Court Opinion

ID: 8655150
Source: CourtListenerOpinion
Date Created: 2022-11-24 21:15:11.157221+00
Date Added: 2024-06-11T14:25:07.198908
License: Public Domain

O'N EbHEAEING.
FEICK, J.
A rehearing is requested in this case upon substantially the following grounds: It is urged that the court erred in its interpretation of the constitutional provision in which the right to alter, amend, and repeal the laws affecting corporations is reserved by the state; that the decision is inconsistent, in that it in effect authorizes a change of the laws with respect to some of the contractual rights of a corporation, while it denies this right as to others; that the court erred in holding that the right to alter and amend the laws is limited to such matters only in which the state is interested; and, finally, that the court erred in holding that neither the state nor the public were interested in the amendment involved in this case.
Viewing the question from the standpoint of counsel, th.eir argument in support of the petition for a rehearing is a learned and able exposition of that side of the question. We are not persuaded, however, that their conclusions are sound. It, is urged that we are inconsistent in holding that under the reservation the state may alter or amend some of the provisions of a charter, but may not do so as to others. In our original opinion we endeavored to' make clear that the charter forms the basis of a contract between the state and the corporation, as well as a contract between the corporation and the stockhold*523ers. We beld that tbe Legislature, under tbe reservation, may alter or amend tbe contract with reference to tbe state and in which it is interested, but that it may not make a material or fundamental change of the contract which alone concerns the corporation and its members. Upon these premises we reached the conclusion that the attempted legislation, and the action taken by the majority of the stockholders in pursuance thereof, did not fall within the reservation. In so- holding we see no inconsistency. What counsel in effect do is not pointing out any inconsistency, but are disputing the premises upon which we reached the conclusion; that is, counsel still assert that the reservation in the Constitution is so broad and illimitable that all the provisions of a charter may be altered or amended by the Legislature, regardless of their character, and whether they concern the state or merely the agreement between the corporation and its members. Among the many eases cited, and many others examined by us, we do not find any of them giving the reservation such a construction. If any one thing pertinent to the question under consideration is well settled by the authorities it is that 'the power which may be exercised under the. reservation is not without limit, and that there is a strong tendency in the decisions to limit the power of the Legislature to amend the charter under the reservation. We fully appreciate the difficulty in defining the extent of such power, and, while we are well aware of the conflict among the authorities in so doing, yet none of them support the contention of counsel that the extent of the power is unlimited, in the sense and to the degree contended for by them. We think the rule stated by us is supported by the great weight of authority and is founded upon well-established legal principles.
Because of counsel’s deductions, we are, however, induced to enlarge somewhat upon what is said in the original opinion. We do this, not because the matter was not covered in the original opinion, but because- it was not- deemed necessary to fully discuss all the reasons that impelled us to the conclusion reached. The matter we shall discuss is touched upon at page 15 of the typewritten copy of the- opinion (91 Pao. *524374), and we shall limit ourselves to a further elucidation of the matter there touched upon. In this connection it Í3 quite true, as counsel contend, that all of the matters that must be set forth in the articles of incorporation, as found in section 315, Rev. St. 1898, as amended by Laws Utah 1905, p. 18, c. 22, are contractual. From this counsel infer that, if it be conceded that the state may alter and amend one provision, it logically follows that it may do so, or authorize such to be done, with respect to all provisions found in the articles; the conclusion being that one provision is no more sacred than another, and, if one must yield to the reserved power, all' must do so. The argument is, however, more plausible than sound; and the force of the argument is greatly weakened by the fact that both the text-writers and the courts, including the Supreme Court of the United States, clearly recognize a limitation upon the right of the state to alter and amend the laws affecting existing charters, or to authorize such alterations or amendments by the stockholders without the consent of all that are affected thereby. This is aptly stated in the case of Miller v. State, 15 Wall. 498, 21 L. Ed. 98, and in Looker v. Maynard, 179 U. S. 52, 21 Sup. Ct. 21, 45 L. Ed. 79. It is of the utmost importance in this connection to keep in mind the fact that this limitation is not merely to prevent the confiscation of property, or-to affect or destroy vested rights without due process of law (as these matters are controlled by other constitutional provisions), but the limitation is expressly based upon the narrower ground, namely, the impairment of contractual rights and obligations. As the United States Supreme Court is the ultimate authority upon the question as to when such rights are invaded, we need not again refer to the state courts or the books of the text-writers. We thus see at a glance- that the broad conclusion that, since one matter that inheres in contract may be altered, therefore all may be, is not tenable. There, of course, must be some reason for this distinction. Mr. Justice Straup- ga-ve what to us seemed an adequate reason. This, however, is attacked as- being liable to misconception, because the line of demarcation is not defined when *525tbe alteration of a contractual matter is or is not within the reserved power. By a thorough examination of the authorities and the reasons advanced by the courts we were forced to the conclusion that, while the precise point of demarcation when an amendment of the charter comes within or falls without the reserved right of the state is not well defined by the authorities, this case, nevertheless, is one that clearly falls within the class that is outside of the reserved power.
