CRC Comparative Analysis of the Michigan Constitution

8/6/2019 CRC Comparative Analysis of the Michigan Constitution

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A Comparative A nalysisof the

M ichigan Consti tutionVolumes II

Articles XII

Citi zens R esearch Counci l of M ichigan

1526 D avid S tott B ui lding 204 B auch B ui lding

D etroit, 26, M ichigan L ansing 23, M ichigan

R epor t N umber 208 O ctober 1961


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Citizens Research Council of Michigan

TABLE OF CONTENTS

CHAPTER XII CORPORATIONS

Page

1. Crea t ion of Corporat ions xii - 1

2. Const ruct ion of Corporat ion; Suit s xii - 3

3. Durat ion of Fra nchise; Extension of

Corporate Life xii - 5

4. Liability of Stockholders xii - 6

5. Limita t ion of Time of Holding Real Esta te xii - 9

6. Pr ohibition of Extension of Special

Incorpora t ion Acts xii - 10

7. Regulation of Transporta tion Rates;

Discr iminat ion Prohibited xii - 12

8. Consolidat ion of Railroads xii - 15

9. Banking and Trust Company Laws xii - 16

(over)


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Section Det ail

Page

Art icle XII, Section 1 ..................................................................... xii - 1

2 ..................................................................... xii - 3

3 ..................................................................... xii - 5

4 ..................................................................... xii - 6

5 ..................................................................... xii - 9

6 ..................................................................... xii - 10

7 ..................................................................... xii - 12

8 ..................................................................... xii - 15

9 ..................................................................... xii - 16


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XII CORPORATIONS

Dykema , Wheat , Spencer, Goodnow & Trigg

J ohn R. Dykema

1. Crea tion of Corpora tions

Art icle XII: Section 1. Corporat ions ma y be form ed under genera l laws, but sha ll

not be crea ted, n or sh all an y right s, privileges or fra nchises be con-

ferr ed upon t hem , by special a ct of th e legislatu re. All laws her etofore

or h erea fter pa ssed by th e legislat ur e for t he form at ion of, or confer-

ring rights, privileges or franchises upon corporations and all rights,

privileges or fra nchises conferr ed by such laws ma y be amen ded, al-

tered, r epealed, or abrogated.

Const itu tions of 1835 and 1850

The 1835 const itu tion (Art icle XII, Section 2) provided t ha t t he legislatu re sh ould

pas s no act of incorpora tion, unless with th e assen t of at least two-th irds of each

house. It evidently did n ot forbid t he form at ion of corpora tions by special acts. Th is

prohibition ap pear ed first in t he 1850 const itu tion (Art icle XV, Section 1) which

forba de t he crea tion of corpora tions by special acts except for mu nicipal p ur poses. A

reservat ion of power in th e legislat ur e to am end or r epeal corporat e laws first ap-

pear ed in t he s am e section of the 1850 const itu tion a s follows: All laws pa ssed

pur sua nt , to this section m ay be amended, altered or repealed.

Const itu tion of 1908

Section 1 ha s not been a mended since the adoption of the present const itut ion.

In conn ection with th e elimina tion of except for mu nicipal pu rposes from t he

prohibition again st form ing corpora tions by special acts, Mr. Townsen d cha irm an of

th e comm itt ee on p rivat e corpora tions, said in th e cour se of th e 1907-08 convent ion,

We know very well tha t a great portion of th e time of our legislat ur e for a nu mber

of years past , has been t aken up by passing local laws, and it is evident t ha t t here

ha s been nothing done by th e legislat ur e of Michigan t ha t h as br ought it so much indisrepute with t he people of th e sta te a s t he pa ssage of local a cts.

The dra ft pr ovision pr esented t o the legislat ur e was a mended by adding th e words

of th e legislatu re after th e phr ase by special act. The pu rpose of th e addit ion

was t o rem ove th e inferen ce th at mu nicipalities would be forbidden t o confer fran -

chises u pon public service corpora tions, an d th us t o limit th e prohibition t o th e

legislature.


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A Comparative Analysis of the Michigan Constitutionxii - 2

XII

Corporations

Judicial Interpretation

Elimina tion of even th e par tia l power t o crea te corpora tions by special acts in t he

1908 const itu tion almost complet ely eliminat ed litigat ion un der th is pr ovision. In

1942, however, t he su prem e cour t wa s called on to decide th e const itu tionality ofAct 147, P.A. 139, which a ut horized th e electora te of five coun ties in south east ern

Michigan to form th e H ur on-Clinton Metr opolita n Aut hority, against th e claim,

am ong others, th at it violated t he first clause of Section 1. The cour t held th at th e

au th ority was not a corporat ion in th e const itut iona l sense, but ra th er a sta te

agency designed t o function in a limited sph ere in t he a ccomplish men t of public

pur poses for wh ich existing mu nicipal corpora tions were n ot su ited.1

The reservat ion of power t o amend, alt er, repeal or abr ogate corporat ion laws an d

fran chises is clear ly an d compreh ensively expressed a nd h as n ot occasioned an y

substa nt ial am oun t of cont roversy.

Ther e was a su bsta nt ial body of litigation un der t he compa ra ble sections of prior

constitutions, particularly with relation to special acts of incorporation and the

reserved power to am end or repeal.

