Case Title: State Ex Rel Brewster v. Ostrander

Citation: 212 Or. 177, 318 P.2d 283

Docket Number: 

State: oregon

Court: Oregon Supreme Court

Date: 1957-11-13T00:00:00Z

Document:
Reversed November 13, 1957.
Petition for rehearing denied December 11, 1957.
*178 William B. Murray, Portland, argued the cause for appellants. With him on the brief was Donald R. Stark, Portland.
George Rhoten, Salem, argued the cause for respondents. With him on the brief were Rhoten, Rhoten & Speerstra, DeArmond & Sherman, Salem, and Kenneth E. Brown, District Attorney of Marion County.
Before PERRY, Chief Justice, and LUSK, BRAND, and McALLISTER, Justices.
REVERSED.
McALLISTER, J.
This is an action in quo warranto brought in the name of the state of Oregon on the relation of the Disabled American Veterans, Salem, Chapter No. 6, a corporation, A.L. Brewster and eight other persons against Verne L. Ostrander and William Croghan, as defendants.
The action was brought pursuant to the provisions of ORS 30.510[1] to 30.640 to establish that (a) the nine individual relators are the lawful directors and officers *179 of Veteran's Living Memorial Building Association of Marion County, Oregon, Incorporated; (b) that the defendants are no longer officers or directors of said corporation; (c) that the defendants have usurped, intruded into and unlawfully hold and exercise offices in said corporation; and (d) that the relators are entitled to the books, papers and property of said corporation. From a judgment in favor of plaintiffs, the defendants appeal.
The facts which resulted in this controversy will be briefly summarized. The Disabled American Veterans, Salem, Chapter 6, is an Oregon corporation organized in 1932 and will be herein referred to as "the chapter." Although the details are not disclosed by the record, it appears that early in 1946 the chapter had decided to sponsor the construction in Salem of a veteran's memorial building. To carry out this purpose Veteran's Building Association of Marion County, Oregon, Incorporated was organized as a non-profit corporation by the filing of articles of incorporation on March 12, 1946. There is no evidence on the point but it is probable that the corporators were all members of the chapter. The articles of incorporation as filed contained no provision vesting in the chapter or its members any direct or indirect control over the new corporation. Whether the omission of such a plan was intentional or an oversight is not disclosed by the evidence. In any event, the new corporation was organized as an entirely separate and independent corporation with no legal tie binding it to the chapter.
By supplementary articles of incorporation filed August 8, 1946, the name of this corporation was changed to Veteran's Living Memorial Building Association of Marion County, Oregon, Incorporated *180 which will be hereinafter referred to as the "building corporation."
From the minute book of the building corporation it appears that the first by-laws were adopted by the directors on August 31, 1947. In these by-laws adopted nearly a year and a half after the corporation was organized, there appears the first attempt to give the chapter some control over the building corporation. The by-laws contained the following provisions:
The principal question involved in this case is the validity of the provisions contained in the last two paragraphs of the foregoing by-law.
Apparently no effort was made by the chapter to designate the persons to be elected as directors by the building corporation until August, 1952. In the meantime, the building corporation had acquired a site, started a building, discontinued building for lack of funds and was attempting to sell the land and partially completed building. It is apparent from the record that considerable discord developed during this period between the officers and members of the chapter and the officers and directors of the building corporation.
It appears from the minutes of meetings of the directors of the building corporation held on July 14, 1952 that there were then seven persons, including the defendants, serving as directors of that corporation. The two defendants were the only corporators remaining on the board. The other five directors had been elected by the board of directors at various times since 1946 to fill vacancies on the board. Verne L. Ostrander was still acting as president and William Croghan as secretary.
At a meeting of the directors of the building corporation held on July 27, 1952, the board adopted a new set of by-laws eliminating therefrom the provisions *182 of the original by-laws purporting to give the chapter the right to designate the persons to be elected directors of the building corporation. Relators contend that the directors of the building corporation had no right to adopt the new by-laws because their terms had expired and for other reasons.
