Court Opinion

ID: 3467456
Source: CourtListenerOpinion
Date Created: 2016-07-05 20:33:42.883954+00
Date Added: 2024-06-11T14:07:59.822199
License: Public Domain

This is a suit by an officer of a corporation to recover salary due him under a contract of employment for a fixed term, on the ground that he was removed without cause prior to the termination of the contract.
The defense is (1) that the employment was not for a fixed term; (2) that if it was, it was ultra vires the by-laws of the corporation providing that plaintiff's employment was at the pleasure of the board of directors; and (3) that if we find that in accordance with the agreement he was employed for a fixed term and the board of directors did not have the power to terminate the same, the contract is a nudum pactum. *Page 600 
The matter is now before us for reconsideration of our original decree affirming the judgment of the lower court in favor of the plaintiff.
Plaintiff, David G. Hill, Jr., had been in the employ of the defendant corporation, the American Cotton Co-operative Association, from the time of its organization in 1921 in various capacities at a salary of $10,000 a year until June 30, 1937, when the office to which he had been elected (comptroller) for the fiscal year 1937-1938 was abolished and his services summarily dispensed with without cause, due to an economy in the management of the affairs of the association.
On the trial of the case plaintiff testified that his employment had been by the year, he having been elected from year to year for the ensuing year. But when he sought to introduce evidence to establish the fact that he had been likewise employed for the fiscal year 1937-1938, irrespective of the fact that the minutes did not specifically so state as had been done in previous years, counsel for defendant objected to such evidence on the ground that it was immaterial and irrelevant, and stated: "We admit that the minutes will show that Mr. Hill was elected for comptroller for a year." (Tr. p. 19). Again we find at page 20 of the transcript the statement of defendant's counsel that "There isn't any question that the minutes show, and Mr. Dart [plaintiff's attorney] knows it, that Mr. Hill was elected as comptroller for a year." On this point the trial judge commented as follows: "His [plaintiff's] argument is that he was elected for a year *Page 601 
and discharged without cause and that is admitted, admitted by your [defendant's] witness. You [defendant] claim that as a legal right you had a right to discharge him * * *." (Brackets ours.) Furthermore, our appreciation of the testimony leaves no doubt as to the correctness of our original opinion on this point.
The question that arises, then, is whether or not the action of the board in electing the plaintiff for one year was ultra vires in that the corporation's by-laws provide that "The board of directors shall elect * * * a comptroller to serve during the pleasure of the board. * * *"
It is defendant's contention that since the plaintiff was elected comptroller subject to the provisions of the by-laws, he was, consequently, subject to dismissal at the pleasure of the board of directors. In support of this contention counsel rely on the cases of Hunter v. Sun Mutual Insurance Company of New Orleans, 26 La.Ann. 13, and Fowler v. Great Southern Telephone 
Telegraph Company, 104 La. 751, 29 So. 271, 272.
In disposing of that issue when the case was originally before us, we said: "The cited cases are not pertinent because in those cases the Board of Directors did not have authority to alter the by-laws which were adopted by the stockholders."
Counsel for defendant in his brief on rehearing, still maintaining his original position that "the two cases * * * are clearly and wholly determinative of the issues here," severely criticized that part of our opinion and issued the following challenge: "If Your Honors can point to a *Page 602 
single sentence in the record, or to anything in the jurisprudence of this State [supporting the above statement], then we confess that the criticism of the decision is baseless." (Brackets ours.)
While there is no specific statement in the Hunter case that the board of directors was without authority to alter the by-laws which were adopted by the stockholders, counsel for defendant evidently failed to read the case of Fowler v. Great Southern Telephone and Telegraph Company, supra (in which the Hunter case is cited with approval on another point), wherein it is stated: "The by-laws of the company were framed and adopted by its stockholders. After adoption by the stockholders they may be altered or amended at any annual meeting of the stockholders by a majority vote of those represented, or at any legal meeting duly called for that purpose. This is the declaration of the by-laws themselves. There is no authority in the board of directors toadopt by-laws, nor to change, amend, or modify those adopted bythe shareholders. * * *" In that case the court found as a fact that there was nothing in the record to show "plaintiff was ever employed specifically by the year." Continuing, the court said: "* * * but, if he were, there was no power in the board of directors to so employ him, and he knew it * * *."