Statutory Implementation

The legislatu re h as over th e years extensively exercised its power t o enact general

corpora tion laws, th e broadest in s cope am ong which, in its presen t form , is th e

Michigan genera l corpora tion a ct, P .A. 327 or 1931, as am ended, M.S.A. Section

450.1 et seq. Among others are: the insurance code of 1956, P.A. 218 of 1956, M.S.A.

Section 24.1100 et seq.; summer resort associations, P.A. 230 of 1897, M.S.A. Sec-

tion 21.661 et seq. and P.A. 137 of 1929, M.S.A. Section 21.751, et seq.; railroad,bridge an d t un nel compa nies, P.A. 198 of 1873 as am ended, M.S.A. Section 22.201

et seq.; union depot companies, P.A. 244 of 1881 as amended, M.S.A. Section 22.321,

et s eq.; tr ain ra ilway compa nies, P.A. 148 of 1855 as am ended, M.S.A. Section

22.371 et seq.; str eet r ailway compa nies, P .A. 35 of 1867 as am ended, M.S.A. Sec-

tion 22.421 ; brine pipeline companies, P.A. 182 of 1881 as amended, M.S.A. Section

22. 1271, et seq.; telegraph companies, P.A. 59 of 1851 as amended, M.S.A. Section

22.1361 et. s eq.; telephone a nd messen ger ser vice compa nies, P .A. 129 of 1883 as

am ended, M.S.A. Section 22.1411 et seq.; can al a nd ha rbor compa nies, P.A. 233 of

1875 as a men ded, M.S.A. Section 22.1481 et s eq.; river imp rovement compan ies,

P.A. 149 of 1869, M.S.A. Section 22.1511; wat er power comp an ies, P.A. 232 of 1863,

M.S.A. Section 22.1581, an d P .A. 39 of 1883, M.S.A. Section 22.1611; power compa-nies in th e up per penin sula , P.A. 283 of 1905, M.S.A. Section 22.1651.

Other Stat e Constitut ions

It is n oted t ha t t he pr eliminar y discuss ion dr aft, sixth edition, of August 4, 1961, of

th e Model Stat e Const itut ion, published by the N at iona l Municipal League, New

York, cont ain s n o provisions wha tsoever on t he s ubject of corpora tions.

1Huron-Clinton Metropolitan Authority v. Boards of Supervisors of Five Counties, 300 Mich. 1.


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The cons tit ut ions of 39 sta tes pr ovide for t he form at ion of corpora tions un der gener al

laws; const itu tions of 36 stat es forbid t he form at ion of corpora tions by special acts.

Ther e ar e a var iety of provisions per mit tin g incorpora tion by special act in special

cas es: bank ing corpora tions (Indian a), cities (Wisconsin ), cha rit able, educat iona l,penal or reformatory corporations under state control (Arkansas, Colorado, Dela-

ware, Idah o, Illinois, Mont an a, Nebra ska, North Carolina , Nort h Da kota, Sout h

Carolina , Sout h Dakota), mun icipal (Minnesota, Nevada), an d m un icipal pur poses

an d cases wh ere t he objects of th e corpora tion can not other wise be obta ined (Main e,

Mar yland, New York an d Wiscons in).

Twenty sta tes specifically reserve power in th e legislat ur e to am end a lter or r epeal

corporat e chart ers u nder genera l laws; seven st at es reserve su ch legislat ive: power,

provided n o injustice is done t he incorpora tors.

Some const itu tions set fort h oth er cau ses for forfeitur e of corpora te cha rt ers: Texas

perm its t he a tt orn ey gener al, for sufficient cau se, to seek a judicial forfeitur e; Vir-ginia provides tha t failur e to pay a registr at ion fee for t wo successive year s or t o

ma ke an a nn ua l report within ninet y days after t wo such year s works a revocat ion

of th e cha rt er Arizona , Idah o, Louisian a a nd Mont an a pr ovide for forfeitur e of

corpora tions which form monopolies or t ru st s.

Comment

The convention may well believe that the legislature does not require constitutional

au th ority t o pass general corporat ion laws. It may well be, however, tha t th e con-

vention will believe th at th e public policy again st crea tin g corpora tions by special

acts is importan t enough to ha ve const itut iona l sta tu s; if so, clause 1 of the presentsection could well be ret ain ed as it st an ds. Clause 2 no doubt origina lly app ear ed in

response to the Dartmouth College case.2 Though per ha ps no longer n ecessary, th e

convention ma y well believe tha t it should be r eta ined, if only to avoid an y infer-

ences th at might a rise by reason of its r emoval.

2. Const ru ction of Corpora t ion; Su its

Art icle XII: Section 2. The t erm corporat ion as u sed in th is ar ticle shall be con-

strued to include all associations and joint stock companies having any

of th e powers or p rivileges of corp ora tions n ot possessed by individua lsor pa rt nersh ips. All corporat ions sh all have th e right t o sue and be

subject t o be sued in a ll cour ts in like cases as n at ur al persons.

2 Trustees of Dartmouth College v. Woodward, 17 U.S. 5.18 (1819).


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XII

Corporations


This provision first appeared, in substantially identical form, in the constitution of

1850, Art icle XV, Section 11.


