liability thereon.1 It has been held, however, that even though a stockholder has paid nothing for his stock, he is entitled to vote the same.2 1 See Peninsula Savings Bank v. Company, 105 Mich. 535; 63 N. W. 514; Handley v. Stutz, 139 U. S. 417; 11 S. Ct. 530; De La Vergne Refrigerating Machine Co. v. German Savings Institution, 175 U. S. 40; 20 S. Ct. 20; 44 L. E. 65; Rogers v. Gross, 67 Minn. 224; 69 N. W. 894; Scoville v. Thayer, 105 U. S. 143; Garrett v. Company, 113 Mo. 330; 20 S. W. 965. 2 Cartwright v. Dickinson, 88 Tenn. 476; 12 S. W. 1030; W. E. L. Co. v. Landy, 66 Vt. 248; 29 Atl. 248; see also Busey v. Hooper, 35 Md. 15. CHAPTER V. LEGISLATIVE CONTROL OVER DOMESTIC CORPORATIONS. § 111. Statement of Principal Methods by which Legislative Control over Domestic Corporations is obtained. Under our modern system legislative control over domestic corporations ordinarily takes the following forms, to wit: (1) control over amendment of corporate charters; (2) reservation on the part of the State of the right to repeal all charters; (3) control over dissolution of corporations; (4) by the exercise through State officials of the right to forfeit charters by means of quo warranto proceedings; (5) by means of the exercise of the police power; (6) through legislative investigation into corporate affairs; (7) by requiring annual reports of corporations; (8) by compelling corporations to permit inspection of their books and records for the benefit of stockholders and creditors; (9) by means of anti-trust legislation; (10) by the enactment of statutes regulating the internal affairs of the corporation; (11) by the imposition of liability upon stockholders for corporate debts over and beyond their liability for unpaid stock subscriptions; (12) enactment of statutes imposing liability upon directors for misfeasance or non-feasance in office; (13) by means of legislative control over the extension of corporate existence; (14) by the exercise of the right of taxation upon corporations; (15) by regulating the right of consolidation of corporations. § 112. Amendment of Charters. A glance at the general business acts in force in the several States and Territories will serve to show that in all of them more or less attention has been paid by the legislatures to the question of the right to amend with more or less freedom-articles of incorporation. In a majority of these the power of amendment will be found to be practically unlimited. In nine the limitations imposed are not wide in scope, while in eleven the power referred to may be characterized as being very narrow in its practical operation.1 The practical questions to be considered in this immediate connection have reference, first, to ascertaining in what body the legislatures have seen fit to place the power of amendment, and, secondly, an inquiry whether the power when granted, apparently in the broadest terms, is in legal effect without any limitations whatsoever. As a general rule, the directors have no power to amend charters unless such right is expressly conferred upon them by statute. Power to amend resides exclusively in the stockholders.2 Turning now to the second inquiry referred to above, the following may be said. With respect to the right on the part of majority stockholders to exercise the power of amendment, there are two practical views of the question which deserve consideration. The first has reference to the effect, if any, the exercise of such right may have upon the right of the corporation to enforce stock subscriptions which were made in reliance upon the corporate purposes set forth in the original charter. The other relates to the binding effect of such amendments, when had, upon dissenting minority stockholders who have previously paid up their stock subscriptions. In the first case it appears to be the generally accepted view that when a party makes a subscription to the capital stock of a corporation he does it in reliance upon the implied understanding that no changes shall be made in the charter without his consent which produce material and fundamental changes therein. The rule however can clearly not apply where the changes made were trifling or immaterial or were in furtherance of the original objects of the corporation. There is a well-defined tendency at the present time on the part of many courts to take the view that in order that a subscriber to the capital stock may escape liability on his subscription on the ground that there has been a material amendment to the charter since his subscription was made, that 1 See Part II., Synopsis-Digest of the Corporation Acts of the Several States, under the head Amendments." 64 2 Gill v. Bayless, 72 Mo. 424; Ry. Co. v. Allerton, 18 Wall. U. S. 233; Ollesheimer v. Mfg. Co., 44 Mo. Ap. 172; Clough v. Company, 25 Col. 520; 55 Pac. 809; State v. Oftedal, 72 Minn. 488; 75 N. W. 692; Commonwealth v. Cullen, 13 Pa. St. 133; Abbott v. Company, 33 Barb. (N. Y.) 583. 3 Mowrey v. Company, 4 Bissell (U. S.), 78; Printing House v. Trustees, 104 U. S. 711. 