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The bylaws of a corporation, so long as adopted in conformity with state law, constitute a binding contract between the corporation and its shareholders.
The bylaws of St. John's Hospital Medical Staff (“medical staff”) were adopted and approved by St. John Regional Medical Center, Inc. (“medical center”). The bylaws contained an article stating that the bylaws were equally binding on both parties. Also, the bylaws provided a specific procedure for amendments. Many years later, the medical center wanted to amend the bylaws, but the medical staff did not accept the proposed changes. An impasse developed, and the medical center unilaterally adopted new bylaws that were not approved by the medical staff. The medical staff filed a declaratory judgment action against the medical center, claiming that the amendments were null and void. The trial court granted relief to the medical staff, finding that the original bylaws created a contract between the parties. The medical center appealed.
Were the unilateral amendments null and void because it did not follow the specific procedure set forth in the original bylaws?
The court affirmed the decision of the trial court, holding that the original bylaws were binding upon the medical center. Thus, any amendments to the bylaws should have been made in accordance with the specific amendment procedure contained in the bylaws. The court held that the medical center breached the contractual relationship with the medical staff by ignoring the amendment procedure and that the unilateral amendments were null and void.