comprehensively treat the subject of corporations, it is necessary, in addition to determining how far the government may go in repealing, altering or amending the charter of a corporation which is treated of in a preceding chapter,1 to consider at some length, at least so far as the general rules are concerned, the extent of governmental control over corporations, including regulation of rates, and it has been attempted to point out these general rules, with a few illustrations, without citing all the decisions or endeavoring to cover all the applications of the general rules. This chapter, therefore, as its title indicates, is intended to cover, in a general way, questions as to how far the United States, or a state legislature, or a public service commission, or a municipality, can regulate or control a private, including a quasi public, corporation, without violating the general rules of law relating to the police power or some express provision of the federal or state constitution. Matters relating to the power of taxation are treated of in a subsequent chapter,2 as are regulations as to consolidation of corporations, dissolution, insolvency, etc.3 Likewise regulations relating to foreign corporations are contained in a subsequent chapter of this work. § 4357. General view of the situation. It may be stated with much confidence that he who seeks to set aside a governmental regulation. of a corporation has a hard row to hoe, under most circumstances. The whole tendency of the courts is to uphold such regulations except in very clear cases of abuse of power. When you attack, you are always met with a presumption of validity. It is almost useless at the present day to attack the constitutionality of delegation of power to a commission, and only in rare instances do the courts sustain the contention either of want of due process of law, impairment of contract, or denial of equal protection of laws which lawyers are so prone to rely upon in attacking such regulations. Construing due process of law as confined to the reasonableness or unreasonableness of the regulation, that is the most successful ground for relief. While there is a presumption in favor of the reasonableness of the regulation, yet such presumption is merely a rebuttable one,5 and the courts do not hesitate in a proper case to set aside a regulation where it is clearly and beyond argument unreasonable, although in a doubtful case the courts will never interfere. If you set up impair 1 Chap. 57, supra. 2 Chap. 59, infra. 3 Chap. 60 et seq., infra. 4 See § 4381, infra. 5 See § 4560, infra. ment of contract, the chances are that you will not succeed, at least where the contract takes the form of a municipal ordinance since the courts go very far in withholding relief on that ground either because they construe the power to make the contract as wanting, or because they construe the alleged contract as not a contract in regard to the matter attempted to be regulated. So it is with the claim that the regulation denies equal protection of the laws, which is rarely successful because of the tendency of the courts to give a very limited meaning to the phrase "equal protection." So far as the contention that the regulation of a commission is beyond its powers, it is to be noticed that the statutes creating such commissions generally give the commission very broad powers in relation to the corporations within their domain, and it may be said that it is seldom held that they have exceeded their jurisdiction. In regard to the practice before the commission, and the procedure for a review of regulations in the courts, attention is called to the fact that this is almost entirely governed in the first particular by statutes and rules of the commissions, and in the second particular by the statutes, and so far as a review in the courts is concerned, the governing statutes differ widely in their terms and method of procedure, and hence it is unwise to place too great reliance upon the construction of statutes in other jurisdictions.9 § 4358. Corporation considered as aggregation of individuals for purpose of regulation. In a preceding volume, the general rule that a corporation is to be considered as a distinct legal entity separate and apart from the individual stockholders who compose it, together with the exceptions to the rule, has been fully stated.10 For the purpose of governmental control, however, it is submitted that a corporation ordinarily should not be considered as a legal entity but rather as a mere aggregation of individuals. Governmental control, except in the case of the federal government, is merely an exercise of the police power and governed by the same general rules applicable to individuals. So far as corporations are concerned, the rule applied to a single individual is applied to a collection of individuals who are stockholders or members in a corporation with certain added rights and privileges conferred upon them by the fact of incorporation. The mere fact that they are incorporated does not lessen the power of the government to regulate their acts as a body 6 See §§ 4472-4474, infra. See 88 4403-4415, infra. 8 See § 4384 et seq., infra. 9 See 88 4551-4573, infra. except in so far as the government has conferred rights upon them by the charter of the corporation or by a secondary franchise as herein before defined.11 § 4359. Police power in general. The legislative power of a state to regulate corporations is the police power, i. e., the power inherent in a government to enact laws, within constitutional limits, to promote the order, safety, health, morals and general welfare of society.12 It is wholly unnecessary in this connection to consider the extent of the police power in general, as relating to all classes of persons and combinations of persons, further than to state that "it is not subject to definite limitations, but is coextensive with the necessities of the case and the safeguards of public interest." 