The su bsta nce of this p rovision occasioned n o debate in th e 1907-08 convent ion. It

ha s n ot been am ended since the a doption of the const itut ion.


The first clau se of Section 2 h as occasioned little litigat ion.

Sections 7 a nd 8 of Cha pter XIV of P.A. 314 of 1915, as a men ded, const itu tin g th e

judicat ur e act, relat e to actions by and a gainst corporat ions. Neither t he const itu-

tiona l clause n or t he implementing st at ut e ha s occasioned su bstan tial litigat ion.


Eight een st at es ha ve a const itu tional definit ion of corpora tion subst an tia lly iden-

tical to that in Michigan. Oklahoma and Virginia exclude municipal corporations

an d sta te-cont rolled public institu tions. North Da kota an d Sout h Car olina exclude

mu nicipal corpora tions; Minnesota excludes a ssociat ions an d joint -st ock compa nies

with ba nk ing privileges; an d th e Delawa re const itu tion does not ap ply to religious

corpora tions except a s s pecifically set forth .

Twelve const itu tions specifically permit corpora tions to sue as in t he case of na tu ra l

persons; Kansa s provides simply th at corporat ions m ay sue in th eir corporat e na me.

Eleven st at es provide that corporat ions m ay be sued as in t he case of natu ra l per-

sons; Kansas pr ovides tha t su ch su it may be brought in th e corporat e nam e. Penn-

sylvania pr ovides tha t t he sta tu te of limita tions a s to actions a gainst individua ls

sha ll apply to corporat ions an d t he Ca liforn ia const itut ion provides tha t a corpora-

tion m ay be sued in t he coun ty where a cont ra ct is m ade or to be perform ed, where

an obligat ion or a liability ar ises or br each occur s or wher e th e prin cipal place of

busin ess of th e defenda nt is locat ed, subject t o power of th e cour t t o cha nge th e

place of tr ial.

Comment

Though it ma y be doubt ed whet her th e provisions of Section 2 a re of sufficient

moment t o ent itle them to const itut iona l stat us, an d th e convention m ight believe

th at th ey are su bjects appr opriat e for legislat ive or judicial determ inat ion, t heir

reten tion m ay be th ought expedient in order t o avoid inferences th at might be

dra wn from t heir rem oval.


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3. Dur at ion of Fr an chise; Extension of Corpora te Life

Art icle XII: Section 3. No corporat ion sh all be crea ted for a longer period th an t hirt y

years, except for mu nicipal, railroad, insur an ce, can al or cemetery pu r-

poses, or corpora tions organ ized without an y cap ita l stock for religious,benevolent, social or frat erna l pur poses; but t he legislatu re ma y provide

by gener al laws, applicable to any corpora tions, for one or m ore exten-

sions of the term of such corporations, while such term is running, not

exceeding th irt y year s for ea ch exten sion, on th e consent of not less th an

two-th irds of th e cap ita l stock of th e corpora tion; and by like genera l

laws for t he corpora te r eorganizat ion for a furt her period, not exceeding

th irty year s, of such corporat ions whose terms ha ve expired by limita -

tion, on t he consen t of not less t ha n four -fifth s of th e cap ita l stock.


The s ubject covered by t his s ection first app ear ed in Article XV, Section 10, of th e

constit ut ion of 1850, which excepted from t he t hir ty-year limit only corpora tions for

mu nicipal pur poses or for th e const ru ction of railroads, plan k r oads an d cana ls. The

vote r equirem ent s for exten sion of corp ora te char ter s before a nd a fter expira tion

were ident ical, except t ha t t he legislat ur e was given power t o provide for such

extens ion in t he case of corp ora tions with no capit al st ock.


Section 3 has not been amended since the adoption of the constitution.

When t his section wa s consider ed by the comm itt ee of th e whole convent ion, th ereevidently was no debate wh at soever as t o th e advisability of car rying over th e

th irt y-year limit t o th e 1908 constit ut ion. The comm itt ee of th e whole added cem-

eter y pur poses to th e classes of corpora tions excepted from th e limit . Insu ra nce

compan ies were excepted from th e limit on t he ground t ha t t here were certa in life

insurance companies whose policies did not expire within thirty years.


This section ha s occasioned a lmost no litigat ion sin ce its a doption in 1908; in 1930 th e

supr eme cour t decided th at u nder a st at ut e permitt ing extension of corporat e cha rt ers,

a m un icipal fra nchise gra nt ed to a gas company with n o express time limitat ion isau tomat ically extended by extension of th e corporat e cha rt er pur sua nt t o th e stat ut e.3


Sections 60-63 inclusive of the general corporation law, P.A. 327 of 1931 as

am ended, M.S.A. Sections 21.60-21.63 inclusive, an d pr edecessor a cts, ha ve exer-

cised t he legislative power t o provide for extens ion of corpora te cha rt ers.

3City of Benton Harbor v. Michigan Fuel and Light Co., 250 Mich. 614.


