A power reserved by the constitution of a state to its
legislature to alter, amend, or repeal future acts of incorporation
authorizes the legislature, in order
"to secure the minority of stock holders, in corporations
organized under general laws, the power of electing a
representative membership in boards of directors,"
to permit each stockholder to cumulate his votes upon any one or
more candidates for directors.
This was an information in the nature of a
quo
warranto, filed August 1, 1896, in the Supreme Court of the
State of Michigan, by Fred A. Maynard, attorney general of the
state at the relation of Joseph W. Dusenbury and Will J. Dusenbury,
against Oscar R. Looker, Charles A. Kent, Will S. Green, William A.
Moore, Louis H. Chamberlain, William C. Colburn, Benjamin J.
Conrad, John J. Mooney and Michael J. Mooney, to try the rights of
the defendants and of the relators respectively to the offices of
members of the board of directors of the Michigan Mutual Life
Insurance Company. The right to those offices was claimed by the
defendants under the original articles of association of the
company, under the general laws of Michigan, and by the relators
under a statute subsequently enacted by the legislature of the
state, which the defendants contended to be unconstitutional and
void as impairing the obligation of the contract made between the
state and the corporation by its original organization.
The Constitution of Michigan adopted in 1850, art. 15, sec. 1,
is as follows:
"Corporations may be formed under general laws, but shall not be
created by special act except for municipal purposes. All laws
passed pursuant to this section may be amended, altered, or
repealed."
1 Charters and Constitutions 1008.
The General Law of Michigan of March 30, 1869, entitled
Page 179 U. S. 47
"An Act in Relation to Life Insurance Companies Transacting
Business within this state," contained the following
provisions:
By § 1,
"Any number of persons not less than thirteen may associate
together and form an incorporated company for the purpose of making
insurance upon the lives of individuals, and every insurance
pertaining thereto, and to grant, purchase, and dispose of
annuities."
By § 2,
"The persons so associating shall subscribe articles of
association, which shall contain --"
"
* * * *"
"4. The manner in which the corporate powers are to be
exercised, the number of directors and other officers, and the
manner of electing the same, and how many of the directors shall
constitute a quorum, and the manner of filling all vacancies."
"
* * * *"
"7. Any terms and conditions of membership therein, which the
corporators may have agreed upon, and which they may deem important
to have set forth in such articles."
By § 5,
"the articles of association shall be submitted to the attorney
general for his examination, and, if found by him to be in
compliance with this act, he shall so certify to the secretary of
state."
Stat. 1869, No. 77; 1 Laws of Michigan of 1869, p. 124.
Under that statute, the Michigan Mutual Life Insurance Company
was duly organized July 3, 1870, with articles of association, the
fourth of which provided as follows:
"The corporate powers of the company shall be exercised by a
board of directors, which shall consist of twenty-one members,
which may be increased at the option of the board to not more than
forty. The first meeting for the election of directors shall be
called by the present officers, and held as soon as practicable
after these articles shall take effect. No person shall be eligible
who is not owner of at least ten shares of the guarantee capital of
the company, and at least two-thirds of the directors shall be
residents of the State of Michigan. The board, at their first
meeting, shall divide themselves by lot into three equal classes,
as near as may be, whose terms of office shall expire at the end of
one, two, and three years, respectively, and thereafter one-third
of the directors shall be chosen annually for the class whose term
then expires, who shall hold office for three years
Page 179 U. S. 48
or until their successors are elected, but the first board of
directors, whose terms shall not have expired previous to the last
Tuesday in January, shall continue in office until the last Tuesday
in January following. The election of directors shall be had at the
annual meeting of the company, which shall be held on the last
Tuesday in January at the office of the company in Detroit. They
shall be chosen by ballot, and a majority of all the votes cast
shall elect. Every shareholder shall be entitled to one vote for
directors for every share of guarantee capital standing in his name
on the books of the company, and may vote in person or by proxy.
And every policyholder insured in this company for the period of
his natural life in the sum of not less than five thousand dollars
shall also be entitled to one vote in the annual election of
directors, which vote must be given in person."
