69 N.Y.S. 764 | N.Y. App. Div. | 1901
This action was brought in behalf of the plaintiffs and all others interested in the so-called “gratuity fund” of the New
“Such present members of said corporation as shall agree thereto, and all persons who shall hereafter join said corporation, may be assessed such sum*766 as shall tie provided in the by-laws oí said corporation upon the death of any such member agreeing thereto, or who shall hereafter join said corporation,, which sum, or such portion thereof as the by-laws may provide, and such portion of the surplus income of said corporation as the by-laws may provide, may be paid to the widow, children, next of kin of, or other persons dependent upon said deceased member, in such manner as the said by-laws shall prescribe,” etc.
The by-laws so provisionally adopted and put in force after this amendment of the charter were in conformity to these provisions of the statute. The new section, which became the fifty-seventh,, provided that “every present member of the New York Produce Exchange may, * * * and every future member shall, subscribe to-the plan for providing for the families of members, as hereinafter set forth.” It prescribed the amount of the assessments; the time-of payment; the amount to be paid, based upon the time of death after the adoption of the by-law; to whom it should be paid, and to- and for whose benefit,—first, to the widow, should a member die-leaving a widow and no children; second, to the widow and children, if there be both; third, to the children, if children, and no widow, be left; and, fourth, if neither children nor widow oe left, then to the next of kin. It created a board of trustees, to be known as “the trustees of the gratuity fund,” for the management and distribution of the fund and the execution of the provisions of the bylaws, and prescribed the mode of their election and terms of office;, and the other amendments to the by-laws were in harmony with and for the purpose of carrying out the provisions relating to the system of gratuity so established. Between its adoption and January, 1900, this by-law was from time to time amended, .if not with the-co-operation of the plaintiffs, at least with their acquiescence and ratification. But such amendments have done no more than to regulate the mode.of assessments and other details of the management and disposition of the fund, and provide for its final application to the purposes for which it was created. In January, 1900,. at a meeting duly called and held for such purpose, an amendment to section 57 of the by-laws was adopted by a majority of the members in conformity with the rule prescribed by the by-laws for the-adoption of amendments. By this amendment very radical and material changes are made, and it is provided, among other things, that “the trustees of the gratuity fund shall convert the present accumulated fund into cash, and, after paying therefrom all expenses, including those caused by this modification of the gratuity system, shall distribute the same among the subscribing members-as the class may be constituted on February 1, 1900, in accordance with their just and equitable rights.” It then provides that no portion of the surplus income of the exchange shall thereafter be paid into the gratuity fund, as had theretofore been done, but permits such portion of the surplus as the board of managers may determine to be used in the purchase and retirement of membership certificates, and that the membership represented by the certificates-so purchased and retired shall thereupon terminate, and all interests of the members in whose name such certificate stood, and in the case of death all claims of widow, children, and next of kin shall
After careful consideration of all the questions presented by the briefs and argument of counsel, and an examination of the authorities cited and relied upon, we have reached the conclusion that this case should be decided and the judgment affirmed upon a theory of the law differing from that adopted by the learned referee. Although concurring in the conclusion reached by him, we prefer not to rest our affirmance of the judgment upon the grounds on which he bases his decision; nor shall we discuss the theory that the rights and liabilities of the subscribers to the gratuity system rest in contract, for all that could be said in support of that theory has been well stated by the learned referee. In the view which we take of the question, if it be conceded that the gratuity system exists solely in the charter and by-laws of the corporation, and that the
“There is power in the charter to alter, amend, add to, and repeal at pleasure by-laws before made. It is argued from this that it was in the power of the corporate body in due form and manner to alter the by-law which had fixed the amount of the capital stock and the number and relative value of the shares thereof. The power to make by-laws is to make such as are not inconsistent with the constitution and the law; and the power to alter has the same limit, so that no alteration could he made which would infringe a right already given and secured by the contract of the corporation. Nor was the power to alter, to the extent of affecting the contracted relative value of a share, reserved when the share was sold to the stockholder, so as to enter into and form a part of the contract. An alteration is a pro tanto repeal, but no private corporation can repeal a by-law so as to Impair rights which have been given and become vested by virtue of the by-law afterwards repealed. All by-laws must be reasonable, and consistent with the general principles of the laws of the land, which are to be determined by the courts when a case is properly before them. * * * A by-law may regulate- or modify the constitution of a corporation, but cannot alter it. Rex v. Cutbush, 4 Burrows, 2204; Railroad Co. v. Allerton, 18 Wall. 233, 21 L. Ed. 902. The alteration of a by-law is but the making of another upon the same matter. If the first must be reasonable and in accord with principles of law, so must that which alters it. If, then, the power is reserved to alter, amend, or repeal, and that reservation enters into a contract, the power reserved is to pass reasonable by-laws agreeable to law. But a by-law that will disturb*769 a vested right is not such (see Gray v. Bank, 3 Mass. 364; Grant, Corp. 91); and it differs not when the power to make and alter by-laws is expressly given to a majority of the stockholders, and that the obnoxious ordinance is passed in due form.”
An examination of the case before us in the light of these authorities shows clearly that there was no power in the corporate body, nor in a majority of the members, to enact the by-law in question; for it not only effects a direct change in the charter, but is inconsistent with the purpose for which the gratuity fund was created, and disturbs the vested rights of the members subscribing to the system, and is therefore unreasonable, and violates the principle upon which the power must rest. The purpose declared by the amendment of the charter of the defendant company and the power granted is special, in no sense embraced in the original purposes of the company at its organization, and, as set forth in the statute, is “to make provision for the widows and families of deceased members.” For this purpose the power was given it to provide a fund by assessment upon such of the then members of the corporation as should agree thereto, and all persons who should thereafter join the corporation, as hereinbefore set forth, for a special and definite purpose, viz. to be paid the widow, children, next of kin of, or other persons dependent upon deceased members, in such manner as the by-laws should prescribe. No other or different purpose is mentioned, and no power is granted the corporation to make other disposition of the sums so raised; nor is such power to be implied. We may concede that the corporation had power, by a majority of its members, to enact by-laws regulating the details of the gratuity system authorized by the statute, and in harmony with the statute, which is its charter; but it had no power by such means to alter its constitution, and devote the fund raised under it to a purpose foreign to and inconsistent with the purpose declared by its fundamental law, and beyond the scope of the powers conferred, nor to abandon the franchise so granted. If the lawful purposes of a corporation may thus be abandoned and violated, and the vested rights of its members destroyed, no security is to be found for the members of such companies against the exercise of the will of a majority. If they may alter the fundamental law and violate legal principles for one purpose, they may for all, and thus every right of the minority members could be taken away. The original by-laws enacted by the exchange relative to this fund contained provisions in entire harmony with the charter, as did all the amendments prior to the one in question; but the latter is an attempt to divert the gratuity fund from the legitimate purposes prescribed by law, and convert it to the use of the members subscribing to it. It not only takes the fund from the beneficiaries designated by law, viz. the widows, children, next of kin of, or others dependent upon the deceased members, and abandons the purpose to make provision for the widows and families of deceased members,—the only lawful purpose to which it can be devoted under the charter,—but it disturbs the vested rights of the members by unreasonably and inequitably changing the basis for the assessments and the amounts pavable to the bene
The considerations stated lead to the conclusion that the judgment should be affirmed, with costs. All concur.