the corporation and the state, between the stockholders and the state and between the corporation and the stockholders.39 Furthermore the state cannot impair the obligations of a contract either by legislative enactment or by the adoption of constitutional provisions,40 since a state constitution is a law within the meaning of this clause of the Federal Constitution.41 The obligations of the contract created by the grant of a charter are impaired not alone by the unconditional repeal of such charter," but also by any material alteration thereof,43 as by the taking away of some power of the corporation, such as the right to consolidate with other corporations.44 In the Dartmouth College Case, hereinbefore referred to, the charter of the college was not totally repealed, but merely amended. The amendment, however, changed the name of the corporation from "The Trustees of Dartmouth College" to "The Trustees of Dartmouth University"; increased the number of trustees from twelve, the number fixed by the charter, to twenty-one, nine of them to constitute a quorum; allowed the governor of the state and council to appoint the nine additional members, whereas the charter allowed the twelve trustees to choose their successors; empowered the trustees to organize colleges in the university, establish an institute, and elect fellows and members thereof; and created a board of overseers, twenty-five in rumber, to be appointed by the governor and council, with the power to disapprove and negative votes of the trustees relative to the appointment and removal of the president, professors, and other officers, to salaries, and to the estab 39 Avondale Land Co. v. Shook, 170 Ala. 379, 54 So. 268. 40 German Ins. Co. v. Com., 141 Ky. 606, 133 S. W. 793; Slade v. Lexington, 141 Ky. 214, 32 L. R. A. (N. S.) 201, 132 S. W. 404. 41 New Orleans Gas Light Co. v. Louisiana Light & Heat Producing & Manufacturing Co., 115 U. S. 650, 29 L. Ed. 516. 42 Greenwood v. Union Freight R. Co., 105 U. S. 13, 26 L. Ed. 961. 43 The charter of the Baltimore and Ohio Railroad Company granted in 1826 constituted such a contract between the company and the state that the exemption from taxation conferred by section 18 of that act was not one which it was within the power of the legislature to repeal or modify without the assent of the railroad company. State v. Baltimore & O. R. Co., 127 Md. 434, 96 Atl. 636. 44 If the charter of a corporation gives it the power to consolidate with any other corporation, and the right to alter or amend the charter is not reserved, the right to consolidate is secured by the contract, and cannot be taken away or impaired by subsequent legislation, except in so far as such legislation may come within the police power of the state. It is as much a part of the contract between the corporation and the state as the right to exist as a corporation. Zimmer v. State, 30 Ark. 677. lishment of colleges and professorships, and the erection of new college buildings, whereas the whole management and control of such matters was vested by the charter in the twelve trustees. It was held that the alterations were material, and such as to impair the charter.45 § 4294. Of the contract between the corporation and its stockholders. The constitutional provision against impairing the obligations of contracts has been held to prevent the state from authorizing a majority of stockholders of a corporation from accepting an amendment empowering the corporation to engage in a different business from that authorized by the original contract or charter, where there are dissenting minority stockholders who do not wish to engage in such business.46 The prohibition applies to substantial changes, and it has been held that the legislature cannot authorize a mutual insurance company to transform itself into a joint stock company against the will of a member who became such under a contract with the company before the grant of such authority.47 The principle also applies to a statute amending the charter of a corporation so as to allow consolidation with other corporations,48 and to amendments directly or indirectly increasing the liability of stockholders to creditors of the corporation,49 and it has been held unconstitutional to allow cumulative voting at stockholders' meetings, or 45 Dartmouth College v. Woodward, 4 Wheat. (U. S.) 518, 4 L. Ed. 629. 46 New Orleans, J. & G. N. R. Co. v. Harris, 27 Miss. 517; Dow V. Northern R. R., 67 N. H. 1, 36 Atl. 510; Black v. Delaware & R. Canal Co., 24 N. J. Eq. 455; Zabriskie v. Hackensack & N. Y. R. Co., 18 N. J. Eq. 178, 90 Am. Dec. 617. 