At a meeting of the chapter held on August 7, 1952, it designated nine of its members to be elected as directors of the building corporation. On August 11, 1952, the nine persons so designated mailed a written notice to each of the seven persons who were then serving as directors of the building corporation, including the two defendants, stating that an organizational meeting would be held on August 21, 1952 at an hour and a place designated. Pursuant to said notice, the nine designees held a meeting at the appointed time and place at which they purported to elect themselves as directors of the building corporation. They then proceeded to elect from their number a president, vice-president, secretary and treasurer. The nine persons designated by the chapter to serve as directors of the building corporation are the individual relators in this proceeding.
1. As stated in State ex rel. Brown v. Bailey, 151 Or 496, 51 P2d 671, and the earlier cases cited therein, it is the general rule that the burden of proof in quo warranto actions is on the defendant. There is a well recognized exception to such general rule. When induction as well as ouster is sought in a quo warranto proceeding, the burden is on the relators to allege and prove a title in themselves before they can inquire by what authority the defendants exercise their office. This rule was applied in State ex rel. v. Cook, 39 Or 377, 382, 65 P 89, a quo warranto proceeding to determine *183 the right to the office of a road supervisor in Morrow county, where the court said:
The above exception to the general rule has been followed in numerous cases from other jurisdictions involving public office. For example see Stephens v. Wohlwender, 197 Ga 795, 30 SE2d 469, State v. Boyle, 206 Ind 574, 190 NE 743, Ebright v. Buck, 326 Mich 208, 40 NW2d 122, State v. Turnbull, 212 Minn 382, 3 NW2d 674, State v. Tucei, 175 Miss 218, 166 So 370, and State v. Christensen, 84 Utah 185, 35 P2d 775.
The rule placing the burden of proof on the relator is particularly applicable in cases affecting merely private rights in which the public has only a nominal interest. In the following cases involving the right to office in private corporations where both induction and ouster were sought, the burden of proof was held to be on relators: Miller & al. v. English & al., 21 NJL 317, 1 Zab 317 (1848), The People v. Lacoste, 37 NY 192 (1867), State ex rel. Bornefeld v. Kupferle, 44 Mo 154 (1869), Commonwealth of Pennsylvania ex rel. Pierce v. Filer et al., 13 Pitt LJ 286 (1883), State ex rel. Brun *184 v. Oftedal, 72 Minn 498, 75 NW 692 (1898), Clark v. Wild et al., 85 Vt 212, 81 A 536 (1911), and Commonwealth v. Morris, 269 Pa 476, 112 A 770 (1921). See also High's Extraordinary Legal Remedies (3rd ed) 613, § 652.
It is evident that the alleged rights of the relators depend entirely on the validity of the by-law purporting to give the chapter corporation the right to designate the persons to be elected directors of the building corporation. If such by-law is invalid the relators can not prevail in this proceeding.
The building corporation was organized under the provisions of Oregon Laws 1941, ch 462, p 828 authorizing the creation of non-profit corporations, which act is now codified as ORS 61.010 to 61.160. The purpose for which the corporation was organized was stated in the articles of incorporation as follows:
The articles further provide that the corporators were to be the governing body to exercise the powers of the corporation and that their successors should "be elected annually by the members of the organization on the 1st day of each and every July." Although the articles clearly imply that the corporation will have members, the articles do not provide who the members shall be nor how they shall be elected or otherwise designated.
The 1947 by-laws also provide that the corporation will have members although the provision specifying who the members shall be is certainly not a model of clarity. This provision is the first sentence of Article Four of said by-laws and reads as follows:
The by-laws provide for meetings of the members in the following language:
The by-laws seem to intend that the directors shall be the members of the corporation and that a person *186 may attain membership only by election to the board of directors.
The act authorizing the creation of non-profit corporations clearly intends that such corporations shall have members. ORS 61.010 provides that the activities of such corporations shall not "result in a remunerative profit to them or any of their members." ORS 61.070 provides in part that non-profit corporations may "classify their members according to their respective periodic contributions of fees or dues, or otherwise, and to prescribe the voting rights and eligibility to hold office of the several classes of members." ORS 61.075 provides that the meetings of the members of non-profit corporations may be held without the state. Although ORS 61.070 provides that the power vested in the corporation shall be exercised by the corporators and their successors in office, other portions of the act provide that certain corporate action may only be taken by a vote of the members. ORS 61.080 provides that supplementary articles of incorporation may be filed "at any time when two-thirds of the members present at any regular or special meeting called for the purpose so determine." The same section further provides that non-profit corporations may be dissolved "by a vote of three-fourths of the members present at any such general or special meeting called for the purpose." It is the obvious intent of the foregoing statutes that the members of a non-profit corporation shall have the same general relationship to the corporation and its directors as the stockholders have in a corporation organized for profit.
