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repealed by the Legislature, and all corporations doing business in this state, may, as to such business, be regulated, limited or restrained by law."
It is contended by the respondent that, under section 338 of the Revised Statutes, as amended by the Session Laws of 1903, twothirds of the stockholders of the outstanding capital stock were authorized to amend the articles of incorporation against the consent of the minority, so as to make nonassessable full-paid capital stock assessable, and to empower the board of directors to levy an assessment on such stock, and that the Legislature, under the reserved power of the Constitution, was authorized to make such legislation and thereby to affect existing corporations, and hence such legislation was not violative of the federal Constitution, placing an inhibition on the impairment of contracts and the taking of property without due process of law. On the other hand, it is contended by appellant: 1) That neither section 338, as contained in the Revised Statutes, nor as amended by the Laws of 1903, gave any qumber of stockholder's less than the whole the right to make such :n amendment; and (2) if it were intended by the Legislature to confer such a power, the right so to do was not within the reservation of the Constitution, for that it was violative of the federal Constitution, prohibiting states from impairing the obligations of contracts and the taking of property without due process of law. The meaning of the phrase in the proviso of section 338 as :lmended, "that the personal or individual liability" of the holder of fullpaid capital stock for assessment or for the indebtedness or obligations of the corporation shall not be changed without the consent of all the stockholders, is not as clear as it might be. It is argued by respondent that the meaning thereof is that two-thirds of the stockholders might so amend the articles as to create what is calleu a mere stock liability for assessments or for the indebtedness or obligations of the corporation against a dissenting minority, but that no amendment of the articles could be made, so as to create any kind of liability other than one for a sale or forfeiture of stock, without the consent of all the stockholders. On the other hand, it is argued with much plausibility that full-paid capital stock of a private corporation is the individual and personal property of the stockholder to the same extent as is his chattel, and when specific property of his is made liable for a certain thing or things to that extent he is made personally and individually liable, and hence, in order to change the articles, under the laws of 1903, whereby such a liability is created, a consent of all the stockholders is essential. For the purpose of a consideration and a decision of the other question involved, we will assume, without deciding the point, that the meaning of "personal or individual liability," as used in the statute, does not include a
mere stock liability, and that it was the intention of the Legislature, among other things, to confer the power upon two-thirds of the stockholders of a corporation to amend the articles of incorporation so as to make full-paid nonassessable capital stock assessable against a dissenting minority, and therefore the action taken by two-thirds of the stockholders was within the power conferred by the amendment of 1903. This, then, brings us to the troublesome and greatly controverted question as to whether the Legislature had the authority to confer such a power upon any number of stockholders less than the whole, and as to its effect upon corporations existing when the act was passed.
It is a well recognized principle of law that "the charter of a corporation having a capital stock is a contract between three parties and forms the basis of three distinct contracts. The charter is a contract between the state and the corporation; second, it is a contract between the corporation and the stockholders; third, it is a contract between the stockholders and the state." ? Cook on Corp. (5th Ed.) $ 192; 1 Clark & Mar. Priv. Corp. $ 271f. It is also the general rule that, in granting charters or authorizing the creation of corporations under general laws, the state may expressly reserve the power of alteration, amendment, or repeal, and such reservation becomes a part of the contract between the state and the corporation, and is binding. not only upon the corporation, but also upon every individual stockholder. 3 Clark & Mar. Priv. Corp. § 631f. In the case of Dartmouth College v. Woodward, 4 Wheat. (U. S.) 518, 4 L. Ed. 629, it was held that the charter from a state to a private corporation created a contract within the meaning of the federal Constitution, forbidding any state to pass any law impairing the obligation of contracts, and hence the federal Constitution prevented a change by legislative enactment of a charter so issued. All of the text-writers and all the cases upon the subject agree that, to avoid the application of the rule laid down in that case, many of the states, either by a constitutional or statutory provision, provided a limitation upon corporate power by reserving the right to alter, amend, or repeal the charters granted to any corporation, or the laws under which it was created. While the language used in the Constitutions or statutes of the various states defining the reserved power is somewhat different, yet all the authorities agree that the purpose thereof was to avoid the application of the rule announced in the Dartmouth College Case. In all these Constitutions and statutes, so far as we have been able to see, the reservation is as comprehensive and sweeping as is contained in our Constitution; all of them containing the words "alter, amend or repeal," or "alter, repeal or suspend," or "alter or repeal,” or words of like kind without limitation or condition. Our Constitution is: "All laws relating to corporations muy be al
