Corporations

Art. VIII, § 1

I. In general, 479.

II. Repeal and amendment, 480.

1. In general, 480.

2. Repeal of tax exemption, 487.

I. IN GENERAL.

Relation to article 3, section 18.- The prohibition of article 3, section 18, against the passage of any special act providing for laying out or working any road, highway or alley does not apply to city streets insomuch as the legislature is left free by this section to amend the charters of municipal corporations and hence to provide for such corporations a system of streets and highways. In re Woolsey, 95 N. Y. 135; People v. Lohnas, (1889) 54 Hun 604, 8 N. Y. S. 104.

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Purpose of section.--"By the constitution of 1846, as well to place all corporations of the same character upon the same general footing, with uniform powers, privileges and duties, as to obviate the necessity of much special legislation, corporations were authorized to be formed under general laws, and the creation of any, except for municipal purposes, and in cases where the objects of the corporation could not in the judgment of the legislature be attained under the general laws, was prohibited. . . . One design was, that all that desired to transact business in a corporate capacity might do so upon an equality, and with equal privileges and liabilities, with uniform powers, and under uniform restraints. Equality between corporations themselves, as well as equality between corporations and individual citizens, so far as the latter was practicable, was in the minds of the convention in framing this part of the constitution." Johnson v. Hudson River R. Co., (1872) 49 N. Y. 455.

Section as grant of power.- As the legislative power is unlimited except as restricted by the constitution itself (see Art. 3, § 1), the provision of this section, that, "corporations may be formed under general laws" is merely a direction for the exercise of an authority which had been restricted under former constitutions, and is not a grant of power. Chenango Bank v. Brown, (1863) 26 N. Y. 467. The court said: "The new constitution intended to introduce a system of general and not special legislation. To this end any barriers which existed in or under the former constitution in the way of such generai legislation in respect to corporations were abolished, and the legislative power was left free to act by general enactments upon this class of subjects. But the power to pass such laws resulted from the grant of the legislative power of the people to the legislature, and not from the provisions which either indicated the general system which the constitution was intended to favor, and in some cases to direct, or from the removal of the restrictions in former constitutions in the way of such legislation. Such provisions were merely directions for the exercise of an existing authority, and not its creation; and the removal of restrictions upon it indicated that but for such restrictions it might even before have been exercised."

Need for special act as matter of discretion.- Whether a special act is necessary to create a corporation rests wholly within the legislative discretion, and is not subject to judicial review. Oneonta Light, etc., Co. v. Schwarzenbach, (1914) 164 App. Div. 548, 150 N. Y. S. 76; Smith v. Havens Relief Fund Soc., (1904) 44 Misc. 594, 90 N. Y. S. 168, affirmed (1907) 118 App. Div. 678, 103 N. Y. S. 770, affirmed (1908) 190 N. Y. 557, 83 N. E. 1132. See also People v. Bowen, (1860) 21 N. Y. 517, affirming 30 Barb. 24.

Effect of section on special charter. This section "has never been held to render unconstitutional a special charter, or special additions to a charter taken under general laws." In re Prospect Park, etc., R. Co., (1876) 67 N. Y. 371, affirming 8 Hun 30.

Regulation of existing corporation by special act.— This section in requiring the formation of corporations under general laws does not prohibit special acts regulating previously existing corporations. Attorney-General v. North American Life Ins. Co., (1880) 82 N. Y. 172. See also Matter of Kansas City Smelting, etc., Co., (1897) 13 App. Div. 50, 43 N. Y. S. 51. Thus, the Act of 1866 (ch. 576, Laws of 1866), authorizing the North American Life Ins. Co. to deposit with the superintendent of the insurance department a fund for the security of the registered policy-holders is not unconstitutional, as it does not create, but regulates a corporation previously in existence. Attorney-General v. North American Life Ins. Co., (1880) 82 N. Y. 172.

A school district is a municipal corporation within the provision of this section which excepts such corporations from the prohibition against the creation of corporations by special act. Board of Education v. Board of Education, (1902) 76 App. Div. 355, 78 N. Y. S. 522, affirmed, (1904) 179 N. Y. 556, 71 N. E. 1128.

