I. GENERAL CONSIDERATIONS § 4285. Introductory statement. In the United States, the main power of legislative bodies to control or regulate corporations is attributable to the reservation, in the contract entered into between the state and the corporation or its members, by which such contract, or the charter of the corporation, is subject to amendment, alteration or repeal. Theoretically, the legislative body which creates a corporation has absolute control over it. But such legislative power, according to the well-recognized principles of constitutional law, is subject to the limitations of the constitution. And it was recognized by the early decisions of the United States Supreme Court, that since the charter of a corporation was a contract, the obligations of such contract could not be impaired by legislative action of the various states. In this manner the absolute power of legislative bodies was curtailed to a large extent, although there still remained the power of regulation based on the police power, which according to other well-recognized principles, could not be bartered away. In pursuance of the decisions of the United States Supreme Court, nearly all of the various states have by statutes or constitutional provisions stipulated that the contracts with corporations shall be subject to change. And corporations existing before the enactment of such legislation have been brought within the reserved power thus referred to by the acceptance of provisions giving the state such power. Accordingly, at the present time, the existence of the reserved power of alteration is so general as to be well-nigh universal. This chapter, after a brief inquiry into the meaning of the terms used, will consider the legislative power of amendment and repeal, the effect of the constitutional limitation against impairing the obligations of contracts, and then the reserved power in general, its existence, extent and effect, together with allied questions. Also since the extension of corporate charters is in effect an amendment, that subject is included. § 4286. Definitions. By an amendment to a charter is meant a change, either by additions to the terms of the charter or by qualifications of the same,1 and usually a change for the better. To destroy 1 Greenwood v. Freight Co., 105 U. S. 13, 26 L. Ed. 961. Any material change in the fundamental law of a corporation is an amendment. Casper v. Kalt-Zimmers Mfg. Co., 159 Wis. 517, 150 N. W. 1101, 149 N. W. 754. An amendment to a charter is a legislative act. Casper v. Kalt-Zimmers Mfg. Co., 159 Wis. 517, 150 N. W. 1101, 149 N. W. 754. 2 Little v. State, 137 Ala. 659, 35 So. 136; Lord v. Equitable Life Assur. Society, 109 N. 7. App. Div. 252, 96 is not to amend, as a thing amended survives. And, in legal phraseology, amendment is not generally synonymous with repeal, though an amendment of a whole may often be accomplished by a repeal of parts thereof.4 An "alteration" of a corporate charter is to be distinguished from an "amendment" and also from a repeal. An alteration involves a change or modification in some respect, may be a complete change and need not be a change for the better. An amendment is of necessity an alteration, but an alteration may not be an amendment." In this connection it may be mentioned that an alteration or rearrangement of the boundaries of a municipality has been held not to be an amendment of the charter of such municipality.8 The distinction heretofore noted between the franchise to be a corporation and that to operate its plant should be borne in mind. As has been seen, the charter of a corporation is the law which gives the corporation existence as such, and a special franchise is a right granted by the public, to use public property for a public use, but with private profit.9 § 4287. Power of legislature to amend or repeal in general. The power of the state legislatures to amend or repeal corporate charters Amend' has been said to involve "the conception of something left to as a stock or stem on which to 235 Mo. 687, 139 S. W. 443. In this case the court further quoted Locke, J., in Brake v. Callison, 122 Fed. 722, to the effect that "A proposition may be amended by an alteration which entirely defeats the purpose of the [original] mover, or it may be turned into a motion of a different kind." 4 Little v. State, 137 Ala. 659, 35 So. 134. 