St. Yves v. Mid State Bank

Citation748 P.2d 633,50 Wn.App. 95
Decision Date22 December 1987
Docket NumberNo. 8192-3-III,8192-3-III
Parties, 2 IER Cases 1550 Robert ST. YVES, Appellant, v. MID STATE BANK, a Washington banking corporation, Respondent.
CourtCourt of Appeals of Washington

John Hotchkiss, Charlson & Drewelow, P.S., Wenatchee, for appellant.

Michael Tabler, Waterville, for respondent.

McINTURFF, Chief Judge.

The case was dismissed with prejudice pursuant to CR 12(b)(6) for failure to state a claim on which relief could be granted. Upon finding it would be error to dismiss this case under either CR 12(b)(6) or upon summary judgment, we reverse and remand for trial.

Robert St. Yves was employed as president of Mid State Bank from June 1, 1984 until May 31, 1986. He was terminated on May 5, 1986, without being notified his job performance was unsatisfactory. His employment agreement with Mid State Bank provided for an initial term from June 1, 1984 to May 31, 1986. The term of the agreement automatically renewed for successive 1-year terms if either party did not advise the other of nonrenewal with 60 days' written notice. The employment agreement also provided Mr. St. Yves' right to compensation ended upon his termination for any reason and that his termination at any time with or without cause or notice shall not constitute a breach of the agreement.

Mid State Bank also had a written personnel policy manual, revised January 1984, which provided an employee grievance procedure for employees who felt they had been treated unfairly. The procedure included informal counseling if an employee's performance or conduct failed to meet specified requirements. Formal written warning and counseling were provided in the event of a repeated or serious problem either in performance or conduct. A probation period was provided in case of major job performance or conduct problems or continued lack of improvement in the performance or conduct. Discharge occurred if the employee failed to achieve the specified results within the probation period.

An affidavit of Keith Brighton, former president and director of Mid State Bank, states he implemented the written personnel policy manual and that it was his intent that all employees, including the president, be covered by the manual. He stated the board of directors, of which he was a member, never discussed eliminating the president's position from the coverage of the manual and its grievance The first issue is whether the trial court erred in dismissing this claim for wrongful discharge and/or breach of contract for failure to state a claim upon which the court could grant relief. CR 12(b)(6) permits a court to dismiss a case on motion for failure to state a claim upon which relief can be granted. An action should be dismissed on a CR 12(b)(6) motion if, accepting the plaintiff's allegations as true, the court concludes beyond a reasonable doubt that no set of facts consistent with the complaint could be proved which would entitle the plaintiff to relief. Corrigal v. Ball & Dodd Funeral Home, Inc., 89 Wash.2d 959, 961, 577 P.2d 580 (1978); Springer v. Rosauer, 31 Wash.App. 418, 420, 641 P.2d 1216, review denied, 97 Wash.2d 1024 (1982). In contrast, a motion for summary judgment should be granted only when, viewing the facts most favorably to the nonmoving party, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Thompson v. St. Regis Paper Co., 102 Wash.2d 219, 221, 685 P.2d 1081 (1984); Yakima Fruit & Cold Storage Co. v. Central Heating & Plumbing Co., 81 Wash.2d 528, 530, 503 P.2d 108 (1972).

                procedures.   However, the bylaws of Mid State Bank stated the president serves "at the pleasure of the board."
                

This analysis can be divided into three questions: (1) Did the directors have the power 1 to enter an employment contract which limited their power to discharge officers at their pleasure? (2) Does Mr. St. Yves' employment contract give him a right to continued employment? (3) Does Mid State Bank's personnel policy afford Mr. St. Yves the right to be terminated only for justifiable cause?

(1) The power of the directors.

A bank corporation has the power:

To elect directors who, subject to the provisions of the corporation's bylaws, shall have power to appoint such (Italics ours.) RCW 30.08.140(5).

officers as may be necessary or convenient, to define their powers and duties and to dismiss them at pleasure, and who shall also have general supervision and control of the affairs of such corporation.

Article 9, § 1, of the bylaws of Mid State Bank provides: "These by-laws may be amended at any regular or special meeting of the shareholders in accordance with Article I ..." Article 3, § 9(A) empowers the board of directors "[t]o appoint a president [and other officers], all of whom shall serve at the pleasure of the board ..." (Italics ours.)

