making the change, was held to have acquiesced in the practice of the association. 128 Statutory provisions with respect to bylaws should be observed. The statute under which an association was formed authorized it to adopt a bylaw requiring members to sell all their products through the association and also one providing for liquidated damages upon condition that a bylaw was adopted giving members an opportunity to withdraw. Failure to adopt a bylaw providing for withdrawal was held to make bylaws adopted on the other two subjects void and rendered the marketing contracts of the association unenforceable, 129 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. 130 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. 131 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. 132 Because it indicates the possible scope of bylaws, a Nebraska case is pertinent. It was held that a corporation not organized for profit and whose capital stock was fully paid up could lawfully 128 Reinert v. California Almond Growers Exchange, 9 Cal. 2d 181, 63 P. 2d 1114 (1936), 70 P. 2d 190 (1937). 129 Oklahoma Cotton Growers' Association v. Salyer, 114 Okla. 77, 243 P. 232 (1925); McLain v. Oklahoma Cotton Growers' Association, 125 Okla. 264, 258 P. 269 (1927). 130 Tennessee Cotton Growers' Association v. Hanson, 2 Tenn. App. 118 (1926); Boyle v. Pasco Growers' Association, Inc., 170 Wash. 516, 17 P. 2d 6 (1932). 131 Tapo Citrus Association v. Casey, 45 Cal. App. 2d 796, 115 P. 2d 203 (1941). 132 Everts v. Kansas Wheat Growers' Association, 119 Kan. 276, 237 P. 1030 (1925). require annual dues from its members. 133 A bylaw of a labor union was held to prevent a former member of the union from soliciting customers of a former employer. 134 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. 135 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 a bylaw, where the bylaw regarding withdrawal had never been approved by a sufficient number of members of the corporation. 136 Nonusage of a bylaw continuing for a period of time and brought home to the members has been held to work an abrogation of the bylaw. 137 Where the statute is silent as to the manner of adopting bylaws, they may be adopted or modified either orally or in writing or by uniform usage and acquiescence. 138 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 association is not empowered by the law of the State in which it is incorporated or by its charter to adopt the particular bylaw, it 133 Omaha Law Library Association v. Connell, 55 Neb. 396, 75 N. W. 837 (1898). 134 Western-United Dairy Company v. Nash, 293 III. App. 162, 12 N.E. 2d 47 (1937). 135 Monroe Dairy Association v. Webb, 40 App. Div. 49, 57 N.Y.S. 572 (1899). 136 Beaulaurier v. Washington State Hop Producers, Inc., 8 Wash. 2d 79, 111 P. 2d 559 (1941). 137 Huxtable v. Berg, 98 Wash. 616, 168 P. 187 (1917); Pomeroy v. Westaway, 70 N.Y.S. 2d 449 (1947); Elliott v. Lindquist, 356 Pa. 385, 52 A. 2d 180 (1947). 138 Beazell v. Farmers' Mutual Insurance Company of Livingston County, 214 Mo. App. 430, 253 S. W. 125 (1923). will, as a general rule, be enforced as a contract among those members who voted for it or consented to it. 139 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. 140 In the case of unincorporated 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.141 Even though an 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, this did not prevent the cooperative 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. 142 Legal liabilities may result from a failure of officers and directors to observe bylaws. 143 They, as well as the manager, 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 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 139 Strong v. Minneapolis Automobile Trade Association, 151 Minn. 406, 186 N. W. 800 (1922); New England Trust Co. v. Abbott, Exr., 162 Mass. 148, 38 N.E. 432, 27 L.R.A. 271 (1894); Searles v. Bar Harbor Banking & Trust Company, 128 Me. 34, 145 A. 391, 65 A.L.R. 1154 (1929). 140 Bessette v. St. Albans Cooperative Creamery, 107 Vt. 103, 176 A. 307 (1935). 141 Elfer v. Marine Engineers Beneficial Association No. 12, 179 La. 383, 154 So. 32 (1934); 7 C.J.S. Associations, § 25, p. 60. 142 Ford v. Peninsula Light Company, 164 Wash. 599, 4 P. 2d 504 (1931). 143 Dome Realty Co. v. Rottenberg, 285 Mass. 324, 189 N.E. 70 (1934). 144 Hoffman v. Farmers' Co-op Shipping Association, 78 Kan. 561, 97 P. 440, 443 (1908). See also 7 R.C.L. sec. 426. Cooperatives engaged in handling grain generally have bylaws prohibiting the manager or any officer from speculating in grain. If a loss follows from a violation of such a bylaw, the association may recover. 145 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. 146 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 by those who are active in bringing about the existence of the corporation. In a case in which the claim involved arose out of work done by a stock subscription solicitor in obtaining subscribers to the capital stock of a corporation to be organized, it was said: It is elementary that a corporation is not liable upon In another case appears the following: 145 Hoffman v. Farmers' Co-op Shipping Association, 78 Kan. 561, 97 P. 440 (1908). 146 Supreme Lodge K. of P. v. Kutscher, 179 III. 340, 53 N.E. 620 (1899). 147 Davis v. Joerke, 47 N.D. 39, 181 N. W. 68, 70 (1920). In the absence of statute, a corporation will be held Although, as a rule, a corporation pays the necessary legitimate expenses and costs incurred by those who brought about its formation, it is not liable for such charges unless it elects to pay them.149 Of course, the promoters are liable for such expenses and costs and may, in addition, be liable for injuries to their employees and others. 150 Limitation on Indebtedness The power to borrow is expressly conferred in almost all statutes authorizing the incorporation of cooperatives. Even where not expressly conferred, the power to borrow is an implied power by virtue of the nature and purpose of a corporation. It would be extremely unlikely, today, to create a legal entity and not give that entity one of the normal attributes of incurring indebtedness. 151 The common law places no limit upon the amount a corporation may borrow. Quite often, though, statute or charter provisions impose limitations upon the maximum amount of debts corporations are allowed to contract. A limitation on the amount of debts which may be incurred, however, does not necessarily relieve the corporation of liability for excessive debts 148 Kirkup v. Anaconda Amusement Co., 59 Mont. 469, 197 P. 1005, 17 A.L.R. 441 (1921); Cushion Heel Shoe Co. v. Hartt, 181 Ind. 167, 103 N.E. 1063, 50 L.R.A. (N.S.) 979 (1914). 149 Kridelbaugh v. Aldrehn Theatres Co., 195 lowa 147, 191 N.W. 803 (1923). 150 Farmers' Gin and Milling Company v. Jones, 147 S.W. 668 (Tex. Civ. App. 1912). 15119 Am. Jur. 2d, Corporations, § 1034; 6 Fletcher, Cyc. Corp. (Perm. Ed.) $2610. |