II. REPEAL AND AMENDMENT.

1. In. General.

Reason for reservation of power. "The reservation of the right to amend or repeal special charters was undoubtedly inserted in our constitution in view of the doctrine of the Dartmouth College case (Dartmouth College v. Woolward, 4 Wheat. 518, 4 U. S. (L. ed.) 629), that the charter of a private corporation is a contract and that if it confer benefits upon the corporators inducing its acceptance, such benefits cannot be withdrawn without the consent of the corporation, in the absence of a reserved power in the legislature to withdraw them." People v. Gass, (1907) 190 N. Y. 323, 83 N. E. 64, 123 A. S. R. 549, 13 Ann. Cas. 678, reversing 119 App. Div. 280, 104 N. Y. S. 643. To the same effect, see Lord v. Equitable Life Assur. Soc., (1909) 194 N. Y. 212, 87 N. E. 443, 22 L. R. A. (N. S.) 420, reversing 126 App. Div. 937, 110 N. Y. S. 1135; People v. O'Brien, (1888) 111 N. Y. 1, 18 N. E. 692, 7 A. S. R. 684, 2 L. R. A. 255, reversing 45 Hun 519, 10 N. Y. St. Rep. 381; Hinckley v. Schwarzschild, etc., Co., (1905) 107 App. Div. 470, 95 N. Y. S. 357. See also People v. Keese, (1882) 27 Hun 483.

Operation of reservation.—The provision of this section reserving the power of amendment and repeal to the legislature is not retroactive in effect. People v. Keese, (1882) 27 Hun 483. But it does become a part of the charter of every corporation subsequently organized, whether under a general or special act. Lord v. Equitable Life Assur. Soc., (1909) 194 N. Y. 212, 87 N. E. 443, 22 L. R. A. (N. S.) 420, reversing 126 App. Div. 937, 110 N. Y. S. 1135; People v. Gass, (1907) 190 N. Y. 323, 83 N. E. 64, 123 A. S. R. 549, 13 Ann. Cas. 678, reversing 119 App. Div. 280, 104 N. Y. S. 643; Pratt Institute v. New York, (1905) 183 N. Y. 151, 75 N. E. 1119, 5 Ann. Cas. 198, affirming 99 App. Div. 525, 91 N. Y. S. 136; Board of Education v. Board of Education, (1902) 76 App. Div. 355, 78 N. Y. S. 522, affirmed (1904) 179 N. Y. 556, 71 N. E. 1128; Grobe v. Erie County Mut. Ins. Co., (1899) 39 App. Div. 183, 57 N. Y. S. 290, affirmed (1902) 169 N. Y. 613, 62 N. E. 1096; Hirshfeld v. Fitzgerald, (1898) 27 App. Div. 180, 50 N. Y. S. 676, reversed on other grounds (1898) 157 N. Y. 166, 51 N. E. 997, 46 L. R. A. 839; New York Cable R. Co. v. Chambers St., etc., R. Co., (1886) 40 Hun 29. See also People v. Railroad Com'rs, (1898) 32 App. Div. 179, 52 N. Y. S. 908, affirmed (1899) 158 N. Y. 711, 53 N. E. 1129. Accordingly, under this section, "the legislature has no power to make any corporation a contract, either in its charter or in the act incorporating it, or by any other form of legislation which can prevent a subsequent legislature from altering, modifying or wholly abrogating its charter." New York Cable R. Co. v. Chambers St., etc., R. Co., (1886) 40 Hun 29, per Davis, P. J. In

the case last cited, Davis, P. J., said: "The provisions of the constitution, in that regard, enter into every special law creating a corporation and every general law authorizing such creation, so that the legislative power to alter, modify and repeal becomes a part of the contract made with the corporation, as fully as though expressed in the charter or act of incorporation. If by any provision of the charter it should be declared that the legislature shall have no power to repeal, modify or alter the charter, that provision would be nugatory under the constitution of the state, because in violation thereof, and in its place the courts would be called upon to substitute and enforce the mandate and contract of the constitution, whenever a subsequent legislature thought proper to act in conformity to its provisions, or whenever the question of the validity of the charter should arise in any form. The acceptance of a charter or act of incorporation by the corporation it creates, is, by force of the constitution, an acceptance of the contract on its part that the legislature shall have and may exercise the power of modification or repeal, at its pleasure."