4 Fry's Executors v. Company, 2 Metcalf (Ky.), 322; Peoria v. Preston, 35 Ia. 115 Milford, etc. Turnpike Co. v. Brush, 10 O. St. 111; Durfee v. Company, 5 Allen (Mass.), 230. such amendment must necessarily have brought about changes of the most radical and fundamental character.1 Turning now to the second question here referred to, the following may be said. Important questions frequently arise as to the right of majority stockholders to amend the charter of the corporation against the dissent of minority stockholders so as practically to create an entirely new corporation with purposes and powers wholly different from those conferred in the original charter. Before the passage of the modern liberal amendment acts, specifically authorizing majority stockholders to change ad libitum corporate purposes and powers, the rule undoubtedly was that majority stockholders had no power to depart, under the guise of an amendment to the charter, from the objects for the accomplishment of which the corporation was created. At that time majority stockholders would be enjoined on the application of minority stockholders from making fundamental and radical changes in the original corporate purposes, which had the effect of practically creating a new corporation, with power to engage in lines of business wholly foreign to that set forth in the original charter. But whatever the rule may have been in times past, changed conditions have brought about material modifications therein. Owing to the recent statutory enactments in the great majority of the Commonwealths relative to amendment of charters, it may be said that this question has ceased to be one of great practical importance at the present time, however it may have been in the past. In view of these statutory provisions it may be said that as a general rule the extent of the power of amendment when exercised by a majority of the stockholders according to the statute in such case made and provided, depends entirely upon the terms of such statute and the construction given by the courts thereto.3 If broad 1 Banet v. Company, 13 Ill. 504; Pacific Ry. Co. v. Renshaw, 18 Mo. 210; Sprague v. Company, 19 Ill. 174; Irvine v. Turnpike Co., 2 Pen. & W. (Pa.) 466; Cross v. Company, 90 Pa. St. 392; Troy, etc. Ry. Co. v. Kerr, 17 Barb. (N. Y.) 607; Worcester v. Company, 109 Mass. 103; Del. Ry. Co. v. Tharp, 1 Houst. (Del.) 149. 1 Zabriskie v. Company, 18 N. J. Eq. 178; Stevens v. Company, 29 Vt. 545; Natusch v. Irving, 1 Smith's Cases, 226; Day v. Company, 75 Ia. 694; 38 in scope, they unquestionably permit majority stockholders to bring about radical and even fundamental changes in corporate purposes and powers if they so desire. 1 The question here presented is one of so much practical importance that it deserves more attention than has been yet given it. The New York Court of Appeals in Buffalo & New York City Railroad Co. v. Dudley 1 laid the foundation for the establishment in that State of the present just rule that there obtains with reference to the right of majority stockholders to materially change the corporate purposes against the dissent of minority stockholders. In that case the court permitted a change of name and an extension of the line of the railway by means of an amendment to the original charter. In passing upon this point the court spoke as follows: "The stock subscription having been valid so as to give a right of action in case of non-payment to the corporation, did the alteration of the charter and the extension of the road subsequently absolve the defendant from his liability upon such subscription? The right to alter was reserved in the charter, and the subscription must be taken to have been made subject to having such additional powers conferred as the legislature might deem essential and expedient. The change is not fundamental. The new powers conferred are identical in kind with those originally given. They are enlarged merely, the general objects and purposes of the corporation remaining still the same. It may be admitted that under this reserved power to alter and repeal the legislature would have no right to change the fundamental character of the corporation and convert it into a different legal being, for instance, a banking corporation, without absolving those who did not choose to be bound. But this they have not attempted to do. The additional powers are of the same character and have been regularly acquired from a legitimate source of power, and if they had been fairly exercised the defendant, although the change may have operated to his pecuniary disadvantage, is still bound by his undertaking. The whole matter is manifestly a question of power; and if the power was legitimately acquired and has been exercised without fraud, the rights of the parties are in no respect changed as between themselves whether the alteration is beneficial or injurious to the defendant's interest. N. W. 897; Mercantile Statement Co. v. Kneal, 51 Minn. 263; 53 N. W. 632; People v. Green, 116 Mich. 505; 74 N. W. 714. 1 14 N. Y. 342. |