CHAPTER XV.

POLICE REGULATION OF CORPORATIONS.

SECTION 188. The inviolability of the charters of private corporations. 189. Police control of corporations.

190. Freedom from police control, as a franchise.

191. Police regulation of corporations in general.

192. Laws regulating rates and changes of corporations.

193. Police regulation of foreign corporations.

194. Police regulation of railroads.

§ 188. The inviolability of the charters of private corporations. At a very early day, it was decided by the Supreme Court of the United States that the charter of a private corporation constituted a contract between the State and the stockholders or members of the corporation, by which the State, in consideration of the public benefit, and of the investment of capital in the corporate business, grants to these capitalists the power to act together as one legal personality, with corporate powers and liabilities, separate and apart from the individual responsibilities of the members. The opinion of Chief Justice Marshall, in the leading case on this subject,1 has been so often affirmed by the Federal courts, as well as by the State Courts, that it may now

1 Dartmouth College v. Woodward, 4 Wheat. 518.

See Planters' Bank v. Sharp, 6 How. (U. S.) 301; Trustees, etc., v. Indiana, 14 How. (U. S.) 268; Piqua Bank v. Knoop, 16 How. (U. S.) 369; Hawthorne v. Calef, 2 Wall. 10; Binghamton Bridge Case, 3 Wall. 51; State v. Moyes, 47 Me. 189; Wales v. Stetson, 2 Mass. 143; Central Bridge v. Lowell, 15 Gray, 106; Grammar School v. Burt, 11 Vt. 632; Backus v. Lebanon, 11 N. H. 19; People v. Manchester, 9 Wend. 351; Commonwealth v. Cullen, 13 Pa. St. 133; Cleveland, etc., R. R. Co. v. Speer, 56 Pa. St. 325; Zabriskie v. Hackensack, etc., R. R. Co., 17 N. J. Eq. 178; State v. Mayor of Newark, 35 N. J. L. 157; Bank of Old Dominion v. McVeigh, 20 Gratt. 457; Bank of State v. Bank of Cape Fear, 13 Ired. 75; Mills v. Williams, 11 Ired. 558; Young v. Harrison, 6 Ga. 130; State v. Accommodation Bank,

be laid down as a settled principle of constitutional law, that an act of incorporation is such a contract between the State and the incorporators as is protected by the clause of the Federal constitution, which denies to the States the power to pass any law impairing the obligation of a contract.1 Any law, therefore, of a State which impairs the corporate rights, or which repeals, annuls or amends the corporate charter, against the wishes of the members of the corporation, impairs the obligation of a contract, and is consequently void; unless the power, so to amend, annul or repeal the charter, is reserved to the State in the charter or by the general laws of the State, in force at the time that the charter was granted. It is now a very common statutory or constitutional provision that all charters of private corporations are held subject to the power of the State to repeal or amend. But, even in the case of such a reservation, the charter cannot be so amended or repealed as to interfere with the vested rights of property, which the stockholders may have acquired by and through the corporation.2

26 La. Ann. 288; State v. Tombeckbee Bank, 2 Stew. 30; Commercial Bank v. State, 14 Miss. 599; Mobile, etc., R. R. Co. v. Moseley, 52 Miss. 127; Sala v. New Orleans, 2 Woods (U. S. C. C.), 188; State v. Southern, etc., R. R. Co., 24 Tex. 80; Hamilton v. Keith, 5 Bush, 458; Marysville Turnpike Co v. How, 14 B. Mon. 429; Mechanics' Bank v. DeBolt, 1 Ohio St. 591; Edwards v. Jagers, 19 Ind. 407; Flint v. Woodhull, 25 Mich. 99; Bruffett v. G. W. Ry. Co., 25 Ill. 353; St. Louis v. Manufacturers' Sav. Bank, 49 Mo. 574; Farrington v. Tennessee, 95 U. S. 679.

1 See an ingenious argument against the correctness of the decision of the court in the Dartmouth College Case, in 8 Am. Law Rev. 190. The writer of the article, inter alia, makes the point that, inasmuch as the author of this clause of the constitution, Judge Wilson, of Pennsylvania, afterwards of the Supreme court of the United States, was a Scotch jawyer, and therefore learned in the Roman or Civil law, we must look to that system for the real meaning of the phrase "obligation of a contract." In the Roman law, obligatio ex contractu, invariably meant a pecuniary liability.

2 Holyoke Co. v. Lyman, 15 Wall. 500; inland Fishery Commissioners v. Holyoke Water Power Co., 104 Mass. 446; Worchester v. N. and W. R. R. Co., 109 Mass. 103; Thornton v. Marginal Freight Railway, 123 Mass

32.