tered, amended or repealed by the Legisla- | tion against laws impairing the obligation of ture, and all corporations doing business in contracts, and of enabling the state to imthis state may, as i:) such business, be regu- pose such restraints upon corporations as lated, limited or restrained by law.” In this the Legislature may deem advisable for prorespect our Constitution is no broader than tection of the public, and not for the purpose that of other states. The important question of avoiding the effect of the doctrine in Nais : Does the legislative enactment here in tusch v. Irving. Such power is not reserved question fall within this reserved power? in any sense for the benefit of the corporation,
Without much reflection it might seem that or of the majority of the stockholders, upon almost any kind of legislation relating to any idea that the Legislature can alter the corporations would fall within the reserva- contract between the corporation and its tion of such Constitutions. But, again, all stockholders, nor for the purpose of enabling the authorities agree that the power reserved it to do so." And at section 275a they say by the various Constitutions or statutes has that, under the reserved power, the Legislaits limitation, and that thereunder certain
thereunder certain ture may make "any alteration or amendment acts may be done by the Legislature without in the charter which will not defeat or subviolating the federal Constitution, forbid- stantially impair the object of the grant, or ding the impairment of contracts or taking rights of property which have vested under property without due process of law, while it, and which the Legislature may deemn neccertain other things may not be done. It essary to secure either that object or any becomes important, therefore, to inquire what other public or private rights. The power, it power is reserved by these constitutional pro- has been said, may be exercised in all cases visions, and upon this question we find much and to any extent to carry out the original diversity of opinion in the cases. While it purposes of the incorporation, and to secure is settled that the power is not unlimited, yet
the due administration of justice in regard it is very difficult to say what its limitations to the rights of the creditors of the corporaare. It has well been stated by Clark & tion and the proper disposition of its asMarshall, in their work on Private Corpora- sets." tions (volume 3, 8 6:31f): "The difficulty has At section 501 of Cook on Corporations (5th been in construing such a reservation and de- | Ed.) it is said: “The extent of the power termining what amendments are properly of the Legislature to amend a charter where within it, and on this question there has
it has reserved that power, is not yet fully been some difference of opinion. There is settled, and is full of difficulties. There is no use trying to reconcile all the decisions on a strong tendency in the decisions, and a this point, for they are irreconcilable.” Ref- tendency which is deserving of the highest erence, however, to the text-writers and the commendation, to limit the power of the cases will aid us in determining whether the Legislature to amend the charter under this legislative enactment in question does or reserved power. It should be restricted to does not fall within the power.
those amendments only in which the state In discussing this question the authors just has a public interest. Any attempt to use named, at section (31b, say: "And it is equal- this power of amendment for the purpose of ly clear that, if the state has not reserved the authorizing a majority of the stockholders power to alter, amend, or repeal the charter to force upon the minority a material change of the corporation, or if, although there is in the enterprise is contrary to law and such a reservation, it is to be construed, as against the spirit of justice. Under such reis held by most courts, as intended merely served power the Legislature has only that for the protection of the public, and not for right to amend the charter which it would the purpose of enabling the Legislature to have had in case the Dartmouth College change the contract between the corporation Case had decided that the federal Constituand its stockholders, the Legislature has no tion did not apply to corporate charters. • power to authorize a majority of the stock
The power to make a new contract holders to bind the minority by accepting for the stockholders is not thereby given to such an amendment; for this would be to the Legislature. The Legislature may reimpair the obligation of the contract be- peal the charter, but cannot force any stocktween the corporation and the dissenting holder into a contract against his will. stockholders, by forcing them into a differ- * * * The best view taken of this reent contract, and therefore would be within served power of the state is that under it a the constitutional prohibition against laws fundamental amendment of the charter does impairing the obligation of contracts. At not authorize a majority of the stockholders section (31f it is further observed by them: to accept the amendment and proceed, but “The true view is that the power to alter, that unanimous consent of the stockholders amend, or repeal charters is reserved by the is necessary." state solely for the purpose of avoiding the Morawetz, in his work on Corporations, at effect of the decision in the Dartmouth Col- section 1097, says: “It was not intended by lege Case, that the charter of a corporation any reservation in a charter or a general is a contract between the state and the cor- , law to withdraw the Legislature of a state poration within the constitutional prohibi- | from its properly legislative duties, and make
it the arbiter over private rights. It is not state and the corporation with respect to the purpose of a provision of this nature to the
the grant of the franchise of being a corgive the Legislature of a state fatherly con- poration is of little significance in comparitrol over the affairs of private corporations.