Mr. St. Yves argues his employment agreement was not properly terminated, as such he has a continued right of employment and is entitled to damages for breach of contract. He argues the employment agreement is not precluded by RCW 30.08.140(5) because the statute recognizes the bylaws may provide otherwise. Nor do the bylaws preclude Mr. St. Yves' claim because the employment contract and personnel policy manual amended the bylaws.

Mid State Bank contends the statutory "at will" employment of Mr. St. Yves as president is not altered by his employment agreement nor by the personnel policy manual established by Mid State Bank.

We found no case in Washington which construes RCW 30.08.140(5). On its face, however, the language of RCW 30.08.140(5) gives the corporation power to elect directors who, subject to the corporation's bylaws, shall have the power to appoint officers, define their duties, and dismiss them at pleasure. Ergo, if the bylaws provide otherwise, the directors have no power to dismiss officers at pleasure.

Bylaws may be modified by custom, usage, or acquiescence or by unanimous consent subject to prevention by statute or charter. Bay City Lumber Co. v. Anderson, 8 Wash.2d 191, 204, 111 P.2d 771 (1941). A corporation may also waive bylaws expressly or impliedly. Bay City Lumber Mr. St. Yves cites Hernandez v. Banco De Las Americas, 116 Ariz. 552, 570 P.2d 494, 497-98 (Ariz.1977) where the Supreme Court of Arizona held a 1-year employment contract between a bank board of directors and Mr. Hernandez, as president of the bank, was valid even though it extended beyond the term of the board. In Hernandez, the board had the authority to amend a bylaw providing that officers were to serve for the term of the board, subject to the power of the board to remove them at its discretion. In Hernandez, 570 P.2d at 497-98, the court noted:

                Co., at 204, 111 P.2d 771.   A waiver occurs if a corporation acts or contracts in disregard of a bylaw with the consent or acquiescence of the stockholders.   Where a bylaw required that officers' salaries be fixed by a board of trustees, it was waived by acts of the president in fixing the salaries because the president's acts were assumed to be known to the trustees and stockholders.  Bay City Lumber Co., at 204-05, 111 P.2d 771
                

It is accepted law that by-laws may be amended informally as well as formally, orally or in writing ... by acts as well as by words, and may be evidenced by a course of proceeding or conduct on the part of the corporation inconsistent with the by-laws claimed to have been amended or repealed.

Hernandez, at 498, cites Bay City Lumber Co. as authority for this principle.

In Hernandez the bank argued it had the power under the bylaws to remove an officer at its discretion. Hernandez, at 498, stated:

This power of removal, however, is subject to rights of the officer under the employment contract. The power to remove an officer of the corporation does not carry with it the power to terminate a valid employment contract without liability.

The policy underlying the rule is that employment contracts are designed to benefit both an officer and the corporation, ensuring the services of the officer to the corporation The difficulty of applying the logic of Hernandez in this case is that Mid State Bank's board of directors had no express authority to amend the bylaws; rather the bylaws provide shareholders may amend the bylaws at any regular or special meeting. Article 9, § 1. Notably, the language of the bylaws (shareholders may amend the bylaws) does not preclude amendment by directors, although it does not specifically empower directors to amend the bylaws. But, Bay City Lumber Co., 8 Wash.2d at 204, 111 P.2d 771, provides waiver of a bylaw results if a corporation acts or contracts in disregard of a bylaw with the consent or acquiescence of the stockholders and that nonuse of a bylaw for a sufficient length of time to bring it home to the stockholders will work its abrogation. Here Mid State Bank entered an employment contract on June 1, 1984 with Mr. St. Yves for an initial 2-year term. Termination by the board did not occur until May 5, 1986. In Bay City Lumber Co. the president had no power under the bylaws to authorize salaries, yet authorization of the salaries by the president was an act that must have been known to the shareholders. Here the overt act by the directors of Mid State Bank was the formal employment contract with Mr. St. Yves. The existence of this agreement for almost 2 years before his termination without objection by the stockholders is acquiescence to the waiver of the bylaw that officers serve at the pleasure of the board. 2

                while providing some financial security to the officer.   Hernandez, at 498
                

Mid State Bank further argues federal cases interpreting federal statutes governing banks have consistently held an employee covered by one of the federal statutes and appointed and dismissed by the board of directors cannot sue under common law theories of wrongful discharge. 3 Mid State Bank...

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