Nelson v. Pioneer Specialties, Inc.
| Decision Date | 02 July 1959 |
| Docket Number | No. 13432,13432 |
| Citation | 325 S.W.2d 924 |
| Parties | Ronald NELSON, Appellant, v. PIONEER SPECIALTIES, INC., et al., Appellees. |
| Court | Texas Court of Appeals |
Barrow, Bland & Rehmet and Sidney Farr, Houston, for appellant.
Liddell, Austin, Dawson & Huggins and Charles R. Vickery, Jr., Houston, for appellees.
Appellant filed suit against appellees to recover damages for breach of a contract of employment. He alleged that on August 7, 1957 he was, by written contract, employed by Pioneer Specialties, Inc., a Corporation, herein referred to as Corporation, as President for a period of two years. He was, at the time this contract was signed, President, he having been elected in April of 1957. The contract of employment was approved by resolution passed by the Board of Directors of the Corporation on August 13, 1957. His salary was to be $500 per month and he was to receive as additional compensation 3% of the net sales over $10,000. Appellant served as President until December 15, 1957, when he was discharged, allegedly without cause. This suit was to recover the compensation provided for in the contract for the period from December 15, 1957, to July 31, 1959, the termination date of the contract of employment.
Appellant joined Tom S. Gillis as a defendant, basing his suit against Gillis on an alleged wrongful interference by Gillis that caused the breach of the contract. It is unnecessary to further notice this phase of the case as it is involved only to the extent that the liability of Gillis is dependent first on whether there was a valid contract between the Corporation and appellant.
The appellees filed an answer, asserting the contract was invalid because it was for a term of two years and the appellee Corporation had a by-law providing that its President should be elected for one year and it was thus beyond the power of the Board of Directors to employ appellant for more than one year. There were other defenses set up, but we need not notice them in disposing of this appeal.
Appellees also filed a cross-action against appellant and other persons. The cross-action is not involved in this appeal as an order was entered severing it from the original suit.
Appellees filed their motion for summary judgment. It was there asserted that the contract sued on was void because contrary to the by-law of the Corporation allegedly limiting its President's tenure to one year.
The trial court sustained the motion and rendered judgment that the appellant take nothing.
It is undisputed that the Corporation, while it was chartered prior to the effective date of the Business Corporation Act, V.A.T.S., has elected to come under the provisions of that Act, and therefore the pertinent provisions of the Act, and the corporate acts taken thereunder, will control the determination of the validity of the contract. Appellant was elected President in April, 1957, to be effective May 9, 1957. On August 7, 1957, a letter, the contract here sued on, was written to appellant employing him as President for a period of two years from August 1, 1957, at a monthly salary of $500, plus 3% of the net sales over $10,000. The letter was signed for the Corporation by its Vice President and its Secretary. Appellant signed the letter evidencing his acceptance of the terms set forth as the contract of employment. On August 13, 1957, the Corporation's Board of Directors by resolution approved the contract of employment. Appellant acted as President until December 15, 1957, when he was removed by the Board of Directors. In this appeal the parties have assumed the discharge was without cause, and for purposes of this appeal have agreed it was without cause, though by pleading in the Trial Court cause was alleged to have existed. The Corporation by-law, which is material and of which appellant had notice, reads as follows:
'The officers of the corporation shall be a President, one or more Vice-Presidents, a Secretary and a Treasurer, each of whom shall be elected for one year and shall hold office until their successors are elected and qualified.' (Emphasis ours.)
Appellant contends that while before 1951 public policy of Texas prevented the employment by a corporation of a person for more than one year, this policy was changed when the legislature in 1951 amended Article 1327, Vernon's Ann.Civ.St. authorizing corporations through the board of directors to enter into 'contracts of employment' for such period of time as they wish if such is not prohibited by the charter and by-laws. It is not contended that this statute is specifically applicable because appellee Corporation is operating under the Business Corporation Act, but it is urged that the amendment of Article 1327 marked the beginning point in the change of state policy and the substance of such amendment is brought forward in the Business Corporation Act so there is now authority in a corporation coming under the new Act to employ its officers and agents for such term as the board of directors determines unless the directors are prohibited from doing so by the charter or by-laws. Appellant then urges that the bylaw of the Corporation here does not prohibit the employment of a person for more than one year, but it merely prohibits his 'election' as president for more than one year, but the term 'elect' and 'employ' are not synonymous terms. The Corporation may enter into an employment contract for a longer term and though the officer thus employed may not obtain specific performance because the by-law restricts the President's term to one year, still if the Corporation does not elect him for the second year there is a breach of contract for which an action for damages lies.
The basis of such contention is the following provisions of the Business Corporation Act:
'A. Subject to the provisions of Sections B and C of this Article, each corporation shall have power: * * *
'(12) To elect or appoint officers and agents of the corporation for such period of time as the corporation may determine, and define their duties and fix their compensation.
* * *
* * *
'Article 2.31 'A. The business and affairs of a corporation shall be managed by a board of directors.
* * *
* * *
Appellant says that since Article 2.02, subd. A(12) allows the corporation to determine tenure and since by Article 2.31, subd. A the business affairs are carried on by the board of directors, the board of directors can fix the tenure of office.
Appellees concede that since the amendment of Article 1327, V.A.C.S., and under the new Business Corporation Act, there is no public policy against a corporation employing a person for a period of more than one year. However, they contend that the tenure of an officer of the corporation is to be determined by the charter or by-laws. In the absence of any inhibiting charter or by-law provision, the board of directors could determine the tenure of an officer. However, here, since the Corporation by-law provides that the President shall be 'elected for one year,' this is a prohibition against the Board of Directors contracting to employ for more than one year. They contend that the terms 'elect' and 'employ' are synonymous. Appellees say the public policy of the State still is that a contract of employment made in violation of the by-laws is void. Too, they contend that Article 2.02, subd. A(12) conferring authority on the 'corporation' to fix the tenure of its officers is referring to general corporate authority, but does not unequivocally commit the exercise of such power to the board of directors independent of corporate by-laws adopted by the corporation through its stockholders.
There are no cases cited and none we have been able to find discussing the precise situation here involved.
All Texas cases dealing with the authority of the board of directors to employ a person for the corporation for more than one year were decided prior to the amendment of Article 1327 in 1951 and, of course, prior to the adoption of the Business...
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Dixie Glass Co. v. Pollak
...Inc. v. Nelson, recently decided by our Supreme Court, 339 S.W.2d 199. Our opinion in that case is reported in Nelson v. Pioneer Specialties, Inc., 325 S.W.2d 924. The Supreme Court held that the Board of Directors could not employ Nelson as president for more than one year because the by-l......
- Pioneer Specialties, Inc. v. Nelson