Westlake Hospital Ass'n v. Blix

• Decision Date: 24 January 1958
• Docket Number: No. 34473,34473
• Parties: WESTLAKE HOSPITAL ASSOCIATION et al., Appellees, v. Einar BLIX et al., Appellants.
• Court: Illinois Supreme Court

Page 471

148 N.E.2d 471

13 Ill.2d 183

WESTLAKE HOSPITAL ASSOCIATION et al., Appellees, v. Einar BLIX et al., Appellants.

No. 34473.

Supreme Court of Illinois.

Jan. 24, 1958.

As Modified on Denial of Rehearing March 19, 1958.

Rosenthal & Schanfield, Chicago (William P. Rosenthal, Leonard Schanfield, Stanley R. Weinberger, Gilbert Feldman and James J. Doheny, Chicago, of counsel), for appellants.

Brown, Dashow & Ziedman, Chicago (Albert Langeluttig, Chicago, and Jack Joseph, River Forest, of counsel), for appellees.

DAVIS, Chief Justice.

This is a declaratory judgment action arising out of the adverse claims of plaintiffs and defendants as to which group of directors and which set of by-laws constitute the legal board of directors and by-laws of the Westlake Hospital Association, a not-for-profit corporation.

The cause was submitted on an agreed statement of facts and the trial court entered a judgment finding that the plaintiffs constituted a majority of the legal board of directors of Westlake, and that the bylaws, as last amended by the members, were the legal bylaws.

The facts are not in dispute. Westlake Hospital Association owns and operates Westlake Hospital, located at Melrose Park, Illinois. It is a not-for-profit corporation which succeeded to the assets of Proviso Hospital Association, an Illinois Corporation. For some years prior to 1939, Proviso, which owned and operated the hospital, had been unable to earn sufficient income to meet its fixed interest charges and taxes. Real-estate taxes had not been paid since 1928 and, of course, no dividends were being paid to stockholders. The board of directors proposed that the hospital be reorganized as a not-for-profit institution for charitable and educational purposes, and emphasized that as a charitable institution the hospital would be exempt from local, State and Federal taxes and regulations and would be able to receive gifts, endowments and legacies.

It proposed to issue $50 par balue class A 5 per cent income debentures for each share of preferred stock of Proviso Hospital Association. The holders of the $50 par value common stock were to receive one $50 par value class B 5 per cent income debenture for each share of common stock they hald. In addition, each common stockholder was to receive one membership in the new not-for-profit corporation in exchange for each share of common stock held by him. The initial fee for a regular membership was $50 which was deemed and considered to be its value, and could be paid for in class A or B income debentures, in lieu of cash.

The reorganization was carried out as contemplated and Westlake Hospital Association (Westlake) was organized on January 5, 1939, under sections 29-34 of 'An Act Concerning Corporations' approved April 18, 1872, as amended. (Ill.Rev.Stat.1937, chap. 32, pars. 158-163.) Its purpose clause read ad follows:

'The corporation is organized for the purpose and with the object of operating and maintaining a hospital for the treatment of all patients alike regardless of creed, race or ability to pay, charging a graduated fee according to ability to pay, but in no case to make any profit; to be maintained by voluntary contributions of charitable inclined persons; to educate young women in the vocation of nursing without cost to them for tuition; to promote medical research for scientific purposes and not for profit.'

The original by-laws of Westlake were adopted on March 11, 1939, and provided for three classes of members-regular, life and honorary. The regular members were the old common stockholders of Proviso and such of the debenture holders should exchange their debentures for memberships. Life members were those who donated an unspecified amount to the hospital fund, and honorary members were those upon whom the board of directors conferred such membership in recognition of service. The right of suspension or expulsion of members rested with the board of directors, which consisted of nine members who were to manage and control the property, funds and affairs of the corporation. They were to be elected for a term of three years by the members. Vacancies were to be filled by the president, or, upon his failure to appoint, then by a majority of the remaining directors. A majority of the elected and acting directors constituted a quorum. There was a house committee and a membership committee. Meetings of the members were to be held annually. Members were given the right to vote in person or by proxy and to cumulate their votes for the election of directors.