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XII

Corporations


Other than Michigan, Mississippi is the only state fixing a constitutional limit on

th e dur at ion of corpora te cha rt ers (99 year s), app licable to privat e corpora tions for

pecun iary gain. Californ ia, Uta h a nd Wash ington pr ovide tha t t he legislat ur e maynot extend a n individual fran chise or cha rt er, an d t he Californ ia const itut ion goes

on to perm it t he legislatu re t o provide for extens ion of existen ce of an y corpora tion

by genera l laws u niform ly applicable t o corpora tions form ed for a limited per iod.

Comment

It m ay be seriously doubted wh ether th is provision sh ould be reta ined. It first ap-

peared in th e 1850 const itut ion a t a time when corporat ions genera lly were the

subject of lively public suspicion and distrust. It may be argued that the only practi-

cal effect of th e pr ovision is t o requir e exten sions of th e t erm s of Michigan corpora -

tions every thir ty years; the st at e ma inta ins th rough th is section n o effective actu alcont rol not oth erwise available to it. It ma y be pointed out th at probably the only

pra ctical effect of th e section is to encour age incorpora tin g in oth er st at es, so as t o

avoid t he fra nchise fees pa yable on t he occasion of extens ion of ter m. It might also

be ar gued th at th e reason for excepting, for inst an ce, insura nce compa nies on t he

groun ds th at th eir cont ra cts m ay ru n beyond t he expira tion of th eir term if not

excepted, n owada ys ap plies to corpora tions of every sort.

4. Liability of St ockh older s

Article XII: Section 4. The stockh olders of every corpora tion an d joint st ock as so-ciat ion sha ll be individually liable for all labor per formed for such

corpora tion or ass ociat ion.

Const itu tion of 1835 and 1850

This provision first made its appearance, in identical form, in the constitution of

l850 (Article XV, Section 7).


Section 4 has not been amended since the adoption of the constitution.

Ther e was n o debat e on t his su bject in th e 1907-08 convention.


This provision h as been st rictly const ru ed. It was h eld as ear ly as 1877 in H an son v.

Donker sley, 37 Mich. 184, th at th e const itut iona l provision a nd t he t hen sta tu te


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(How. Sta t. Section 4017) did not h ave th e effect of ma king sh ar eholders prim ar ily

liable for la bor debt s of th eir corpora tion, th at th e const itu tional liability is not self-

execut ing, and th at sta tu tory provisions implement ing it m ust be fully complied

with. The H an son case h eld fur th er t ha t th e seconda ry liability of a sha reholder for

labor debts of the corpora tion is dischar ged by a creditors exten ding tim e for p ay-ment for his labor an d a ccepting a note.


The legislatu re h as circumscribed the genera lity of th e const itut iona l langua ge by

ma king the right available against a sha reholder only after t he retu rn u nsa tisfied of

a judgment against a corporat ion or an adjudicat ion in ba nkr upt cy, an d th e cour t

ha s h eld tha t th e winding-up of a corporat ion in receivership with out payment for

labor provided no right s a gainst th e sha reholders, Kna pp v. Palmer, 324 Mich. 694

(1949).

The legislatu re ea rly implemen ted t his section, Act 41, Section 17, Laws of Michi-

gan, 1853, an d ha s furth er pr ovided for its enforcement , in somewha t varying

ter ms, wit h r espect to var ious class es of corpora tions a s follows:

Gener ally, Cha pter XX, Section 13, P.A. 314 (1915) (J udicatu re Act),

M.S.A., Section 27.1363.

1. Pa rt nersh ip Association, P.A. 191, 1877 as a m.; M.S.A. 20.92.

2. Sum mer Resort Associat ions, Section 17, P.A. 230, 1897 as a m.; M.S.A 21.677.

3. Cana l and Ha rbor Compa nies, Section 14, P.A. 233, 1875 as a m. M.S.A. 22.1494.

4. Pipeline Compa nies, Section 10, P.A. 182 of 1881 as am .; M.S.A. 22.1280.

5. Railroad, Bridge, Etc. Compa nies, Art icle V, Section 1, P.A. 198, of 1873 as am .;

M.S.A. 22.282.

6. River Im provement Compa nies, Section 26, P.A. 149, of 1869 as a m. M.S.A.

22.1536.

7. Str eet Railway Compa nies, Section 22, P.A. 35, of 1867 as am .; M.S.A. 22.441.

8. Telegra ph Compan ies, Section 8, P.A. 59, of 1851 as am .; M.S.A. 22.1368.

9. Telephone Compan ies, Section 7, P.A. 129, of 1883 as am .; M.S.A 22.1416.


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XII

Corporations

10.Tra in Ra ilway Compa nies, Section 18, P.A. 148 of 1855 as am .; M.S.A. 22.388.

11.Mun icipal Wat er Compa nies, Section 11, P.A. 113, of 1869 as a m.; M.S.A.

22.1691.

12.Wat er Power Compa nies, Section 21, P.A. 232, of 1863 a s a m.; M.S.A, 22.1601.

13.Wat er Power Compa nies, Section 15, P.A. 39 of 1883 as am .; M.S.A. 22.1624.

14.Wat er Power Compa nies, Section 15, P.A. 202, of 1887 a s a m.; M.S.A. 22.1645.

15.Wat er Power Compa nies, Section 15, P.A. 283 of 1905 as am .; M.S.A. 22.1665.

