## Facts

- Capital Credit & Collection Service, Inc. was a closely held corporation initially controlled by Vernon D. Wallace.
- In 1972, while Wallace was the sole shareholder, the directors adopted bylaws requiring a 100% quorum for shareholder meetings (all voting shares present in person or by proxy).
- In 1976, Douglas C. Jones and Dorothy Gaarde each bought 49.5 shares; Wallace retained 100 shares (a voting majority). The three served as directors.
- Jones and Gaarde alleged that in June 1979 the directors removed Wallace as president and elected Jones president and Gaarde secretary.
- In July 1979, a shareholders’ meeting occurred without Gaarde present in person or by proxy; Wallace used his majority shares to remove Jones and Gaarde as directors and elect Jack Roberts and Everett Smith.
- Jones and Gaarde sought a declaratory judgment that they remained the lawful directors and officers, arguing the July meeting was invalid for failure to meet the bylaw’s 100% quorum requirement.
- The trial court granted summary judgment for defendants; the Court of Appeals reversed; the Oregon Supreme Court granted review.

## Issues

1. Whether a 100% quorum requirement adopted only in corporate bylaws (not in the articles of incorporation) can be enforced as a shareholder agreement to set aside corporate action taken at a meeting that met the statutory quorum under ORS 57.165.
2. Whether corporate action valid under ORS 57.165’s default quorum rule may be invalidated solely because it did not satisfy a bylaw-level quorum provision.

## Decision

- The Oregon Supreme Court reversed the Court of Appeals and reinstated the trial court’s summary judgment for defendants.
- ORS 57.165 requires a majority-share quorum unless a different quorum is provided in the articles of incorporation; a bylaw alone cannot alter the statutory quorum rule.
- Even if the bylaw could reflect a private agreement among shareholders, it could not be used to invalidate corporate action that complied with the statutory quorum requirement.
- The July 1979 shareholders’ meeting satisfied the statutory quorum, so the removal of Jones and Gaarde and election of Roberts and Smith stood.

## Legal Principles

- When a corporation statute permits altering a default quorum only through the articles of incorporation, a bylaw imposing a different quorum is ineffective to change quorum for corporate validity purposes.
- Shareholder agreements in closely held corporations may allocate voting or other rights among shareholders, but they cannot nullify corporate acts that satisfy mandatory statutory conditions for valid corporate action.
- A purported quorum agreement may, at most, create rights and remedies among shareholders (e.g., contractual claims) without undoing otherwise valid corporate governance actions.

## Conclusion

A bylaw-only 100% quorum requirement could not defeat a shareholders’ meeting that met ORS 57.165’s majority-quorum rule, and the resulting changes in directors and officers remained valid.


Jones v. Wallace, 628 P.2d 388 (Or. 1981)