of the bylaws. A bylaw must be general in its application and not aim at a particular member.84 Where stock in a mutual ditch company was acquired after ascertaining that the company did not have a bylaw prohibiting the transfer of water from one tract of land to another without the approval of the board of directors, a bylaw adopted by the board of directors immediately after the acquisition of such stock, prohibiting such a transfer, was held arbitrary and unreasonable.85 Bylaws should be distinguished from rules adopted for the guidance of the public dealing with the association. The members of a corporation and its directors and officers usually are conclusively presumed to have notice of bylaws, and of what they contain, and hence are bound by them, although, as a fact, they may be ignorant of them.86 Also, persons who join an association and pay dues in accordance with bylaws which have been in effect since organization, even though such bylaws are inconsistent with the charter, are estopped from questioning the validity of such bylaws.87 The great importance of members, officers, and directors knowing the provisions of the bylaws of their association is thus apparent. On the other hand, strangers having no knowledge of bylaws are not bound by them unless perhaps in States where specifically authorized by statute.88 If notice of bylaws, either actual or constructive, reaches strangers the bylaws usually are held to be binding on them.8 89 In some States it is held that where the statute or the charter provides that a given power shall be exercised by particular officers or agents of the corporation, the power can be exercised only by such officers or agents and that a bylaw providing otherwise is void.90 On the other hand, it has been held, at least as to third persons, that the board of directors may confer the authority to do certain acts on persons other than those who the bylaws stipulate shall exercise such authority.91 A question which will readily occur to anyone is whether the majority of the members of an association may adopt bylaws which will be binding upon the minority who oppose their adoption.92 The answer is "Yes," if such bylaws are reasonable and consistent with the charter and the general law. Herein lies an important difference between bylaws and contracts. A valid bylaw is binding upon a member or stockholder although he opposed its adoption, but assent is necessary to the creation of a contract. A majority of the members cannot adopt and enforce bylaws which violate the law or run counter to the purpose for which the association was formed. If an association represented that a bylaw was in effect, although it was Budd v. Multnomah St. Ry. Co., 15 Ore. 413, 15 P. 659, 3 Am. St. Rep. 169. 85. Costilla Ditch Company v. Excelsior Ditch Company, 100 Colo. 433, 68 P. 2d 448. 86 Washington Coop. Egg & Poultry Association v. Taylor, 122 Wash. 466, 210 P. 806; Brent v. Bank of Washington, 10 Pet. 596, 35 U. S. 596, 9 L. Ed. 547; Columbia Bldg. & Loan Association v. Junquist, 111 F. 645. 87 State v. Bankston, 7 So. 2d 667 (La.). 88 89 McKinney v. Mechanics' Trust & Savings Bank, 222 Ky. 264, 300 S. W. 631. Harley v. Hartford Fruit Growers' & Farmers' Exchange, 216 Mich. 146, 184 N. W. 507; Rathbun v. Snow, 123 N. Y. 343, 25 N. E. 379, 10 L. R. A. 355; IowaMissouri Grain Co. v. Powers, 198 Iowa 208, 196 N. W. 979, 33 A. L. R. 1268; Rundell v. Farmers' Cooperative Elevator Co. of Corunna, 210 Mich. 642, 178 N. W. 21. 90 Security Savings & Trust Company v. Coos Bay Lumber & Coal Company, 219 Wis. 647, 263 N. W. 187; Maasdam v. Jefferson County Farmers' Mutual Insurance Association, 222 Iowa 162, 268 N. W. 491. 91 Keenan v. Zemaitis, 4 F. 2d 572; Sealy Oil Mill & Manufacturing Company v. Bishop Manufacturing Company, 235 S. W. 850 (Tex. Com. App.). 92 Iowa State & Savings Bank v. City Nat. Bank, 106 Neb. 397, 183 N. W. 982; Kelly v. Republic Building & Loan Association, 34 S. W. 2d 924 (Tex. Civ. App.). adopted by only a majority vote where a two-thirds vote of the members, In an Arkansas case, a majority of the members of a corporation sought through a bylaw to make what, under the circumstances, was held to be an attempted gift of a sum of money to one of their members. Certain stockholders of the corporation opposed the bylaw and later resorted to the courts to prevent the turning over of the money. It was held that the action contemplated was a distinct violation of their rights and was therefore illegal.94 97 The fact that a person at the time he becomes a member of an association agrees to be bound by all present and future bylaws does not permit the association to adopt bylaws which will deprive him of vested rights under the bylaws which were in effect when he became a member.95 