Webster v. Cambridge Female Seminary

28 A. 25, 78 Md. 193, 1893 Md. LEXIS 93

Opinion

Robinson, C. J.,

delivered the opinion of the Court.

This case must be considered as one of more than ordinary importance. The right to alter, amend or repeal the charter of a private corporation is reserved in express terms by the Constitution of this State. And the question in this case involves the exercise of this power by the Legislature. The Cambridge Female Seminary was incorporated by the Act of 1858, with power to issue shares of capital stock to the amount of ten thousand dollars, for the purpose of erecting the necessary buildings for said institution. The trustees to be elected under the charter were authorized to employ teachers, fix their salaries, and to do all other things necessary for the proper conduct and management of the seminary. And upon the subscription of three thousand dollars to its capital stock, the State agreed to appropriate five hundred dollars annually to be expended, in the language of the Act, “for the purposes of female education. ” By a subsequent Act, the Legislature appropriated the further sum of five thousand dollars to aid in the erection of additional buildings and the purchase of the necessary equipments for the school. Notwithstanding the liberal aid thus extended by the State, the seminary was not as successful as its promoters hoped and expected. It managed, however, it seems, to struggle along till 1890, when its principal resigned. Its revenues were not in fact sufficient to pay the salaries of teachers and to meet the necessary current expenses. So the trustees were ■obliged to borrow money, and to mortgage the buildings and grounds to secure the payment of the loans. One of the mortgages was overdue, and there was no money in the hands of the trustees to pay either interest or principal. In this condition of affairs they made application to the School Commissioners of the county for financial aid and assistance. Of the one hundred and twenty shares of stock which had been subscribed by different persons, sixty-six shares remained unpaid, and, as the School Commissioners were in need of buildings for school purposes, they agreed to take these sixty-six shares, provided the trustees would leasp to them for the use of the public schools, so much of the buildings and grounds as were not in fact necessary for the use of the seminary. This offer the trustees accepted, and the lease was accordingly executed. In addition to the subscription of the sixty-six shares of stock at forty dollars per share, the School Commissioners also agreed to pay to the trustees of the Seminary five hundred dollars annually, to be applied by them for the purposes of female education. And they also agreed to put and keep the building and grounds in proper repair, and to insure the buildings at their own expense. The principal and vice-principal of the consolidated schools, for so they are called by the lease, were to be elected by the trustees of the Female Seminary and the trustees of the Cambridge Academy, the latter being also parties to the lease, subject however, to the approval of the School Commissioners. Such are the terms of the lease, and these terms, so far as the seminary is concerned, would seem to be beneficial in every respect, for without the pecuniary assistance thus extended by the School Commissioners it could no longer be maintained as a school lor the education of girls and young women.

The complainant, however, is a stockholder of the defendant corporation, the Female Seminary, and this is a bill filed by him to restrain the parties from carrying into effect the terms of the lease, and to restrain the School Commissioners from taking possession of or using in manner the buildings and grounds belonging to the seminary, and further to have the lease itself declared to be null and void. And this relief -he claims on the following grounds:

1st. Because the trustees had no power under the original charter to lease any part of the seminary buildings or grounds to the School Commissioners.

2nd. That the Legislature could not by the amendatory Act of 1892, ch. 350, confer this power upon the trustees.

3rd. That the School Commissioners had no power to subscribe to the capital stock of the defendant corporation, nor had they the power to become a party to the lease in question.

