Hays v. Commonwealth ex rel. McCutcheon , 82 Pa. 518 ( 1877 )

Mr. Justice Gordon

delivered the opinion of the court, January 2d 1877.

But a single question is presented for our consideration. Does section 4, article 16, of our new constitution apply to the corporation known as the Pittsburgh and Castle Shannon Railroad Company ? That section reads thus : “ In all elections for directors or managers of a corporation each member or shareholder may cast the whole number of his votes for one candidate, or distribute them upon two or more candidates, as he may prefer.” This section is understood to confer upon the individual stockholder the right to cast all the votes which his stock represents, multiplied by the number of directors or managers to be elected, for a single candidate, should he think proper so to do. Though from this section, as originally proposed, words nearly similar to those we have used, were stricken out, yet we have no doubt we have in -our statement embodied the intention of the convention. If, indeed, we do not, in this manner, reach the meaning of this part of the constitution, it has none; for it would be a. vain thing to propose to confer a power upon members of a corporation which they already possessed. Adopting this interpretation as the true one, and we must concede that the intent was to work a radical change in the method of conducting corporate elections. The importance of this innovation is not to be underrated in the face of the very significant fact that it was thought worthy of a place in the supreme law of the state, and thus placed beyond the power of legislative interference. Applying this rule to the Pittsburgh and Castle Shannon Railroad Company, let us observe its effect. This company was incorporated on the 21st of September 1871, in accordance with the provisions of the Act of April 4th 1868 (Pamph. L. 62); among other provisions of its charter is this one: “At all general meetings or elections by the stockholders, each share of stock shall entitle the holder thereof1 to one vote.” Of course this means one vote for each officer to be elected, as it means one vote on each resolution that may be pro-' posed at any general meeting. Thus, a stockholder, owning one share, would have one vote for each of the ten directors. If, however, we annul this provision of the charter, and substitute the constitutional provision above referred to, this shareholder will have ten votes for any one of the ten candidates for the office of manager, whom he may choose to select, or five for each of any two he may so choose. Thus, those holding a minority of the shares of the stock of this corporation would be enabled to do what under the charter is impossible, to wit, to elect, in spite of the majority, one or more of the managing officers. Now, whilst it cannot be said that this would not be an alteration in the terms of this charter, it is nevertheless urged that it is a mere regulation of the right of suffrage in corporations, but affects the vested rights of no one. PBut if it be not a vested right in those who own the major part of the stock of the corporation, to elect, if they see proper, every member of the board of directors, then I would like to know what a vested right means. This was part of the contract under which they entered into the company, and for which they paid their money.- The compact was, that they should have the power to select those who should have the management and control of the funds which they adventured in this enterprise. If, indeed, it be admitted that the minority in a board of directors amounts to nothing, the above stated proposition would be admissible, but we cannot seriously entertain such an idea, for it was just because such a minority does amount to something, and because it often can control, or modify, the acts of a majority, that the introduction of the constitutional provision under discussion was thought necessary. The framers of this part of our constitution were no neophytes in legal science, but masters and teachers, who well knew what, they were about, and that they intended to introduce a radical change in the law governing corporations is not doubtful. But when we have come to this conclusion we have reached the turning point of this' case/for if the' charter method of voting be a material part of the organic law of the company, it follows, that the constitutional convention, even had it so intended, could not alter that method./ In the case of the Iron City Bank v. Pittsburgh, 1 Wright 340, this matter is carefully considered in an elabprate opinion by Justice Woodward, in which, after citing the case of the Trustees of Dartmouth College, 4 Wheat. 518, wherein it was held that the royal charter granted to the trustees of that college before the revolution, was a contract within the meaning of the Constitution of the United States, and that an act of the legislature of New Hampshire altering the charter, without the consent of the corporation, was an act impairing the obligation of a contract, and therefore unconstitutional and void, he says, that this' decision, though often questioned, has been generally followed, and that the doctrine therein stated may now be regarded as the settled rule of law of every state in the union.

This authority is supported by the cases of the Bank of Pennsylvania v. The Commonwealth, 7 Harris 144, and the Commonwealth v. The Pittsburgh and Connellsville Railroad Co., 8 P. F. Smith 26. So we may take it as settled that the charter of a company is such a contract as cannot be impeached by state authority, except for proper cause shown. It is said, however, that by the amendment of 1857 the legislature has the power to alter or revoke the charter' of this corporation. Be it so; it may be an answer to say, that a constitutional convention is not the legislature in the meaning of that amendment. If, however, it were such it could only make such alteration or revocation when it was made to appear that the charter in the part proposed to. be revoked or altered was “ injurious to the citizens of the Commonwealthfor the legislature cannot act arbitrarily in a matter of this kind, and impose its own will as the ultima ratio. In the case last above cited, Mr. Justice SharsWOOD sets it down as a rule settled not only by judicial but legislative authority that the legislature is not the final judge of whether the casus foederis, upon which the authority to repeal is based, has occurred. As there is in this case no allegation of a breach of any • condition under which the Pittsburgh and Castle Shannon Railroad Company accepted its charter, or that that charter is in any particular obnoxious to the welfare of the citizens of this Commonwealth, it cannot be successfully urged that it may be revised or abrogated by any state authority whatever. But the constitutional convention claimed for itself no such power; on the other hand, it has expressly set down (art. 2- of the schedule) that all rights, actions, prosecutions and contracts shall, continue as if the constitution had not been adopted. And by the 2d section of the 16th article, it is manifest that the convention did not intend to subject any private corporation to any of the provisions of the constitution which might in any degree change the charter thereof. If otherwise, why say: “The (General Assembly shall not remit the forfeiture of the charter of any corporation now existing, or alter or amend the same, or pass .any other general or special law for the benefit of such corporation, except upon the condition that such corporation shall thereafter hold its charter subject to the provisions of this constitution.”

This section is so comprehensive and clear that nothing is left for surmise or doubt. Charters of private corporations are left exactly as the new constitution found them, and so they must remain until the companies holding them shall enter into a new contract with the state by accepting the benefit of some future legislation. It is •only on the theory that the manner of voting is not material that the cumulative system is sought to be saddled on this corporation; but if this company does not hold its charter subject to the provisions of the present constitution, how can it be made subject to any one of such provisions, material or immaterial ? It is indeed manifest that such an argument is foreign to the question in hand. It might apply to a legislative enactment attempting to alter this charter, but it cannot apply to this case, arising, as it does, directly on the constitution itself, for it is excluded by the very terms of that instrument. The judgment is reversed.

Mr. Justice Woodward dissented.