16.Cooperative Savings Associations, Section 20, P.A. 206, of 1877 as am.; M.S.A.

23.530.

With r espect to sha reh older cont ribut ion gener ally, see Section 19 R.S. 1946, Ch.55, M.S.A. 21.253, and Section 30, P .A. 327, of 1931 as a m.; M.S.A. 21.30 (Genera l

Corporation Act).


Michigan is th e only sta te wh ose const itu tion pr ovides for stockh older liability for

labor performed. Constitutions of five states (Nebraska, Oregon, South Carolina,

Wash ington a nd West Virginia) provide positively for stockh older liability up t o th e

am oun t of stock su bscribed an d un paid for, except, in Oregon an d West Virginia ,

bank stockholders; and the constitutions of four states (Alabama, Idaho, Missouri

an d Oh io) specifically pr escribe s tockh older liability in excess of th e a moun t of

unpaid stock owned. The Nevada constitution provides that incorporators of domes-

tic corpora tions ar e not individua lly liable for debts of th e corpora tion. India na ,

Kansa s, New York an d North Carolina provide tha t du es from corporat ions m ay be

secured by individua l liability as m ay be pr ovided by law.

Comment

It could be argued that this provision, particularly as circumscribed by the legisla-

tu re a nd th e supr eme cour t, a ffords n o substan tial pr otection t o corporat e employ-

ees with r espect to th eir wages. Evidence of th is might be foun d in th e almost t ota l

absen ce of successful litigation a gainst st ockh olders by employees. If th is is so,

considera tion might be given to omit tin g it from t he const itu tion. The convent ion

might a lso ta ke th e view th at th e presence of this section in th e Michigan const itu-

tion argues in favor of incorporating in other states, where such potential liabilities

do not exist.


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5. Limita tion of Time of Holding Real Est at e

Art icle XII: Section 5. No corporat ion sh all hold an y real esta te for a longer period

th an 10 year s, except su ch real est at e as sha ll be actu ally occupied by

such corp ora tion in t he exercise of its fran chises.


Article XV, Section l2 of th e const itu tion of 1850 saw t he a ppear an ce of this la n-

guage, in identical form , except t ha t th e phr ase herea fter acquired, appear ing in

th e 1850 const itut ion after sha ll hold any r eal esta te was dr opped in t he pr esent

constitution.


This section h as n ot been a mended since the const itut ion wa s adopted.

Section 5 of presen t Article XII wa s carr ied over by th e 1908 convent ion from t he

1850 const itu tion subst an tia lly un cha nged, over vigorous objection on th e par t of

Mr. Pr at t wh o said, I cann ot see a ny possible good rea son for t ha t pr ovision being

inserted in t he Const itut ion. The debates ma ke it clear th at th e ten-year limitat ion

on t he power t o hold real esta te does not a pply to corporat ions in th e real esta te

business or corporat ions a ctu ally using real esta te in th e condu ct of their own busi-

ness. Mr. Townsend , th e chief proponent of the provision, s aid, This p rovision is

her e for t he pu rpose of prevent ing th em (corpora tions) from owning real est at e in

large tr acts, for wh ich t hey ha ve no use at all in th e exercise of their fran chises, andwhich t hey do not use in th eir business. I do not th ink it is of an y great importa nce

in th e Const itut ion, but it ha s been ther e for a ll this period of years an d was

th ought to be useful at t he time it wa s placed ther e. I do not see any rea son wh y it

is not st ill useful. Mr. Pra tt pointed out th at th e genera l distr ust of corporat ions,

which was evident in 1850, had largely disappear ed.


It wa s held in 1904, un der su bstan tially identical langua ge in t he 1850 const itut ion,

th at th is provision can be enforced only at th e insta nce of th e public.4

In 1948 it was h eld tha t a foreign insur an ce compan y duly auth orized by its sta te of

incorporation to construct, maintain and operate a housing project would actually

occupy real est at e owned by it in Michigan, a s landlord an d t hr ough its a gent s a nd

employees within t he mea nin g of th e const itu tional limita tion, in th e light of a

Michigan sta tu te empowering such insu ra nce compa nies doing business in Michi-

gan t o invest t heir fun ds in housin g projects in cluding incidenta l reta il an d service

4Pere Ma rquet te Railroad Co. v. Graha m, 136 Mich. 444.


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XII

Corporations

facilities ...if such investment is within t he fran chise of such insur er u nder th e laws

of the Sta te or coun tr y under which su ch insu rer organ ized.5

The cour t t hu s const ru ed actu ally occupied by su ch corpora tion in t he exercise of its

franchise broadly to encompass occupancy through ownership and managership, ifsuch ownersh ip and m an agership was au th orized by the corporat ions cha rt er.


The Louisiana constitution forbids corporations to hold real estate longer than ten

years, except for legitimate corporate purposes; and Missouri, Pennsylvania, and

Sout h Da kota forbid holding real esta te a t a ll except su ch a s is necessar y and

proper for legitimat e business, provided th at Missour i permit s h olding for ten years

an d such longer period as general law ma y provide real estat e acquired in pa yment

of a debt by foreclosur e or other wise. The Kent ucky const itu tion forbids h olding rea l

estat e longer t ha n five years except a s is necessary an d proper for business; and

Californ ia pr ovides th at th e holding of large t ra cts, u ncultivat ed an d u nimpr oved, is

against th e public interest an d is to be discour aged by lawful means. The New

Mexico const itu tion pr ovides tha t corpora tions in wh ich t he m ajorit y stock is owned

by aliens ineligible to citizenship m ay n ot acquire a ny inter est in real esta te u nt il

oth erwise pr ovided by law.

