EVANS, J.
The bill in this case was filed by Alfred M. Shook, Edwin Warner, and Morris Adler, minority stockholders in the Avondale Land Company, a corporation organized in the year 1884 under the general [382]*382laws of tbe state of Alabama, as complainants, against said corporation and the majority stockholders, J. F. Leary, William M. Leary, and Robert C. Redus, as respondents. The bill was filed for two purposes: One, to correct certain abuses in the matter of excessive salaries which these majority stockholders had voted to themselves after having elected themselves to all the offices within the corporation, and the other was to enjoin said majority stockholders from amending the charter of said corporation in the manner determined upon by said majority stockholders. The respondents J. F. Leary, William M. Leary, and Robert C. Redus filed their demurrer to this bill, stating two grounds. The first ground attacked said bill for want of equity, and the second attacked that part of the bill which sought to enjoin them from amending the charter of said corporation. The-chancellor overruled the demurrer, and from the decree overruling the demurrer the respondents appealed.
While there are three assignments of error, only the first assignment is insisted on in the brief of counsel for appellants. The first assignment of error is as follows: “(1) The chancery court erred in overruling the demurrer of said appellants to so much of the bill as sought to prevent the amendment of the charter of the Avondale Land Company as alleged in paragraph 4 of the bill.” By abandoning the first ground of demurrer, the respondents admit (as indeed it could not well be questioned) the equity of the bill in so far as the question of salaries is concerned, and we are called upon to consider this one proposition, viz., Did the chancery court err in overruling the demurrer of appellants to so much of the bill as sought to prevent the amendment of the charter of the Avondale Land Company as alleged in paragraph 4 of the bill? Paragraph [383]*3834 of the bill of complaint is as follows: “Complainants further state that the Learys and Kedus have announced their determination to amend the charter of the Av-ondale Land Company and have issued notice to the stockholders, a copy of which is hereto attached marked 'Exhibit E,’ calling a special meeting of the stockholders of the Avondale Land Company at the office of Robert 0. Redus on March 15, 1909. Complainants state that the Avondale Land Company was organized, as heretofore stated, in 1884, and that the charter of the company constituted the authority from the state to do business according to the terms of the charter, and constituted further a contract between the stockholders as to the terms on which they were to do business and their money Avas to be handled; that there Avas no right under the laAV as it existed at that time, and under which the Avondale Land Company was incorporated, to amend the charter of the company without the consent of all of its stockholders, and complainants state that Avhile the present Code of Alabama purports to give the right to amend a charter of a corporation, in the manner therein stated, this right cannot be exercised so as to amend a charter of a pre-existing corporation contrary to the Avishes of any stockholder, and complainants state that, in vieAv of their abuse of the poAver which they now have, the minority stockholders are unwilling to trust the Learys and Redus with any further power, and that complainants object to the unlawful attempt to amend the charter of the Avondale Land Company.” The prayer of the bill is as to this feature of the bill to enjoin said majority stockholders from making the contemplated amendment to the charter. Under the general laAvs of the state in force at the time of incorporating the Avondale Land Company— that is, in 3884 — there was no poAver reserved to amend [384]*384tbe charter of such a corporation, nor was any power given to a majority of the stockholders to amend the same. There was, however, the power reserved in the Constitution of 1875 of the state of Alabama to alter, revoke, or amend the charter of private corporations. Upon the construction to he given the power thus reserved will depend the decision of the question now under consideration. .
Since the decision of the case of Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 4 L. Ed. 629, it has been fully recognized in this country that the charter of a private corporation is a contract within the meaning of and under the protection of that clause in the Constitution of the United States which provides that “no state shall * * * pass any i:‘ * * law impairing the obligations of contracts.” — -Section 10, art. 1, Const. U. S. But “the charter of a corporation having a capital stock is a contract between three parties, and forms the basis of three distinct contracts. The charter is a contract between the state and the corporation; -second, it is a contract between the corporation and ,the stockholders; third, it is a contract between the stockholders and the state.” — Cook on Corporations (6th Ed.) § 492. The charter is under the protection of said clause of the federal Constitution in all three of its aspects as a contract.