For instance, if an association at the time a person acquires stock therein agrees that it will refund the purchase price if he leaves the community and it has a bylaw to this effect, the fact that the shareholder agrees to be bound by all present and future bylaws does not permit the association to adopt a bylaw abrogating the arrangement as to him; 96 but agreements to abide by future bylaws will be given effect in certain types of cases. A bylaw obligating an association to repurchase its shares under given conditions constitutes "a contract with the corporation which could not be abrogated by simple repeal of the bylaw" 98 at least as against a member who did not concur therein. Where a member did not vote in favor of a bylaw which affected his existing and future financial rights, but did not object to deductions made in accordance with the bylaw but apparently acquiesced therein, he was bound thereby.99 In a later section of this publication will be discussed the extent to which the association may, by adopting suitable bylaws, restrict the transfer of stock previously issued.i If a member voted in favor of repealing a bylaw or of adopting one that adversely affected his interests under bylaws in effect when he became a member, he would be estopped from challenging its validity.2 If a statute 3 or bylaw provides for action by the board of directors, the same action taken by the manager will not be binding on the association. Again, where the statute under which a mutual insurance company was incorporated, and its bylaws, required applications for insurance to be in writing, the insurance company was not liable for a loss in a case in which 93 Buford v. Florin Fruit Growers' Association, 210 Cal. 84, 291 P. 170. Jones Lumber Co. v. Wisarkana Lumber Co., 125 Ark. 65, 187 S. W. 1068. 94 95 Farrier v. Ritzville Warehouse Co., 116 Wash. 522, 199 P. 984; Jaeger v. Grand Lodge, Order of Hermann's Sons, 149 Wis. 354, 135 N. W. 869, 39 L. R. A. (N. S.) 494; Model Land & Irrigation Co. v. Madsen, 87 Colo. 166, 285 P. 1100. 96 Whitney v. Farmers' Coop. Grain Co., 110 Neb. 157, 193 N. W. 103. 97 Kelsey v. Early Grain & Elevator Company, 206 S. W. 849 (Tex. Civ. App.). 98 Loch v. Paola Farmers' Union Cooperative Creamery & Store Association, 130 Kan. 136, 285 P. 523, rehearing denied, 130 Kan. 522, 287 P. 269. See also Whitney v. Farmers' Coop. Grain Co., 110 Neb. 157, 193 N. W. 103; Adams v. Sanford Growers' Credit Corporation, 135 Fla. 513, 186 So. 239. Reinert v. California Almond Growers Exchange, 9 Cal. 2d 181, 63 P. 2d 1114, 70 P. 2d 190. See also Searles v. Bar Harbor Banking & Trust Company, 128 Me. 34, 145 A. 391, 65 A. L. R. 1154. Reorganization of Associations, p. 62. 2 Farrier v. Ritzville Warehouse Co., 116 Wash. 522, 199 P. 984; Kent v. Quicksilver Mining Co., 78 N. Y. 159, 12 Hun. 53; Morrison v. Dorsey, 48 Md. 461. Farmers' Coop. Mercantile Co. v. Shultz, 113 Neb. 801, 205 N. W. 288. a member, without complying with the bylaws, left his insurance policy with the secretary of the company, requesting that he renew it." A bylaw of an association purporting to impose personal liability on members for its debts has been held void if the charter of the association or the statute under which it was formed did not authorize such a bylaw." All authorities agree that under no circumstances can an unauthorized "bylaw" impose any liability on members who did not vote therefor or acquiesce therein.” 998 Although an act authorized the inclusion in the articles of incorporation of an association of provisions restricting the liability of members, it was held that bylaws purporting to restrict such liability were void where no limitation was contained in the articles of incorporation and the adoption of bylaws was restricted to matters "within the limitations of this act.' If a bylaw provides for the automatic termination of membership upon failure or neglect to deliver products, a member cannot, by refusing to deliver, terminate his membership unless the association consents thereto.9 Such a bylaw is for the association's benefit; furthermore, the maxim that no man may take advantage of his own wrong would seem to apply. The fact that the statute under which a cooperative was incorporated authorized the members to adopt a bylaw delegating to its board of directors the right to expel members did not authorize the board of directors to expel members where no such bylaw had been adopted.10 Propositions embodied in valid bylaws are as binding on the members of an association as if included in the marketing contract. It has been held that where the place of performance of a marketing contract is stated in a bylaw by which the member has agreed to be bound, it is as effectual as though it were stated in the marketing contract." An egg association, acting in accordance with a bylaw, allowed members to sell their eggs outside the association under specified conditions and, in a suit on its marketing contract by the association against a member who failed to comply with such conditions, the court held that the bylaw was valid and virtually a part of the contract.12 Where deductions from proceeds received from the sale of commodities were made by an association on the basis of a percentage of sales proceeds, instead of on a tonnage basis, a member of the association who was aware of the deduction method followed and who did not object thereto was held to have acquiesced in the bylaw providing therefor. 