5 Lord v. Equitable Life Assur. Society, 109 N. Y. App. Div. 252, 96 N. Y. Supp. 10, aff'g 47 N. Y. Misc. 187, 94 N. Y. Supp. 65. 6 People v. Calder, 153 Mich. 724, 126 Am. St. Rep. 550, 117 N. W. 314. 7 Lord v. Equitable Life Assur. Society, 109 N. Y. App. Div. 252, 96 N. Y. Supp. 10, aff'g 47 N. Y. Misc. 187, 94 N. Y. Supp. 65. 8 Ensley v. Simpson, 166 Ala. 366, 52 So. 61. Const. 104 denies to the legislature the right to pass any local or special law amending or extending the charter of any private or municipal corporation, but in subdivision 18 of that section it is provided that this should not prohibit the legislature from altering or rearranging the boundaries of cities, towns and villages. Ensley v. Simpson, 166 Ala. 366, 52 So. 61. 9 See §§ 1148, 1152 and 1156 et seq. See also Calder v. Michigan, 218 U. S. 591, 54 L. Ed. 1163. is limited not only by the state constitutions but by the provisions of the Constitution of the United States, and no valid act can be passed in violation of either. But within these limitations, legislatures have absolute power and control over the corporations which they create, and the corporate charters are subject to amendment or repeal at the discretion of the legislative body and without the consent of the corporation or its members. The power of the American legislatures in this regard is similar to that of the British Parliament, save that in England there is no written constitution limiting the powers of Parliament, and in consequence that body has absolute power in the matter.10 As a consequence of the far-reaching effect of these constitutional limitations upon the legislative power, especially the clause prohibiting the impairment of the obligations of contracts, a reservation of the power to amend or repeal is made neces sary. In the absence of such a reservation of power the legislature may alter, amend or repeal charters with the consent of all the members of the corporation, and in some cases with the consent of a majority,11 provided there is no constitutional prohibition in the way.' 10 See the arguments and opinions in Dartmouth College v. Woodward, 1 N. H. 111, rev'd 4 Wheat. (U. S.) 518, 4 L. Ed. 629. "It has never been questioned, so far as I know, that the American legislatures have the same unlimited power in regard to legislation which resides in the British parliament, except where they are restrained by written constitutions. That must be conceded, I think, to be a fundamental principle in the political organizations of the American states. We cannot well comprehend how, upon principle, it should be otherwise. The people must, of course, possess all legislative power originally. They have committed this in the most general and unlimited manner to the several state legislatures, saving only such restrictions as are imposed by the Constitution of the United States, or of the particular state in question." Per Chief Justice Redfield, in Thorpe v. Rutland & B. R. Co., 27 Vt. 140, 62 Am. Dec. 625. 12 11 Louisville & N. R. Co. v. State, 154 Ala. 156, 45 So. 296; State v. Montgomery Light Co., 102 Ala. 594, 15 So. 347; Farmers' & Mechanics' Bank of Shelbyville v. Jarvis, 1 T. B. Mon. (Ky.) 4; State v. Baltimore & O. R. Co., 127 Md. 434, 96 Atl. 636; Phinney v. Sheppard & Enoch Pratt Hospital, 88 Md. 633, 42 Atl. 58; Jackson v. Walsh, 75 Md. 304, 23 Atl. 778; University of Maryland v. Williams, 9 Gill & J. (Md.) 365, 416, 31 Am. Dec. 72; Ehrenzeller v. Union Canal Co., 1 Rawle (Pa.) 181. Charters granted prior to the Constitution of 1851, which in their nature amounted to contracts between the state and the corporation, are valid and unamendable except by the consent of both parties. State V. Baltimore & O. R. Co., 127 Md. 434, 96 Atl. 636. 