son with the innumerable collateral agreeThe right is reserved for the benefit of the ments depending upon the exercise of the public and can be exercised only for public franchise and into which the express and purposes." And at section 1098, he says: implied terms of the charter become incor“The nature of a corporation is, therefore,
porated. No reservation of amendment and an important consideration in determining alteration, however broad and sweeping, will the extent of the reserved right of the state
authorize a disturbance of vested rights or to alter or amend its charter. In some cor
take away or divest corporate funds withporations the public is interested, and in
out compensation or due process of law." others it is not; and the right of interfering
In Looker v. Maynard, 179 U. S. 46. 21 in their management varies accordingly. The
Sup. Ct. 21, 45 L. Ed. 79, in speaking of the
effect of the reservation, the court says the Legislature of a state is authorized to alter the charter of a corporation, or interfere in
power may be exercised by the Legislature
when it will "not defeat or substantially imits management, without the consent of the shareholders, only so far as the welfare and
pair the object of the grant, or any right convenience of the public may require.”
vested under the grant, and which the LegisIn 1 Beach on Private Corporations, $ 40,
lature may deem necessary to carry into it is said that under the reserved right "an
effect the purpose of the grant, or to protect amendment must not defeat or substantially
the rights of the public or of the incorporaimpair the object of the grant, or any rights tion, its stockholders or creditors, or to proof property vested under it, nor deprive the
mote the due administration of its affairs." incorporators of control of the corporate
In 1 Rose's Notes on United States Re
ports, p. 912, it is said: “In many of the property, nor divest or impair the rights of the shareholders as between themselves, nor
cases, the purpose of the legislation attempt
ed under the reserve power is the taking alter the relation between the corporation
away of something-whether a franchise, and subscribers to its stock, nor work injustice to the incorporators or to the corporate power, privilege or immunity—which tlie corcreditors."
poration has hitherto enjoyed.
der the reserve power the state * In 4 Thompson's Commentaries on the Law
* of Corporations, $ 5417, it is said: “It may be
may take a way or it may modify that which
it has granted. But that is all. Property added that there is a view to the effect that,
acquired during the exercise of these poweven where the right to repeal or alter a
ers it may not divest, contracts already excharter has been reserved to the Legislature,
ecuted it may not annul, acts lawful when the right cannot be so exercised as to inter
committed it may not afterwards punish, fere with contract rights subsisting between the corporation and its stockholders. The
taxes thus remitted it may not afterwards
exact, and the legislation thus attempted theory is that, while the Legislature may
must be prospective and not retrospective in alter and amend charters, yet it cannot com
its operation. This principle has been very pel dissenting stockholders to accept such al
clearly stated by several of the most eminent terations and amendments; in other words,
of the members of the Supreme Court of the it cannot force them into a new contract into
United States"-citing numerous authorities which they did not agree to enter."
from that court. Black, in his work on Constitutional Law,
In Re Newark Library Ass'n, 64 N. J. Law, at page 535, says: "This power may be re
217, 43 Atl. 135, it was held that the power served in the particular charter itself; but
reserved to alter, suspend, and repeal reit is equally effective if the state Constitu
lates to those matters which concern the tion or a statute, in force when the charter
public, and not to the mode of controlling is granted, reserves to the Legislature the
the affairs of the stockholders inter sese. right to revoke or modify it. In the latter
Thereunder it was held the Legislature may case, the reservation becomes a part of the
alter or repeal the charter and extinguish the contract. But the exercise of this power
corporate existence of the association, but must be reasonable, and must have relation
that the Legislature was without power to to the original nature and scope of the take away from the shareholders the propcharter. It cannot be employed as a means
erty which they had acquired during its of forcing the corporation into enterprises
existence, or to affect or change the rights not contemplated by the charter, nor to de
of the stockholders as among themselves. prive the corporators of their property, nor To the same effect is Pronick v. Spirits Disto abridge the lawful rights of the stock
tributing Co., 58 N. J. Eq. 97, +2 Atl. 586; holders."