In 1885, the Legislature of Michigan passed an act entitled
"An Act to Secure the Minority of Stockholders, in Corporations
Organized under General Laws, the Power of Electing a
Representative Membership in Boards of Directors,"
the first section of which provided as follows:
"In all elections for directors of any corporation organized
under any general law of this state other than municipal, every
stockholder shall have the right to vote, in person or by proxy,
the number of shares of stock owned by him for as many persons as
there may be directors to be elected, or to cumulate said shares,
and give one candidate as many votes as will equal the number of
directors multiplied by the number of shares of his stock, or to
distribute them on the same principles among as many candidates as
he shall think fit. All such corporations shall elect their
directors annually, and the entire number of directors shall be
balloted for at one and the same time, and not separately."
Stat. 1885, c. 112; Public Acts of 1885, p. 116.
Directors were elected in accordance with the articles of
association until the annual meeting of January 28, 1896, when, the
whole number of directors being twenty-seven, of whom nine were
elected annually, the whole number of votes for directors was
4,893; the nine defendants received 3,655 votes each, and Joseph W.
Dusenbury, representing in his own right or by proxy
Page 179 U. S. 49
1,238 shares, undertook, under the statute of 1885, to multiply
the number of his shares by nine making the number 11,142, and,
dividing this number equally, cast 5571 votes for himself and 5571
and Will J. Dusenbury, and, if his claim had been allowed, they
two, the relators in this case, would have been elected directors.
But his claim was rejected, his vote was allowed on 1,238 shares
only, and the nine defendants were declared elected, and assumed
and have since exercised the offices of directors.
The Supreme Court of Michigan held the statute of 1885 to be
constitutional and valid, and adjudged that the relators were
elected directors, and should have been so declared. 111 Mich. 498.
The defendants sued out this writ of error.
Page 179 U. S. 51
MR. JUSTICE GRAY, after stating the case, delivered the opinion
of the Court.
The single question in this case is whether a power, reserved by
the Constitution of a state to its legislature, to alter, amend, or
repeal future acts of incorporation authorizes the legislature, in
order (as declared in the title of the statute of Michigan now in
question)
"to secure the minority of stockholders, in corporations
organized under general laws, the power of electing a
representative membership in boards of directors,"
to permit each stockholder to cumulate his votes upon any one or
more candidates for directors.
By the decision in the leading case of
Dartmouth
College v. Woodward, 4 Wheat. 518, it was
established that a charter from the state to a private corporation
created a contract within the meaning of the clause in the
Constitution of the United States forbidding any state to pass any
law impairing
Page 179 U. S. 52
the obligation of contracts, and consequently that a statute of
the State of New Hampshire, increasing the number of the trustees
of Dartmouth College as fixed by its charter and providing for the
appointment of a majority of the trustees by the executive
government of New Hampshire, instead of by the board of trustees as
the charter provided, was unconstitutional and void.
Mr. Justice Story, in his concurring opinion in that case, after
declaring that, in his judgment, it was
"perfectly clear that any act of a legislature which takes away
any powers or franchises vested by its charter in a private
corporation, or its corporate officers, or which restrains or
controls the legitimate exercise of them, or transfers them to
other persons, without its assent, is a violation of the
obligations of that charter,"
took occasion to add: "If the legislature mean to claim such an
authority, it must be reserved in the grant." 4 Wheat. 712.
After that decision, many a state of the union, in order to
secure to its legislature the exercise of a fuller parliamentary or
legislative power over corporations than would otherwise exist,
inserted, either in its statutes or in its Constitution, a
provision that charters thenceforth granted should be subject to
alteration, amendment, or repeal at the pleasure of the
legislature.
See Greenwood v. Freight Co., 105 U. S.
13,
105 U. S. 20-21.
The effect of such a provision, whether contained in an original
act of incorporation or in a constitution or general law subject to
which a charter is accepted, is, at the least, to reserve to the
legislature the power to make any alteration or amendment of a
charter subject to it which will not defeat or substantially impair
the object of the grant, or any right vested under the grant, and
which the legislature may deem necessary to carry into effect the
purpose of the grant, or to protect the rights of the public or of
the corporation, its stockholders or creditors, or to promote the
due administration of its affairs.
Sherman v.
