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District Court of Appeal, Third District, California.


Civ. No. 5741.

Decided: July 20, 1937

Carroll Single, Stanley Cook, and Agnew & Boekel, all of San Francisco, for appellant. Hadsell, Sweet, Ingall & Lamb, of San Francisco, and Vernon F. Gant, of Modesto, for respondents.

On petition for rehearing.

The petitioners for rehearing herein have cited a number of amendments made by the Legislature found in the Agricultural Code relative to the powers that may be exercised and the purposes for which co–operative associations may be organized. However, the petitioners overlook the fact that the co–operative association under consideration in this case, in its articles of incorporation specifically limit the purposes and powers of the corporation, among which we may mention paragraph “H” of the purposes, which reads as follows: “To purchase the canning peaches produced or to be produced by its members; to enter into contracts with its members for the purchase by it of the canning peaches produced or to be produced by them; to enter into contracts with said members for the handling and marketing of said peaches by the Association as their agent.”

The by–laws adopted by the association, in paragraph (a) of article XII, states that the association is organized for the purpose of serving its members only. The marketing agreement set out in the by–laws declares that the buyer, that is, the association, will not buy or deal in any peaches, except under contract similar to the contract set out in the by–laws. That the co–operative association, by amending its articles of incorporation, its by–laws, and its marketing agreement to enable the directors of the association to transact additional business and exercise a wider scope of authority as provided in the amendments to the Agricultural Code, is unquestioned, but that issue is not before the court in this cause. The record shows no attempt whatever on the part of the members of the association to amend its articles of incorporation, its by–laws, or its marketing agreement.

In Fowler v. Great Southern Telephone & Telegraph Co., 104 La. 751, 29 So. 271, 272, the court, in considering the powers of boards of directors, used the following language: “Furthermore, the measure of power vested in the board of directors is determined by the charter and by–laws, and the board's action in excess thereof is not binding upon the corporation. Hunter v. Sun Mut. Insurance Company, 26 La. [Ann. 13], 14; Douglass v. Insurance Co., 118 N.Y. 484, 23 N.E. [806], 807, 7 L.R.A. 822.)”

In Model Land & Irrigation Co. v. Madsen, 87 Colo. 166, 285 P. 1100, 1101, the Supreme Court of Colorado said: “‘Valid by–laws are as much the law of the corporation as if their provisions had been a part of its charter. * * * By–laws which it was within the power of the corporation to adopt, and which were legally adopted * * * are binding upon all the stockholders or members insofar as their rights as such are concerned, whether they expressly consented to them or not; * * * notice ordinarily being imputed to them.’ 1 Fletcher, Cyc. of Corporations, § 501. In a case involving an incorporated association, our Court of Appeals said: ‘One who becomes a member of an association becomes chargeable with the knowledge of the provisions of its charter and by–laws, and is bound by them’ (Columbia Building & L. Association v. Lyttle, 16 Colo.App. 423, 426, 66 P. 247, 248.)”

In 14 C.J. p. 161, in defining the effect of charters and by–laws, we find the following: “The charter of a corporation, whether created by special act or formed under a general corporation law, is a contract between the corporation or the corporators or members and the State. It is a contract between the State and the corporation, between the corporation and the stockholders, and between the stockholders and the State. This contract on the one hand places the corporation under an obligation to perform the duties to the public which it has undertaken under the charter, and it cannot, without the consent of the State, change its terms or absolve itself from its obligations, and on the other hand, under the clause of the Constitution of the United States prohibiting a State from passing any law impairing the obligation of contracts, the State cannot by any law or constitutional provision subsequently enacted or adopted, impair the rights and privileges of the corporation under the charter unless it has reserved the right to amend, alter or repeal the same.”

None of the amendments in the Agricultural Code repeal or limit the powers of the association nor attempt in any manner to amend the articles of incorporation, the by–laws adopted by the association, or the marketing agreement adopted by the association. All the acts of the Legislature amount to is that it opens the door for the membership of the association, by proper procedure, to extend the activities of the association. The record is silent as to any such action by the members of the association to grant additional powers to the board of directors, other than those which we particularly considered and set forth in our opinion filed in this cause.

The text in 14 C.J. p. 346, still on the subject of by–laws, reads: “Although a By–law is from its nature, applicable only to the particular corporate body, yet it is still, in a certain sense, a law, and is to be applied in the government of such a body whenever the circumstances arise for which it was intended to provide.” In the instant case it is not a question of whether a co–operative association may be organized to exercise certain powers, but what the articles of incorporation, by–laws and marketing agreements specify as to the purposes for which the California Canning Peach Growers Association was organized.

In directing the amount of the judgment to be entered, the court simply followed the stipulation as to the figures presented, as none of the items entering therein were called to our attention. In determining the amount of the additional sum which should be paid by the defendant E. R. Williams, whatever profit the association gained in its transaction with him should be allowed as a credit in his favor. But, whether that was taken into consideration by counsel in their stipulation, the record fails to disclose.

The petition for rehearing is denied.


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