13 Statutory provisions with respect to bylaws should be observed. In Oklahoma it has been held that if the statute under which an association is formed authorizes it to adopt a bylaw requiring members to sell all their 5 Smith v. Miami Farmers' Mutual Fire Insurance Company, 125 Kan. 10, 262 P. 552. 6 Mitcham, et al. v. Citizens' Bank of Bullochville, 34 Ga. App. 707, 131 S. E. 181, 136 S. E. 798; Monroe Dairy Association v. Webb, 40 App. Div. 49, 57 N. Y. S. 572. See also Farmers' Coop. Union v. Alderman, 126 Kan. 299, 267 P. 1110. 710 Cyc. 357. Lewis v. Monmouth County Farmers' Cooperative Association, 105 N. J. Eq. 257, 147 A. 550. 9 California Bean Growers' Association v. Rindge Land & Nav. Co., 199 Cal. 168, 248 P. 658; Milk Producers' Association v. Webb, 97 Cal. App. 650, 275 P. 1001. 10 State ex rel. Boldt v. St. Cloud Milk Producers' Association, 200 Minn. 1, 273 N. W. 603. 11 East-West Dairymen's Association v. Dias, 59 Cal. App. 2d 437, 138 P. 2d 772. 12 Washington Coop. Egg & Poultry Association v. Taylor, 122 Wash. 466, 210 P. 806. 13 Reinert v. California Almond Growers Exchange, 9 Cal. 2d 181, 63 P. 2d 1114, 70 P. 2d 190. products through the association and also one providing for liquidated damages upon condition that a bylaw is adopted giving members an opportunity to withdraw, failure to adopt a bylaw providing for withdrawal voids bylaws adopted on the other two subjects and renders the marketing contracts of the association unenforceable.14 It has been held that failure to adopt bylaws within the time provided by statute may not be used as a defense to a suit brought by an association against a member on his contract.15 Where the State statute provided that the bylaws could be changed only by the vote or the written assent of a numerical majority of the members of the association, an attempted amendment which did not get the required vote or assent was held invalid.1 16 17 The Supreme Court of Kansas held that a bylaw reading “At any meeting a majority of the members present in person or represented by proxy shall constitute a quorum for all purposes, including the election of directors, except when otherwise provided by law" meant that a majority of all the members of an association must be present in person or be represented by proxy at meetings of the association to authorize it to transact business.1 Because it indicates the possible scope of bylaws, a Nebraska case is interesting. It was held that a corporation not organized for profit and whose capital stock was fully paid up could lawfully require annual dues from its members. 1 18 A bylaw of a labor union was held to prevent a former member of the union from soliciting customers of a former employer.19 Where a stockholder apparently had not acquiesced in a bylaw of an association, incorporated under a general incorporation act purporting to require stockholders to deliver milk daily, it was held invalid; but it was suggested that such a bylaw might have been effective if the association had been incorporated under the cooperative act.20 Hop growers were not entitled to cancellation of hop marketing contracts entered into with the cooperative on the ground that the cooperative refused to permit growers to withdraw from membership on serving notice of withdrawal in accordance with bylaw, where the bylaw regarding withdrawal had never been approved by a sufficient number of members of the corporation.21 Nonusage of a bylaw continuing for a period of time and brought home to the members has been held to work an abrogation thereof." 22 Where the statute is silent as to the manner of adopting bylaws, it has been held that they may be adopted or modified either orally or in writing or by uniform usage and acquiescence.23 An invalid bylaw, as such, creates no liability, but if not opposed to public policy is generally enforced as a contract between the members and between the corporation and its members. For instance, if the members of an association adopt what purports to be a bylaw, but which is void for the reason that the corporation or association is not empowered by the law of 14 Oklahoma Cotton Growers' Association v. Salyer, 114 Okla. 77, 243 P. 232; McLain v. Oklahoma Cotton Growers' Association, 125 Okla. 264, 258 P. 269. 