Smith, 1 Black 587;
Miller v.
New York, 15 Wall. 478;
Holyoke
Water Power Co. v. Lyman, 15 Wall. 500;
Sinking
Fund Cases, 99 U. S. 700,
99 U. S.
720-721;
Close v. Glenwood Cemetery,
107 U. S. 466;
Spring Valley Waterworks Co. v. Schottler, 110 U.
S. 347;
New York & New England Railroad v.
Bristol, 151 U. S. 556.
Page 179 U. S. 53
As illustrations of the right of the legislature, exercising
such a reserved power, to alter for the future the liability of
stockholders to creditors of the corporation, or the mode of
computing the votes of stockholders for directors, it will be
sufficient to state two of the cases just cited.
The case of
Sherman v.
Smith, 1 Black 587, was as follows: the General
Banking Act of New York of 1838, c. 260, provided, in § 15, that
any number of persons might associate to establish a bank upon the
terms and conditions and subject to the liabilities prescribed in
this act; in § 23, that no shareholder of any association formed
under this act should be individually liable for its debts unless
the articles of association signed by him should declare that the
shareholder should be liable; and, in § 32, that the legislature
might at any time alter or repeal this act. The articles of
association of a corporation organized under this act in 1844
expressly provided that the shareholders should not be individually
liable for its debts. By provisions of the Constitution of New York
of 1846, art. 8, § 7, and of the general statute of 1849, c. 226,
the shareholders of all banks were made liable for debts contracted
by the bank after January 1, 1850. This Court unanimously held that
these provisions were not unconstitutional as impairing the
obligation of a contract.
The case of
Miller v. New
York, 15 Wall. 478, was this: by the Revised
Statutes of New York of 1828, c. 18, tit. 3, it was enacted
that
"the charter of every corporation that shall hereafter be
granted by the legislature shall be subject to alteration,
suspension, and repeal in the discretion of the legislature."
The Constitution of New York of 1846, art. 8, sec. 1, ordained
as follows: "Corporations may be formed under general laws, but
shall not be created by special act" except in certain cases. "All
general laws and special acts passed pursuant to this section may
be altered from time to time, or repealed," 2 Charters and
Constitutions 1363. In 1850, the legislature passed a general
railroad act authorizing the formation of railroad corporations
with thirteen directors and providing that the subscribers to the
articles of association and all who should become stockholders in
the company should become a corporation, and "be subject to
Page 179 U. S. 54
the provisions contained in" the aforesaid title of the Revised
Statutes. Stat. 1850, c. 140, § 1. In the same year, a railroad
corporation was organized under that act for the construction of a
railroad from the City of Rochester to the Town of Portage, and, in
1851, by a statute amending the charter of the City of Rochester,
that city was authorized to become a stockholder in the corporation
and to appoint four of the thirteen directors. Stat. 1851, c. 389,
§ 24. In 1867, the legislature passed another statute authorizing
the city to appoint seven of the thirteen directors. Stat. 1867, c.
59. This Court upheld the validity of the latter statute upon the
ground that the reservation in the Constitution of 1846, and in the
statutes of 1828 and 1850, of the power to alter or repeal the
charter clearly authorized the legislature to augment or diminish
the number, or to change the apportionment, of the directors as the
ends of justice or the best interests of all concerned might
require.
82 U. S. 15
Wall. 492,
82 U. S. 498.
The full extent and effect of the decision are clearly brought out
by the opinion of two Justices who dissented for the very reason
that the agreement with respect to the number of directors which
the city should elect was not a part of the charter of the company,
but was an agreement between third parties, outside of and
collateral to the charter, and which the legislature could not
reserve the power to alter or repeal.
82 U. S. 15
Wall. 499. That case cannot be distinguished in principle from the
case at bar.
Remembering that the
Dartmouth College case (which was
the cause of the general introduction into the legislation of the
several states of a provision reserving the power to alter, amend,
or repeal acts of incorporation) concerned the right of a
legislature to make a change in the number and mode of appointment
of the trustees or managers of a corporation, we cannot assent to
the theory that an express reservation of the general power does
not secure to the legislature the right to exercise it in this
respect.
Judgment affirmed.