In the original opinion the statutory provisions governing assessments on fully paid up corporate stock are set 'forth at large. From those provisions it is obvious that unless the stock is made assessable by the articles, or agreement, as it is sometimes called, of incorporation, then it is immune against any assessments. In order, therefore, to levy an assessment, the incorporators, or stockholders, must agree upon this matter specially, since to remain silent is to forbid assessments. If we now examine section 315, supra, we find that that section defines what the incorporators must agree upon and set forth in the articles; of incorporation, in order to obtain a grant of a corporate franchise from the state. These matters are grouped under eleven heads' in the section and comprise the essentials required to obtain a franchise. But there is also subdivision 12 in that section, by ,the provisions of which the incorporators are permitted to agree upon and insert in the articles any other matter or matters that they may deem necessary or expedient to further the business or enterprise for which the 'corporation is formed. But these latter provisions are not essential to. the grant, and both the right to the franchise from the state and the grant 'itself are complete without them. The state, therefore, relegates these matters entirely to the judgment and wishes of the incorporators. They may or may 'not enter into an agreement respecting them, but as to all other matters contained in section '315 the incorporators must agree, and the state bases its grant upon the latter. From this it is only fair to deduce 'that the state has no interest in these special agreements, but permits them to be made a part of the articles- of incorporation as a matter affecting the stockholders- only. In this special agreement *526the stockholders, no doubt, may agree among themselves respecting the conditions upon which the stock shall be issued to and held by them, to the extent, at least, that such an agreement is not in contravention of law. May they not also agree that the stock, issued and paid for in full, shall be entirely free from all subsequent assessments and forfeitures, and to that end may they not, by such an agreement, impose limitations upon the corporation itself?' What interest has the state in such an agreement, and in what way does it come within its reserved power ? If we concede that the right to issue the stock is an incident to the corporate franchise, and hence within hoth the law and the grant of the state, still it does not follow, after the condition is agreed to and the stock is issued, that the state may change or affect the condition itself, or authorize this to be done. If we assume that the corporation had entered into an agreement with the subscribers or purchasers of its stock, when they subscribed for or purchased the stock, that if they would pay the par value therefor the stock should be and remain free from all assessments or claims against it, and to that end the corporation had inserted a clause in the articles of incorporation exempting fully paid-up stock from all assessments, could this agreement be changed, so as to place any additional burdens upon the stock, without the consent of the subscriber’s or purchasers?
No one would contend, we think, that this could be done after the subscription or sale agreement had been entered into and before the stock was paid for, so as to' add anything to the price agreed upon; and this, we think, would be conceded, although both the law and articles of incorporation had been changed and amended after the agreement was entered into and before the stock was paid for. If this could not he done to the prejudice of the subscribers or purchasers, it must be upon the ground that to do SO' would impair contractual rights and obligations, in that it would impose conditions contracted against in the subscription or purchase agreement. In what way does the contract above instanced differ from one where the incorporators or stockholders agree *527among themselves (and make the agreement a part of the articles of incorporation) that the stock shall be issued and paid for upon the condition that it shall be and remain free from assessments and forfeiture ? Does not the corporation become a party to this agreement by accepting the charter and by acting under it ? And does not the state suspend its right to change it without the consent of all, by authorizing such a contract to be entered into' as a matter wholly apart from its governmental supervision over corporations ? The state has, in effect, announced to the incorporators or stockholders that, so far as the assessment of corporate stock is concerned, that matter is left entirely with them, to agree upon as they may deem best; that it is not a matter in which the state is concerned. If the instance first mentioned constitutes a condition created by contract which may not be affected, why is not the second precisely the same in principle ? In the second instance we have no more than a contractual condition upon which the stockholder relied in subscribing for or purchasing the stock, and which, we think, the state and the corporation are bound to respect. If the stockholders in the original articles had agreed that they might be changed or amended generally, the case would, no doubt, be different, as pointed out in the case of Nelson v. Keith-O'Brien Co., 91 Pac. 30, for the reason that the stockholders thereby consented to amendments of the articles constituting the entire agreement under which the stock was issued to them. But this is not such a case. Here we have an express agreement that the stock is issued and received upon the condition that it shall not be subject to assessment, and therefore be immune against a forced sale or forfeiture. Is it an answer to say that, the reserved power of the state being general, therefore it applies to all changes of every kind and nature that may affect the powers, rights and privileges of the corporation and of the stockholders with regard to their relations with one another ? The law no doubt can be changed with regard to all these matters; but it does not follow that it may be done so as to affect past transactions or vested rights.
