THE LAW OF CORPORATIONS. CHAPTER I. INTRODUCTORY OF THE CREATION OF THE CORPORATION. § 1. The corporation defined. 2. Of the power of the State to create corporations. 8. Whether the federal government may create corporations. 4. Of the power of the federal government to incorporate a bank. 5. Of the power of the federal government to incorporate a railway through the territories. 6. Of the incorporation of the Nicaragua canal by the federal government. 7. Creation by implication. 8. Constitutional limitations of the power of the legislature. 9. General enabling acts. § 10. General acts authorizing the formation of religious corporations. 11. Sundry decisions under the several general incorporation acts. 12. A substantial compliance with all the provisions of the enabling act is required. 13. The regularity of an incorporation not to be questioned collaterally. 14. The same principle applicable to companies formed under general laws. 15. Acceptance by the incorpora tors requisite to render the legislative grant effective. 16. Of defective incorporation. § 1. The corporation defined.- Chief Justice Marshall's much quoted definition of a corporation as "an artificial being, invisible, intangible, and existing only in contemplation of law," has, on the one hand, been made the subject of much 1 The quotation in the text is from that eminent jurist's opinion in the Dartmouth College Case,, the passage in full being as follows:-"A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence. These are such as are supposed best to effect the object for which it was created. Among the most important are immortality, and, if the expression may be al criticism within recent years both by judges and text-writers who maintain that the fiction of a legal person, as they term it, has survived its usefulness,' while, on the other hand, there lowed, individuality; properties by which a perpetual succession of many persons are considered as the same, and may act as a single individual. They enable a corporation to manage its own affairs, and to hold property without the perplexing intricacies, the hazardous and endless necessity of perpetual conveyances for the purpose of transmitting from hand to hand. It is chiefly for the purpose of clothing bodies of men in succession with these qualities and capacities, that corporations were invented and are in use. By these means a perpetual succession of individuals are capable of acting for the promotion of the particular object, like one immortal being. But this being does not share in the civil government of the country, unless that be the purpose for which it was created." Dartmouth College v. Woodward, 4 Wheat. 636. 1 Mr. Taylor, in his admirable treatise on the law of Corporations, says: "It is the opinion of the writer that the fiction of the legal person' has outlived its usefulness, and is no longer adequate for the purposes of an accurate treatment of the legal relations arising through the prosecution of a corporate enterprise. By dismissing this fiction, a clearer view may be had of the actual human beings interested, whose rights may then be determined without unnecessary mystification." Taylor on Corporations, preface. Commenting upon Mr. Taylor's work, Prof. Pomeroy says:-"The author has here touched upon, although he has not fully developed, a fact which, in our opinion, must ere long be recognized and acted upon by the courts in deal ing with the law of corporations. The common-law conception of the 'legal personality' of the metaphys. ical entity constituting the corporation entirely distinct from its individual members, arose at a time when corporations were all created by special charters generally granted by the Crown; when very few of them were 'stock' corporations; when they were mostly perpetual in existence; when absolutely no personal liability was imposed upon the individual corporators, but the legal status of the corporators was wholly swallowed up in the 'legal person' of the corporation, and when corporations were in reality, as a necessary result from this creation and legal position, monopolies. In the United States at the present day almost all private corporations, whether business or otherwise, are formed under general laws, and in many States the legislatures are expressly prohibited from granting special charters. Under these general laws persons complying with a few formal requisites can organize themselves into a company for almost any business purpose. The associations thus formed are limited in duration; they are under complete control of the Legislature; the individual corporators are all personally liable to some extent and in some manner, and in many instances they are fully liable as though they were the immediate parties and debtors. In truth, except in the features that they can sue and be sued, make contracts, acquire rights, and incur liabilities in and by their corporate names, and that a change of membership does not work their dissolu is much authority for a strict insistence upon the earlier and more artificial theory of a body corporate as a distinct and personal entity. Although a corporation is, in a certain sense, something distinct from its members, having a life independent of theirs, the truth would seem to lie between these conflicting views of its nature. A corporation in most of its tion, these associations differ very little in their essential attributes from partnerships. And yet our American courts, both State and national, have, with few exceptions, gone on and applied the same language, the same conceptions, and the same doctrines to these associations which were originally applied to corporations as they existed under purely common-law notions and regulations. The English courts have never fallen into this error. Of late years Parliament has enacted statutes similar in their scope and effect to our general laws for the formation of private corporations. The English courts have never treated the joint-stock companies with limited liability, formed under these statutes, as being identical with common-law corporations, but have always carefully distinguished between them. In our opinion, the American courts must, in time, recognize and enforce the same distinctions." "Legal Idea of a Corporation," 19 Am. Law Rev. 114, 115, 116. The Supreme Court of the United States also has said that when a suit is brought by or against a corporation it is to be regarded as a suit by or against the stockholders of the corporation; and for the purpose of jurisdiction it is conclusively presumed that all the stockholders are citizens of the State creating the corporation. Muller v. Dows, 94 U. S. 444, 445. 