Opinion ID: 1149011
Heading Depth: 1
Heading Rank: 3

Heading: Did Curtin or Mary Have Membership Rights?

Text: [3] It is alleged that Curtin become a member of Hibernia in 1860 when he made a deposit, paid the entrance fee and signed the by-laws of the original organization which provided that persons doing these things shall be styled and considered members of this corporation. Defendants contend that this allegation must be disregarded because the complaint shows on its face that Curtin was not a stockholder of the original corporation and the statutes made no provision for corporations composed of members rather than stockholders. (See Maguire v. Hibernia S. & L. Soc., 23 Cal.2d 719, 723 [146 P.2d 673, 151 A.L.R. 1062]; People v. Perrin, 56 Cal. 345, 347.) They argue that Curtin could not have been a member because Hibernia could not have validly existed as a membership corporation at that time. It appears, however, that an act adopted in 1862 and amended in 1864 provided that previously existing savings corporations and all associations or societies for the like purpose claiming in good faith to be incorporated under the laws of this state, could be organized as membership corporations without capital stock. (Stats. 1862, pp. 199-205; Stats. 1864, p. 531.) The complaint alleges that after June 1863 the corporation was composed of members only, none of whom owned stock, and that in August 1864 Hibernia filed a certificate of incorporation as a membership corporation under the 1862 act. Hibernia thus became a valid membership corporation in August 1864, regardless of what its prior legal status may have been. The 1864 statute obviously contemplated that the entire membership of the prior organization should be continued in the new organization, and Curtin automatically became a member of the new corporation. It is further alleged that Curtin's membership continued until transferred to Mary either by assignment or descent and that plaintiffs, as distributees of the estate of Mary, succeeded to all of the membership rights. Defendants claim, however, that membership rights were not transferable and that any such rights which Curtin or Mary may have had were terminated when the account was closed and Curtin died in 1914. In support of their position defendants rely on certain by-laws set forth in the complaint which were adopted in and after September 1864. The complaint alleges that these by-laws were adopted without authority from the members and without Curtin's consent and that they were therefore invalid. Plaintiffs also argue that the by-laws do not establish that membership rights were not transferable or that they were terminated by the closing of the account. [4] The power to adopt by-laws is ordinarily in the stockholders or members of a corporation, but directors may be given such authority by statute or articles of incorporation. (See Darrin v. Hoff, 99 Md. 491 [58 A. 196, 200]; Morton Gravel Road Co. v. Wysong, 51 Ind. 4, 12; 8 Fletcher, Cyclopedia Corporations (1931), § 4172, p. 645; 13 Am.Jur. 284-285.) [5] The 1862 act provided that the corporate powers of the corporation shall be exercised by a Board of not less than five Directors, and it contained a list of corporate powers, one of which was to make by-laws, not inconsistent with the laws of this State, for certain enumerated purposes. (Stats. 1862, p. 200.) Under the 1862 act one of the purposes for which the corporation, and hence the directors, could make by-laws was to regulate the time and manner in which any person may become, or may cease to be, a member of the corporation. (Stats. 1862, p. 200.) This language was broad enough to permit the directors to adopt by-laws specifying the conditions under which membership rights might be acquired or lost. [6] Hibernia was organized as a business and profit-making organization, and the members had property rights in the assets of the corporation. In the absence of a statute, by-law or other regulation to the contrary, these rights were transferable. ( Cf. Riverside Land Co. v. Jarvis, 174 Cal. 316, 327 [163 P. 54]; Young v. New Pedrara Onyx Co., 48 Cal. App. 1, 14 [192 P. 55].) [7] Article 4 of the 1864 by-laws, after stating that all persons who were members of the prior organization on August 29, 1864, should be deemed members of the new corporation, provided: Other persons may be allowed to become members of this corporation by a vote of the Board of Directors, and not otherwise. Membership shall not pass with the ownership of moneys deposited with or under the control of the corporation. This language might be construed, as defendants urge, to mean that there could be no transfer of the rights of any member without action by the directors. On the other hand, it might be interpreted as governing only the rights of those who might join the corporation after adoption of the by-law and as providing that such persons, upon becoming members, would acquire only nontransferable membership rights. We cannot hold that the by-law must as a matter of law be construed in the manner urged by defendants, and, if this case goes to trial, the parties should be entitled to produce extrinsic evidence in support of their respective interpretations. The next question is whether the complaint shows on its face that any membership rights which Curtin or Mary may have had were terminated when the account was closed by Mary in 1914. [8] A by-law adopted in 1868 provides in part: No one shall be deemed a member whose account is once closed. Since this by-law was adopted after Curtin became a member it would not be enforceable against him, in the absence of his consent, if it would unreasonably deprive him of his membership rights. (See People's Home Sav. Bank v. Superior Court, 104 Cal. 649, 652 [38 P. 452]; Lindsay-Strathmore Irr. Dist. v. Wutchumna Water Co., 111 Cal. App. 688, 701-702 [296 P. 933]; Mancini v. Patrizi, 87 Cal. App. 435, 439-440 [262 P. 375]; State v. San Francisco Sav. & Loan Soc., 66 Cal. App. 53, 57-58 [225 P. 309]; Bornstein v. District Grand Lodge No. 4, 2 Cal. App. 624, 628 [84 P. 271].) The reasonableness of the by-law must be considered in the light of all the circumstances, including such matters as the purposes for which the corporation was organized and the extent of the rights of the particular member involved. Hibernia's certificate of incorporation provides that the object for which it is formed is that of aggregating the funds and savings of the members of said Corporation and of others, and of preserving and safely investing the same for their common benefit. It may be that it was considered necessary to require members to retain their accounts and deposits with Hibernia in order to promote the success of the bank in accordance with the purposes for which it was organized. However, these are matters which must be determined by the trier of fact in the light of all of the evidence. [9] Defendants assert that Curtin ratified the by-laws in question. It appears that by an agreement signed subsequent to August 29, 1864, and prior to January 18, 1871, Curtin ratified the reorganization proceedings of 1864 and agreed to become a member of Hibernia as it existed under the act of 1862. This agreement was executed pursuant to a by-law adopted September 29, 1864, which provided that all persons who were members on August 29, 1864, shall be deemed members and that the signatures of such persons to an agreement on their part to become members of this corporation, and ratifying and confirming the incorporation of [Hibernia] ... shall be procured as speedily as may be. The exact language of the agreement does not appear in the record, and plaintiffs' allegations regarding its substance can be construed as referring only to the reorganization under the 1862 act as amended in 1864 and not to subsequent steps taken by the new corporation such as the adoption of by-laws. The allegation that Curtin agreed to become a member of Hibernia as it existed under said act does not necessarily mean anything more than that he was agreeing to the reorganization under that particular statute rather than to corporate existence of some other type. Defendants, of course, are entitled to show by the language of the agreement or by other evidence that Curtin ratified the by-laws, but the question cannot be resolved on demurrer. It is obvious from what has been said that serious questions are presented as to what, if any, rights passed to Mary, but we cannot hold as a matter of law that the allegations relied upon by defendants with respect to the by-laws compel us to disregard the general allegations that Curtin's membership rights continued and passed to Mary on the transfer of his account or upon his death.