Pioneer Specialties, Inc. v. Nelson

• Decision Date: 05 October 1960
• Docket Number: No. A-7505,A-7505
• Citation: 161 Tex. 244,339 S.W.2d 199
• Parties: PIONEER SPECIALTIES, INC., et al., Petitioners, v. Ronald NELSON, Respondent.
• Court: Texas Supreme Court

Page 199

339 S.W.2d 199

161 Tex. 244

PIONEER SPECIALTIES, INC., et al., Petitioners, v. Ronald NELSON, Respondent.

No. A-7505.

Supreme Court of Texas.

Oct. 5, 1960.

Rehearing Denied Nov. 9, 1960.

Liddell, Austin, Dawson & Huggins, Houston (Charles R. Vickery, Jr., Houston, of counsel), for petitoners.

Barrow, Bland & Rehmet, Houston (Sidney Farr, Houston, of counsel), for respondent.

GREENHILL, Justice.

In April of 1957, Ronald Nelson was elected President of Pioneer Specialties, Incorporated. The by-laws of the corporation provide that the president and other corporate officers 'shall be elected for one year,' and Nelson's term as president was for one year. On August 1, 1957, Nelson was employed to be president of the corporation for a period of two years. Though the term for which he was elected to be president ended in April or May of 1958, the contract provided that he was employed as president until July 31, 1959. On December 15, 1957, during the year in which he had been elected president, he was discharged as president by the board of directors.

Nelson brought this suit against the corporation and Tom S. Gillis, who succeeded Nelson as president, for damages for breach of his contract of employment as president for two years. The main question here, then, is whether the by-laws, which provide for the election of a president for one year, prohibit the employment of a person as president for two years (or more) in the light of the Texas Corporation Code and other statutes.

For purposes of the consideration of the corporation's motion for summary judgment, it was assumed, as we assume here, that Nelson's discharge was not for good cause. The trial court sustained the motion for summary judgment and denied Nelson a recovery. The Court of Civil Appeals reversed that judgment and remanded the case for trial. Its holding was that although the by-laws provide for the election of a president for only one year, neither the by-laws nor any statute prohibits the employment of a person as president of the corporation for longer than one year, and that the corporation was liable if it did not fulfill its contract of employment of Nelson for the two-year period. Tex.Civ.App., 325 S.W.2d 924. We here hold that the by-law providing for the election of the president for one year is, by necessary implication, a prohibition against the employment of a person as president for longer than one year. We nevertheless affirm the judgment of the Court of Civil Appeals in remanding the case for trial to give Nelson the opportunity to prove a violation of his rights, if any, arising out of his removal as president in December, 1957, up to the close of the one year for which he was elected president. This is done pursuant to Article 2.43 of the Texas Business Corporation Act V.A.T.S. Our reasons are set out below.

This is a case of first impression. We have been cited to no Texas cases, and we have found none, which are determinative. Our decision must rest, therefore, on the by-laws of the corporation and the Texas statutes regulating corporations.

The Texas Business Corporation Act was enacted in 1955. Under Sec. 2.23 of that Act, by-laws of a corporation 'may contain any provisions for the regulation and management of the affairs of the corporation not inconsistent with law or the articles of incorporation.' Article 2.02 says that the corporation may elect or appoint officers and agents for such period of time as the corporation may determine. It is not contended here that the by-law providing for the election of the president for one year is invalid.

Nelson contends that while the by-law does say that the president 'shall be elected for one year,' it does not prohibit his employment as president for longer than a year, and that Sec. 2.43 of the Act recognizes the distinction between his election and his employment. That section provides:

'Any officer or agent or member of the executive committee elected or appointed by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights.'

Article 1327 of the Revised Civil Statutes of Texas was amended in 1951 to provide, as applicable here:

'Contracts of employment may be made and entered into by the corporation with any of its officers, agents, or employees for such period of time as the directors may approve and authorize, when not prohibited by the corporation's charter or by-laws as of the date such contracts are executed. By the adoption of a resolution for that purpose, the Board of Directors of a corporation may ratify and confirm any employment contract heretofore made, provided such contract is not prohibited by the charter or by-laws of such corporation.' (Emphasis ours.)

Section 2 of the amendment to Article 1327 says, 'The fact that there is no specific statutory authorization for corporations to enter into contracts of employment for a period beyond one year * * * constitutes an emergency * * *'. Acts 52 Leg., 1951, pp. 26-27.

It may be conceded for purposes of this opinion that the Legislature, in enacting Article 2.43, recognized a distinction between the election and the employment of officers by stating that the removal of an elected officer 'shall be without prejudice to the contract rights, if any,' and that the election of an officer 'shall not of itself create contract rights.' It may further be conceded that the amendment to Article 1327, supra, established a public policy authorizing long-term contracts for officers. But that article also says that such long-term contracts may not be entered into when prohibited by the corporation's charter or by-laws. We think the by-laws specifying that the president 'shall be elected for one year' by necessary implication prohibits his employment as president for two years.

While long-term contracts of employment may be beneficial to some corporations and desirable as to some employees or officers in other corporations, the Legislature has not taken away the right of the stockholders to protect themselves against such...