Chamber of Commerce of Hot Springs v. Barton
1937 Ark. LEXIS 195, 195 Ark. 274, 112 S.W.2d 619 (1937)
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Rule of Law:
The board of governors of a non-profit, benevolent corporation possesses the authority to sell a substantial corporate asset without securing a special vote of the general membership, provided the corporation's bylaws grant the board broad, general powers to manage the corporation's affairs.
Facts:
- The Hot Springs Chamber of Commerce, a non-profit corporation, was organized to promote the city's commercial and general interests.
- The Arlington Hotel donated a radio station, KTHS, to the Chamber of Commerce, which the Chamber then operated for many years as an instrumentality for advertising the city.
- The Chamber of Commerce's bylaws stated that its 'Board of Governors shall exercise the general powers of the corporation...make contracts, and generally to direct the affairs of the chamber.'
- Believing the radio station had become financially burdensome, the Board of Governors entered into a contract to sell KTHS to T. H. Barton.
- The Board of Governors executed this contract without giving prior notice to the general membership of the Chamber of Commerce and without holding a special vote of the members to authorize the sale.
Procedural Posture:
- Certain members of the Hot Springs Chamber of Commerce sued T. H. Barton and the Chamber in chancery court (trial court) to cancel the contract for the sale of radio station KTHS.
- The Chamber of Commerce, following a vote of its membership, later joined the lawsuit as a plaintiff, also seeking to have the contract cancelled.
- The chancery court ruled in favor of T. H. Barton, upholding the contract and ordering the Chamber of Commerce to perform the sale.
- The Chamber of Commerce, as the appellant, appealed the chancery court's decree to the Arkansas Supreme Court, with T. H. Barton as the appellee.
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Issue:
Does the board of governors of a non-profit, benevolent corporation have the authority to sell a substantial corporate asset without a special vote of the general membership when the corporation's bylaws grant the board the 'general powers of the corporation' and authority to 'direct the affairs of the chamber'?
Opinions:
Majority - Baker, J.
Yes, the board of governors has the authority to sell the asset under a general grant of power in the bylaws. Statutes requiring shareholder approval for the sale of substantial assets apply to business corporations, not non-profit benevolent corporations, whose governance is controlled by their own constitution and bylaws. The bylaw granting the Board the 'general powers of the corporation' and authority to 'direct the affairs of the chamber' was a valid, pre-existing authorization from the membership that empowered the board to enter into the sales contract. To require a new, specific resolution from the members would be duplicative of the power already granted. Since the members had already delegated this authority through the bylaws, the Board's action was valid, and the contract is enforceable.
Dissenting - Smith and Mehaffy, JJ.
The opinion notes that Justices Smith and Mehaffy dissent but does not include a written dissenting opinion explaining their reasoning.
Analysis:
This decision establishes a crucial distinction between the governance requirements for business corporations and non-profit benevolent associations regarding the disposition of major assets. It clarifies that a broad, general grant of power in a non-profit's bylaws can be sufficient to authorize its board to conduct significant transactions, including the sale of its most valuable property. This precedent provides legal stability for third parties who contract with non-profit boards, ensuring that such agreements cannot be easily undone by a subsequent vote of a dissatisfied membership, absent fraud or the board acting beyond its powers. It reinforces the principle that the bylaws are the primary source of authority for a benevolent corporation's board.
