Am. Ctr. for Educ., Inc. v. Cavnar - 80 Cal. App. 3d 476, 145 Cal. Rptr. 736 (1978)

Rule:

A corporation may sue upon authorization of its board of directors or upon the initiative of its president or managing officer. Where a managing officer has been validly removed, he has no authority to institute legal proceedings in the name of the corporation. A charitable trust may be enforced in an action brought by the Attorney General or an authorized relator in his name or by a trustee but other persons, even including donors, cannot maintain such actions.

Facts:

Following his removal from the positions of president, director, and executive committee member of a charitable corporation, the ousted officer brought an action, on his own behalf and on behalf of the corporation, to remove from all positions in the corporation those who had ousted him, and for damages from them and from the bank that had transferred to them control over the corporate assets. Under the articles of incorporation, the minimum number of directors was three, and under the bylaws three members of the board of directors and three members of the executive committee likewise constituted a quorum of these bodies. When, following a dispute as to corporate policies, two of the defendants tried to convene an executive committee meeting in plaintiff's office, plaintiff promptly departed, went to the bank to prevent the two defendants from wresting control over corporate funds from him, found the bank manager talking with them, and argued with defendants for 10 minutes while they attempted to act as the executive committee. At that meeting, they purported to oust plaintiff from all his offices, and elected a new director. Ten days later, after due notice to plaintiff, they and the new director called a meeting of the board of directors at which plaintiff, in absentia, was removed as director. The trial court, finding that defendants' acts were invalid as an abuse of their authority and discretion, granted plaintiff relief substantially as prayed.

Issue:

Did the trial court err in finding that the defendants’ acts were invalid and in granting the relief prayed for by the plaintiff? 

Answer:

Yes.

Conclusion:

The Court of Appeal reversed, noting that the executive committee and board of directors had always been accustomed to conducting their business informally. The court held that, whether the corporation was regarded as a nonprofit corporation, charitable corporation, or charitable trust, the executive committee meeting in the bank and the subsequent meeting of the board of directors were both procedurally valid, and that defendants, under the articles of incorporation and bylaws as well as the statutes then applicable, had the power to oust plaintiff, with or without cause. Thus, since plaintiff had already been removed from the corporation before bringing suit, and because the corporation had no shareholders and could not be presumed to have been created for a small class of beneficiaries, plaintiff, as neither a shareholder nor beneficiary, had no standing to sue on the corporation's behalf.