*528As we bave attempted to show, the -stock was issued by the respondent upon an express condition whereby its rights were limited by the incorporators in a matter which the state did not deem essential to the grant of a corporate franchise and upon which the state permitted the stockholders to agree among themselves. We think, therefore, that in such a case the corporation ought not to be permitted to violate the agreement upon the sole ground that the state has • reserved the right to alter and amend all laws relating to corporations. The condition in question is purely voluntary on the part of the incorporators, as contradistinguished from all other provisions in the articles which are made necessary and compulsory. The-state simply authorized the incorporators or stockholders to enter into any agreement they saw fit with regard to assessments. Having authorized this to be done unconditionally, the state has suspended its right to affect the agreement entered into by virtue of its authority. This conclusion, we think, is well supported by the case of Detroit v. Detroit Citizens’ St. Ry. Co., 184 U. S. 368, 22 Sup. Ct. 410, 46 L. Ed. 592, as that case is interpreted by Mr. Justice Sanborn in Omaha Water Co. v. City of Omaha, 147 Fed. 11, 77 C. C. A. 267. In the latter case the- state authorized a municipal corporation to enter into certain non-tracts. After the contracts had been entered into, the city attempted to modify some of the provisions, under the claim that the state had authorized this to be done by subsequent legislation, and that, under this legislation, the modifications were proper, in view of the reserved power of the state to amend the laws in relation to corporations. The court held that, inasmuch as the state had unconditionally authorized the contract, the state could not authorize a modification thereof without the consent of all the interested parties. In what way do the principles involved in that case differ from the one at bar? The state certainly did authorize the stockholders to enter into an agreement among themselves in a matter in which the state disclaimed any governmental interest, by reason of the fact that it relegated the whole matter to the parties themselves, and would have granted them a *529charter with or without the agreement. The state, therefore, was indifferent in respect to what the agreement was, but authorized any conditions to be made upon which the stock might be issued and held. This being so, and the matter being outside of governmental' regulation, why should the state be permitted to interfere or be permitted to authorize this to be done? We think, therefore, that the corporation is bound, and that all the stockholders are likewise bound, to the extent that any number less than the whole may not amend the articles of incorporation so as to avoid the condition upon which the stock of the appellants was issued.
Neither is it important here that there are other matters contained in the laws affecting the corporation and stockholders that are not contained in the articles of incorporation which from time to time may be amended and which may fall within the reserved power of the state. A complete answer to this is that the state has not specially relegated these matters to the incorporators to agree upon as they deem best. With regard to all these the state simply provided rules or regulations in the form of laws, all of which were subject to change at any time, and they thus were not, nor intended to be, matters inhering in special contracts. But, apart from this, in what way is the state, as such, interested in private contracts, whether made between incorporators or between anybody else? True, the people of the state are interested in having the resources of the state developed, and the state has an interest in promulgating wholesome laws and in having them enforced; but whether money, is obtained by one method or another, either to start a new enterprise or continue one already launched, the state has no interest whatever. Neither is it interested in whether a private corporation discharges its obligations with money obtained through assessments of corporate stock or by the sale of its property. Indeed, if the laws of this state are any indication of its policy, then it has manifested that policy in declaring that corporate stock is not assessable, unless made so by the stockholders themselves. True, the state may authorize a certain number of the stockholders to do this as it applies to future charters; *530but it cannot, after unconditionally authorizing a contract granting the right to hold stock unconditionally,, impose limitations. upon that right by changing the contract, or authorizing it to be done, without the consent of all the stockholders. Such a contract, being wholly outside of the conditions and agreements' required to obtain a corporate franchise, cannot be said to fall -within the reserved' power of the state to alter and amend the laws governing corporations.
In conclusion, we desire to state that, while the questions involved, in and of themselves, are of great importance to both the state and the citizen, the utility involved in settling them is of still greater importance. Both sides' have1, with much diligence' and earnestness, fully presented all that can profitably be said upon either theory, and they have thus rendered us much assistance in determining the questions. The duty to adopt- one or the other theory devolved upon us alone. We have adopted that which, in our judgment, seemed the most just and reasonable under all the circumstances, and in view of the state of the law upon the subject as we understand it. We feel thoroughly convinced that the conclusion reached is correct, and, entertaining this view, it could subserve no practical purpose to. grant a rehearing of the case.
The application, therefore, should be, and accordingly is, denied.
ilcCABTY, C. T., and STB.AUP, J., concur.