§ 189. Police control of corporations.—It has been supposed that, because it is the settled law of this country that the legislature of a State cannot repeal or amend the charter of a private corporation, unless the power is expressly reserved, these perpetual corporations are placed beyond the reach of the ordinary police power of the State; that, while all the rights of the natural person are subject to the exercise of the police power in the interest of the public, these corporations are free from this burden, because the slightest police regulation operates as a restriction of the enjoyment of the corporate franchise, and hence impairs the obligation of a contract. Such a construction of the operation of this constitutional provision is not only scientifically absurb, but it is in violation of the ordinary rules of constitutional construction, which provide for a strict construction of all grants by the State to the individual. Apart from the question whether the State can barter away its police power,' the intention of a legislature to place a private corporation beyond the reach of the police power of the State; to grant to a corporation the right to do what it pleases in the exercise of its corporate powers, it matters not how much injury is inflicted upon the public, and yet be subject to no control or restraint, which is not provided by the laws in force when the charter was granted; is so manifestly unreasonable, that we cannot suppose that the legislature so intended, unless this extraordinary privilege is expressly granted. It cannot be implied from the grant of the charter. The subjection of existing corporations to new police regulations does not involve a repeal or amendment of the charters, for an act of incorporation simply guarantees to the incorporators the right to act and do business as a corporate body, subject, of course, to the laws of the land, and the legitimate control of government. The legal status of the corporation, as an artificial person, does not

1 As to which, see post, § 190.

differ from the natural person, except so far as the charter may reserve or grant special privileges or impose peculiar burdens. As a general proposition, corporations are included under the name of "persons " in coming within the operation of the law. In order that the law may apply to corporations, it is not necessary that they be expressly named.1 Thus general laws, relating to the validity or enforcement of contracts, are applicable to corporations, although persons are only mentioned. So, also, are corporations included in the operation of laws relating to real estate, in which there is reference only to inhabitants" and

"occupiers." 8 Corporations are taxpayers, like natural persons, although the tax laws should speak only of "persons," "individuals," or "inhabitants ;" and a law, relating to practice or procedure, which refers to "persons" or "residents," would also include corporations within its operation. But where the law, on account of the peculiar

1 Beaston v. Farmers' Bk., 12 Pet. 102; U. S. v. Amedy, 11 Wheat. 392; People v. Utica Ins. Co., 15 Johns. 382; Planters' & Mechanics' Bk. v. Andrews, 8 Porter, 404. Compare School Directors v. Carlisle Bk., 8 Watts, 291; Blair v. Worley, 1 Scam. 178. And see, Com. v. Phoenix Bk., 11 Metc. 129; Androscoggin Water Power Co. v. Bethel Steam Mill Co., 64 Me. 441.

2 Mott v. Hicks, 1 Cow. 513; State of Indiana v. Woram, 6 Hill, 33; State v. Nashville University, 4 Humph. 157; Commercial Bk. v. Nolan, 8 Miss. 508.

3 Curtis v. Kent Water Works, 7 B. & C. 314; State v. Nashville University, 4 Humph. 157; King v. Gardner, Cowper, 79; Lehigh Bridge Co. Lehigh Coal & Nav. Co., 4 Rawle, 8.

4 Otis v. Weare, 8 Gray, 509; People v. Utica Ins. Co., 15 Johns. 358; International L. Ass. Co. v. Comrs., 28 Barb. 318; Ontario Bk. v. Bunnell, 10 Wend. 186; Baldwin v. Trustees, 37 Me. 369; Curtis v. Kent Water Works, 7 B. & C. 314.

5 Knox v. Protection Ins. Co., 9 Conn. 430; Mayor of Mobile v. Rowland, 26 Ala. (N. s.) 498; Planters' Bk. v. Andrews, 8 Porter, 404; Trenton Bk. v. Haverstick, 6 Halst. 171; Mineral Point R. R. v. Keep, 22 Ill. 9; City of St. Louis v. Rogers, 7 Mo. 19; Bushel v. Commonwealth Ins. Co., 15 Serg. & R. 176; Eslava v. Ames Plow Co., 47 Ala. 384; Brauser v. New England Fire Ins. Co., 21 Wis. 506; Bristol & Chicago & Aurora R. R. 15 Ill. 436; Bk. of No. America v. Dunville, etc., R. R., 82 II. 493; Western

character of the corporation as a legal entity, relates to matters which are connected with and can only concern natural persons, the law cannot apply to corporations. For example, a corporation cannot be a rebel within the operation of the confiscation acts of the United States.1

The act of incorporation, therefore is a governmental act of creation. It creates a legal, artificial personality which becomes the subject of rights, and like any other legal personality holds these rights subject to the ordinary laws of the State. Unless there is an express reservation of a freedom from the restraint of police regulations, it would be an exceedingly liberal, and hence wrongful, construction of the constitutional protection against the impairment of the obligation of contracts, to place corporations above and beyond the ordinary police power of the State. As a general proposition, the principle here advocated has been recognized and adopted by the courts generally. It is only in the application of the principle to a particular case that any doubt as to its correctness is felt or expressed.

The leading case on the subject is that of Thorpe r. Rutland, etc., R. R. Co., in which Judge Redfield has discussed fully and at length the police control of corporations. In referring to the general police power of the State by which persons and property are subjected to all kinds of restraints and burdens, in order to secure the general comfort, health, and prosperity of the State, of the perfect ❝right in the legislature to do which no question ever was, or upon acknowledegd general principles, ever can be made, so far as natural persons are concerned," he says:—

"It is certainly calculated to excite surprise and alarm, that the right to do the same in regard to railways should be made a serious question. This objection is made gener

Transportation Co. v. Scheu, 19 N. Y. 408. See Olcott v. Tioga R. R., 20 N. Y. 210; Commercial M. F. Ins. Co. v. Duerson, 28 Gratt. 631.

1 Risley. Phoenix Bank, 83 N. Y. 318.

* 27 Vt. 150.