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Subject Area: Law
Topic: The American Revolution and Constitution

§ 209.: Police control of corporations.— - Christopher G. Tiedeman, A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, vol. 2 [1900]

Edition used:

A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint (St. Louis: The F.H. Thomas Law Book Co., 1900). Vol. 2.

Part of: A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, 2 vols.

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§ 209.

Police control of corporations.—

It has been supposed that, because it is the settled law of this country that the legislature of a State cannot repeal or amend the charter of a private corporation, unless the power is expressly reserved, these perpetual corporations are placed beyond the reach of the ordinary police power of the State; that, while all the rights of the natural person are subject to the exercise of the police power in the interest of the public, these corporations are free from this burden, because the slightest police regulation operates as a restriction of the enjoyment of the corporate franchise, and hence impairs the obligation of a contract. Such a construction of the operation of this constitutional provision is not only scientifically absurd, but it is in violation of the ordinary rules of constitutional construction, which provide for a strict construction of all grants by the State to the individual. Apart from the question whether the State can barter away its police power,1 the intention of a legislature to place a private corporation beyond the reach of the police power of the State—to grant to a corporation the right to do what it pleases in the exercise of its corporate powers, it matters not how much injury is inflicted upon the public, and yet be subject to no control or restraint, which is not provided by the laws in force when the charter was granted—is so manifestly unreasonable that we cannot suppose that the legislature so intended, unless this extraordinary privilege is expressly granted. It cannot be implied from the grant of the charter. The subjection of existing corporations to new police regulations does not involve a repeal or amendment of the charters; for an act of incorporation simply guarantees to the incorporators the right to act and do business as a corporate body, subject, of course, to the laws of the land, and the legitimate control of government. The legal status of the corporation, as an artificial person, does not differ from the natural person, except so far as the charter may reserve or grant special privileges or impose peculiar burdens. As a general proposition, corporations are included under the name of “persons” in coming within the operation of the law. In order that the law may apply to corporations, it is not necessary that they be expressly named.1 Thus general laws, relating to the validity or enforcement of contracts, are applicable to corporations, although persons are only mentioned.2 So, also, are corporations included in the operation of laws relating to real estate, in which there is reference only to “inhabitants” and “occupiers.”3 Corporations are taxpayers, like natural persons, although the tax laws should speak only of “persons,” “individuals,” or “inhabitants;”4 and a law, relating to practice or procedure, which refers to “persons” or “residents,” would also include corporations within its operation.5

And so, also, are corporations included within the operation of the constitutional guaranties of the sanctity of the rights of property.1

But it has been held that this is not the case in regard to the constitutional guaranty of the liberty of contract. This guaranty is held to be reserved to natural person, persons of flesh and blood, and not to the artificial legal personality, the corporation. On this principle, it is held that while certain police regulations of the liberty of contract may be unconstitutional when they are enforced against natural persons, they are or may be valid as against corporations; that corporations enjoy only that liberty and those powers of corporate action, which the laws allow and no others. It is held, that, where the power to amend or revoke a charter is reserved to the State, the plea, that a police regulation violates some constitutional right, will not restrain its enforcement against the corporation, unless it takes away or infringes some vested right of property.2 It has thus been held that no vested right is recognized in a corporation, where its charter or the general incorporation law prescribes a special period of limitation for actions against the corporation. Such provision may be changed by subsequent legislation at the pleasure of the legislature.3

But where the law, on account of the peculiar character of the corporation as a legal entity, relates to matters which are connected with and can only concern natural persons, the law cannot apply to corporations. For example, a corporation cannot be a rebel within the operation of the confiscation acts of the United States.1

The act of incorporation, therefore, is a governmental act of creation. It creates a legal, artificial personality which becomes the subject of rights, and, like any other legal personality, holds these rights subject to the ordinary laws of the State. Unless there is an express reservation of a freedom from the restraint of police regulations, it would be an exceedingly liberal, and hence wrongful, construction of the constitutional protection, against the impairment of the obligation of contracts, to place corporations above and beyond the ordinary police power of the State. As a general proposition, the principle here advocated has been recognized and adopted by the courts generally. It is only in the application of the principle to a particular case that any doubt as to its correctness is felt or expressed.