Comment

Two points ma y be made a bout th is section. F irst, it could be plausibly argued t ha t

the ten-year limitation, as construed by the supreme court, is in fact illusory: since

a corporat ion can exercise no powers wha tsoever t ha t a re n ot per mitt ed by its char -

ter an d t he la ws of its st at e of incorpora tion, an d since actu al occupa ncy of realestate is accomplished simply by compliance with such charter and laws, the consti-

tu tiona l limita tion is more appar ent t ha n r eal. Second, it ma y be ar gued equa lly

plausibly th at if th e reasons for t he limitat ion h ad n ot disappea red by 1908, they

probably have today. Consider at ion m ight well be given t o omit tin g this r estr iction

from t he const itut ion.

6. Pr ohibition of Extens ion of Special In corpora tion Acts

Art icle XII: Section 6. The legislatu re sha ll pass no law renewing or extending any

special a ct of incorpora tion her etofore gr an ted.


Art icle XV, Section 8 of th e cons tit ut ion of 1850 provided:

5John Hancock Life Insurance Co. v. Ford Motor Company, 322 Mich. 209.


15/24


The legislat ur e sha ll pass no law a ltering or a mending an y act of

incorporation heretofore granted, without the assent of two-thirds of

th e members elected t o each house; nor sha ll any such act be renewed

or extended. This restriction shall not apply to municipal corporations.

The st ep-by-st ep at tr ition of power in t he legislat ur e to crea te corpora tions by spe-

cial act no doubt accoun ts for t he sh ort er t reat ment given to this su bject in th e 1908

const itut ion a s against th e 1850 const itut ion.


This section has not been amended since the adoption of the constitution.

A specific pr ovision with resp ect to th e incorpora tion a nd power of cities a nd vil-

lages a ppear s a s Art icle VIII, Sections 20-25 inclusive of th e 1908 const itu tion

which, pa ra llel to private corporat ions, cont emplates th eir incorporat ion un der t heaegis of general ra th er t ha n special laws.

Mr. Bur ton in t he cour se of th e debat e moved to reta in in th is section th e following

langua ge from t he 1850 const itut ion:

This restriction shall not apply to municipal corporations.

As origina lly proposed in th e convent ion, th e new lan guage forba de th e legislat ur e

from alt erin g an d a men ding as well as ren ewing or ext endin g special a cts of

incorporat ions. It was evident th at Mr. Bur tons concern wa s t ha t th is would freeze

forever t he a ct u nder which th e city of Detr oit wa s incorpora ted. Removal of th eprohibition a gainst a ltering and a mending sat isfied th e convention t ha t t he cha rt er

of th e city of Detr oit a nd sim ilar char ter s would n ot be frozen. Fur th er, th e so-called

home ru le provision of th e 1908 const itu tion ra dically alter ed th e usu al m eth ods

of form ing m un icipal corpora tions.

This section h as occas ioned n o litigation, nor, of cour se, have st at ut es been pa ssed

thereunder.


Some of the n otes un der S ection 1 of Article XII concern ing th e reser ved power t o

am end incorporat ion st at ut es and fran chises genera lly are r elevant to special acts.

The const itu tions of New York , North Car olina a nd Wisconsin specifically perm it

legislat ur es to alter or r epeal special corpora tion acts; th e const itu tion of Iowa

gran ts like permission by a two-th irds vote. The Ut ah an d Washington const itu-

tions forbid th e legislat ur e to extend an y fra nchise or cha rt er; and th e Californ ia

constitution does the same, but permits the legislature to provide for extension of

th e existen ce of any corpora tion by genera l law as un iform ly applicable to corpora -

tions form ed for a limit ed period.


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XII

Corporations

Comment

It appear s t ha t t he only corporations present ly existing un der special acts of

incorporat ion a re m un icipal corporat ions; it furt her appear s th at as r ecently as

1960 only 19 of 221 cities in Michigan ret ain ed t heir special a ct cha rt ers. F ur -th erm ore, Article VIII, Section 21 of th e const itu tion as am ended n ow provides

th at even cities whose cha rt ers were form ed by special acts ma y amen d th eir own

cha rt ers. If th e su bsta nce of Art icle VIII, Section 21 s hould be carr ied over t o a

new const itu tion, th e convent ion m ight well find t ha t S ection 6 of Art icle XII h as

become un necessar y.