Repeal and amendment generally. It is difficult to place precise limits upon the power of amendment and repeal reserved to the legislature by this section over corporations created by it or under its authorities. New York v. Twenty-third St. R. Co., (1889) 113 N. Y. 311, 21 N. E. 60, affirming 48 Hun 552, 1 N. Y. S. 295. Under its power of amendment and repeal as reserved by this section the legislature cannot confiscate the property of a corporation or deprive it of its vested property rights. New York Cent., etc., R. Co. v. Williams, (1910) 199 N. Y. 108, 92 N. E. 404, 139 A. S. R. 850, 35 L. R. A. (N. S.) 549, affirming 136 App. Div. 904, 120 N. Y. S. 1137; Lord v. Equitable Life Assur. Soc., (1909) 194 N. Y. 212, 87 N. E. 443, 22 L. R. A. (N. S.) 420, reversing 126 App. Div. 937, 110 N. Y. S. 1135; New York v. Twenty-third St. R. Co., (1889) 113 N. Y. 311, 21 N. E. 60, affirming 48 Hun 552, 1 N. Y. S. 295; People v. O'Brien, (1888) 111 N. Y. 1, 18 N. E. 692, 7 A. S. R. 684, 2 L. R. A. 255, reversing 45 Hun 519, 10 N. Y. St. Rep. 596; People v. Public Service Commission, (1911) 143 App. Div. 769, 128 N. Y. S. 384; Colby v. Equitable Trust Co., (1908) 124 App. Div. 262, 108 N. Y. S. 978, affirmed (1908) 192 N. Y. 535, 84 N. E. 1111, mem.; Hinckley v. Schwarzschild, etc., Co., (1905) 107 App. Div. 470, 95 N. Y. S. 357; Rochester, etc., Turnpike Road Co. v. Joel, (1899) 41 App. Div. 43, 58 N. Y. S. 346; In re New York Cable R. Co., (1886) 40 Hun 1. See also Ives v. South Buffalo R. Co., (1911) 201 N. Y. 271, 94 N. E. 431, Ann. Cas. 1912B 156, 34 L. R. A. (N. S.) 162, per Cullen, Ch. J.; People v. Boston, etc., R. Co., (1877) 70 N. Y. 569; Palmer v. Hickory Grove Cemetery, (1903) 84 App. Div. 600, 82 N. Y. S. 973. But the legislature has the full power to deprive a corporation of its corporate life. Lord v. Equitable Life Assur. Soc., (1909) 194 N. Y. 212, 87 N. E. 443, 22 L. R. A. (N. S.) 420, reversing 126 App. Div. 937, 110 N. Y. S. 1135; New York v. Twenty-third St. R. Co., (1889) 113 N. Y. 311, 21 N. E. 60, affirming 48 Hun 552, 1 N. Y. S. 295; People v. O'Brien, (1888) 111 N. Y. 1, 18 N. E. 692, 7 A. S. R. 684, 2 L. R. A. 255, reversing 45 Hun 519, 10 N. Y. St. Rep. 596; People v. Public Service Commission, (1910) 140 App. Div. 839, 125 N. Y. S. 1000; Bush v. New York Life Ins. Co., (1909) 135 App. Div. 447, 119 N. Y. S. 796; Colby v. Equitable Trust Co., (1908) 124 App. Div. 262, 108 N. Y. S. 978, affirmed (1908) 192 N. Y. 535, 84 N. E. 1111, mem.; Hinckley v. Schwarzschild, etc., Co., (1905) 107 App. Div. 470, 95 N. Y. S. 357; Palmer v. Hickory Grove Cemetery, (1903) 84 App. Div. 600, 82 N. Y. S. 973; Board of Education v. Board of Education, (1902) 76 App. Div. 355, 78 N. Y. S. 522, affirmed (1904) 179 N. Y. 556, 71 N. E. 1128; In re New York Cable R. Co., (1886) 40 Hun 1; New York Cable R. Co. v. Chambers St., etc., R. Co., (1885) 40 Hun 29. See also Ives v. South Buffalo R. Co., (1911) 201 N. Y. 271, 94 N. E. 431, Ann. Cas. 1912B 156, 34 L. R. A. (N. S.) 162, per Cullen, Ch. J.; Palmer v. Hickory Grove Cemetery, (1903) 84 App.