Whether the trustees had the power under the original charter to lease any part of the buildings or grounds is a question we shall not stop to consider. Be that as it may, the Legislature had the power, it is conceded, to alter and amend its charter, provided such amendment does not change fundamentally the nature of the charter and the objects for which it was granted. And this being so, the question comes to this, does the Act of 1892 change fundamentally the nature and character of the charter of the Female Seminary ? Or, in other words, are its provisions inconsistent with the objects and purposes for which it was incorporated? And in considering this question it may not be amiss to refer briefly to the origin and object of the constitutional reservation to amend and repeal the charters of private corporations. In the well known Dartmouth College Case, the Supreme Court, after full consideration, decided that tlie charter of a private corporation, when accepted, was an executed contract between the State and the corporators, and, as such, was within the protection of the Federal Constitution, which forbids a State from passing any law impairing the obligation of contracts. And this being so, the Court held that the Legislature of New Hampshire could not by a subsequent Act, impair or interfere with the franchises and privileges granted to that corporation under its original charter. This decision and the grounds on which it is based, have been, it is true, the subject of a good deal of criticism, but the decision itself has been affirmed by the Supreme Court in a number of cases, and must now be considered as the settled law of this country. In his concurring opinion Mr. Justice Story, however, suggested that the Legislature in chartering a private corporation might reserve the power to alter and amend it, and that the subsequent exercise of this power under such a reservation, would not be an impairment of the obligation of the contract within the meaning of the Constitution. And since that decision, this State and other States, by constitutional provision, or by general law, or by special Acts, have in express terms reserved the power to amend or repeal the charters of corporations. The object being, as we have heretofore said, to preserve to the State control over corporate grants, should tire Legislature at any time deem the exercise of this power necessary and proper. State vs. Northern Central Railway Company, 44 Md.; 131. The reservation is therefore a condition upon which the charter is granted, and when it is accepted, the right to exercise the power is as binding as if it was written in the body of the charter itself. Jackson, Governor, et al. vs. Walsh, et al., 76 Md., 304. The right therefore of the Legislature to alter and amend the charter of the defendant corporation is not, and could not, be denied. At the same time we agree with the appellant that it could not change fundamentally the nature and character of the charter itself. It could not, under the guise of an amendment, substitute a new and different charter with distinct and different purposes, and oblige the stockholders to accept it. For could it divest property rights acquired under the legitimate exercise of the powers granted. Independent altogether of the contract clause of the Federal Constitution is the provision which declares that no one shall be deprived of his property without due process of law.

At the same time, the Legislature, it is equally clear, has the right.to amend or repeal the franchises, privileges or immunities granted to the corporation. If its property was exempted from taxation, this may be revoked. If its charter prescribed the rates of tuition to be charged, these could be changed. If it prescribed the mode and manner by which the Seminary was to be managed and controlled, these and all other like rules and regulations may be altered and amended, as the Legislature may in its judgment determine.

In the Sinking Fund Cases, 99 U. S., 700, 721, after reviewing the several cases in the Supreme Court, in which the extent of the reserved power to amend or repeal the charters of corporations had been considered, the Chief Justice says: “Griving full effect to the ¡orinciples which have thus been authoritatively stated, we think it safe to say, that whatever rules Congress might have prescribed in the' original charter for the government of the corporation in the administration of its affairs, it retained the power to establish by amendment.” And in that case it was held that, under this reserved power, Congress could lawfully enact that the corporation should set apart a portion of its earnings as a sinking fund for the payment of its debts to the United States.

And in Millar vs. The State, 15 Wallace, 478, the Supreme Court held that where the charter of a corporation was subject to amendment or repeal in the discretion of the Legislature, it was competent for the Legislature to provide by law that a municipality should have the right to elect seven directors of a railroad company in place of four, the number which it had been originally empowered to elect, though such change resulted in giving the majority of the board to the municipality. And in answer to the argument, that the right to elect all of the directors, except four, had become vested in the stockholders owning a majority of the shares, and that the amendatory Act giving to the city the power to elect seven impaired that vested right, Mr. Justice Clirrord said: “The Court is of an entirely different opinion, as the Legislature, in conceding that right, made the concessions subject to the reserved power to alter or repeal as ordained in the Constitution of the State and the several statutes mentioned, which clearly gives to the Legislature the power to augment or diminish the number or to change the apportionment as the ends of justice or the best interests of all concerned may require.”