12 A constitutional provision prohibiting the creation of corporations of a certain class, and providing that those already in existence shall continue, does not prevent the legislature § 4288. Powers of Congress. A private corporation created by Congress for public purposes, as a railroad company, for example, is subject to control by Congress so far as its business affects the public interests.13 A corporation created by or under an act of Congress, since it is a creature of the federal government, is not subject to control by the state legislatures, except in so far as Congress has subjected them to state control.14 Congress has the power to alter, amend or repeal laws passed by a territorial legislature, including laws creating or authorizing the formation of corporations. "Territorial governments occupy towards Congress something of the same relation as municipalities-such as city governments-fill towards the state legislatures. A state legislature can repeal the charter of a municipal government, and the ordinances passed under it; so Congress can repeal the organic act of a territory and all territorial enactments, in pursuance of the organic Congress is the sovereign power to legislate for the territories, and all charters from territorial legislatures must be held to have been accepted with the knowledge that Congress possessed the authority to change or repeal the law creating them." 15 An act of Congress prohibiting the granting of "especial privileges" to corporations has been held not to prevent the granting of exemption from taxation to an educational institution, by a territorial legislature. It was held that the quoted words did not refer to grants of the character involved, and the congressional act was in business. Covington v. Covington & C. Bridge Co., 10 Bush (Ky.) 69. 13 Union Pac. R. Co. v. United States, 99 U. S. 700, 25 L. Ed. 496. See also Chicago, B. & Q. Ry. Co. v. Iowa, 94 U. S. 155, 24 L. Ed. 94. 14 Farmers' & Mechanics' Nat. Bank v. Dearing, 91 U. S. 29, 23 L. Ed. 196; Union Pac. R. Co. v. Peniston, 18 Wall. (U. S.) 5, 21 L. Ed. 787; First Nat. Bank of Louisville V. Commonwealth of Kentucky, 9 Wall. (U. S.) 353, 19 L. Ed. 701; McCulloch v. Maryland, 4 Wheat. (U. S.) 316, 4 L. Ed. 579; State v. Curtis, 35 Conn. 374, 95 Am. Dec. 263. 15 United States v. Church of Jesus Christ of Latter Day Saints, 5 Utah 361. tended to prevent the grant of franchises and rights such as the building of public highways, toll roads, ferry and bridge franchises, etc.16 II. CONSTITUTIONAL LIMITATIONS ON AMENDMENT OR REPEAL § 4289. On powers of Congress. The prohibition of the Federal Constitution against laws impairing the obligations of contracts does not apply to the United States, 17 but other constitutional provisions, such as the prohibition against depriving persons of their property without due process of law, do apply to the federal government. And a charter granted by Congress is as much a contract as a charter granted by a state. As it was said in one case, "the United States are as much bound by their contract as are individuals. If they repudiate their obligations, it is as much repudiation, with all the wrong and reproach that term implies, as it would be if the repudiator had been a state or a municipality or a citizen." 18 In creating corporations, Congress has expressly reserved the power to alter, amend or repeal their charters, and under such a reservation. of power the same principles apply as in the case of a similar reservation by a state of power over corporations created by it.19 § 4290. Charter of corporation as contract. The Constitution of the United States declares that no state shall pass any "law impairing the obligation of contracts." 20 As early as 1806, the Supreme Court of Massachusetts made the declaration that "the rights legally vested in this, or in any corporation, cannot be controlled or destroyed by any subsequent statute, unless a power for that purpose be reserved to the legislature in the act of incorporation." 21 The leading case on this point, known as the "Dartmouth College Case," was decided by the Supreme Court of the United States in 1819. The case was as follows: In 1769 the King of England granted a charter incorporating "The Trustees of Dartmouth College," for the purpose 16 Whitman College v. Berryman, 156 Fed. 112. 17 Union Pac. R. Co. v. United States (Sinking Fund Cases), 99 U. S. 718, 25 L. Ed. 496; District of Columbia v. Capital Traction Co., 41 App. Cas. (D. C.) 115. 18 Per Chief Justice Waite, in Union Pac. R. Co. v. United States (Sinking Fund Cases), 99 U. S. 700, 25 L. Ed. 496. 19 Union Pac. R. Co. v. United States (Sinking Fund Cases), 99 U. S. 700, 25 L. Ed. 496. 20 U. S. Const. art. I, § 10. 21 Wales v. Stetson, 2 Mass. 143, 3 Am. Dec. 39. See also Greenwood v. Union Freight R. Co., 105 U. S. 13, 26 L. Ed. 961. |