and in the case of Intiso v. Loan Ass'n, 68 Spelling, in his work on Private Corpora- N. J. Law, 588, 53 Atl. 206, it was held that tions, at section 1028, says: “But the effect
the power of alteration, amendment, or reof such reservations is not as far-reaching peal, which the state reserved in its grant of and important as might be supposed without permissive incorporation, “has no effect upon due reflection. The contract between the contract relations arising from membership,”
and that it was not competent for the Legislature to inpair the obligation of such a contract. In the case of Zabriskie v. llackensack & N. Y. R. R. Co., 18 X. J. Eq. 178, 30 Am. Dec. 617, approvingly quoted by all the text-writers, the court, in speaking of the reserve power, says: "The object and purpose of these provisions are so plain, and so plainly expressed in the words, that it seems strange that any doubt could be raised concerning it. It was a reservation to the state, for the benefit of the public, to be exercised by the state only. The state was making what had been decided to be a contract, and it reserved the power of change, by altering, modifying, or repealing the contract. Neither the words, nor the circumstances, nor apparent olojects for which this provision was made, can, by any fair construction, extend it to giving a power to one part of the corporators as against the other, which they did not have before.”
In the case of Snook 1. Ga. Improvement Co., S3 Ga. 61, 9 S. E. 1101, it was said by the court: “It is also held that the charter of a corporation is a contract of a dual character: First, a contract between the state which grants the charter and the corporation; and, secondly, a contract between the corporation and its members. And while the state, if it reserves the power to do so, can alter and amend the charter, and the corporation itself cannot object to the alteration or amendment, yet the state has no pow. er to make any material or essential alteration in the contract between the members themselves and the corporation."
From the texts and the cases it will be seen that under the reservation the state is not only unauthorized to alter or amend charters of existing corporations in such a way as will change the fundamental character of the corporation, impair the object of the grant, or rights Vested thereunder, but it is also unauthorized to alter or amend thein in such a way as will impair the contractual relations or rights of the stockholders among themselves, or between the corporation and its stockholders; and it will also be seen that under the reserved power the Legislature has only the right to amend the charter, or laws with respect thereto, which it would have had in the event it had been decided in the Dartmouth College Case that the federal Constitution did not apply to corporate charters. The Dartmouth College Case did not call in question nor involve any right or relation of the corporators among themselves. It involved only the relation of the corporation and the state. Without the reservation it was held that even such relation cannot be changed without doing violence to the federal Constitution. Because of the reserved power the state may now amend or alter the charter, so far as affecting the contract with itself, and so long as it does not change the fundamental character of the corporation or impair any
vested rights acquired thereunder. But, as stated by the authorities, the right is reseryed for the benefit of the state and of the public and for public purposes. The power can only be exercised to the extent that the state is interested. It can alter or modify any right, privilege, or immunity granted by it. It cannot, however, reach out and impair the obligations of contracts existing between the corporation and its members, or among the corporators themselves, any more than it can iinpair the obligations of contracts existing between otlier individuals. Undoubtedly it may repeal the charter, or all laws under which it was granted, and may take away altogether the franchise and privileges granted under it. The exercise of such powers pertain directly to its contract, and was expressly reserved to the state, and with reference to which every stockholder subscribed for or purchased his stock. So, under the reserved power, the Legislature Mary make such reasonable amendments or alterations as it may deem necessary to carry into cfl'ect the purposes of the grant, or to protect the rights of the public, or of the incorporation and its stockholders, or to promote the due administration of its affairs, when such amendments or alterations will not defeat or substantially impair the object of the grant or any vested rights. Independent of the reservation there are many things which the state may do in the exercise of its police powers towards regulating and restricting corporate powers and functious. When reasonably exercised, such legislative enactments do not fall within the prohibition of the federal Constitution.
Bearing in mind that the corporate charter is a dual contract-one between the state and the corporation and its stockholders, the other between the corporation and its stockholders and that under the reserved power the state may alter or amend the former, but not the latter, the question is: Under which do the legislative enactment of 1903 and the action taken by the majority of the stockholders fall? We are of the opinion that they do not pertain to any right, privilege, or immunity which the state had granted to the corporation or to its stockholders, and that the action by such stockholders in no wise affected or was related to the contract existing between the state and the corporation. It merely pertains to and affects the contract existing among the stockholders themselves. Neither the enactment nor the stockholders' amendment of the articles purport to be for the benefit of the creditors or for the benefit of the public. Thereunder no right or privilege in favor of creditors or the public is (reated, and thereunder no creditor could assert any riglit or claim that could not have been asserted by him prior to the enactment. In the original articles of incorporation each stockholder agreed, one with the other, that his fullpaid capital stock should be nonassessable.
