THE ACT OF 1851.

"AN ACT FOR THE INCORPORATION OF BUILDING, MUTUAL LOAN, AND ACCUMULATING FUND ASSOCIATIONS."

Chapter 122, Laws of 1851,

AS AMENDED BY

Chapter 564, Laws of 1875,

AND

Chapter 96, Laws of 1878.

SECTION I.

ASSOCIATIONS, HOW ORGANIZED—MINIMUM NUMBER OF INCORPORATORS-OBJECTS AND PURPOSES OF THESE

CORPORATIONS.

§ 1. Any number of persons, not less than nine, may associate and form an incorporated company for the purpose of accumulating a fund for the purchase of real estate, the. erection of buildings, or the making of other improvements on lands, or to pay off incumbrances thereon, or to aid its members in acquiring real estate, making improvements thereon, and removing incumbrances therefrom; and for the further purpose of accumulating a fund to be returned to its members, who do not obtain advances as above mentioned, when the funds of such association shall amount to a certain sum per share, to be specified in the articles of association.

The minimum number of incorporators is fixed at nine. The objects of the association are varied: (1) to purchase real estate; (2) to erect or improve buildings; (3) to pay off mortgages; (4) to aid members in acquiring real estate, improving the lands and paying off mortgages on the lands, by advance to members; (5) to accumulate a fund for the benefit of members who do require advances.

It is clear that besides the usual custom of these associations, they have power under this statute to purchase and improve real estate as an association enterprise. Non-members may borrow the accumulated funds.

SECTION II.

ARTICLES OF ASSOCIATION-NAME-MEETINGS-QUORUM QUALIFICATIONS OF MEMBERSHIP-OFFICERS-FEES AND DUES AND FINES-REDEMPTION OF SHARES BY ADVANCES-PREMIUM-SECURITY FOR LOAN-TRANSFER AND WITHDRAWAL-INVESTMENT OF SURPLUS FUNDS— PAR VALUE OF SHARES-AMENDMENTS TO ARTICLES.

2. Such persons shall severally subscribe articles of association, in which shall be set forth the name of the cor

poration the time of its regular meetings, and how special

meetings may be called, and what shall constitute a quorum to transact business at meetings; the qualification of members and how constituted; what officers, trustees and attorney there shall be, and how and when chosen, and their duties, and how removed or suspended from office, the entrance fee of new members and new shares, the monthly or weekly dues per share, the redemption fee on shares on which advances shall be made, and fees to be paid on the transfer of shares; the fines and penalties for non-payment of dues or fees, or other violation of the articles of association; the manner of redemption of shares by advances made thereon, the mortgaged security to be taken on such advances, and how the same may be redeemed or changed; the manner of the transfer or withdrawal of shares; the manner of investing funds not required for advances on shares; the qualifications of voters at the meetings, and the mode of voting the ultimate amount to be paid to the owners of unredeemed shares the manner of altering or amending the articles of association, and such other provisions as shall be necessary for the convenient and effective transaction of the business thereof; provided that the same shall.not in any respect contravene the constitution or laws of this State.

General Remarks.

These articles serve the purpose of the constitution of an ordinary corporation. It will be noticed that all the important topics that usually form the substance of a constitution are set forth in this section. The clause providing "and such other provisions as shall be necessary for the convenient transaction of the business thereof" is a further evidence that the legislature intended this section as a full exposition of all the necessary regulations assumed by the incorporators of the new association. The preparation of these articles is a most important duty, therefore, and should be carefully performed, because they form the organic law of the new corporation, the compact between the members mutually, and between the corporation and third parties. All the principal transactions of the corporation are to be governed by them, and on their efficacy and adaptability the future prosperity of the association largely depends. Section 2 explicitly points out the topics that are to be regulated, but leaves their regulation to the judgment and discretion of the incorporators. The prohibitory clauses that nothing in the articles or amendments thereof shall contravene the laws and constitution

of this State and of the United States is surplusage; without this clause, the general principles of law would intervene and nullify objectionable matter.

The articles must be in the truest sense for the carrying out of the object of the association. They must, therefore, maintain the qualities of mutuality and co-operation. They serve as a continuous notice of the duties and requirements exacted by and expected of members in dealing with one another, and in transactions between the association and outside third parties. The unfolding of the plan of business draws others within its circle and guarantees a quasi-official security against misrepresentation or deception.

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Again, the admission of any provision or condition in the articles of association which may be inconsistent with, and repugnant to, the general object of the association, may result in a forfeiture of corporate powers, and the Attorney-General of the State may bring suit for dissolution. On this subject it was decided by a Pennsylvania Court (Becket v. Uniontown Building Association, 88 Pa. St. 211) that provisions or by-laws contrary to the general intent of associations may become a ground of forfeiture of corporate rights. It has been held that the practice of discounting notes would work a forfeiture and inferentially, a provision in the articles of association for the transaction of this business would raise ground for dissolution (see index, Discounting," "Powers"). If these evils should exist, individuals or corporations could not, however, raise the question of illegality in a suit concerning the business of the association or the interests of its_members. objection can only be raised by the State on the application of the Attorney-General. If defects exist in the articles, such as a misstatement as to the capital stock, or even the failure on the part of some incorporators to subscribe the articles, these will not avail either third parties or the association; the only way in which the error can work evil is through the application of the Attorney-General for the dissolution of the imperfect organization.

The

Second Manhattan Building Association v. Hughes, 4 Abb. App. Dec. 183.

Mechanics Building Association v. Stevens, et al., 5 Duer 676.

The distinction is based on the theory that no one but the State can object to the faulty performance of the corporation's duties to the State. The fact of corporate existence, despite an irregularity in the articles of association, is legally established; but the attempt to enforce any provision not authorized by law would be ineffectual. So, therefore, if there is anything in the articles of association inconsistent with the general intent of the statute, any legal proceeding to set it in motion would fail. Again, if the articles of association are in nature or effect antagonistic to the spirit of the statute from which it claims birth and privilege, they will preclude the association from claiming the benefits of the statute.