13 For discussions of this subject in general, reference should be made to leading and well-known textbooks on the subjects of police power 14 and constitutional law. Many of these regulations, while applicable to corporations as well as natural persons, are in no wise peculiar to or limited to corporations. Take, for instance, an exercise of the police power to promote the general health. Corporations are bound thereby as well as individuals or other combinations of individuals, and yet the power to make the regulation or the exercise thereof is in no way affected by the question whether the one contesting the power as affected thereby is a corporation or what not. It is only when the regulation is made applicable to corporations only, as distinguished from individuals or other combinations of individuals, or when the regulation is made applicable to a certain class or classes of corporations and not to others, that a corporation is affected differently, and may come into court and set up the contention that it is denied the equal protection of the laws-a contention, however, which is rarely successful.15 For this reason, exercises of the police power 11 See § 1157 et seq., supra. 12 The regulation of public utilities is one phase of the exercise of the police power of the state. Chicago v. O'Connell, 278 Ill. 591, 603, 116 N. E. 210. 13 Sligh v. Kirkwood, 237 U. S. 52, 58, 59 L. Ed. 835. What is within the police power and what is not within the police power can be answered only by saying that the courts in particular instances have held certain regulations within the police power and certain 14 See Freund, Police Power. equally applicable to corporations and others, such as regulations of intoxicating liquors, etc., are not noticed in this chapter. 16 $4360. Police power as applicable to corporations-In general. Private corporations are "subject to the same legislative control that natural persons are under like circumstances.' The rights of a corporation, as conferred by its charter, "are not more sacred," said Justice Brewer when a member of the Kansas Supreme Court, "than the individual's right of person and property, and all must give way to any legislative exercise of the police power of the state." 17 "It is certain," said the Vermont court, "that the legislature cannot impose new burdens upon corporations which are merely and exclusively of private interest and concern, and which have nothing to do with the general security, quiet and good order. But there can be no doubt they have the same right by general legislation over these corporations, which they have over natural persons. 18 It is impossible to define or state the limits of the police power by including everything to which it may extend and excluding everything to which it cannot extend, further than to state that all regulations as an exercise of such power, in order to be valid, must be reasonable, and not a violation of any of the constitutional limitations. Thus, under the guise of the police power, regulations are invalid where they are in effect confiscatory and deprive a person of property without due process of law, or where they deny a person the equal protection of the laws, or where they impair the obligation of a contract. And in using the word "person" above it is used in a broad sense as including corporations, since the rules governing the police power as to corporations are precisely the same as those governing the power as to individuals. As well stated in a recent magazine article, "any attempt to deal with the subject of governmental control of corporations must always recognize that in the police power there is a vast reservoir of control, the extent of which may not be gauged in advance, but the precise application of which in any given case must be submitted to the consideration of the court, unless it clearly oversteps the limits of permissible legislative discretion and becomes the obvious exercise of arbitrary power." 19 18 Nelson v. Vermont & C. R. Co., 26 Vt. 717, 62 Am. Dec. 614. 19 Article by George W. Wickersham on "Governmental Control of Corporations" in 13 Columbia Law Review 187, 201. § 4361. Growth and expansion of the police power. A study of the decisions, especially the late decisions of the Supreme Court of the United States, demonstrates that the extent of governmental regulation of corporations is ever widening, keeping in step with the onward march of civilization. In fact, in no branch of the law, is the growing tendency to subordinate the so-called personal rights and privileges of citizens to the good and welfare of the state, so well demonstrated as in the decisions upholding, step by step and year by year, continued advances in governmental regulations of particular kinds of corporations. Attention need only be called to a few leading cases in support of this statement. Take, for instance, three more or less recent decisions of the Supreme Court of the United States. In the first referred to, the Oklahoma Bank Guaranty Law was upheld, a great step forward in sustaining the police power over banks.20 Then consider the decision permitting states to regulate the rates of fire insurance companies, which is certainly a great advance in the application of the doctrine of Munn v. Illinois as to the power to regulate rates.21 Last, but not least, is the decision upholding, not as a part of the police power but as a regulation of commerce, the fixing of the compensation for railroad employees.2 If further evidence is necessary, the decisions of the Federal Supreme Court upholding "Blue Sky" laws are cited.23 22 In short, the growing tendency of the courts is towards holding that any exercise of the police power is within the power of the states unless the power of regulation is exercised in such an arbitrary or unreasonable manner as to be clearly repugnant to the constitutional prohibition against taking property without just compensation or without due process of law. § 4362. Power to regulate as dependent upon nature of business. In the leading case of Munn v. Illinois,24 the power to regulate as dependent upon the business being affected with a public interest was first promulgated in this country. It must be kept in mind, however, that this case related to regulation of rates, and while it is true at the present time that the rates of a corporation cannot be regulated unless the business of the corporation is affected with a public interest,25 yet it does not follow that governmental regulation of corporations in other respects is limited to those corporations whose business is affected with a public interest, but on the other infra. 20 See § 4463, 22 See § 4429, infra. 23 See § 4421, infra. |