Generally, cooperative associations function within the framework of the statute under which such cooperative is organized. However, a cooperative association has power to amend its bylaws subject to constitutional and statutory limitations. While amending the bylaws, the association shall not violate its charter and public policy.
At times, the charter of the association provides the mode of amending the bylaws. In such a case, the provision of the charter is the governing factor. Similarly, members have no right to challenge the constitutionality of the statute under which a cooperative is organized. Members are also prohibited from defending an action against them because such an action will violate the contractual relationship between the association and its members[i].
A private individual can bring an action challenging the constitutionality of a cooperative only in the event of an injury or damages sustained as a result of the actions of such cooperative. The members can ensure their due process rights with respect to the cooperative by entering into a contract to abide by the articles, bylaws, rules, and regulations of the association. In such a case, the right of members of an association to vote on amendments to articles of incorporation cannot be taken away without due process of law[ii].
It is to be noted that the validly adopted bylaws of a cooperative are binding upon both the association and its members even in the absence of a specific contract[iii]. However, if the member was fraudulently induced into the contract of membership by an agent of the cooperative, the signor is not bound by the bylaws since no legal membership is created[iv].
Generally, members agree to abide by any future alterations in the bylaws of the association. However, a cooperative cannot violate or set aside its contract with a member by simply repealing or enacting a bylaw. Thus, a stockholder in a cooperative association who was entitled to receive the fair book value of his shares is not bound by an amendment entitling a member only to the return of the original price paid for his/ her stock[v].
Statutes sometimes confer on cooperative associations the power to regulate specific matters in their bylaws. For instance, a statute may grant the cooperative the discretion to distribute the amount of profit or savings of the cooperative. In such a case, a member cannot proceed against the cooperative even if the cooperative alters the status quo by a subsequent bylaw. In the absence of specific statutory or charter prohibition, a cooperative association can regulate voting by proxy[vi], the expulsion of members, the disposition of the interest of a member on withdrawal or expulsion, and the repurchase of the shares of a stockholder who dies or who moves out of the locality through its bylaws.
[i] Connecticut Milk Producers Ass’n v. Brock-Hall Dairy Co., 122 Conn. 482 (Conn. 1937)
[ii] Ayers v. Burley Tobacco Growers Co-op. Ass’n, 344 S.W.2d 836 (Ky. 1961)
[iii] Clarke County Cooperative v. Read, 243 Miss. 879 (Miss. 1962)
[iv] Farmers Union Co-op. Gin Co. v. Taylor, 197 Okla. 495 (Okla. 1946)
[v] Lambert v. Fishermen’s Dock Cooperative, Inc., 61 N.J. 596 (N.J. 1972)
[vi] Sagness v. Ramers Co-op. Creamery Co., 67 S.D. 379 (S.D. 1940)