47 Schwarzwaelder v. German Mut. Fire Ins. Co., 59 N. J. Eq. 589, 44 Atl. 769, aff'g order in Schwarzwalder v. Tegen, 58 N. J. Eq. 319, 43 Atl. 587. The property of a mutual insurance company and the equitable interests of the members in such property are within the state constitutional guaranty against impairment of the obligation of a contract (Const. art. I, § 12), and within the inhibition of the national Constitution as regards equal protection of the laws and deprivation of property without due process of law (U. S. Const. Amend. 14). Huber Where the constitution of a state otherwise change the number of votes of stockholders, or method of voting, fixed by the charter.50 On the same principle it has been held that the legislature cannot amend the charter of a corporation by reducing the amount of capital stock required, and authorize a majority of the stockholders to accept the amendment against the dissent of the minority, where the effect will be to render stockholders liable on their subscriptions before the amount of capital stock required at the time of their subscriptions has been subscribed.51 sons. § 4295. Of the contracts between the corporation and third perWith respect to the contracts of corporations with third persons, it has been held that state legislatures cannot constitutionally impair the vested rights arising under such contracts, if the contract is authorized by the corporate charter.52 It is also to be noted that the doctrine of vested rights operates as a direct limitation on the legislative power, even when there is a reservation of the power to alter, amend or repeal.59 Many of the cases in which the contention of impairment of contract is brought up involve contracts arising from the grant of franchises to public service corporations.54 Thus, it is held that city or village ordinances, enacted under legislative authority, express or implied, granting franchises on specified conditions to a street railroad company, telephone company, water, gas or electric light com 50 Compare Tucker v. Russell, 82 Fed. 263; New Haven & D. R. Co. v. Chapman, 38 Conn. 56; State v. Greer, 78 Mo. 188; In re Newark Library Ass'n, 64 N. J. L. 217, 43 Atl. 435; Hays v. Com., 82 Pa. St. 518; Lauman v. Lebanon Valley R. Co., 30 Pa. St. 42, 72 Am. Dec. 685. A statute amending the charter of a railroad company by repealing a provision that the voting power of the state as a stockholder shall be a certain number of votes, and that the voting power of each stockholder shall be ascertained by a fixed rule therein stated, is unconstitutional. Tucker v. Russell, 82 Fed. 263. 51 Old Town & L. R. Co. v. Veazie, 39 Me. 571. 52 Jarman v. Knights Templars' & Masons' Life Indemnity Co. of Illinois, 95 Fed. 70; City Ry. Co. v. Citi zens' St. R. Co. (Ind.), 52 N. E. 157. In the absence of a reservation of power the legislature may not amend or repeal the charter of a corporation in such manner as to interfere with the vested rights of the corporation. Lord v. Equitable Life Assur. Society, 109 N. Y. App. Div. 252, 96 N. Y. Supp. 10, aff'g 47 N. Y. Misc. 187, 94 N. Y. Supp. 65. A statute providing that suicide should not be a defense to an action on any life insurance policy impaired the obligation of contracts as to all policies, containing a provision to the contrary, issued before the passage of the act. Jarman v. Knights Templars' & Masons' Life Indemnity Co. of Illinois, 95 Fed. 70. 53 See § 4310, infra. pany, or other corporation, when they are accepted by the corporation, constitute or create a contract between the corporation and the municipality, and, as in the case of other contracts, the obligations thereof cannot be impaired by subsequent legislation, either by the state or by the municipality.55 It is essential, of course, that the ordinance be such as to create a contract between the municipality and the corporation." While the contract created by a corporate charter is not alone with the corporation. but also with the stockholders, it is in no sense a contract with the corporate creditors.57 While the vested rights of cred 55 United States. Los Angeles v. Los Angeles City Water Co., 177 U. S. 558, 44 L. Ed. 886, aff'g 88 Fed. 720; Little Falls Electric & Water Co. v. Little Falls, 102 Fed. 663; Southwest Missouri Light Co. v. Joplin, Missouri, 101 Fed. 23; Cleveland City Ry. Co. v. Cleveland, 94 Fed. 385. Alabama. Port of Mobile v. Louisville & N. R. Co., 84 Ala. 115, 5 Am. St. Rep. 342, 4 So. 106. See also Stein v. Mobile, 49 Ala. 362, 20 Am. Rep. 283. Indiana. City Ry. Co. v. Citizens' St. R. Co., 52 N. E. 157. Iowa. Burlington v. Burlington St. Ry. Co., 49 Iowa 144, 31 Am. Rep. 145. Michigan. Michigan Tel. Co. v. St. Joseph, 121 Mich. 502, 47 L. R. A. 87, 80 Am. St. Rep. 520, 80 N. W. 383. Minnesota. Northwestern Tel. Exch. Co. v. Minneapolis, 81 Minn. 140, 53 L. R. A. 175, 86 N. W. 69, 83 N. W. 527. New York. Skaneateles Water Works