on the amount of the pension that would be paid a police officer upon retirement, liberalized other provisions of the policemen's relief and pension act, including a provision in § 1 that limited the two per cent deductions to two hundred
Apr. 1956] BAKENHUS v. SEATTLE. 709
fifty dollars of the salary received. Deductions from plaintiff's salary were limited to two per cent of two hundred fifty dollars after his salary was increased to more than that amount January 1, 1943. When he accepted benefits under the 1937 act, he acquiesced in all the modifications that that act made in his contract unless he in some way made known the specific modifications to which he did not assent.
Another basis for a determination that the plaintiff acquiesced in the 1937 act is that he accepted salary increases subsequent to that enactment above the salary scale in force at the time the act became effective. When wages and pension benefits of public employees are inextricably combined as they are under chapter 39 of the Laws of 1909 as amended [cf. RCW 41.20], any salary increase which could affect the amount of the pension to be paid on retirement must be regarded as conditioned upon the acquiescence by the employee benefited thereby in any pension limitations in effect at the date of the increase. A city might well be willing to increase a police captain's salary from two hundred fifty dollars to three hundred seventy dollars a month for the relatively short period that he serves as captain if his pension would not be affected thereby, but be entirely unwilling to increase his salary in that amount if it would entail an additional sixty dollars a month in his pension, which could continue for many years after his retirement.
I find no merit in plaintiff's contention, based upon § 6 of chapter 24, Laws of 1937, p. 65 (Rem. Rev. Stat. (Sup.), § 9592-1), that the amendments contained in that chapter
710 SKOV v. MacKENZIE-RICHARDSON. [48 Wn. (2d)
were not intended to apply to him and the other police officers similarly situated.
HAMLEY, C. J., concurs with HILL, J.