Holt v. College of Osteopathic Physicians & Surgeons

McCOMB, J.

I dissent. In my opinion, this is the sole question necessary to determine: Did the three minority trustees have the capacity to sue the corporation without the consent of the Attorney General?

No. Only the Attorney General may bring an action to correct noncompliance with a trust assumed by a charitable corporation.

The affairs of either a private corporation or a charitable corporation are managed by a majority of the board of directors or board of trustees of the corporation (Corp. Code, §§ 800, 10205), 1 and the Corporations Code contains no provision to permit a minority of the directors or trustees, as such, to question action taken by the majority. 2

*762 If a private corporation engages in unauthorized business, either a shareholder of the corporation or the State may enjoin the doing or continuation of such business by the corporation. (Corp. Code, § 803.) 3

Where a charitable corporation has failed to comply with any trust which it has assumed, or where such a corporation has departed from the general purpose for which it was formed, the Attorney General is required to institute the proceedings necessary to correct the noncompliance or departure. (Corp. Code, § 10207.) 4 No provision has been made for such a right to be exercised by any other person.

The provisions of the General Corporation Law (Corp. Code, §§ 1-8999) are made applicable to corporations formed under the General Nonprofit Corporation Law (Corp. Code, §§ 9000-10703) except as to matters specifically otherwise provided for (Corp. Code, § 9002). However, the matter of who is entitled to bring an action for ultra vires acts of the officers or directors of a charitable corporation is “specifically otherwise provided for” by section 10207 of the Corporations Code. Therefore, no action may be filed under section 803 of the Corporations Code with respect to a charitable corporation.

In any event, however, although “shareholder” is defined to include a member of a nonstock corporation (Corp. Code, *763 § 103), no showing has been made that plaintiffs are members of defendant college. 5

Accordingly, plaintiffs lacked capacity to bring the present action. 6

I am of the opinion that we should not disapprove the holding in George Pepperdine Foundation v. Pepperdine, 126 Cal.App.2d 154 [ 271 P.2d 600 ], in which this court unanimously denied a hearing.

That case was decided in 1954 and has, presumably, been the law for 10 years. There is no way of telling how many citizens have followed the law as stated in that case or how many trial courts have rendered judgments relying thereon.

The Legislature has met on numerous occasions and has not seen fit to overrule the decision or to change the law as set forth therein. It could have done so very simply by amending *764 section 10207 of the Corporations Code, which at that time vested, and now vests, in the Attorney General the sole authority to bring an action to correct noncompliance with a trust assumed by a charitable corporation.

In my opinion, in the absence of a showing that a prior decision was rendered through (1) corruption or (2) an obvious mistake, or (3) that conditions have changed making it inapplicable, the doctrine of stare decisis should be followed by this court so that the District Courts of Appeal, the trial courts, and lawyers may know what the established law is. Thus, trial courts will be in a position to render uniform decisions on similar facts, and lawyers will be able to advise their clients as to the course they should follow. (See People v. Hines, ante, pp. 164, 182 et seq. [ 37 Cal.Rptr. 622 , 390 P.2d 398 ].)

My views on this subject are well expressed by the Honorable Paul R. Hutchinson, President of the Los Angeles County Bar Association, as follows:

"History records that when tyrants take over governments the first thing they do is suspend the judicial processes or, worse, select judges to do their bidding without regard for established law.

“Uncivilized governments of history were corrupt because their courts were not dependable. Justice was subject to the whim of the court. The law was whatever the Court said was the law. There was no stability—there was no assurance that the law on which men relied would still be the law when their rights reached the courts for adjudication.

“The common law set out to end this fickle, unreliable, unstable, capricious and sometimes corrupt system by adopting a system that called for adherence to established law. Stare decisis, we called it, which Bouvier defines as meaning, ‘To abide by, or adhere to decided cases. It is a general maxim that when a point of law has been settled by decision, it forms a precedent which is not afterwards to be departed from. . . . Where there have been a series of decisions by the supreme judicial tribunal of a state, the rule of stare decisis may usually be regarded as impregnable, except by legislative act.’

‘ ‘ This doctrine was the crowning glory of the common law and of American jurisprudence. By it we became a government of laws, and not of men. ‘The law’ was the established law of the people. They provided the soundest basis for de *765 termining the law by which they chose to be governed. If they thought a law was bad they could change it. But until they did so, the judge enforced it. He could not arrogate to himself the right to change the law and substitute his opinion for the established law of the people.

“We prospered under this rule, while less stable governments floundered all around us. Not in any country, at any time or era, was so much even-handed justice dispensed to the people. We were the envy of other people in other lands. They beat upon our gates for admission to our country like waves upon a dike. They came here by the millions. For they knew that, in spite of faults, that sometimes appeared, the system was so much bigger than the faults, that through it we had made one of the great contributions to man’s eternal effort to establish justice among all men.

“Granted that the law should never be wholly inflexible; granted that changing conditions call for changing interpretations to prevent injustices stemming from an adherence to form that is so slavish it is blind to the heart and soul of the legal principle being ruled on, these exceptions should never justify a court re-writing the organic laws people have ordained for themselves without great and compelling reasons that find substantial support among the thinking people of the Country. ...” (39 Los Angeles Bar Bulletin (July 1964) 321-322.)

“. . . I cannot but conclude that there is a strong feeling arising among thinking lawyers that it is time to speak out to restore our fundamental system of checks and balances in government, which concept was one of the greatest contributions our Constitution made to organized governments throughout the world.

“Under this system the court construes the laws of the people. In construing them, it should not make new and fundamental laws not arising by fair implication from the laws at hand, for if it does it usurps the law-making power of the people and their legislative representatives.

