Stauter v. Walnut Grove Products

Supreme Court of Iowa · Corporations

Corporationsemployment contractsagency authoritylifetime employmentstatute of fraudsoral lifetime employmentindependent considerationemployment not at will

Facts

Plaintiff and others operated a fertilizer business that defendant sought to acquire as part of setting up satellite fertilizer plants in the area. Plaintiff testified that as part of the sale, defendant's representatives orally agreed to employ him as plant manager at a starting salary of $5,000, eventually increasing to $10,000, for as long as he desired to work and remained competent while maintaining satisfactory production. Plaintiff sold the business and equipment to defendant, began working on March 1, 1964, and was discharged on December 6, 1966. Defendant denied enforceability of the alleged agreement and challenged the authority of its agent to make it.

Issue

Whether the alleged oral lifetime employment agreement was enforceable against the corporate defendant, including whether the agent had authority to make it, whether the agreement lacked mutuality or was terminable at will, whether competency of plaintiff's performance was for the jury, and whether the statute of frauds barred proof of the contract.

Rule

A permanent or lifetime employment contract is ordinarily treated as terminable at will if supported only by the employee's promise to perform, but it is valid and enforceable when supported by additional independent consideration. Where discharge is based on alleged incompetence rather than mere employer dissatisfaction, and the evidence conflicts, competency is a question for the jury. An agent's authority to bind a corporation may be inferred from the surrounding transaction and the corporation's acceptance of the benefits of the contract. An oral permanent employment contract supported by independent consideration is not within the one-year statute of frauds if it is capable of performance within one year through contingencies consistent with the contract.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Cedar Rapids, Iowa, Nora Benton owned a small seed-treating business that Prairie Summit Nutrients wanted to acquire to expand into eastern Iowa. During negotiations, Prairie Summit orally promised Nora that if she sold her equipment and customer accounts to the company, it would employ her as facility supervisor for as long as she wanted to work, so long as she remained competent. Two years later, the company fired her and argues the employment promise was merely at will.

Which is the strongest argument that the oral employment agreement is enforceable rather than terminable at will?

Explanation. A permanent or lifetime employment promise is ordinarily treated as terminable at will if supported only by the employee’s promise to work. But where the employee gives additional independent consideration beyond services—such as selling a competing business as part of the transaction—the promise may be enforced as a binding long-term employment contract. The other choices do not supply the required additional consideration.