Mohall Farmers' Elevator Co. v. Hall

• Decision Date: 05 January 1920
• Citation: 176 N.W. 131,44 N.D. 430
• Parties: MOHALL FARMERS' ELEVATOR CO. v. HALL, Secretary of State.
• Court: North Dakota Supreme Court

44 N.D. 430

176 N.W. 131

MOHALL FARMERS' ELEVATOR CO.

v.HALL, Secretary of State.

Supreme Court of North Dakota.

Jan. 5, 1920.

Syllabus by the Court.

This is a mandamus proceeding against the secretary of state to compel him to receive and file a certain certificate presented by the plaintiff corporation on August 4, 1919, showing that said corporation by a majority vote of its stockholders on July 12, 1919, decided to accept the benefits of and to be bound by the provisions of chapter 99, Laws 1919. The secretary of state asserts that the statute is unconstitutional for the reason that it impairs the contract obligations existing in favor of stockholders, and that as to stockholders who do not consent it is violative of the contract and due process provisions of the federal Constitution. For reasons stated in the opinion it is held that these defenses are not available to the secretary of state.

Appeal from District Court, Burleigh County; Nuessle, Judge.

Mandamus by Mohall Farmers' Elevator Company against Thomas Hall, Secretary of State of the State of North Dakota. From an order sustaining a demurrer to the petition, plaintiff appeals. Order reversed, and cause remanded.Nuchols & Kelsch, of Mandan, Geo. I. Rodsater, of Mohall, and Benjamin Drake, of Minneapolis, Minn., for appellant.

William Langer, Atty. Gen., and Edw. B. Cox, Asst. Atty. Gen., for respondent.

CHRISTIANSON, C. J.

The plaintiff corporation is an elevator company engaged in buying, storing, and handling grain. It was incorporated under the laws of this state relating to the formation of general corporations on April 10, 1906, and the certificate of corporate existence was issued to it by the secretary of state on that date. On June 1, 1906, certain by-laws were adopted. Article 8 of such by-laws reads:

“Dividends and Profits.

Section 1. The profits and accumulations of this corporation shall be divided annually, as follows:

First. There shall be reserved and set aside as a surplus fund, 10 per cent. of the net earnings of the corporation, annually.

After the 10 per cent. of the net earnings has been deducted as above, it shall be divided between the stockholders, as follows:

There shall be paid to each shareholder of this corporation the net profits accruing from the number of bushels of grain sold by said shareholders to the corporation, provided nevertheless, that all grain sold by a shareholder to the corporation, shall be grown on land owned by said shareholder, or on land rented by him, and if on rented land, only on such share as belongs to him.

Second. There shall be paid to each shareholder according to his holdings a dividend on the balance of profits remaining.”

This article has never been repealed or altered, but has remained in full force as originally adopted.

The Legislative Assembly in 1919 enacted a law which, among other things, provided:

“All co-operative corporations, companies, or associations heretofore organized and doing business under prior statutes, or which have attempted to so organize and do business under prior statutes, or which have attempted to so organize and do business, or which prior to March 12, 1917, were organized under the general corporation laws of the state, and whose articles of incorporation or by-laws did then provide for distribution of any portion of earnings or profits upon a co-operative basis, shall have the benefit of all of the provisions of this act, and be bound thereby on filing with the secretary of state a written declaration signed and sworn to by the president and secretary to the effect that said co-operative company or association has, by a majority vote of its stockholders, adopted at any time subsequent to March 12, 1917, decided to accept the benefits of and to be bound by the provisions of this act. No association organized under this act, or which has adopted the provisions of this act shall be required to do or perform anything not specifically required therein, in order to become a corporation or to continue its business as such.” Chapter 99, Laws 1919.

The plaintiff corporation has a subscribed capital stock of 190 shares, held by 68 differerent stockholders. A regular stockholders' meeting was held July 12, 1919. There was present at such meeting 51 stockholders, owning 158 shares of the capital stock. Fifty of the stockholders present, owning 157 shares of stock, voted in favor of the corporation accepting the benefits of and being bound by the provisions of the above-quoted statute; and 1 stockholder, owning 1 share of stock, voted against the proposition.

On August 4, 1919, plaintiff presented to the defendant secretary of state for filing a written declaration signed and sworn to by its president and secretary, setting forth that at a meeting of the stockholders thereof held on July 12, 1919, said corporation had by a majority vote of its stockholders decided to accept the benefits of and to be bound by the provisions of said law, and tendered to the defendant the fee provided by law for filing such declaration. The defendant refused to file the same. The plaintiff thereupon brought this proceeding in the district court of Burleigh county to procure a peremptory writ of mandamus, requiring defendant to receive and file such declaration. The above-stated facts were set forth in the plaintiff's petition. The defendant demurred to the petition on the ground that it did not state facts sufficient to constitute a cause of action. The demurrer was sustained, and plaintiff has appealed.

The defendant contends that chapter 99, Laws 1919, in so far as it permits a majority of the stockholders in a corporation organized under the general corporation laws of the state to transform the same into a corporation operated on the co-operative plan is unconstitutional, for the reason that it impairs the obligation of contracts as to the stockholders who do not consent to the change, and in effect deprives such stockholders of their property rights without due process. To this contention the plaintiff makes answer: (1) That the defendant has no right to raise these constitutional questions; and (2) that the state by section 131 of the Constitution and section 4495, C. L. 1913, has reserved the right to enact such legislation.

In the celebrated Dartmouth College Case the Supreme Court of the United States held that the charter of a corporation is a contract, and entitled to protection under the provision of the Constitution of the United States, which prohibits the several states from passing any law impairing the obligation of contracts. The same doctrine is, of course, applicable to corporations organized under a general corporation law. 7 R. C. L. p. 95. To avoid the rule laid down in the Dartmouth College Case many of the states, either by constitutional or statutory provisions, similar to section 131 of the Constitution and section 4495, C. L. 1913, reserved the right to alter or repeal the charters granted to any corporation or the laws under which it was created. Fletcher's Encyc. Corp. § 4007.

But the charter of a corporation constitutes not only a contract between the state and the corporation. It constitutes also a contract between the corporation and its stockholders and between the stockholders inter se, which latter contracts are entitled to protection under the federal constitutional provision prohibiting the several states from passing any law impairing the obligation of contracts. 7 R. C. L. p. 97. And there is a diversity of judicial opinion as to the extent of reservations like these embodied in section 131 of the Constitution and section 4495, C. L. 1913, and to what extent, if at all, they are applicable to the contractual obligations existing between the corporation and its stockholders and between the stockholders inter se. Some courts have held that the reservation by the state of the power to alter or repeal the charter of a corporation or the laws...