This provision might have been omitted or feit all right to participate in the distribuinserted as the corporators saw fit to agree tion of the assets. The exercise of such a among themselves. Neither the state nor power is something which affects the very the public were concerned, whether they core of the contractual relations of the stockagreed upon one or the other. Vo franchise holders among themselves; and a legislative or privilege granted by the state to the de- enactment which confers such a power is, fendant or its members was dependent upon in our judgment, an impairment of the oblithis provision. The same grant, franchise, gation of a contract which is protected by and privileges would have been granted had the federal Constitution. the provision been omitted. Had it been We are, however, cited to cases where it omitted, no other or greater liability would has been held that it was competent for the have been created in favor of creditors or Legislature, under the reserved power, to the public than was created by its insertion, impose on the corporators a statutory individSuch a stipulation did not, then, in any wise ual liability for the future debts and oblipertain to the contract between the state gations of the corporation, when, under the and the corporation. It was manifestly in- charter as originally granted, no such liabiltended to concern and fix the reciprocal ity was imposed, and that such legislation rights of the stockholders among themselves, does not impair the obligations of contracts, and to place a limit upon the amount of within the meaning of the federal Constitumoney or capital that each was required to tion; and hence it is argued that, if such a put into the enterprise and contribute to the change or alteration of the charter by legiscorporation. The whole consideration for lative enactment is not forbidden, such legthe agreement that no further contribution islation as was here attempted and such of capital to the corporation should be ex- action as was here taken by the majority acted was the mutual promise of the stock- are likewise not forbidden. We are not bolders, the one to the other. Neither the disposed at this time. nor is it necessary, state nor the public had anything to do with to question the correctness of such rulings. it, nor was either in any wise concerned In principle, however, we perceive a marked therewith. The corporators had the un- distinction betweeir the exercise of such powdoubted right, as among themselves, to stipu- er and the one here in question. Undoubtedlate and agree as to the extent of their con- ly, if it were competent for the Legislature to tributions. Each corporator had the right to create such an individual statutory liability, determine for himself the amount of money it would be competent for it to create a mere or capital he would contribute to the enter- stock liability for the future debts and obprise and risk in the business. No subscrib- ligations of the corporation. But the exercise er or purchaser of stock could legally he of such a power pertains directly to the made to contribute to the corporation more very franchise and immunity granted by the than he agreed to contribute. Each had the state, and directly relates to and affects legal right to have such contribution measur- the contract existing between the state and el by the terms of his agreement and by the the corporation and its stockholders. Among la w's in forre at the time of its exerution. others, one of the principal objects of perTo permit the Legislature to confer author- sons forming private business corporations ity upon any number of stockholders less is to obtain and have grinted to them an than the whole to bind a dissenting minority immunity from personal or individual liato another and a different agreement in such bility for the debts and obligations resulting respect is to force them into a contract from the conduct of the business (arried on which they never made and which they are by the corporation, and to avoid the personal not willing to make. To do so is to confer and individual liabilities usually growing the power on the majority to determine the out of the relation of a mere partnership. amount of contributions that each stockholder Such an immunity is generally granted to is required to make. If in the face of the members of most private business corporacontract as here made by the corporators the tions and of some quasi public corporations. majority mas legally authorize the board of Is the authorities say, this limited liability directors to levy one assessment, they may is a part of the corporate privilege conferred authorize it to levy an unlimited number by the state, and the right to repeal the of assessments, restricted only as such ac- franchise itself includes the right to repeal tions may be questioned by bad faith. In any part of, or altogether, the franchise or that respect a stockholder is placed in a privilege of limited or nonpersonal liability. worse position than that arising from a mere The immunity of such liability to the corpopartnership, from which he may withdraw at rators existed in the first instance only beany time and demand a distribution of cause the state had granted it to them, and assets. But here, if the action of the ma- what it has granted it may, under its rejority shall be upheld, a dissenting minority served power, take away or modify. inay be required to contribute additional But the Legislature has not undertaken to capital to the corporation indefinitely, or, on repeal, modify, or alter any immunity or liatheir failure so to do, suffer an involuntary bility of any kind theretofore granted by it alienation of their full-paid capital stock, to the members of the defendant corporawhich is their private property, and for- tion. No new or different liability in sucn