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the charter itself, every material part thereof being explained according to the true and genuine sense, which is the best method."

§ 40. Franchises and Privileges. In a more extended work this subject would receive extended and separate treatment. In this elementary treatise, a discussion naturally falls under the chapter on the State and the corporation, and must necessarily be limited to a few sections. It will be somewhat difficult to state in the space assigned in a concise and strictly accurate manner the essential questions involved. This difficulty arises both from the nature of the subject and also from the different conceptions of it by judges and lawmakers. The definition most frequently given of a franchise is that of Chief Justice Taney in a case in 1839,17 where he defines franchises as

"Special privileges conferred by government upon individuals and which do not belong to the citizens of the country generally of common right. It is essential to the character of the franchise that it should be a grant from the sovereign authority, and in this country no franchise can be held which is not derived from the law of the state."

The authorities are generally agreed that the term can be used in a primary and secondary sense. The right of an incorporated company "to be a corporation, or the right conferred upon it by the State to be an artificial body, has been called its primary franchise, and this has been distinguished from what is termed its secondary franchises which include the right to carry on or transact a particular kind of business as in the case of the privileges granted to a water company with the right to take tolls, etc., or the right of a railroad to collect fares or of a toll road company to exact toll for services performed." 18

This distinction is an essential one to bear in mind in connection with the right of the State to regulate or control the corporation, to amend, alter, or repeal its char

17 Bank of Augusta v. Earle, 13 Peters (U. S.) 519.

18 Joyce on Franchises § 8.

ter, or to determine the extent of the capacities enjoyed by a particular corporation. A clear distinction exists between the grants of franchises which are essential to the creation and the continued existence of the corporation, to its right as a distinct legal entity, and other privileges or powers given to it that are not essential or prerequisite to its corporate existence. The purposes of corporate existence are quite distinct from the franchises of the corporation. A franchise to be a corporation is distinct from a franchise as a corporation to maintain and operate a railway.

In the Chicago City Railways19 case, the Supreme Court of the United States held that the franchise of existing as a corporation was given by the State and was distinct and separate from the privilege or license given by the city of Chicago to the corporation to operate and maintain a system of street railways upon its highways. In another case,20 this distinction is also emphasized:

"This corporate franchise, viz, the franchise to be and exist as a corporation for the purposes specified in the articles of incorporation, appertains to every corporation, for whatever purpose it may be formed, and there is no distinction in this regard between the banking or grocery corporation, and the railroad, water, or gas corporation. The right to engage in every such business is open to all citizens, independent of any grant from the sovereign, but it is available to no one to conduct any such business through the agency of a corporation without such grant. Certain occupations are, however, of such a nature that various privileges conferable only by the sovereign power are convenient, and in most cases absolutely essential, to the successful maintenance of the business to be carried on, whether it be carried on by a corporation or by an individual, such, for instance, as the right to use public highways. Such rights and privileges are also known as franchises, but they constitute a class entirely distinct from and independent of the corporate franchise."

The distinction is practically applied where the existence of the power to exercise certain rights is at issue. 19 Blair v. Chicago, 201 U. S. 400-460, 50 Law ed. 801. 20 Bank of California v. San Francisco, 142 Calif. 276.

Where franchises, as the word is used in its secondary sense, are claimed, the rule of strict construction undoubtedly exists; while the liberal rule would be followed in respect to the exercise of franchises which belong to the first class, or where the word is used in its primary sense.

§ 41. Exclusive Franchises. All franchises granted may be of an exclusive character or otherwise. The word exclusive as used in this connection is self-definitive. The right or privilege to exist as a corporation for a specified purpose, or of exercising certain corporate capacities or powers is given by the State to a group of persons to be exclusively exercised or possessed by them in a corporate capacity. An exclusive grant of this character is regarded as a contract, and if the State attempts to give to other persons the same or equivalent rights this act will be regarded as an impairment of the contract obligation. On the other hand, if certain corporate rights and capacities are granted with no words expressly stating their character as exclusive, the State, undoubtedly, is not limited in its power to grant to other corporations like privilege and capacities.

§ 42. Nature of Franchise. A franchise, whether the word is used in its primary or secondary sense, is usually regarded as a contract right, controlled by the principles already stated. The permission of the State or of a subordinate agency, viz, a municipal corporation, to exercise a corporate power or to conduct a business, the legal authority to do which has been already granted by the State, is considered by the courts usually as a mere license or the grant of a privilege which may or may not be legally regarded as a contract. Its nature in this respect will be determined by the language of the grant. The license may be merely a revocable privilege. There are many illustrations of franchises, privileges, or licenses granted to corporations in modern times. The right to exercise the power of eminent domain by railroad corporations; to establish ferries or bridges; to construct and maintain systems of street railways within the limits of municipalities; to establish and maintain plants for the manufacture or supply

of water, light, or power. The right of the State or of the municipality as a subordinate agency of the State to repeal or to alter the terms of the franchise, privilege, or license given, as already suggested, will depend entirely upon the language of the original grant, and whether, under the rule of strict construction, it will be held a contract or merely a revocable license.

§ 43. Assignability. Whether a franchise or license granted by State or other lawful authority to a corporation can be assigned and transferred by it to some other group of persons depends largely upon the existence of two conditions. First, can this be done under the language of the grant? In cases of doubt, the rule of strict construction applies. Second, what is the nature of the business to be carried on under the franchise or privilege granted. If it is that usually conducted or carried on by what are known as quasi-public corporations, unless the right to sell, transfer, or assign clearly appears in express terms, it will be denied. This principle of law is based upon the reason that in the grant of these powers to particular corporations a certain degree of confidence is reposed in them in respect to the performance of not only their powers and corporate capacities, but also their duties to the public or community at large. Quasi-public corporations, it will be remembered, are private corporations, but engaged in a business which affects the welfare of the public at large. The State, in the grant of a franchise or privilege to a quasi-public corporation, may consider it inadvisable or against public policy that the rights conferred should be sold or assigned to others lest the full and proper performance of their duties and obligations to the public be impaired or destroyed. A familiar illustration of this principle is to be found in many statutory provisions that prohibit the sale, transfer, or mortgaging of the franchises (using the word in its secondary sense) of a common carrier.

The sale or transfer of the property of a railroad company, which also may be effected through the mortgaging of its franchises, might result in the destruction of bene

ficial competition existing between several common carriers. The properties and franchises, if a sale or transfer were permitted, might be acquired by one railroad corporation and others, the charters of which had been granted for the purpose of protecting the public against extortion or discrimination, absorbed. The power to sell, transfer, or assign franchises or privileges must be expressly given.

§ 44. Constitutional Protection of Franchises or Privileges. Franchises or privileges, when granted by the State or under its authority constituting a contract as between the grantor and the corporation, will be protected by that clause of the Federal Constitution in respect to the impairment of contract obligations. Constitutional protection will depend entirely upon the language of the grant or franchise. If the privileges are construed as being merely revocable, clearly no contract relation will exist.

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