CHAPTER 81 CHARTER AND ORGANIZATION § 650. Necessity and general nature of charter. § 651. § 652. Power of state and federal government to grant charters. § 650. (Corporations, Sec. 14.) Necessity and general nature of charter. (Note: A charter from the government is absolutely necessary to corporate existence. See "De Facto Corporations," Sec. 656, and generally throughout this chapter.) § 651. (Corporations, Sec. 15.) Power of state and federal governments to grant charters. (Note: The Federal Government has no general power to incorporate companies. Its power to incorporate companies is governed by the general proposition that it may do such acts as are reasonable to carry into effect the provisions of the federal constitution, for instance, to incorporate National Banks. The general power of incorporation is reserved to the states.) § 652. (Corporations, Sec. 16.) Power of state to alter and repeal charters. Case 640. Dartmouth College v. Woodward, 4 Wheat. 518. Facts: The original charter of Dartmouth College named 12 trustees ("the whole number of said trustees consisting, and hereafter forever to consist, of twelve and no more") to constitute a body corporate to be known by the name of The Trustees of Dartmouth College. In 1816, the state of New Hampshire (where said college was situated) passed a law to increase the number of trustees to 21, and to establish a board of 25 overseers, and to make other changes of & material nature in the management of said college. The college or its trustees did not assent to these laws. Point Involved: Whether the charter is a contract protected by the provision of the federal constitution that no state shall pass any law impairing the obligation of contracts. 66* CHIEF JUSTICE MARSHALL: 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 essential to its very existence. These are such as are supposed best calculated to effect the object for which it was created. Among the most important are immortality, and if the expression may be allowed, 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 it 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. [Here the Court, in a lengthy opinion, considers the objects of corporations, their public or private nature, the purposes of the present charter, etc.] "The opinion of the Court, after mature deliberation is, that this is a contract, the obligation of which cannot be impaired, without violating the Constitution of the United States. * "2. We next proceed to the inquiry whether its obligation has been impaired by those acts of the legislature of New Hampshire. [The Court concludes that the amendatory acts passed by the New Hampshire legislature impaired the obligations of the charter, and that such acts are therefore unconstitutional and void.] Question 640: (1) What prevented the legislature from having the power to pass the law in question? (2) How did Chief Justice Marshall define a corporation? (Note: This decision firmly established the law and it has never been disturbed. There has, however, been a considerable difference of academic opinion upon the soundness of its syllogisms.) Case 641. Avondale Land Co. v. Shook, 170 Ala. 379. Facts: Suit by minority stockholders to restrain the majority stockholders from amending the charter of the corporation. The exact character of the changes contemplated is not indicated in the opinion, except that they are of a private nature and evidently go to change the objects of the corporation. The constitution of Alabama in force when the original charter was secured provided that all charters were subject to the state's right to alter, amend or repeal, and the present change is sought under a law passed under that provision. Point Involved: To what extent a charter may be changed by the majority stockholders against the dissent of a minority stockholder, where the state reserves the right to alter, revoke or amend any charter and a law is enacted, giving the majority stockholders a right to alter the charter. "Since the decision of the case of Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 4 L. Ed. 629, pass any * it has been fully recognized in this country that the charter of a private corporation is a contract within the meaning of and under the protection of that clause in the Constitution of the United States which provides that 'no state shall law impairing the obligations of contracts.'-Section 10, art. 1, Const. U. S. But '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 Corporations 6th Ed.) Sec. 492. The charter is under the protection of said clause of the federal Constitution in all three of its aspects as a contract. "Such being the case, many, if not all, of the different states of the Union have protected themselves, as far as they thought necessary from the effects of this provision in the federal Constitution by reserving in their constitutions certain powers of altering, revoking, and amending the charters of private corporations thereafter to be organized under the general laws of such states or chartered by special act of the legislature of such states, so that such reserved power would enter into and form a part of the charter contract. This was done in the constitution of 1875 of this state. The power to amend, alter, or revoke the charter thus being made a part of the charter contract, the exercise of this power by the state in the manner and to the extent contemplated could not be considered as in violation of said Section 10 of Article 1 of the Constitution of the United States. Those who invest their money in such a corporation do it with full knowledge of the power which the state has reserved to alter, revoke, or amend its charter, and contract with reference thereto. It thus becomes part of the contract. We quote with approval from Cook on Corporations (6th Ed.) Sec. 501, the following: "The extent of the power of the legislature to amend a charter, where * it has reserved that power, is not yet fully settled, and is full of difficulties. There is a strong tendency in the decisions, and a tendency which is deserving of the highest commendation, to limit the power of the legislature to amend a charter under this reserved power. It should be restricted to those amendments only in which the state has a public interest. Any attempt to use this power of amendment for the purpose of authorizing a majority of the stockholders to force upon the minority a material change in the enterprise is contrary to law and the spirit of justice. Under such reserved power the Legislature has only that right to amend the charter which it would have had in case the Dartmouth College Case had decided that the federal Constitution did not apply to corporate charters. In fact, the historical origin of this reservation of the right to amend was due to the effort of the various states of the Union to escape from the decisions in the Dartmouth College Case. By this reserved right the restraint of the federal Constitution is done away with. But the power to make a new contract for the stockholders is not thereby given to the Legislature. The Legislature may repeal the charter, but cannot force a stockholder into a contract against his will.' In the above quotation the author was speaking of such general reservation of power as that contained in the Constitution of Alabama of 1875. We hold that the amendment attempted in this case is a material and fundamental change from the original plan, bringing in new fields of operation and involving greater hazard. "It follows from the foregoing that the power of amendment in the Constitution of 1875 does not give the Legislature this power to amend the charter of the Avondale Land Company in the manner and to the extent attempted by the majority stockholders, and therefore no such power could be given by the Legislature to a majority of the stockholders of said corporation; that Section 3462 of the Code of 1907 can confer no greater authority to amend said charter than was reserved by |