Div. 600, 82 N. Y. S. 973; Doyle v. New York, (1901) 58 App. Div. 588, 69 N. Y. S. 120; Blauvelt v. Nyack, (1876) 9 Hun 153. As the legislature has the power to deprive a corporation of its franchise to be a corporation, it may prescribe the conditions upon which it may live and exercise that privilege. It may enlarge or limit its powers, and it may increase or limit its burdens. New York Cent., etc., R. Co. v. Williams, (1910) 199 N. Y. 108, 92 N. E. 404, 139 A. S. R. 850, 35 L. R. A. (N. S.) 549, affirming 136 App. Div. 904, 120 N. Y. S. 1137; People v. Raymond, (1909) 194 N. Y. 189, 87 N. E. 90, reversing 126 App. Div. 720, 111 N. Y. S. 177; Lord v. Equitable Life Assur. Soc., (1909) 194 N. Y. 212, 87 N. E. 443, 22 L. R. A. (N. S.) 420, reversing 126 App. Div. 937, 110 N. Y. S. 1135; People v. Gass, (1907) 190 N. Y. 323, 83 N. E. 64, 123 A. S. R. 549, 13 Ann. Cas. 678, reversing 119 App. Div. 280, 104 N. Y. S. 643; Pratt Institute v. New York, (1905) 183 N. Y. 151, 75 N. E. 1119, 5 Ann. Cas. 198, affirming 99 App. Div. 525, 91 N. Y. S. 136; People v. Cummings, (1901) 166 N. Y. 110, 59 N. E. 703, reversing 53 App. Div. 36, 65 N. Y. S. 581; New York v. Twenty-third St. R. Co., (1889) 113 N. Y. 311, 21 N. E. 60, affirming 48 Hun 552, 1 N. Y. S. 295; People v. O'Brien, (1888) 111 N. Y. 1, 18 N. E. 692, 7 A. S. R. 684, 2 L. R. A. 255, reversing 45 Hun 519, 10 N. Y. St. Rep. 596; People v. Boston, etc., R. Co., (1877) 70 N. Y. 569; People v. Public Service Commission, (1911) 143 App. Div. 769, 128 N. Y. S. 384; People v. Public Service Commission, (1910) 140 App. Div. 839, 125 N. Y. S. 1000; Bush v. New York Life Ins. Co., (1909) 135 App. Div. 447, 119 N. Y. S. 796; Colby v. Equitable Trust Co., (1908) 124 App. Div. 262, 108 N. Y. S. 978, affirmed (1908) 192 N. Y. 535, 84 N. E. 1111; Hinckley v. Schwarzschild, etc., Co., (1905) 107 App.. Div. 470, 95 N. Y. S. 357; Board of Education v. Board of Education, (1902) 76 App. Div. 355, 78 N. Y. S. 522, affirmed (1904) 179 N. Y. 556, 71 N. E. 1128; Barnes v. Arnold, (1899) 45 App. Div. 314, 61 N. Y. S. 85, affirmed (1902) 169 N. Y. 611, 62 N. E. 1093; Geneva, etc., R. Co. v. New York Cent., etc., R. Co., (1895) 90 Hun 9, 35 N. Y. S. 339, affirmed (1897) 152 N. Y. 632, 46 N. E. 1147; In re New York Cable R. Co., (1886) 40 Hun 1; New York Cable R. Co. v. Chambers St., etc., R. Co., (1886) 40 Hun 29. See also Ives v. South Buffalo R. Co., (1911) 201 N. Y. 271, 94 N. E. 431, Ann. Cas. 1912B 156, 34 L. R. A. (N. S.) 162, per Cullen, Ch. J.; Fort Plain Bridge Co. v. Smith, (1864) 30 N. Y. 44; Palmer v. Hickory Grove Cemetery, (1903) 84 App. Div. 600, 82 N. Y. S. 973; Doyle v. New York, (1901) 58 App. Div. 588, 69 N. Y. S. 120; Grobe v. Erie County Mut. Ins. Co., (1899) 39 App. Div. 183, 57 N. Y. S. 290, affirmed (1902) 169 N. Y. 613, 62 N. E. 1096; People v. Railroad Com'rs, (1898) 32 App. Div. 179, 52 N. Y. S. 908, affirmed (1899) 158 N. Y. 711, 53 N. E. 1129; Blauvelt v. Nyack, (1876) 9 Hun 153. "It is sometimes said that the alteration under such reserved power must, however, be reasonable, and it must always be legislative in its character, and consistent with the scope and objects of the corporation as it was originally constituted." New York v. Twenty-third St. R. Co., (1889) 113 N. Y. 311, 21 N. E. 60, affirming 48 Hun 552, 1 N. Y. S. 295. In New York Cent., etc., R. Co. v. Williams, (1910) 199 N. Y. 108, 92 N. E. 404, 139 A. S. R. 850, 35 L. R. A. (N. S.) 549, this was said: "In exercising the reserved power to amend corporate charters the legislature may not deprive a corporation of property already acquired or the proceeds of lawful contracts previously made or destroy or substantially impair the purposes of the grant or rights which are vested in the corporation thereunder; but it may make any alteration or amendment of a charter 'which will not defeat or substantially impair the object of the grant, or any rights vested under it, and which the legislature may deem necessary to secure either that object or any public right.” In New York v. Twenty-third St. R. Co., (1889) 113 N. Y. 311, 21 N. E. 60, the court said: "Under its reserved power it [the legislature] cannot deprive a corporation of its property, or interfere with, or annul its contracts with third persons." In Lord v. Equitable Life Assur. Soc., (1909) 194 N. Y.

