CORPORATIONS 1. History.—The origin of the idea of a group of persons having a collective existence, with rights and liabilities somewhat distinct from those of the indi vidual constituents, is lost in antiquity. Such groups existed as collegia in Roman law. The institutions have not always had the same attributes. Thus the principle that the members have a limited liability is somewhat recent ; the common law of' England had to be changed by statute to give this desirable pro vision to modern corporations. This seems strange to the American business man who knows that in America the general rule stipulates that stockholders shall be liable only up to the amount agreed to be paid into the company, yet it explains why English com panies use the word "Limited" in connection with their names. The English statute provides that only such companies as clearly announce thru the use of this word that their stockholders' liability is limited shall escape the English common law rule that stock holders shall be liable as partners.
2. Nat2tre of corporations.—Many conceptions of the nature of corporations are prevalent today. Is a corporation an artificial person? Is it a group of persons with certain powers ? Discussions regarding corporations have grown out of the attempts of jurists to make their decisions conform to some self-sufficient definition of the word "corporation." Here is an ex ample of the difficulties with which courts have had to grapple. Three men, A, B and C are in partner ship and sell out their business to X agreeing not to go into business again within a certain territory. They immediately incorporate the ABC Company. If the court starts out with the time-honored defini tion that a corporation is an artificial being, separate and distinct from the persons who constitute it, and if X applied to have the corporation restrained from continuing business, the court, it would seem, would have to deny the application since the corporation is a distinct person and is in no way a party to the previous contract. Indeed, in a case involving just such facts an American court did reach this conclusion. That this decision was iniquitous will at once be apparent to the sense of' justice of every business man. Aside from any definitions, the case is analogous to the plea of the criminal that it was not he but his gun that killed the victim. Here three men use an instrument, the corporation, to avoid the obligation of their con tract. Obviously in these days we have ceased to per
mit the ends of justice to be thwarted by fictions that may have been useful in times past. The modern jurist must abandon the whole question of formal and precise definition. The corporation is a group of per sons endowed by the state with certain rights. These rights may be enumerated and described, but a whole some proviso must always be made that no enumera tion and no description of rights can be so rigid as to be used at any time as a defense of private or pub lic offenses.
The corporation involves nothing more complicated than a contract—a contract between the state and the in.dividuals composing the corporation. It will be remembered by the student of American history that Daniel Webster in one of his early legal victories suc ceeded in convincing the United States Supreme Court that the corporate contract came within the provision of the Federal Constitution which prohibits states from avoiding the obligation of contract. A number of persons separating themselves from the corporation of Dartmouth College were given certain privileges by the state which infringed the rights of the old corporation obtained thru a charter from the crown of England. The court held that the State of New Hainpshire was the successor of the crown and succeeded to the latter's obligations; that the new cor poration was in fact a new contract avoiding in part the old contract with the established college.
When the full effect of this decision became under stood the states immediately took steps to protect themselves. The so-called police power of the state —the power which transcends even the constitution in permitting the state to protect the health, morals and welfare of the people—had not been recognized in law. Hence it seemed possible for the state to make a contract today that would be so injurious in the changed circumstances of another generation as to be almost intolerable. Thereupon the states placed a proviso in their constitutions that all charters there after granted should be subject to alteration, amend ment or repeal at any time by the state. Thus if the state does amend or repeal a charter it does not avoid any of its obligations. The full effect of this doctrine should be comprehended by every business man. A case in point will serve to bring out this effect.