15 Tennessee Cotton Growers' Association v. Hanson, 2 Tenn. App. 118; Boyle v. Pasco Growers' Association, Inc., 170 Wash. 516, 17 P. 2d 6. 16 Tapo Citrus Association v. Casey, 45 Cal. App. 2d 766, 115 P. 2d 203. "Everts v. Kansas Wheat Growers' Association, 119 Kan. 276, 237 P. 1030. 18 Omaha Law Library Association v. Connell, 55 Neb. 396, 75 N. W. 837. 19 Western-United Dairy Company v. Nash, 293 Ill. App. 162, 12 N. E. 2d 47. 21 20 Monroe Dairy Association v. Webb, 40 App. Div. 49, 57 N. Y. S. 572. Beaulaurier v. Washington State Hop Producers, Inc., 8 Wash. 2d 79, 111 P. 2d 559. 22 Huxtable v. Berg, 98 Wash. 616, 168 P. 187; Pomeroy v. Westaway, 70 N. Y. S. 2d 449; Elliott v. Lindquist, 356 Pa. 385, 52 A. 2d 180. 23 Beazell v. Farmers Mutual Insurance Company of Livingston County, 214 Mo. App. 430, 253 S. W. 125. the State in which it is incorporated or by its charter to adopt the particular bylaw, it will, as a general rule, be enforced as a contract among those members who voted therefor or consented thereto.24 A bylaw providing for the forfeiture of the stock of members for failing to deliver their commodities to an association has been upheld as a contract.25 In the case of unincoporated associations, "A provision for expulsion, although unreasonable as a bylaw as being against common right, may, if assented to by a member, be binding on him as a contract.” 26 Even though a rural electric cooperative had a bylaw providing that under certain conditions it would reimburse a member for the cost of a transmission line built by him, it was held that this did not prevent the association from entering into a special agreement with an applicant for membership differing from the terms of the bylaw, the court emphasizing that membership in the cooperative was not a matter of right.27 28 Legal liabilities may result from a failure of officers and directors to observe bylaws. They, as well as the managers, are in law simply agents, and agents are bound by the instructions of their principals. Ordinarily bylaws are adopted by the members of an association, and they constitute instructions, rules or restrictions for the management of an association. Even in a case 29 in which the bylaws were adopted by the directors, the court, in a suit brought against the manager who was also a director, said: The board of directors could not bind the association by any ratification of transactions which the bylaws expressly prohibited, because the bylaws applied as much to the directors as to the defendant, and furnished the rules of conduct for all officers of the association. Cooperatives engaged in handling grain generally have bylaws prohibiting the manager or any officer from speculating in grain; and if a loss follows from a violation of such a bylaw, the association may recover.3o The term "constitution" is frequently used in connection with bylaws. So far as an incorporated association is concerned, the expression has no place. Incorporated associations have articles of incorporation (charters) but do not have constitutions. The use of the term with respect to incorporated associations only creates confusion. A "constitution" has been held to be only an inappropriate name for a bylaw.3 31 Liability of Association for Promotion Expenses What is the liability of a corporation on contracts made or obligations incurred by its promoters or those who are active in forming and organizing it? The answer is that, as a general rule, it is not liable unless after its formation it recognizes and ratifies the contracts or obligations. This question arises in connection with the work done or contracts made incident to the promotion of a corporation and prior thereto by those who are active in bringing about the existence of the corporation. 24 Strong v. Minneapolis Automobile Trade Association, 151 Minn. 406, 186 N. W. 800; New England Trust Co. v. Abbott, Exr., 162 Mass. 148, 38 N. E. 432, 27 L. R. A. 271; Searles v. Bar Harbor Banking & Trust Company, 128 Me. 34, 145 A. 391, 65 A. L. R. 1154. 25 Bessette v. St. Albans Cooperative Creamery, 107 Vt. 103, 176 A. 307. 26 Elfer v. Marine Engineers Beneficial Association No. 12, 179 La. 383, 154 So. 32; 5 C. J. 1355. Ford v. Peninsula Light Company, 164 Wash. 599, 4 P. 2d 504. 28 Dome Realty Co. v. Rottenberg, 285 Mass. 324, 189 N. E. 70. 29 Hoffman v. Farmers' Coop. Shipping Association, 78 Kan. 561, 97 P. 440, 443. See also 7 R. C. L. sec. 426. 30 Hoffman v. Farmers' Coop. Shipping Association, 78 Kan. 561, 97 P. 440. 31 Supreme Lodge K. of P. v. Kutscher, 179 Ill. 340, 53 N. E. 620. |