1"The corporation is something distinct from its members. Its life is independent of theirs. Its will may, at times, be different from that of any member, or of any given proportion of its members; and it may be bound by conduct which binds no one of its members as an individual. Of course, there are in reality no rights or duties but those of natural persons; but the rights and duties of natural persons who deal with a corporation arise from a fiction, and their nature and extent are determined by that fiction. A person, therefore, who confounds a corporation with its stockholders, who says that they are the corporation, or that it consists of its members, not only misstates the legal view of the matter, but is in danger of falling into endless confusion and error. A corporation is distinct from its members in the same sense that a State is distinct from its citizens. The parallel, indeed, between a corporation and a State is very close. A State is generally spoken and thought of as a person, because that is the simplest way of picturing to the mind the collection of powers and obligations connected with the idea of a State. The citizens have certain powers and duties, and the State may execute their will when expressed in certain forms; but to fail to treat a State, either in its domestic or foreign relations, as something distinct from its citizens, would lead not only to theoretical error, but to endless practical difficulties." Lowell on Transfers of Stock, $ 2. relations acts as a unit, and may therefore, for the most part, be conveniently regarded as a legal person; but in many of its relations it is properly conceived of as composed of an aggregation of persons. The effort of practical jurisdiction should be to regard it as a unit or as a collection of persons according to the relation in which it acts in a given instance. As has been aptly said to this point, "the shield will be either white or red accordingly as it is viewed from the one side or the other." Perhaps the best definition yet constructed is that given by the earliest writer on the subject, who defines it to be "a collection of many individuals united in one body, under a special denomination, having perpetual succession under an artificial form, and vested by the policy of the law with the capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obligations, and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights more or less extensive, according to the design of its institution or the powers conferred upon it, either at the time of its creation or at any subsequent period of its existence." § 2. Of the power of the State to create corporations.The power to create corporations was, in England, vested in the sovereign, to whose powers each of the States of the Union succeeded upon their emancipation from British domination. This sovereign right may, therefore, be exercised by the several States, except so far as their constitutions prohibit, or as may be incompatible with the powers delegated by them to the federal government. This is conceded learning. The sovereign power of the State to create corporations has, therefore, been held not to have been impaired by the fact that it had withdrawn from the federal union, and was 1"The Legal Idea of a Corporation," 19 Am. Law Rev. 114, 116. 219 Am. Law Rev. 114, 116. 1 Kyd on Corporations, 13. 4 For these Constitutional restrictions vide infra, § 8. McLean C. C. 195; Thomas v. Dakin, 22 Wend. 9; Warner v. Beers, 23 Wend. 103; Nelson v. McArthur, 38 Mich. 204; Ohio v. Covington, 29 Ohio St. 102; Cotton v. Mississippi Boom Co., 22 Minn. 872; Angell & Ames on Corporations (11th ed.), Bell v. Nashville Bank, Peck (Tenn.), 269; Falconer v. Campbell, 2 § 71. engaged in war with the United States; but it has been deemed inexpedient to recognize the incorporation of a company created by the State in aid of such a war.2 § 3. Whether the federal government may create corporations. The power of the federal government to create corporations rests upon a basis entirely different from that of the State. With the State it is an incident of sovereignty and may be exercised for any lawful purpose not repugnant to its constitution or the voluntary limitations imposed upon itself by its ratification of the federal compact. The nature of the federal government is, however, different; it possesses no powers save those delegated by the several sovereignties uniting to form it, or such incidental powers as may be necessary and proper to carry out the powers thus delegated. It fol lows, therefore, that wherever there is no express delegation of power in the constitution to the federal congress to create corporations, there can be no implied power to erect such bodies except as a means or instrument by which to accomplish the objects for which that government was created. In the convention of States which framed the constitution, an effort was made to invest the congress with power to grant acts of incorporation, but after three days of debate the proposition was voted down, eight out of the eleven States represented voting in the negative. Under the power delegated 2 North Carolina Endowment Fund v. Satchwell, 71 N. C. 111; Chicora v. Crews, 6 S. C. (N. s.), 243. Cf. Angell & Ames on Corporations (11th ed.), § 71, and cases cited supra, § 2. 1 Cf. United States v. Insurance Sterne, in Opposition to the SignaCo., 22 Wall. 99. ture by the President of the United States of Senate Bill No. 1305 (50th Congress, 2d session) to Incorporate the Maritime Canal Company of Nicaragua" (Gibson Brothers, Washington, 1889); 4 Jefferson's Memoirs, Correspondence, etc., 523, 526 (Charlottesville, 1829). One of the reasons of the rejection, urged in debate, was that congress would then have power to create a bank, which would render the great cities, where there were prejudices and jealousies on that subject, adverse to the adoption of the constitution. Story on the Constitution, § 1260. In 1791, the second year after the inaugura 4U. S. Const. Amend. X; Chisholm v. Georgia, 2 Dall. 419; Hollingsworth v. Virginia, 8 Dall. 378; McCulloch v. Maryland, 4 Wheat. 316; Osborn v. Bank of the United States, 9 Wheat. 738. 316. McCulloch v. Maryland, 4 Wheat. "Madison Papers," September 14th, 1787: Argument by Simon 66 |