Such being the case, many,' if not all, of the different states of the Union have protected themselves, ás far as they thought necessary, from the effects of this provision in the federal Constitution by reserving in their Constitutions certain powers of altering, revoking, and amending the charters of private corporations thereafter to be organized under the general laws of such states or chartered by special act of the Legislatures of such states, so that- such reserved power would enter [385]*385into and form a part of tbe charter contract. This was done in the Constitution of 1875 of this state. The power to amend, alter, or revoke the charter thus being made a part of the charter contract, the exercise of this power by the state in the manner and to the extent contemplated could not be considered as in violation of said section 10 of article 1 of the Constitution of the United States. Those who invest their money in such a corporation do it with full knowledge of the power which the state has reserved to alter, revoke, or amend its charter, and contract with reference thereto. It thus becomes part of the contract. In the case under consideration the only authority which the majority of the stockholders of the respondent the Avondale Land Company can claim to have to amend the charter of said corporation as set forth in the notice sent to the stockholders against the protest of a minority stockholder must be derived from the power reserved by the Constitution of Alabama of. 1875 to alter, amend, or repeal the charters of private corporations having a capital stock. The two sections of said Constitution bearing upon the question are sections 1 and 10 or article 14. Section 1 reads as follows: “Corporations may be formed under general laws, but shall not be created by special act, except for municipal, manufacturing, mining, immigration, industrial, and educational purposes, or for constructing canals, or improving navigable rivers and harbors of this state, and in cases where, in the judgment of the General Assembly, the objects of the corporation cannot be attained under the general laws. All general laws and special acts passed pursucmt to this section mm) be altered, amended or repealed.” (Italics supplied.) Section 10 reads as follows: “The General Assembly shall have the power to alter, revoke or amend any charter of incorporation now existing [386]
Free access — add to your briefcase to read the full text and ask questions with AI
EVANS, J.
The bill in this case was filed by Alfred M. Shook, Edwin Warner, and Morris Adler, minority stockholders in the Avondale Land Company, a corporation organized in the year 1884 under the general [382]*382laws of tbe state of Alabama, as complainants, against said corporation and the majority stockholders, J. F. Leary, William M. Leary, and Robert C. Redus, as respondents. The bill was filed for two purposes: One, to correct certain abuses in the matter of excessive salaries which these majority stockholders had voted to themselves after having elected themselves to all the offices within the corporation, and the other was to enjoin said majority stockholders from amending the charter of said corporation in the manner determined upon by said majority stockholders. The respondents J. F. Leary, William M. Leary, and Robert C. Redus filed their demurrer to this bill, stating two grounds. The first ground attacked said bill for want of equity, and the second attacked that part of the bill which sought to enjoin them from amending the charter of said corporation. The-chancellor overruled the demurrer, and from the decree overruling the demurrer the respondents appealed.
While there are three assignments of error, only the first assignment is insisted on in the brief of counsel for appellants. The first assignment of error is as follows: “(1) The chancery court erred in overruling the demurrer of said appellants to so much of the bill as sought to prevent the amendment of the charter of the Avondale Land Company as alleged in paragraph 4 of the bill.” By abandoning the first ground of demurrer, the respondents admit (as indeed it could not well be questioned) the equity of the bill in so far as the question of salaries is concerned, and we are called upon to consider this one proposition, viz., Did the chancery court err in overruling the demurrer of appellants to so much of the bill as sought to prevent the amendment of the charter of the Avondale Land Company as alleged in paragraph 4 of the bill? Paragraph [383]*3834 of the bill of complaint is as follows: “Complainants further state that the Learys and Kedus have announced their determination to amend the charter of the Av-ondale Land Company and have issued notice to the stockholders, a copy of which is hereto attached marked 'Exhibit E,’ calling a special meeting of the stockholders of the Avondale Land Company at the office of Robert 0. Redus on March 15, 1909. Complainants state that the Avondale Land Company was organized, as heretofore stated, in 1884, and that the charter of the company constituted the authority from the state to do business according to the terms of the charter, and constituted further a contract between the stockholders as to the terms on which they were to do business and their money Avas to be handled; that there Avas no right under the laAV as it existed at that time, and under which the Avondale Land Company was incorporated, to amend the charter of the company without the consent of all of its stockholders, and complainants state that Avhile the present Code of Alabama purports to give the right to amend a charter of a corporation, in the manner therein stated, this right cannot be exercised so as to amend a charter of a pre-existing corporation contrary to the Avishes of any stockholder, and complainants state that, in vieAv of their abuse of the poAver which they now have, the minority stockholders are unwilling to trust the Learys and Redus with any further power, and that complainants object to the unlawful attempt to amend the charter of the Avondale Land Company.” The prayer of the bill is as to this feature of the bill to enjoin said majority stockholders from making the contemplated amendment to the charter. Under the general laAvs of the state in force at the time of incorporating the Avondale Land Company— that is, in 3884 — there was no poAver reserved to amend [384]*384tbe charter of such a corporation, nor was any power given to a majority of the stockholders to amend the same. There was, however, the power reserved in the Constitution of 1875 of the state of Alabama to alter, revoke, or amend the charter of private corporations. Upon the construction to he given the power thus reserved will depend the decision of the question now under consideration. .