In disposing of a question similar to the one raised here, the United States Circuit Court of Appeals for the Third Circuit, affirming the decision of the district court in the case of Realty Acceptance Corporation v. Montgomery, reported in *Page 603 51 F.2d 636, 639, after analyzing the pertinent authorities, held "thatthe contract made by the defendant [corporation] pursuant to theexpress authority of its board of directors, which had expresspower to amend at will the by-laws of the defendant, modified, inits legal effect, all inconsistent by-laws and prevails overthem. See Machem on Corporations, § 728." (Italics and brackets ours.)
In the Realty case, in disposing of defendant's contention that "where a board of directors has power to remove officers at its pleasure, a contract for a definite period is ultra vires and void," the court said, with reference to the cases cited in support of such contention: "None of these cases holds, either directly or by analogy, that a by-law, subject to amendment by a majority of the board, nullifies a contract expressly authorized by the board." The court further demonstrated that the majority of the cases cited were controlled by statute and, with respect to the cases of Fowler v. Great Southern Telephone Company, supra, and Hunter v. Sun Mutual Insurance Company, supra, commented as follows: "* * * in the Louisiana cases the boards ofdirectors, by whom the plaintiffs were elected, were withoutpower to amend the by-laws made by the stockholders, providingfor tenure of office during the pleasure of the board." (Italics ours.)
Fletcher in Section 4200 of the Permanent Edition of his work on Corporations says: "When the board of directors has power toadopt by-laws, it has power to waive those adopted, unless theright of waiver is authoritatively limited, as by the statute,charter, or certificate of incorporation *Page 604 
* * *." Continuing, the author states: "* * * but when the power to make by-laws is vested in the stockholders or members, and they have made by-laws for the protection of the corporation, they cannot be waived by the directors or other officers of the corporation." (Italics ours.) See, also, 18 Corpus Juris Secundum, Corporations, §§ 182 and 188, pp. 593 and 599; 2 Thompson on Corporations, 3d Ed., 1157 and 1158; 13 American Jurisprudence 165, p. 292; Sections 503 and 2121, Fletcher on Corporations; Farmers' State Bank v. Haun, 30 Wyo. 322, 222 P. 45; Bank of Holly Springs v. Pinson, 58 Miss. 421, 38 Am.Rep. 330; In re Paramount Publix Corporation, 2 Cir., 90 F.2d 441, 111 A.L.R. 889; Stott v. Stott Realty Co., 246 Mich. 267,224 N.W. 623, 63 A.L.R. 774; Martino v. Commerce Fire Insurance Company, 47 N.Y.Super.Ct. 520; Reiss v. Usona Shirt Co., 174 A.D. 181, 159 N.Y.S. 1031; and Cuppy v. Stollwerck Bros., 216 N.Y. 591,111 N.E. 249.
The Appellate Court of Indiana in a recent case, citing the above section from Mr. Fletcher's work, said: "Since the board of directors have power to adopt the by-laws they, of necessity, have the power to waive the by-laws, unless this right is restricted by statute." State ex rel. Guaranty Building  Loan Company v. Wiley, 100 Ind. App. 438, 196 N.E. 153, 154.
Act No. 250 of 1928 declares that "Any officer or agent may be removed by the board of directors whenever in its judgment the best interests of the corporation will be served thereby; such removal, however, shall be without prejudice to the contract rights of the person so removed." *Page 605 
Section 35, subsection IV. The act also provides that "if the articles [of incorporation] so provide, the board of directors may make and alter by-laws, subject to the power of the shareholders to change or repeal the by-laws so made * * *". Section 29, subsection I. (Brackets ours.)