7. Regulat ion of Tra nsport at ion Rates; Discrim ina tion Pr ohibited

Art icle XII: Section 7. The legislat ur e may, from time to time, pass laws esta blish-ing reasonable maximu m r at es of cha rges for t he tr an sport at ion of

passengers an d freight on different ra ilroads in th is stat e, and ma y

pass laws est ablishing reasona ble maximu m r at es of cha rges for t he

tr an sport at ion of property by express compa nies in th is stat e, and ma y

delegat e such power to fix reasona ble maximu m r at es of cha rges for

th e tr an sport at ion of freight by railroad compan ies and for t he t ra ns-

porta tion of propert y by express compa nies t o a comm ission crea ted by

law; and sh all prohibit ru nn ing cont ra cts between such r ailroad com-

pan ies wher eby discrim ina tion is ma de in favor of eith er of such com-

pan ies as a gainst oth er compa nies owning conn ecting or int ersecting

lines of ra ilroad.


Art icle XIX-A, Sect ion 1 , of th e cons t itu tion of 1850 provided:

The legislat ur e ma y, from t ime to time, pass laws esta blishing rea sona ble

ma ximum ra tes of cha rges for t he t ra nsporta tion of passengers a nd freight on

different ra ilroads in th is stat e, and sh all prohibit run ning cont ra cts between

such r ailroad compa nies wher eby discrimina tion is made in favor of eith er ofsuch companies as against other companies owning connecting or intersect-

ing lines of ra ilroad.

The 1908 const itu tion expand ed th is provision t o include express compa nies an d

specifically to a ut horize delegation of a portion of th e r at e-fixing power to a comm is-

sion crea ted by law.


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Section 7 has hot been amended since the adoption of the constitution.

Section 7 was origina lly proposed to th e convention in th e sam e form as in t he

constit ut ion of 1850. Ther e were also presen ted t o th e convent ion a lar ge var iety ofproposals to au th orize th e crea tion of a p ublic ut ilities comm ission, wh ich s hould

ha ve power t o regulat e th e services an d ra tes of all public ut ilities and such other

powers a s th e legislat ur e might pr escribe. None of th ese was a dopted. The conven-

tion clearly felt that in the absence of such a provision the legislature was without

power t o delegat e ra te-fixing powers to a comm ission. Mr. Sh ar pe, cha irm an of th e

committ ee on public service corpora tions, sa id on th is subject: I wa nt to suggest

th is one th ing, th at t his is not a ma tt er th at can be regulated by legislat ion. I think

th e lawyers of th e convent ion will all agr ee upon th e proposition th at it is very

doubtful wheth er th e legislatu re ha s an y aut hority to delegat e to a commission t he

right t o regulate t he ra tes. The legislatu re ha s given aut hority under th e old const i-

tu tion t o fix rates for t ra nsporta tion compan ies but n ot given a ut hority to delegat e

th at power of fixing ra tes t o someone else. Fu rt her , Mr. Barbour s aid, It is in t he

firs t pla ce conceded th at th e legislatu re h as n o power t o orga nize such a comm ission

or t o creat e such a comm ission, or to creat e it in a way so that it will sta nd, without

some pr ovision in t he constit ut ion to give it effect. As noted, t he proposals for a

public utilities comm ission were defeat ed.

An a mendm ent was pr oposed to amend Section 7 a s initially present ed, aut horizing

th e legislat ur e to delegate power to fix rat es to a commission. It wa s objected t ha t

such delegat ion, ha ving been rejected in t he pu blic ut ilities comm ission pr oposal,

could not be considered. It was pointed out in debate t ha t t he a ut hority to delegat e

with respect to railroads was an effort simply to legalize the already existing rail-road comm ission. I n fact, P ublic Act 312 of 1907 esta blished a ra ilroad commission

for t he express pur pose of regulat ing railroads an d th e tr an sport at ion of persons

an d property, prevent ing the imposition of un reasonable ra tes a nd u njust discrimi-

na tion a nd t he ensu ring of adequa te service. It was a detailed and compreh ensive

regulatory statute, giving the commission power, on complaint and after investiga-

tion, to cha nge rat es foun d to be unr easonable or u njustly discrimina tory and t o

ma ke appr opriat e orders as t o service foun d to be inadequat e. At t he t ime of the

convention this act had not been judicially tested, and doubts as to its validity were

expressed in t he cour se of debat e.

Regulat ory power over express compa nies wa s a dded in t he cour se of floor deba te,again par tly for th e reason t ha t th e ra ilroad commission act of 1907 already include

regulation of express company rates and service.

The issue of wheth er t o au th orize the legislatu re t o establish a commission t o regulat e

ra ilroad an d express company ra tes an d services was war mly and extensively debat ed.

Note tha t t he section a ut horizes the legislat ur e to esta blish ma ximum ra tes for

tr an sport at ion of passengers a nd freight , but per mits it to delegate such power t o a

commission with respect only to freight th e proponen ts of th e provision a rgu ed th at


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Corporations

th ere was n o necessity for a dministr at ive determina tion with respect t o passenger

fares because t hey involved compa ra tively few neceties an d distin ctions, wher eas

th e freight r at e str uctur e was too intr icat e, extensive and difficult to be regulated

by so large a body as t he legislatu re. There was a substa nt ial minority in th e con-

vention in favor of permit tin g th e legislat ur e to give a comm ission power over both .

Ther e was a lso su bsta nt ial objection t o delegation of pas senger r at e contr ol from t he

delegates from th e cities, on t he groun d th at th e existen ce of su ch power in a com-

mission would imper il the freedom of the cities t o cont rol the far es on t heir s tr eet

railways.

