State ex inf. Dalton ex rel. Holekamp v. Holekamp Lumber Co.

• Decision Date: 14 November 1960
• Docket Number: No. 48171,48171
• Citation: 340 S.W.2d 678
• Parties: STATE ex inf. John M. DALTON, Attorney General, ex rel. Richard E. HOLEKAMP et al., Appellants, v. HOLEKAMP LUMBER CO., a Corp., et al., Respondents.
• Court: Missouri Supreme Court

Page 678

340 S.W.2d 678

STATE ex inf. John M. DALTON, Attorney General, ex rel Richard E. HOLEKAMP et al., Appellants, v. HOLEKAMP LUMBER CO., a Corp., et al., Respondents.

No. 48171.

Supreme Court of Missouri, En Banc.

Nov. 14, 1960.

Rehearing Denied Dec. 12, 1960.

Donald E. Fahey, St. Louis, for relators-appellants.

Leonard E. Martin, Eugene H. Buder, St. Louis, for respondents.

HYDE, Chief Justice.

Quo warranto to oust Holekamp Lumber Company (hereinafter called Holekamp) and individual respondents, majority stockholders, from carrying on the functions of a corporation of this state. Motions to dismiss were sustained and relators have appealed.

The motions to dismiss raised questions of proper parties and as to whether the information stated facts upon which relief could be granted. Because of the view we take we consider only the latter. The decisive question on this issue is whether the duration of a corporation, incorporated in 1908, could be extended by a majority vote only (authorized by our present Corporation Code, Chapter 351, RSMo, V.A.M.S.) or whether action by three-fourths vote to accept subsequent laws (as provided in Sec. 972, RS 1899) was required. Because of the general importance of this question we transferred this cause from the St. Louis Court of Appeals. For further details of pleadings, reference is made to the opinion of the Court of Appeals, State ex inf. Dalton v. Holekamp Lumber Co., Mo.App., 331 S.W.2d 171; and reference is also made thereto for a full statement of the contentions of relators and the full text of statutes considered.

The challenged extension of the period of duration of Holekamp was made by amendment of its articles under authority of Sec. 351.085 (statutory references are to RSMo and V.A.M.S. unless otherwise stated) for which Sec. 351.090 required only a majority vote. These sections are part of 'The General and Business Corporation Law of Missouri,' Chapter 351, adopted in 1943 (Laws 1943, p. 410), which is made applicable by Sec. 351.690(4) 'to all other corporations, existing under prior general laws of this state' excepting certain kinds specifically mentioned in preceding subsections, not material here. Relators' basic contention is that extension of Holekamp's duration could only be made under the procedure provided by Sec. 972, RS 1899, which was in force when Holekamp was incorporated and which they claim required a three-fourths vote for this purpose. They contend the statutes enacted in 1943 could not apply because they claim the Constitution of Missouri in force at that time (Constitution of 1875) reserved no general power to amend any corporate charter, nor was there any such statutory reservation, relying on Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 4 L.Ed. 629. However, we do not agree with relators' claim that this State had reserved no such power under its 1875 Constitution as to corporations authorized to be incorporated under its general laws; and for the reasons hereinafter stated hold valid the extension made under authority of Secs. 351.085 and 351.090.

Prior to our 1865 Constitution, corporations were usually created by special act of the Legislature, although there were prior general laws authorizing certain kinds of corporations to be incorporated by signing, acknowledging and filing articles. RS 1855, Chapters 34, 35, 36, 37, 38, 39. Our 1865 Constitution, Art. 8, Sec. 4, provided: 'Corporations may be formed under general laws, but shall not be created by special acts, except for municipal purposes. All general laws and special acts passed pursuant to this section may be altered, amended, or repealed.' Pursuant to that constitutional provision, a comprehensive general corporation act was passed by the Legislature in 1866 (Laws 1865-66, pp. 20-70). This act consisted of one chapter on general powers and liabilities and eight other chapters, each dealing with different kinds of corporations, and many of its provisions remained in effect until the adoption of our 1943 Corporation Act.

