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Hunterdon County District Society for the Prevention of Cruelty to Animals, Inc. v. NJ Society

A-6232-07T3 (N.J. Super. App. Div. 2009) (Unpublished)

CORPORATIONS; NON-PROFIT — A non-profit corporation, upon revocation of its charter, has the same authority as it would have had upon dissolution; that is, it has the right to transfer its assets to another non-profit corporation with a similar charitable purpose.

The State Society for the Prevention of Cruelty to Animals (State SPCA) revoked a local chapter’s charter. The local chapter’s board of directors voted to transfer its animal shelter, together with most of the chapter’s assets, to a new non-profit corporation. The new entity filed a certificate of incorporation and listed the local chapter as a charitable organization. It also adopted its own bylaws. The local chapter then sued to enjoin the State SPCA from revoking its charter and from interfering with the operations of the animal shelter.

During a court proceeding, the parties placed a settlement on the record. When the State SCPA attempted to enforce the settlement, the local chapter claimed that there was no settlement because its board of directors had not approved the settlement. The Law Division agreed with the local chapter, finding that the local chapter’s attorney mistakenly believed he could settle the matter without board approval. Accordingly, the lower court held that even if the State SCPA and the court believed that they had an enforceable agreement, if the local chapter’s counsel did not have the actual authority to bind its clients, the court would not enforce the agreement. The lower court rejected the argument that the acts of the counsel for the local chapter and the acts of an individual board member created apparent authority in the hands of the counsel for the local chapter and that the local chapter should be bound by the settlement. It held that regardless of the agent’s actions, apparent authority only exists when the principal has acted in a manner that would suggest to a third party that the purported agent had authority to settle the case. The lower court also noted that a board member for the local chapter testified that he personally informed counsel for the State SCPA that such approval was necessary. The court ruled that the actions of the principal, not of its agents, establish apparent authority.

The lower court ruled that the local chapter’s actions were controlled by the general laws governing nonprofit corporations. These general laws gave the local chapter the authority to transfer its assets without the State SCPA’s approval. It held that the local chapter was an independent, nonprofit corporation that, upon revocation of its charter, had the same authority as it would have had upon dissolution; that is, it had the right to transfer its assets to another nonprofit corporation with a similar charitable purpose. The Appellate Division affirmed for substantially the same reasons set forth in the lower court’s decision.


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