The bylaw provision respecting amendments, which is vital to the issues here presented, was at all times as follows:

'Article 10

Amendments

'Section 1. Any By-Laws may be repealed, modified, altered or amended or new By-Laws adopted at any regular or special meeting of the Board of Directors by a majority vote of the members of the Board, provided that no such change shall take effect until thirty days after the mailing of notice thereof, with copy of the By-Laws as so proposed by the Board, to all members of the corporation.'

At a meeting of the members on June 18, 1949, when Westlake had 1260 regular memberships, 42 life memberships, and no honorary memberships, 779 of which were represented personally and 274 by proxy, Messrs. Akkeron, Brust, Collatz, Dixon, Elbert, Guerine, Joslyn, Kionka, and Young were unanimously elected to the board of directors, and the board of directors was authorized, at its discretion, to increase the membership from 9 to 11. No other members' meeting, at which directors were elected, was held until January 22, 1953. During the period from June 18, 1949, until January 22, 1953, the board of directors conducted the affairs of the hospital. As a series of directors' meetings during this period, the board of directors was, by resolutions of the directors, expanded until the membership reached 15. The vacancies thus created were filled by the board of directors. Thisexpansion in the number of directors was neither reflected in bylaw amendments, nor was formal notice of the action of the directors sent to the members.

At a duly convened meeting of the board of directors on December 11, 1952, at which time the board purported to consist of 15 members, there were 11 directors present. Of those present, five were members of the original nine-member board of directors which had been elected at the 1949 members' meeting which authorized the board of directors to increase its membership from 9 to 11 members. At this directors' meeting the bylaws were amended by unanimous vote, whereby the number of directors was increased to 15, to serve for terms of not to exceed three years; life members were designated as those who donated $500 or more to the hospital fund; life and honorary memberships were stated to be without interest in the assets and property of the corporation and withough property of the corporation and without permitted to pass to the personal representatives, heirs or legatees of the deceased member without limitation; the duties of the house committee were restated in terms more appropriate to a hospital; and a majority of the members was stated to constitute a quorum. Copies of the amended bylaws were mailed to all of the members of Westlake.

At the regular annual members' meeting held on January 22, 1953, subsequent to the mailing of the notice of the amended bylaws, a motion was unanimously adopted approving the acts and doings of the officers and board of directors of Westlake during 1952. The record does not show whether the minutes of the meeting at which the bylaws were amended were read to the members. At this meeting the members, acting pursuant to the amended bylaws, unanimously elected 15 directors, five for a term of one year, five for two years, and five for three years. At each of the annual members' meetings held during the succeeding years, five directors were elected to fill the terms of the directors whose terms of office were expiring.

On December 15, 1955, there were 1,260 regular memberships outstanding registered in the name of 49 individuals, nine of whom were deceased. There were 42 life memberships held by 42 separate business organizations, individuals or other associations. Prior thereto, various persons, firms and corporations had contributed or pledged approximately $250,000 to be used to expand the hospital facilities.

At a regular meeting of the board of directors on August 16, 1955, certain amendments to the by-laws were adopted by a vote of eight of the directors, defendants in this proceeding, over the negative votes of five directors, plaintiffs herein. These amendments added donation members to the various classes of membership of the corporation. Donation members were defined to be those persons who had or thereafter would donate $50 or more to the hospital and who did not desire to become regular members. They were not to be deemed to have ownership in any of the assets of the corporation. The right to vote was given to life members for every $50 donated, and to each honorary and donation member. Notice of the amendments was promptly sent to all of the members.

Upon receipt of the notice, five individuals called a special meeting of the members which was held on September 6, 1955. The members calling the meeting constituted less than 20 per cent of the regular members, although they held more than 20 per cent of the regular memberships in Westlake. At that meeting, the members purported to amend the bylaws to eliminate donation members, and their right to vote, to grant to the members the residual powers formerly granted to the board of directors, and to take the power of suspension and expulsion from the board and give it to the members. In addition, they provided for a nine-man board of directors to serve for a term of one year with vacancies to be filled by action of the president and remaining board of directors subject to the approval of...