It should be noted that the 1865 Constitution did not prohibit the amendment, by special act, of special charters previously granted to corporations. State ex rel. Circuit Attorney of the Tenth Judicial Circuit v. Cape Girardeau and S.L.R. Co., 48 Mo. 468; State ex rel. Ranney v. Thileneus, 48 Mo. 479; St. Joseph & I. R. Co. v. Shambaugh, 106 Mo. 557, 569, 17 S.W. 581. However, this power was taken away by the 1875 Constitution. Moreover, Sec. 4, Art. 8, of the 1865 Constitution stated the matter affirmatively, namely: 'Corporations may be formed under general laws' and 'all general laws and special acts * * * may be altered, amended, and repealed,' while the 1875 Constitution stated the whole matter in negative form. Sec. 2, Art. 12, thereof, was as follows: 'No corporation, after the adoption of this Constitution, shall be created by special laws; nor shall any existing charter be extended, changed or amended by special laws, except those for charitable, penal or reformatory purposes, which are under the patronage and control of the State.' Certainly this negatively stated provision of the 1875 Constitution did not mean that no corporations could be created by general laws. (See State ex rel. Walker v. Corkins, 123 Mo. 56, 63, 27 S.W. 363, 364, stating this meant that corporations 'must be created under the general laws of the state, and can have no valid existence unless authorized by general law.') Our conclusion is that both provisions meant not only that corporations may be formed under general laws but also that the 1875 provision meant general laws authorizing corporations to be formed may be repealed, changed or amended by general laws. (The question of such meaning by implication was suggested by Judge Pearcy in his work on Missouri Corporation Law, Sec. 175.) This is true because general laws concerning corporate powers are a part of all corporate charters.

This construction appears more clearly when we consider Art. 4 of the 1875 Constitution. Sec. 1 of Art. 4 provided: 'The legislative power, subject to the limitations herein contained, shall be vested in a Senate and House of Representatives, to be styled 'The General Assembly of the State of Missouri.'' It is a well-settled principle of constitutional law that our state constitution 'is not a grant but a restriction or limitation on the legislative powers; therefore the General Assembly has all legislative powers not denied it by the constitution.' State ex rel. Jones v. Atterbury, Mo.Sup., 300 S.W.2d 806, 810. One of the limitations, provided by Sec. 53, Art. 4, was: 'The General Assembly shall not pass any local or special law * * * [25.] Creating corporations, or amending, renewing, extending or explaining the charter thereof.' Sec. 53 further provided that 'where a general law can be made applicable, no local or special law shall be enacted'; and made the applicability of a general law 'a judicial question.' We, therefore, hold that the 1875 Constitution did contain a sufficient reservation to permit our Legislature to adopt general laws authorizing amendments to articles of incorporation of existing corporations, organized under general laws, to be made by a majority vote of their shareholders. Of course, since we had never before construed these provisions of the 1875 Constitution to determine the question of such reserved power, the St. Louis Court of Appeals could not have decided the case on this ground because the limitation of its jurisdiction by Sec. 3, Art. 5, Const., V.A.M.S., prevented it from making any construction of the Constitution.

Nevertheless, even with such a reservation of power, the authority of the Legislature to amend corporate charters or to authorize stockholders to do so is not absolute. Determination of the extent of this authority 'requires consideration of three constitutional doctrines: police power, due process and obligation of contracts.' Extent of the Legislature's Reserve Power to Change Common Law Attributes of Corporations, Hayes, 13 Vanderbilt Law Review 261. It is said: '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, Sec. 492. The third is also described as a contract of the stockholders inter sese. It is pointed out (13 Vanderbilt Law Review 275) that three principal approaches have been made by the courts in deciding what changes may be made with legislative sanction. 'One is that under its reserved power the legislature may not make or authorize a majority to make any changes that will affect the contract between the shareholders themselves (unless perhaps as to matters where public interest overrides) but may change or authorize changes only in the contract between the state and the corporation. * * * A second approach is that the legislature may make or permit a majority of the stockholders to make any changes except those which will deprive a...