The leading case on the subject is that of Thorpe v. Rutland, etc., R. R. Co.,2 in which Judge Redfield has discussed fully and at length the police control of corporations. In referring to the general police power of the State by which persons and property are subjected to all kinds of restraints and burdens, in order to secure the general comfort, health and prosperity of the State, of the perfect “right in the legislature to do which no question ever was, or upon acknowledged general principles, ever can be made, so far as natural persons are concerned,” he says:—

“It is certainly calculated to excite surprise and alarm, that the right to do the same in regard to railways should be made a serious question. This objection is made generally upon two grounds: 1. That it subjects corporations to a virtual destruction by the legislature; and 2. That it is an attempt to control the obligation of one person to another, in matters of merely private concern. * * *

“All the cases agree that the indispensable franchises of corporations cannot be destroyed or essentially modified. This is the very point upon which the leading case of Dartmouth College v. Woodward, was decided, and which every well considered case in this country maintains. But when it is attempted upon this basis to deny the power of regulating the internal policy of railroads, and their mode of transacting their general business, so far as it tends unreasonably to infringe the rights or interests of others, it is putting the whole subject of railway control quite above the legislation of the country. * * * This is a control by legislative action, coming within the operation of the maxim, sic utere tuo ut alienum non lœdas, and which has always been exercised in this manner in all free States, in regard to those whose business is dangerous and destructive to other persons, property, or business. Slaughterhouses, powder mills, or houses for keeping powder, unhealthy manufactories, keeping of wild animals, and even domestic animals, dangerous to persons or property, have always been regarded as under the control of the legislature. It seems incredible how any doubt should have arisen upon the point now before the court. And it would seem it could not, except from some undefined apprehension, which seems to have prevailed to a considerable extent, that a corporation did possess some more exclusive powers and privileges upon the subject of its business, than a natural person in the same business, with the equal power to pursue and accomplish it, which I trust has been sufficiently denied.”1 * * *

Several cases have recently taken the advanced, but apparently sound position, that,—certainly, where the power to amend, alter, or repeal the charters of private corporations is reserved by the constitution or by statute,—the private corporation cannot appeal to constitutional limitations for protection against any hostile or obnoxious police regulation; except, possibly, to the constitutional principle of uniformity and equality, whenever such principle is violated by legislation, discriminative between corporations of the same character. These cases hold that the natural rights which the constitutions protect from adverse and excessive regulation, belong to natural persons, and cannot be claimed by corporations, which are creatures of positive law, and have only those powers which are conferred upon them by positive law. The first case I refer to is from Arkansas.1 An Arkansas statute provided that no employer shall for any reason make any abatement or deduction from the wages of an employee, when he is discharged or when he refuses to work; and that they must pay the wages due on the work on the day of discharge. The Supreme Court of Arkansas held the statute to be constitutional, so far as it applied to employing corporations, but unconstitutional as to those employers who were natural persons. The argument of the court was in part as follows:—

“The legislature cannot regulate or restrain the right of individuals to contract by making it unlawful for them to agree with each other that wages shall be paid at any specified time subsequent to the day on which the labor by which they are earned shall be completed, or that the price of property sold shall be paid on a day subsequent to the sale. Such a contract is necessarily harmless, of purely and exclusively private concern, and cannot affect any one except the parties. * * * But what is true of persons is not always true of corporations. Natural persons do not derive the right to contract from the legislature. Corporations do. They possess only those powers or properties which the charters of their creation confer upon them, either expressly or as incidental to their existence, and these may be modified or diminished by amendment, or extinguished by the repeal of the charters.”

In construing a similar statute, regulative of the labor contract, the Supreme Court of Maryland, in Shaffer & Munn v. Union Mining Co.,1 said:—

“It being conceded that the legislature, when it incorporated the Union Mining Company, reserved the right to alter or amend its charter at pleasure, there can be no doubt that the legislature could enact a law prohibiting the corporation from paying its employees otherwise than in money, and that it could forbid the corporation from making contracts with them for payment in anything but money. * * * A corporation has no inherent or natural rights like a citizen. It has no rights but those which are expressly conferred upon it, or are necessarily inferrible from the powers actually granted, or such as may be indispensable to the exercise of such as are granted.”

So, likewise, the Supreme Court of Rhode Island held a law to be constitutional, which required all private corporations, with certain reservations, to pay their employees weekly, on the ground that the act in question was a permissible amendment to the charter of every manufacturing corporation, under the reserved power to amend or repeal the charters of private corporations. Said the court:—

“But for the power granted by the legislature, corporations could not make any contract, and we see no reason why the legislature, under its reserved power to amend charters, cannot limit the power to contract in the future just as they might have fixed it in the original charter, if any reasonable purpose is to be subserved thereby.”1

[1]As to which, see post, § 190.