Under the express authority of defendant's charter its board of directors was given the power "to make, alter, and change * * * the by-laws of this association" and our opinion, therefore, is that the board of directors of the association, by its action of April 23, 1937, electing the plaintiff to the office of comptroller for a period of a year at a yearly salary of $10,000, thereby abrogated the by-laws to that extent.
We now pass to the next contention urged by the defendant, that is, that the contract in controversy is a nudum pactum "because the plaintiff did not obligate himself to render his services for any definite period of time."
Of course, when the plaintiff, Hill, after his election for one year, entered upon the services of his office, he thereby accepted the contract of employment for a year, and, according to the provisions of Article 2750 of the Revised Civil Code and the jurisprudence thereunder, if he had left this employment during that period without cause, he would not only have forfeited the salary due him during the remainder of the period but could, also, have been compelled to return to the corporation all of the money that had been paid him under the contract. See Shoemaker v. Bryan, 12 La.Ann. 697; Young v. United *Page 606 
States Mortgage  Trust Company, 214 N.Y. 279, 108 N.E. 418; and 19 Corpus Juris Secundum Corporations, § 727, p. 64.
However, in support of defendant's contention, counsel rely now, as they did when the case was before us originally, on the cases of Pitcher v. United Oil  Gas Syndicate, 174 La. 66,139 So. 760; United Carbon Company v. Interstate Natural Gas Company, Inc., 176 La. 929, 147 So. 37; and Cloverland Dairy Products, Inc. v. Grace, 180 La. 694, 157 So. 393.
In our original opinion we, in effect, held that these cases are not applicable here. A mere reading of them will demonstrate the correctness of our original opinion in this respect.
In the Pitcher case [174 La. 66, 139 So. 761] the contention of the defendant was "that the contract was for an indefinite period and therefore terminable at the will of either party" and the court said: "It is not disputed that if the contract, as above written, was only for an indefinite and not for some fixed orreadily ascertainable period, then it might be terminated at the will of either party," concluding that, in their opinion, "the contract was for an indefinite period."
In the case of Cloverland Dairy Products Company, Inc. v. Grace, supra, the court said: "The pivotal point in the case is whether or not the contract sued upon is void for lack of mutuality," and, after analyzing the pertinent authorities, concluded: "In view of our finding that the contract sued upon is void for lack of mutuality, the exception of no cause of action *Page 607 
filed by the defendant in this case was properly maintained."
The case of United Carbon Company v. Interstate Natural Gas Company, supra, involved a contract relating to the purchase of gas, and not a contract of employment. In disposing of the issues raised the court recognized the well-established rule of law that "Where one party to a contract only is bound it is a nudum pactum." [176 La. 929, 147 So. 40.]
Having concluded that the plaintiff was prematurely discharged without cause, although he had been legally employed by the board of directors of the defendant corporation for a period of a year at a yearly salary of $10,000, of which amount he has been paid the sum of $4,388.85, and the defendant's counsel having conceded in his brief that under our law "where one is employed for a period of a year and is improperly discharged * * * he is * * * entitled to his salary for the unexpired period of his employment" (See Sherburne v. Orleans Cotton Press, 15 La. 360; Shea v. Schlatre, 1 Rob. 319; Tete v. Lanaux, Ex'r., 45 La.Ann. 1343, 14 So. 241; Curtis v. Lehmann  Company, 115 La. 40, 38 So. 887; Daspit v. D.H. Holmes Company, 120 La. 86, 44 So. 993; Camp v. Baldwin-Melville Company, 123 La. 257, 258, 48 So. 927; and Dunbar v. Orleans Metal Bed Company, 145 La. 779, 82 So. 889) it is our opinion that our original decree affirming the judgment of the lower court in favor of the plaintiff is correct.
For the reasons assigned, our original decree is reinstated and made the final judgment of this court. *Page 608