The provisions of the by-laws requiring the board of directors to elect as directors those persons designated by the chapter obviously intended that such election should occur annually in lieu of an election of *187 directors by the members of the building corporation. As heretofore pointed out, the articles of incorporation of the building corporation provide that the successors to the corporators "will be elected annually by the members of the organization on the 1st day of each and every July." The provisions of the by-laws on which relators rely are in direct conflict with this provision of the articles of incorporation.
2, 3. It is uniformly held that the by-laws of a corporation may not conflict with the articles of incorporation. In Griffith v. Klamath Water Assn., 68 Or 402, 405, 137 P 226, this court said:
In McConnell v. Owyhee Ditch Co., 132 Or 128, 132, 283 P 755, the court expressed the same rule in the following language:
From Fletcher Cyclopedia Corporations (perm ed) 723, § 4190, we take the following:
It was held in Kaski et al. v. Kemppainen et al., 110 Or 362, 222 P 1104, in construing sections almost identical with ORS 61.060 and 61.070 that the by-laws of a non-profit corporation must be adopted by the corporators or their successors in office and not by the members of the corporation. But this does not authorize the board of directors to adopt a by-law which would deprive the members of rights vested in them by law or by the articles of incorporation. Since the right to elect directors of the building corporation is vested in its members by the articles of incorporation, the board of directors had no authority to give away this right to the members of some other corporation. Because the by-law under which relators claim is inconsistent with the articles of incorporation, we hold that such by-law is void.
In view of our holding, it is unnecessary to decide whether in any event the relators could have elected themselves directors of the building corporation. The by-law in question seems to clearly provide that the persons designated by the chapter must be elected to office by the directors of the building corporation. This the directors of the building corporation refused to do.
*189 4. We also deem it unnecessary to decide at this time whether the directors of the building corporation had authority on July 27, 1952, to adopt new by-laws. If they did, the by-law under which relators claim was repealed before relators were designated by the chapter and purported to elect themselves directors. Ordinarily the directors of a corporation continue in office until their successors are elected and qualified. From 2 Fletcher Cyclopedia Corporations (perm ed) 206, § 375, we quote the following:
5. The power to make by-laws is vested by law in the board of directors and this includes the right to amend. Fletcher Cyclopedia Corporations (perm ed) 682, § 4178 states the rule as follows: "It is the general rule that, in the absence of specific provision to the contrary, the body which has the power to adopt a by-law also has the power to amend one adopted. * * *"
6. Relators argue that the adoption of the 1947 by-laws vested some undefined contractual rights in the chapter. As stated in McConnell v. Owyhee Ditch Co., supra, a by-law does operate as a contract between the corporation and its members. However, neither the *190 chapter nor the relators claim to be members of the building corporation and there is no evidence of any contract entered into at any time between the chapter and the building corporation requiring the latter to surrender any of its corporate powers to the chapter.
We regret the discord between former comrades-in-arms which has resulted in this controversy, but must nevertheless decide the case on the well established principles of law herein set forth.
Reversed.
ROSSMAN, J. did not participate in the consideration or decision of this case.
[1]  ORS 30.510. An action at law may be maintained in the name of the state, upon the information of the district attorney, or upon the relation of a private party against the person offending, in the following cases:

(1) When any person usurps, intrudes into, or unlawfully holds or exercises any public office, civil or military, or any franchise within this state, or any office in a corporation either public or private, created or formed by or under the authority of this state; or,
* * * * *.