For modification and remandment -- Chief Justice Weintraub, Justices Jacobs, Proctor, Hall and Mountain, and Judges Conford and Sullivan. Opposed -- None. The opinion of the Court was delivered by Mountain, J.
[61 NJ Page 598] In this action plaintiff sought a recovery of the value of his stock or membership interest in the defendant cooperative as well as an accounting for patronage
dividends to which he claimed to be entitled. The trial judge, sitting without a jury, fixed the value of his stock interest at $15,092.10 and his claim for patronage dividends in the amount of $3,406.76 for a total judgment of $18,498.86. On defendant's appeal to the Appellate Division, that court reduced the value of the stock interest to $125 and the dividend claim to $2,309.04. 115 N.J. Super. 424 (App. Div. 1971). We granted plaintiff's petition for certification. 59 N.J. 434 (1971).
At oral argument the issue concerning patronage dividends was withdrawn, leaving only for our review the question of the value of his stock interest.
The underlying facts are set forth fully in the opinion of the Appellate Division and we summarize them only briefly here. Defendant is a fishermen's cooperative association, incorporated in 1953 under the provisions of N.J.S.A. 34:17-1 et seq. Plaintiff joined the association in 1957, purchasing two shares of stock for $125. In July, 1965, his membership in the association was terminated by defendant's board of directors because he was no longer engaged in the fishing industry and hence did no business with defendant. At the time, plaintiff made no real objection to the fact of his expulsion, nor does he now claim it to have been improper. The by-laws provided that as a continuing condition of membership, a stockholder must be a producer of aquatic products, and it is undisputed that at the time of expulsion plaintiff no longer met this requirement. His objection is that he did not receive the amount to which he was justly entitled upon the redemption of his shares. This poses the only real issue before the court.
In 1957, the time plaintiff became a stockholder, a by-law of the association stated that upon termination of membership a stockholder was entitled to receive the "fair book value" of his shares. In 1962 this by-law was amended to provide that henceforth, instead of "fair book value," a retiring member would be entitled to a return only of the price he had originally paid for his stock. Plaintiff strongly
objected to this amendment at the time of its adoption. Both the certificate of association and the by-laws at all times contained provisions authorizing the amendment of the by-laws by majority vote of the membership.
The trial court agreed with plaintiff that the amended by-law, altering the consideration to be received upon the redemption of shares from fair book value to original purchase price, was invalid as violating a contract, infringing upon a vested right, and exceeding such authority as was bestowed upon the majority by its reserved power to amend by-laws. The Appellate Division disagreed, holding that the power reserved to the majority to amend the by-laws of the association was ample to support the questioned amendment and therefore the amendment became binding upon the plaintiff upon its adoption. Upon this crucial point we find ourselves in agreement with the trial judge.
It is the law generally that a reserved right to amend the by-laws of an association, whether to be exercised by the majority or, in some cases, a larger proportion of stockholders, members or directors, is a limited rather than an absolute right, even though the reservation is expressed in broad and general terms. It is often said that such a right to amend may not be extended so as to impair or destroy a contract or vested right, that it does not authorize the adoption of an amendment which will have such an effect, and that in general the exercise of such a right should be confined to matters touching the administrative policies and affairs of the corporation, the relations of members and officers with the corporation and among themselves, and like matters of internal concern. 8 Fletcher, Cyclopedia Corporations (Perm. Ed.) § 4177; 1 Hornstein, Corporation Law and Practice, (1959) § 269.
In New Jersey this rule, that a reserved power to amend by-laws may not affect basic rights, has found expression in a number of cases; interestingly, most of these deal with societies and associations which are similar to the defendant cooperative in that they were created to foster
some kind of mutual benefit. O'Neill v. Supreme Council, American Legion of Honor, 70 N.J.L. 410, 420-421 (Sup. Ct. 1904); Sautter v. Supreme Conclave Improved Order of Heptasophs, 72 N.J.L. 325, 326-327 (Sup. Ct. 1906), aff'd 76 N.J.L. 763 (E. & A. 1908); Poole v. Supreme Circle, Brotherhood of America, 85 A. 821 (Ch. 1911), aff'd 80 N.J. Eq. 259 (E. & A. 1912); Parks v. Supreme Circle, Brotherhood of America, 83 N.J. Eq. 131, 135 (Ch. 1914); Coghlan v. Supreme Conclave Improved Order of Heptasophs, 86 N.J.L. 41, 47 (Sup. Ct. 1914); St. John's Baptist Society, etc., v. ...