“It is no valid answer that a majority of the justices think that the law they make is good law. We are not, under the Constitution, nor can we permit ourselves to become by construction or by default, a government by a shifting majority of the members of the Supreme Court.

“Nor should the Court’s impatience to achieve reforms justify its refusal to apply established law. Boscoe Pound *766 was perhaps America’s greatest jurist. His death this month prompts me to quote from his masterful address on ‘The Causes of Popular Dissatisfaction with the Administration of Justice. ’ It has been re-published by the American Judiciary Society. Because basic truths never change, it comes as a surprise to learn that the remarks so apt were delivered in 1906. He said:

“ ‘Public opinion must affect the administration of justice through the rules by which justice is administered rather than through the direct administration. All interference with the uniform and automatic applications of these rules, when actual controversies arise, induces an anti-legal element which becomes intolerable. ... We must pay a price for certainty and uniformity.’ ” (39 Los Angeles Bar Bulletin (Aug. 1964) 379-380.)

I would affirm the judgment.

The petition of respondent College and respondent trustees for a rehearing was denied September 24, 1964. Mosk, J., did not participate therein. McComb, J., was of the opinion that the petition should be granted.

Section 800 of the Corporations Code provides: “Subject to limitations of the articles and of this division as to action which shall be authorized or approved by the shareholders, all corporate powers shall be exercised by or under authority of, and the business and affairs of every corporation shall be controlled by, a board of not less than three directors. ’ ’

Section 10205 of the Corporations Code provides: “Subject to the provisions of the articles of incorporation [of a charitable corporation], the exercise of the powers of the corporation, with the right to delegate to officers and agents the performance of duties and the exercise of powers, shall be vested in a board of trustees. ’ ’

Under section 10201 of the Corporations Code, a charitable corporation is required to have not less than 9, nor more than 25, trustees.

Unlike California, New York specifically permits a director or officer of a corporation, as such, to institute and maintain a suit questioning action taken by one or more of the other directors or officers thereof. (N.Y. Gen. Corp. Law, §§ 60, 61; see Tenney v. Rosenthal, 6 N.Y.2d 204 [ 189 N.Y.S.2d 158 , 160 N.E.2d 463, 467 ].) Without such statutory authorization, an action by an individual director would violate the *762 requirement that the affairs of the corporation be managed by the board. (See Goldman and Kwestel, Director’s Statutory Action in New York (1961) 36 N.T.U.L.Rev. 199, 202.)

Section 803 of the Corporations Code provides: “The statement in the articles of the objects, purposes, powers, and authorized business of the corporation constitutes, as between the corporation and its directors, officers, or shareholders, an authorization to the directors and a limitation upon the actual authority of the representatives of the corporation. Such limitations may be asserted in a proceeding by a shareholder or the State, to enjoin the doing or continuation of unauthorized business by the corporation or its officers, or both, in eases where third parties have not acquired rights thereby, or to dissolve the corporation, or in a proceeding by the corporation or by the shareholders suing in a representative suit, against the officers or directors of the corporation for violation of their authority . . .

Section 10207 of the Corporations Code provides: “Each such corporation [charitable corporation] shall be subject at all times to examination by the Attorney General, on behalf of the State, to ascertain the condition of its affairs and to what extent, if at all, it may fail to comply with trusts which it has assumed or may depart from the general purpose for which it is formed. In ease of any such failure or departure the Attorney General shall institute, in the name of the State, the proceedings necessary to correct the noneompliance or departure. ...” (See also Corp. Code, § 9505.)

"Member” includes each person signing the articles of a nonstock corporation and each person admitted to membership therein (Corp. Code, § 104), and under certain circumstances the persons on the controlling board of a nonprofit corporation are regarded as members (Corp. Code, § 9603).

Although plaintiffs and the individual defendants are designated " trustees, ’ ’ they are not trustees in the strict sense, since the title to the property of the corporation is in the corporation and not in them. (Bain bridge v. Stoner, 16 Cal.2d 423, 428 [2, 3] [ 106 P.2d 423 ]; Brown v. Memorial Nat. Home Foundation, 162 Cal.App.2d 513, 540 [23] et seq. [ 329 P.2d 118 , 75 A.L.R.2d 427 ] [hearing denied by the Supreme Court]; see Rest.2d Trusts (1959) § 16 A, com. a, p. 52.)

Whether or not plaintiffs could maintain this action if they and the individual defendants were trustees of a charitable trust, rather than members of the controlling board of a charitable corporation, is a question not now before us. There is, however, substantial authority to the effect that one of several trustees of a charitable trust may maintain an action against the others to enforce the trust or to compel the redress of a breach of trust. (See Rest.2d Trusts (1959) § 391, p. 278; 4 Scott, Trusts (2d ed. 1956) § 391, p. 2757. Cf. O’Hara v. Grand Lodge I.O.G.T., 213 Cal. 131, 140 [4] [ 2 P.2d 21 ].)

In George Pepperdine Foundation v. Pepperdine, 126 Cal.App.2d 154, 161 [3] [ 271 P.2d 600 ], an action by a charitable corporation against its former directors for damages resulting from "dissipation of its assets through illegal and speculative transactions and mismanagement of its affairs” by the defendants during their incumbencies, the District Court of Appeal held that the Attorney General was the only person qualified to maintain an action on behalf of a benevolent, public, charitable trust whose beneficiaries were of an indefinite class of persons, and that the plaintiff therefore lacked capacity to bring the action. Although the language used by the District Court of Appeal refers to charitable trusts, and not to charitable corporations, the plaintiff there involved was, in fact, a charitable corporation.