Palencia v. Navarro

611 N.E.2d 1191, 243 Ill. App. 3d 290, 183 Ill. Dec. 543, 1993 Ill. App. LEXIS 201
CourtAppellate Court of Illinois
DecidedFebruary 19, 1993
DocketNo. 1-90-3422
StatusPublished

This text of 611 N.E.2d 1191 (Palencia v. Navarro) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Palencia v. Navarro, 611 N.E.2d 1191, 243 Ill. App. 3d 290, 183 Ill. Dec. 543, 1993 Ill. App. LEXIS 201 (Ill. Ct. App. 1993).

Opinion

JUSTICE MURRAY

delivered the opinion of the court;

George E. Falencia, Roberto R. Ruelo and Larry C. Pena, individually and as a minority of the board of directors of Bikol USA Inc. (Bikol), a not-for-profit corporation, appeal from a trial court’s order dismissing with prejudice a second-amended five-count complaint seeking an accounting and other relief from Eden L. Navarro and over 20 others of Bikol and Bikol itself. For brevity’s sake, we will refer to the plaintiffs as the minority and the defendants as the majority.

Bikol is an Illinois not-for-profit corporation with a registered office in Chicago, Illinois. A 1988 list of members indicates that Bikol has approximately 1,800 members. Bikol is a charitable organization under section 501(c)(3) of the Internal Revenue Code (26 U.S.C. §501(c)(3) (1988). Its primary charitable activity is to pay the education expenses of deserving high school and college students in the Philippines. Most, if not all, of the members have an ancestral tie to the Bikol region of the Philippine Islands.1 The members are entitled to vote.

The private laws that regulate, govern or control the actions, affairs and concerns of the corporation are its bylaws. Bikol’s bylaws were duly adopted at a meeting of the members on December 28,1985.

At the filing of this action in 1988, the balance in the scholarship fund was approximately $16,984. Only the interest earned from the scholarship fund was authorized to be spent for the scholarship program. The principal of the scholarship fund could not be invaded or used. The scholarship fund is a trust fund. Article VIII, section 3(b), of the bylaws provides that the principal and interest of the scholarship fund shall be used exclusively for the scholarship program:

“To the extent allowed by law, the funds of the corporation heretofore segregated and deposited in the banks for use of its scholars, including all interest earned therefrom, shall continue to be exclusively used for said purpose, and said funds may be augmented but not diminished.”

The bylaws provide that the term of office of both the directors and officers of the corporation shall be one year beginning in January.

Article XII, section 1, of the bylaws provides:

“Amendments. The Board of Directors shall propose amendments to the Articles of Incorporation or the Bylaws of the corporation and submit them to a vote at the annual or special meeting of the members. A written notice, setting forth the proposed amendment or a summary of the changes to be affected thereby, shall be given to the members in accordance with the statute. The proposed amendment to the Articles of Incorporation is adopted if it receives a two-thirds vote of the members present, there being a quorum. The proposed amendment to the Bylaws is adopted if it receives a majority vote of the members present, there being a quorum.”

The plaintiffs and minority directors of Bikol brought this action individually and derivatively on behalf, in the rights, and for the direct benefit of Bikol. The action was brought against the defendants individually and as majority directors of Bikol.

On April 29, 1988, defendant Navarro called a special meeting of Bikol to vote on the ratification of five proposed amendments to the bylaws. One proposed amendment would allow expenditures, not only of the interest from the scholarship fund, but would also allow expenditures of the principal for any corporate purpose. Another proposed amendment would extend the term of office of incumbent directors and officers from one year to two years.

No written notice of the special meeting was sent to the members in accordance with the bylaws. Only 69 members attended the meeting. Plaintiff Ruelo and two other members called attention to the lack of quorum. A voting resulted in four of the five proposed amendments getting more “yes” than “no” votes. Defendant Navarro proclaimed the four amendments approved. The two above-mentioned amendments were among those approved. Subsequently, plaintiff Falencia filed a demand for arbitration pursuant to the bylaws. This request was denied.

On June 13, 1988, plaintiff George Falencia filed a four-count complaint against defendant Eden L. Navarro, president of Bikol, and Angel Villaluz, Jr., treasurer of Bikol. The complaint sought: (1) arbitration; (2) a declaration of rights; (3) an injunction; and (4) an accounting. This action was based on an attempted amendment to the bylaws of Bikol to allow the invasion of the principal of the scholarship fund for any corporate purpose and an amendment to the bylaws extending the terms of office of the directors and officers to two years.

On July 9, 1988, defendant Navarro and majority directors of the board reversed their previous decision to convene an arbitration panel. In the first meeting of the convened arbitration panel, defendants Navarro and Villaluz filed with the arbitration panel a document entitled, “Submission to Arbitration,” in which the two defendants stated that they were submitting the case for arbitration “under the VOLUNTARY LABOR ARBITRATION RULES of the American Arbitration Association and the By-Laws of the BikolU.S.A., Inc. Arbitration.”

Defendants Navarro and Villaluz also filed with the arbitration panel a document entitled, “Demend [sic] for Arbitration,” which allegedly was an altered version of plaintiff Palencia’s demand for arbitration. A majority of the board of Bikol decided to convene an arbitration panel. Plaintiff Palencia withdrew his demand for arbitration based on a charge of forgery.

On June 23, 1988, Palencia filed a motion for preliminary injunction to enjoin defendants Navarro and Villaluz and their agents from implementing amendments 2, 3, 4 and 5 to the bylaws allegedly ratified on April 29, 1988. The motion further sought to prohibit the defendants and their agents from redeeming, withdrawing, spending, or otherwise encumbering the principal of the scholarship fund.

On June 29, 1988, the trial court denied plaintiff’s motion for temporary restraining order finding, “relative to the relief sought that plaintiff has brought this action against the wrong parties and that plaintiff should seek this relief as against the board of directors of the subject corporation, it it [sic] all.”

On August 30, 1988, Palencia, joined by Roberto R. Ruelo, Roman P. Badiola, Senen F. Barron and Larry C. Pena, filed an amended complaint against Bikol, the majority members of the board of directors of Bikol, and the committee of presidential advisers of Bikol. The complaint alleged the following causes of action: (1) an accounting (count I); (2) an injunction (count II); (3) breach of contract (count III); (4) a declaration of rights (count IV); (5) damages (count V); and (6) a declaration of rights (count VI).

On September 28, 1988, the plaintiffs were granted leave to file instanter a second-amended complaint. The purpose of filing the second-amended complaint was to drop Roman P. Badiola and Senen F. Barron as plaintiffs. The allegations of the second-amended complaint mirrored those of the amended complaint.

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Cite This Page — Counsel Stack

Bluebook (online)
611 N.E.2d 1191, 243 Ill. App. 3d 290, 183 Ill. Dec. 543, 1993 Ill. App. LEXIS 201, Counsel Stack Legal Research, https://law.counselstack.com/opinion/palencia-v-navarro-illappct-1993.