People ex rel. Meiresonne v. Arnold, 75--301

• Decision Date: 11 March 1976
• Docket Number: No. 75--301,75--301
• Citation: 37 Colo.App. 414,553 P.2d 79
• Parties: The PEOPLE of the State of Colorado ex rel. Joseph MEIRESONNE, as a stockholder of the Consolidated Mutual Water Company, a corporation, et al., Plaintiffs-Appellants, v. Leslie B. ARNOLD, et al., Defendants-Appellees. . II
• Court: Colorado Court of Appeals

Page 79

553 P.2d 79

37 Colo.App. 414

The PEOPLE of the State of Colorado ex rel. Joseph MEIRESONNE, as a stockholder of the Consolidated Mutual Water Company, a corporation, et al., Plaintiffs-Appellants, v. Leslie B. ARNOLD, et al., Defendants-Appellees.

No. 75--301.

Colorado Court of Appeals, Div. II.

March 11, 1976.

Rehearing Denied March 25, 1976.

Elias J. Candell, Lakewood, for plaintiffs-appellants.

Henry, Cockrell, Quinn & Creighton, Richard C. Cockrell, Peter J. Wiebe, Jr., Edward J. Lemons, Denver, for defendants-appellees.

STERNBERG, Judge.

This is an action in the nature of quo warranto and mandamus pursuant to C.R.C.P. 106 in which plaintiffs, unsuccessful candidates for the board of directors of defendant corporation, sought to oust the individually named defendants as directors. Both parties moved for summary judgment, and the defendants' motion was granted. We affirm.

The essence of plaintiffs' claim is that a corporate bylaw authorizing directors' terms of six years is illegal. See § 7--5--102, C.R.S.1973. Both parties agree that the validity of this contention depends on whether the company is a nonprofit corporation or an ordinary business corporation. If it is the former, the six-year bylaw provision, under which defendants hold their offices, is valid because the Colorado Nonprofit Corporation Act, § 7--20--101 et seq., C.R.S.1973, does not contain a limitation on the duration of directors' terms of office.

Defendant corporation was organized in 1926 as a nonprofit corporation. In 1969 it filed its election to accept the provisions of the Colorado Nonprofit Corporation Act, and the Secretary of State recognized that election and issued a Certificate of Acceptance. Plaintiffs contend, however, that powers of a commercial or business nature contained in the articles of incorporation and certain corporate acts destroyed the nonprofit aspects of the corporation and thereby made it a corporation for profit. They also urge that a 'finding' in a prior action, that the corporation was organized under the general corporations statute, is 'res judicata' on the issue of the corporation being for profit. We find these contentions unpersuasive.

I.

In urging the for-profit nature of the corporation, plaintiffs first point to the objects and purposes section of the defendant corporation's original articles of incorporation. This section empowers the corporation:

'(d) To erect Houses and buildings of any and every kind, and to maintain the same, and to sell, lease or in any manner dispose of the same, or any of them, or any part thereof, or interest therein;

'(f) To purchase stock of other incorporated Companies, and to acquire the good-will, rights, property and assets Of all kinds, and to undertake the whole or any part of the liabilities of any person, firm . . ..

'(h) To enter into, make, transfer and carry out Contracts of every sort and description;

'(j) This corporation is purely mutual and is not organized for Pecuniary profit;

'(k) The Company shall furnish Water to its stockholders . . .. The Company may also furnish Light and power on the same basis;

'(l) The Company shall have the right to purchase its own capital stock, but not to impair its capital in so doing . . ..' (emphasis supplied)

Broad though these powers may be, we conclude that they are consonant with those permitted by § 7--22--101, C.R.S.1973.

Section 7--24--110, C.R.S.1973, is fully determinative of plaintiffs' contention that issuance of stock changes the essence of this corporate entity from nonprofit to profit. By that statutory provision, water companies, like the defendant corporation, are specifically excepted from the rule prohibiting the issuance of shares of stock.

II.

Plaintiffs next urge that the type of business activities engaged in by the defendant corporation destroyed its nonprofit status. Specifically, in this regard, plaintiffs point to the defendant corporation's acts of repurchasing its own stock, the fact that there are 25,000 stockholders who actively trade their shares, that the corporation competes against other water organizations for the sale of water, and that it has 'earnings' and a stockholders' equity.

Here, too, the statute is dispositive of plaintiffs'...