■So tested by these well settled principles we do not see on what grounds the amendatory Act of 1892 can be said to change materially, or to be in any manner inconsistent with, the objects and purposes for which the Seminary was chartered. It merely authorizes the trustees to lease to the School Commissioners so much of the buildings and grounds as were not necessary for the use of the Seminary. The property belonging to the Seminary "was already encumbered with mortgage debts, which the trustees were unable to discharge; and besides they were without the means necessary to maintain it as an institution for purposes of female education. By the contract which the amendatory Act authorized the trustees to make, the mortgage debts were paid with the money furnished by the School Commissioners, and the annual rental to be paid by them for the use of part of the buildings and grounds enabled the trustees to maintain the Seminary for the objects and puiqDOses for which it was incorporated.

The argument, however, is that the necessary effect and operation of the lease in question was to change the seminary which was chartered for the education of females, into a mixed, school for boys and girls. We agree with the appellant that the defendant corporation was chartered for the education exclusively of girls and young women. That such was its object and purpose is plain we think not only from the title of the Act of incorporation, but from every provision in the charter itself. It was so understood and accepted by the corporators themselves, and it was so conducted and managed down to 1890, when the lease was made, and it was for the purposes of female education that the State agreed to appropriate annually the sum of five hundred dollars. But it does not seem to us that the lease itself can by any fair rule of construction be held to change the seminary into a mixed school for boys and girls. The buildings were, it seems, larger than actually necessary for the seminary, part of them being occupied as residences for the teachers, and in the lease are reserved in express terms ample accommodations for the use of the seminary. And, as we construe it, the lease simply means that the School Commissioners shall be permitted to use and occupy part of the buildings and grounds for public school purposes.

The proof in the record shows, it is true, that the buildings have been used in a manner not warranted by the terms of the lease, as we have construed it. Instead of reserving and using part of the buildings for the exclusive education of females, the girls of the seminary and the boys and girls attending the public schools occupy, it appears, the same room, with an aisle, merely, between, and recite to the same teachers in the same ■class. In the face of such facts as these, it can hardly be said that the Seminary is conducted as a school exclusively for the education of females, such as was contemplated by the defendant’s charter.

The relief prayed, however, is not on the ground that the trustees have permitted the use of the buildings in a maimer not warranted by the lease, but upon the ground, that they had no power, either under the original charter or the amendatory Act of 1892, to lease any part of the buildings to the School Commissioners, even though they did reserve suitable and necessary accommodations for the exclusive use of the Seminary. It was filed upon the theory that the trustees had no power whatever to lease any part of the buildings, and the relief prayed is to enjoin the parties from carrying into effect the terms of the lease, and to prevent the trustees of the Cambridge Academy, or the School Commissioners from taking possession of, or using in any manner, the property belonging to the Female Seminary. There is a general prayer, it is true, “for other and further relief,” but under such a prayer the complainant is not entitled to relief beyond the general scope and object of the bill. Fenby, et al. vs. Johnson, 21 Md., 106. Whether the Legislature has the power, by amending the charter of the defendant, to convert the Seminary, chartered originally for the exclusive education of females, into a mixed school for boys and girls, is a question not presented by the pleadings in this case, and in regard to which we are not to be understood as expressing any opinion. What we mean to decide is that the Legislature had the power, by the amendatory Act of 1892, to authorize the trustees to execute the lease in question, and that the lease so executed does not in itself change, or authorize the trustees to change, the Seminary into a-mixed school for boys and girls.

(Decided 16th November, 1893.)

Now, as to the power of the School Commissioners to-subscribe to the stock of the Female Seminary, and to-lease part of the buildings and grounds for public school purposes, we have but a word to add. The Code provides that they shall have the general supervision and control of all schools in their respective counties; they shall build, repair, and furnish school houses; they shall fix the salaries of teachers; they shall purchase and distribute text books, and “shall perform such other duties as may be necessary to secure an efficient administration of the public school system.” The powers thus conferred are broad and comprehensive. Whether they are broad enough to authorize them to lease buildings for school purposes it is quite unnecessary, for the purposes of this-case, to decide. Be that as it may, they are public, and not private corporations, and, being public corporations, the-Legislature had beyond all question, the power to authorize them to lease the buildings of the Seminary for school purposes, it follows from what we have said that-the decree below must be affirmed.

Decree affirmed.