[1]Beaston v. Farmers’ Bk., 12 Pet. 102; U. S. v. Amedy, 11 Wheat. 392; People v. Utica Ins. Co., 15 Johns. 382; Planters’ & Mechanics’ Bk. v. Andrews, 8 Porter, 404. Compare School Directors v. Carlisle Bk., 8 Watts, 291; Blair v. Worley, 1 Scam. 178. And see Com. v. Phœnix Bk., 11 Metc. 129; Androscoggin Water Power Co. v. Bethel Steam Mill Co., 64 Me. 441; Chicago, M. & St. P. Ry. Co. v. City of Milwaukee, 97 Wis. 418.

[2]Mott v. Hicks, 1 Cow. 513; State of Indiana v. Woram, 6 Hill, 33; State v. Nashville University, 4 Humph. 157; Commercial Bk. v. Nolan, 8 Miss. 508.

[3]Curtis v. Kent Water Works, 7 B. & C. 314; State v. Nashville University, 4 Humph. 157; King v. Gardner, Cowper, 79; Lehigh Bridge Co. v. Lehigh Coal & Nav. Co., 4 Rawle, 8.

[4]Otis v. Weare, 8 Gray, 509; People v. Utica Ins. Co., 15 Johns. 358; International L. Ass. Co. v. Comrs., 28 Barb. 318; Ontario Bk. v. Bunnell, 10 Wend. 186; Baldwin v. Trustees, 37 Me. 369; Curtis v. Kent Water Works, 7 B. & C. 314.

[5]Knox v. Protection Ins. Co., 9 Conn. 430; Mayor of Mobile v. Rowland, 26 Ala. (n. s.) 498; Planters’ Bk. v. Andrews, 8 Porter, 404; Trenton Bk. v. Haverstick, 6 Halst. 171; Mineral Point R. R. v. Keep, 22 Ill. 9; City of St. Louis v. Rogers, 7 Mo. 19; Bushel v. Commonwealth Ins. Co., 15 Serg. & R. 176; Eslava v. Ames Plow Co., 47 Ala. 384; Brauser v. New England Fire Ins. Co., 21 Wis. 506; Bristol v. Chicago & Aurora R. R., 15 Ill. 436; Bk. of No. America v. Dunville, etc., R. R., 82 Ill. 493; Western Transportation Co. v. Scheu, 19 N. Y. 408. See Olcott v. Tioga R. R., 20 N. Y. 210; Commercial M. F. Ins. Co. v. Duerson, 28 Gratt. 631.

[1]Wheeling Br. & Tenn. Ry. Co. v. Gilmore, 8 Ohio C. C. 658; Citizens’ Horse Ry. Co. v. City of Belleville, 47 Ill. App. 388.

[2]See Leep v. St. Louis, I. M. & S. Ry. Co., 58 Ark. 407, and cases therein cited. See, also, ante, §§ 94 et seq., where these cases are cited and discussed in connection with the subject of regulation of the freedom of contract, and post, present section, where the cases are fully explained and quoted from.

[3]Louisville & N. Ry. Co. v. Williams (Ky.), 41 S. W. 287.

[1]Risley v. Phœnix Bank, 83 N. Y. 318.

[2]27 Vt. 150.

[1]See, also, to the same effect, Gowen v. Penobscott R. R. Co., 44 Me. 140; Cummings v. Maxwell, 45 Me. 190; Commonwealth v. Intoxicating Liquors, 115 Mass. 153; Lord v. Litchfield, 36 Conn. 116 (4 Am. Rep. 41); Frankford, etc., Ry. Co. v. Philadelphia, 58 Pa. St. 119; Taggert v. Western, etc., R. R. Co., 24 Md. 563; Haynes v. Carter, 9 La. Ann. 265; Louisville, etc., R. R. Co. v. Ballard, 2 Met. (Ky.) 165; Blair v. Milwaukee, etc., R. R. Co., 20 Wis. 254; Reapers’ Bank v. Willard, 24 Ill. 433; Bank of Republic v. Hamilton, 21 Ill. 53; Dingman v. People, 51 Ill. 277; State v. Herod, 29 Iowa, 123; Gorman v. Pac. R. R. Co., 26 Mo. 441; Ex parte N. E. & S. W. R. R. Co., 37 Ala. 679; State v. Eagle Ins. Co. of Cincinnati, 50 Ohio St. 252; Platte & Denver Canal Milling Co. v. Dowell, 17 Colo. 376; State v. St. Paul City Ry. Co. (Minn. 1900), 81 N. W. 200.

[1]Leep v. St. Louis, Iron Mountain Ry., 58 Ark. 407, 427.

[1]55 Md. 74.

[1]State v. Brown & Sharpe Mfg. Co., 18 R. I. 16.