Co. v. Village of Skaneateles, 161 N. Y. 154, 46 L. R. A. 687, 55 N. E. 562. West Virginia. Clarksburg Elec. Light Co. v. Clarksburg, 47 W. Va. 739, 50 L. R. A. 142, 35 S. E. 994. An ordinance adopted by a city or other municipal corporation under the authority conferred upon it by the legislature, and which impairs the obligation of a previous contract made by the city with a corporation, such as the contract involved in the grant of a franchise to a street railroad company, water or gas company, and the like, is the same in effect as an enactment by the state legislature, and is equally within the prohibition against laws impairing the obligation of contracts. Little Falls Electric & Water Co. v. Little Falls, 102 Fed. 663; Southwest Missouri Light Co. v. Joplin, Missouri, 101 Fed. 23; Northwestern Tel. Exch. Co. v. Minneapolis, 81 Minn. 140, 53 L. R. A. 175, 86 N. W. 69, 83 N. W. 527. 56 Where a village ordinance granted to a water company for 30 years the right to furnish water to its inhabitants, and fixed, as just and reasonable, the rates to be charged, and a city to which the village was subsequently annexed passed an ordinance reducing rates, and making them uniform with the city rates, it was held that the ordinance was not in contravention of the constitutional prohibition against laws impairing the obligation of contracts, since the village ordinance did not establish a contract between the company and itself that consumers should pay the rates fixed for the whole period of 30 years, but was merely a declaration that such rates were reasonable. Rogers Park Water Co. v. Fergus, 178 Ill. 571, 53 N. E. 363, aff'd 180 U. S. 624, 45 L. Ed. 702. 57 Hawley v. Bonanza Queen Min. Co., 61 Wash. 90, 111 Pac. 1073. itors cannot be impaired,58 and the legislature cannot, as to existing creditors, impair the statutory liability of stockholders,59 the corporate charter may be repealed and the corporation dissolved, and such action does not impair the obligations of contracts. In such case the creditors contract with this end in view, and in addition, their rights continue against the corporate property and against the stockholders.60 § 4296. Of the contracts of public service corporations. The fact that the charter of a corporation confers the privilege of constructing a toll bridge, railroad, toll road, canal, water or gas works and the like, does not usually prevent the legislature from granting a similar privilege to another corporation in the same vicinity, though the effect may be to impair the value of the franchise first granted.61 But if an exclusive franchise is granted to a public service corporation, a similar grant to another company must be held to impair the contract of the state with the first company, and to that extent it is void.62 However, a grant of exclusive franchises is strictly con 58 Hawthorn v. Calef, 2 Wall. (U. S.) 10, 17 L. Ed. 776; Lothrop v. Stedman, 42 Conn. 583; O'Brien, 45 Hun (N. Y.) People v. 519, rev'd 111 N. Y. 1, 2 L. R. A. 255, 7 Am. St. Rep. 684, 18 N. E. 692. 59 The effect of statutes which obligate the stockholders of a corporation to pay its indebtedness to an amount equal to the stock owned by them and which authorize the institution and maintenance of proceedings by the creditors to enforce the liability is to make the relation between the creditors and the stockholders contractual in its nature, and being contractual, the relation is within the protection of the prohibition against laws impairing the obligation of contracts. Hawthorn v. Calef, 2 Wall. (U. S.) 10, 17 L. Ed. 776; McDonnell v. Alabama Gold Life Ins. Co., 85 Ala. 401, 5 So. 120; Woodworth v. Bowles, 61 Kan. 569, 60 Pac. 331; Barton Nat. Bank v. Atkins, 72 Vt. 33, 47 Atl. 176. 60 See Mumma v. Potomac Co., 8 Pet. (U. S.) 281, 8 L. Ed. 945; Thornton v. Marginal Freight Ry. Co., 123 Mass. 32. 61 Proprietors of Charles River Bridge v. Proprietors of Warren Bridge, 11 Pet. (U. S.) 420, 9 L. Ed. 773; Washington & B. Turnpike Road v. Baltimore & O. R. Co., 10 Gill & J. (Md.) 392; White River Turnpike Co. v. Vermont Cent. R. Co., 21 Vt. 590; Tuckahoe Canal Co. v. Tuckahoe & J. River R. Co., 11 Leigh (Va.) 42, 36 Am. Dec. 374. 62 If the charter of a water or gas company gives it the exclusive franchise or privilege of constructing water or gas works, and supplying water or gas within a certain territory, a charter subsequently granted to another company to furnish water or gas within such territory impairs the obligation of the contract between the state and the first-mentioned company, and to that extent is void. New Orleans Water Works Co. v. Rivers, 115 U. S. 674, 29 L. Ed. 525; New Orleans Gas Light Co. v. Louisiana Light & Heat Producing & Manufacturing Co., 115 U. S. 650, 29 L. Ed. 516. |