Since the decision of the case of Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 4 L. Ed. 629, it has been fully recognized in this country that the charter of a private corporation is a contract within the meaning of and under the protection of that clause in the Constitution of the United States which provides that “no state shall * * * pass any i:‘ * * law impairing the obligations of contracts.” — -Section 10, art. 1, Const. U. S. But “the charter of a corporation having a capital stock is a contract between three parties, and forms the basis of three distinct contracts. The charter is a contract between the state and the corporation; -second, it is a contract between the corporation and ,the stockholders; third, it is a contract between the stockholders and the state.” — Cook on Corporations (6th Ed.) § 492. The charter is under the protection of said clause of the federal Constitution in all three of its aspects as a contract.
Such being the case, many,' if not all, of the different states of the Union have protected themselves, ás far as they thought necessary, from the effects of this provision in the federal Constitution by reserving in their Constitutions certain powers of altering, revoking, and amending the charters of private corporations thereafter to be organized under the general laws of such states or chartered by special act of the Legislatures of such states, so that- such reserved power would enter [385]*385into and form a part of tbe charter contract. This was done in the Constitution of 1875 of this state. The power to amend, alter, or revoke the charter thus being made a part of the charter contract, the exercise of this power by the state in the manner and to the extent contemplated could not be considered as in violation of said section 10 of article 1 of the Constitution of the United States. Those who invest their money in such a corporation do it with full knowledge of the power which the state has reserved to alter, revoke, or amend its charter, and contract with reference thereto. It thus becomes part of the contract. In the case under consideration the only authority which the majority of the stockholders of the respondent the Avondale Land Company can claim to have to amend the charter of said corporation as set forth in the notice sent to the stockholders against the protest of a minority stockholder must be derived from the power reserved by the Constitution of Alabama of. 1875 to alter, amend, or repeal the charters of private corporations having a capital stock. The two sections of said Constitution bearing upon the question are sections 1 and 10 or article 14. Section 1 reads as follows: “Corporations may be formed under general laws, but shall not be created by special act, except for municipal, manufacturing, mining, immigration, industrial, and educational purposes, or for constructing canals, or improving navigable rivers and harbors of this state, and in cases where, in the judgment of the General Assembly, the objects of the corporation cannot be attained under the general laws. All general laws and special acts passed pursucmt to this section mm) be altered, amended or repealed.” (Italics supplied.) Section 10 reads as follows: “The General Assembly shall have the power to alter, revoke or amend any charter of incorporation now existing [386]*386and revocable at tlie ratification of this Constitution, or any that may hereafter be created, whenever, in their opinion, it may be injurious to the citizens of the state; in such manner, however, that no injustice shall be done to the corporation. No law hereafter enacted shall create, renew, or extend the charter of more than one corporation.” We quote with approval from Cook on Corporations (6th Ed.) § 501, the following: “The extent of the power of the Legislature to amend a charter, where it has reserved that power, is not yet fully settled, and is full of difficulties. There is a strong tendency in the decisions, and a tendency which is deserving of the highest commendation, to limit the power of the Legislature to amend a charter under this reserved power. It should be restricted to those amendments only in which the state has a public interest. Any attempt to use this power of amendment for the purpose of authorising a majority of the stockholders to force upon the minority a material change in the enterprise is contrary to -law and the spirit of justice. Under such reserved power the Legislature has only that right to amend the charter which it would have had in case the Dartmouth College Case had decided that the federal Constitution did not apply to corporate charters. In fact, the historical origin of this reservation of the right to amend was due to the effort of the various states of the Union to escape from the decisions in the Dartmouth College Case. By this reserved right the restraint of the federal Constitution is done away with. But the power to make a new contract for the stockholders is not thereby given to the Legislature. The Legislature may repeal the charter, but cannot force a stockholder into a contract against his will.” The italics in the above quotation are the writer’s. In the above quotation the author was speaking of such general reservation of power as that contained in the [387]*387Constitution of Alabama of 1875. We bold that tbe amendment attempted in this case is a material and fundamental change from the original plan, bringing in new fields of operation and involving greater hazard.
It follows from the foregoing that the power of amendment in the Constitution of 1875 does not give the Legislature this power to amend the charter of the Avondale Land Company in the manner and to the extent attempted by the majority stockholders, and there: fore no such power could be given by the Legislature to a majority of the stockholders of said corporation; that section 3462 of the Code of 1907 can confer no greater authority to amend said charter than was reserved by the Constitution of 1875. Hence said section 3462 cannot confer the authority.
We are therefore of opinion that it does appear from the averments of the bill of complaint that the atttempt of respondents to amend said charter (as set forth in said bill of complaint) was beyond the power of a majority of the stockholders of said corporation when objected to by any stockholder.
The decree of the chancellor overruling the demurrer is affirmed.
Affirmed.
Dowdell, C. J., and Simpson, Mayfield, and S'ayee, JJ., concur. Anderson and McClellan, JJ., dissent.