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Westlake Hospital Assn. v. Blix





APPEAL from the Superior Court of Cook County; the Hon. JOHN J. LUPE, Judge, presiding.


Rehearing denied March 19, 1958.

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 bylaws constitute the legal board of directors and bylaws 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 and 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 value 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 held. 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 as 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 as 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:


"Section I. 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. At 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. This expansion 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 without voting rights; regular memberships were permitted to pass to the personal representatives, heirs or legatees of the deceased member without ...

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