"The principle

212, 87 N. E. 443, 22 L. R. A. (N. S.) 420, the court said: established by the authorities seems to be that the legislature under its reserved power may amend any charter in any respect that is not fundamental when the object of the corporation and property acquired by it are considered. Granting that it may not convert a corporation into something entirely foreign to the object for which it was created, such as turning an insurance company into a railroad company for instance, still it can regulate investments, methods of administration and details of procedure in the interest of the public and of all concerned."

Special franchise as property.- Among the property rights of a corporation which may not be confiscated or annulled are its special franchises as distinguished from its general franchise or charter. Lord v. Equitable Life Assur. Soc., (1909) 194 N. Y. 212, 87 N. E. 443, 22 L. R. A. (N. S.) 420, reversing 126 App. Div. 937, 110 N. Y. S. 1135; People v. O'Brien, (1888) 111 N. Y. 1, 18 N. E. 692, 7 A. S. R. 684, 2 L. R. A. 255, reversing 45 Hun 519, 10 N. Y. St. Rep. 596; Rochester, etc., Turnpike Road Co. v. Joel, (1899) 41 App. Div. 43, 58 N. Y. S. 346. See also Ives v. South Buffalo R. Co., (1911) 201 N. Y. 271, 94 N. E. 431, Ann. Cas. 1912B 156, 34 L. R. A. (N. S.) 162, per Cullen, Ch. J.; Heerwagen v. Crosstown St. R. Co., (1904) 179 N. Y. 99, 71 N. E. 729, modifying 90 App. Div. 275, 86 N. Y. S. 218; Suburban Rapid-Transit Co. v. New York, (1891) 128 N. Y. 510, 28 N. E. 525. Compare In re New York Cable R. Co., (1886) 40 Hun 1. Thus, a franchise to lay tracks and to run cars upon Broadway in New York city has been held to be a right indestructible by the legislature and to constitute property in the highest sense of that term. People v. O'Brien, (1888) 111 N. Y. 1, 18 N. E. 692, 7 A. S. R. 684, 2 L. R. A. 255, reversing 45 Hun 519, 10 N. Y. St. Rep. 596. So, chapter 151 of the Laws of 1898, by which chapter 92 of the Laws of 1882, authorizing a corporation organized under the General Turnpike Law (ch. 210, Laws of 1847) to exact certain tolls, is amended by striking therefrom the provision permitting the corporation to charge a toll for each velocipede or bicycle, the effect of which amendment is to reduce the earning capacity of the corporation 25 per cent. is unconstitutional. Rochester, etc., Turnpike Road Co. v. Joel, (1899) 41 App. Div. 43, 58 N. Y. S. 346. In that case the court said that if the legislature "has the power to deprive the plaintiff of the right heretofore accorded it to exact toll for bicycles, it may with equal propriety deprive it of the right to exact toll for any or all of the vehicles specified in the act of 1882, and thus, under the guise of amendment or repeal, accomplish the absolute and total destruction of vested property rights." And again: "Such a proposition is too startling and subversive in its nature to receive our approval, and although the subject of the extent and limitation of legislative power in cases where corporate rights and property have been involved is one which has frequently engaged the attention of the courts, and is also one concerning which a great variety of views has been expressed, we are not aware of any case in which the doctrine of reserved power has been carried to the extent here contended for."

Distinction between charter and franchise." The charter of a corporation is the law which gives it existence as such. That is its general franchise, which can be repealed at the will of the legislature. A special franchise is the right, granted by the public, to use public property for a public use, but with private profit, such as the right to build and operate a railroad in the streets of a city. Such a franchise, when acted upon, becomes property and cannot be repealed, unless power to do so is reserved in the grant, although it may be condemned upon making compensation." Lord v. Equitable Life Assur. Soc., (1909) 194 N. Y. 212, 87 N. E. 443, 22 L. R. A. (N. S.) 420, reversing 126 App. Div. 937, 110 N. Y. S. 1135.

Undermining right of stockholders to vote. The right of a stockholder to vote for directors is the right to protect property from loss and make it effective in earning dividends. To absolutely deprive him of the right to