64 N.Y.2d 458 (1985)
A non-profit corporation’s ability to amend its charter is limited by quasi-cy pres principles, requiring court review to ensure consistency with the original purpose of donated funds, particularly when transferring assets to another entity.
Summary
Alco Gravure, Inc., brought suit against The Knapp Foundation to prevent the transfer of assets to another charitable organization founded by Joseph P. Knapp. The New York Court of Appeals held that while a non-profit corporation can amend its charter, this power is limited by the need to adhere to the original intent of the donor and quasi-cy pres principles. The court emphasized that amending a charter to change the use of donated funds requires judicial review to ensure alignment with the donor’s original purpose. The Court found the amendment process insufficient, requiring consideration of the specific limitations in articles 5 and 10 of the N-PCL. The simple process of amending the corporate charter as provided in N-PCL article 8 is legally insufficient to authorize either the transfer of assets or the distribution on dissolution that has here been attempted.
Facts
The Knapp Foundation was established in 1923 to aid employees of Joseph P. Knapp’s companies. Over time, requests for aid decreased. In 1983, the Foundation amended its charter to allow the transfer of assets to The Knapp Foundation (North Carolina). Alco Gravure, a successor corporation, and two employees, challenged this amendment, arguing it violated the original purpose of the Foundation.
Procedural History
The Supreme Court dismissed the complaint. The Appellate Division affirmed. The New York Court of Appeals modified the Appellate Division’s order, denying the defendant’s motions to dismiss and for summary judgment, holding that the amendment was improper without quasi-cy pres review. The court remanded for further proceedings.
Issue(s)
- Whether a non-profit corporation can amend its charter to change the use of donated funds without judicial review under quasi-cy pres principles.
Holding
- No, because the power to amend a Type B non-profit corporation’s charter is not unlimited. Such amendments must be reviewed by a Justice of the Supreme Court under the quasi-cy pres provisions of the N-PCL, particularly when the amendment changes the purpose for which funds were originally donated.
Court’s Reasoning
The court reasoned that the N-PCL must be interpreted harmoniously, and directors do not have unlimited power to amend a charter, especially concerning the use of donated funds. Sections 513 and 522 of the N-PCL impose limitations, requiring that assets be applied to the purposes specified in the gift instrument, subject to quasi-cy pres review by the Supreme Court when the original purpose becomes impracticable or impossible.
The court stated, “To permit the corporation by a charter amendment such as here adopted to change the purpose for which funds given to it are required to be held would shortcircuit completely the limitations imposed by sections 513 and 522 and permit the Foundation trustees to exercise a power given specifically and only to a Supreme Court Justice as concerns property received by the corporation by inter vivos gift.”
The court further noted that dissolving a Type B corporation requires compliance with N-PCL sections 1005(a)(3)(A) and 1008(a)(15), ensuring assets are distributed to organizations with substantially similar activities and devoted to the original purpose intended by the donor.
The dissenting judge argued that the N-PCL grants charitable organizations broad latitude in corporate self-governance, and the amendment was lawful because the Attorney General did not object, and a Supreme Court Justice approved it. However, the majority rejected this argument, emphasizing the importance of adhering to the donor’s original intent and the need for judicial oversight under quasi-cy pres principles.