Stat utory Implementa tion and J udicial Interpretat ion

Pu blic Act 312 of 1907, esta blishing a ra ilroad comm ission, wa s in 1909, held const i-

tu tiona l against th e claim th at it pur port ed to give cour ts power to fix railroad

rates.6

Act 312 of 1907, esta blishing a ra ilroad commission, wa s r eplaced by Act 300 of

1909, which covered th e sam e subject m at ter . Therea fter , P.A. 419 of 1919 crea ted a

public ut ilities comm ission wit h br oad regula tory powers over all pu blic ut ilities

within t he st at e, including ra ilroads. This act wa s eventua lly supplant ed by P.A. 3

of 1939, which est ablished t he pr esent public service comm ission, wh ose regu lat ory

powers a re set fort h in all-inclusive an d compr ehensive terms. It supplements an d,

to a lar ge extent, su pplant s a large num ber of sta tu tes pr eviously providing for t he

regulation of union depot companies, train and street railway companies, electric

gas and light companies, motor vehicle carriers, carriers by water, etc.

The validity of th e predecessor a ct a nd th e reviewability of the decisions of the

commission by th e supr eme cour t a re discussed in r e Consolidated F reight Co., 265

Mich. 340 (1933), holding th e sta tu te inva lid insofar as it pu rport s to give the su -

prem e cour t power to review th e comm issions findings of fact, a nd valid with re-

spect to the supreme courts power to review the commissions conclusions of law.

The r ole of th e comm ission in th e sett ing of ra tes a nd gr an tin g of cert ificat es of

convenience and n ecessity a re discussed in severa l cases, n otably, recent ly, Michi-

gan Bell Telephone Company v. Public Service Commission, 332 Mich. 7 (1952) and

Hu ron P ort lan d Cement Compa ny v. Public Service Comm ission, 351 Mich. 255

(1958)

Though Section 7 of Article XII of th e const itu tion in ter ms per mit s th e legislat ur e

to establish a commission with respect only to freight a nd express ra tes, th e estab-

lishmen t by th e legislat ur e of a pu blic service comm ission with vast ly broader r egu-

latory powers h as evidently not been th e source of serious const itut iona l ar gument .

6Michigan Centr al Ra ilroad Co. v. Wayne Circuit J udge, 156 Mich. 459.


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The const itut ions of Illinois, Nebrask a, U ta h, Wash ington, a nd West Virginia a u-

th orize the legislat ur e to esta blish m aximum ra tes for pa ssengers an d freight. The

Georgia const itut ion au th orizes the legislat ur e to regulat e th e charges of publicut ilities gener ally. The const itu tions of nin e sta tes (Arizona, Californ ia, Colora do,

Louisiana , Nebrask a, N ew Mexico, Oklahoma, South Carolina an d Virginia) aut ho-

rize delegation to an administrative agency of authority over public utility rates

genera lly. The constit ut ions of 24 sta tes in clude pr ovisions prohibiting var ious

form s of discrim ina tion, aut horizing the legislat ur e to do so, or au th orizing th e

legislature to delegate authority to do so. State constitutions generally contain a

wide var iety of more or less specific provisions with resp ect to pu blic ut ilities. Su b-

jects covered include frequen cy of directors meet ings, rep ort ing r equirem ent s,

un iform account ing system s, appea l from pu blic ut ility comm ission order s, compen -

sat ion a nd qua lificat ions of public ut ility comm issioner s, comm on car rier safety

app liances, railroad pa sses or redu ced ra tes, locat ion of ra ilroad sta tions, consolida-tion an d mer ger of public ut ilities, war ehouse st orage cha rges, etc., etc.

Comment

Doubt s were express ed in th e convention of 1907-08 as t o th e const itu tional validity

of th e r ailroad comm ission act of 1907. These doubts were la rgely responsible for

th e inclusion of th is section in th e 1908 constit ut ion. The const itu tional climat e

soon becam e so hospitable t o exercise of police power by th e st at es, however, t ha t no

full-scale t estin g of the validity of the public utilities comm ission act, even in th e

absen ce of specific constit ut iona l au th orizat ion for a genera l regula tory comm ission,

ha s been a tt empted. In th e light of cur rent const itut iona l hospita lity t o exercise of

th e police power, pa rt icula rly with respect t o public ut ilities, considera tion ma y well

be given to omitting the subject matter of this section from the constitution.

8. Consolidat ion of Railr oads

Art icle XII: Section 8. No railroad corporat ion sha ll consolidate its stock, property

or franchises with any other railroad corporation owning a parallel or

compet ing line; and in no case s ha ll any consolidation ta ke place ex-

cept u pon at least sixty days pu blic notice to all stockh olders in s uch

ma nn er a s sha ll be provided by law.


The const itu tion of 1835 did not ha ve a compa ra ble provision.

Article XIX-A, Section 2 of the constitution of 1850 is identical in substance with

Section 8.


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Corporations


This section has not been amended since the adoption of the constitution.


Article II, Section 29 of P.A. 198 of 1873, relat ing to t he incorpora tion a nd regula -

tion of ra ilroad, br idge and tu nn el compa nies (M.S.A. Section 22.233, as am ended)

provides in deta il for t he consolidat ion of railroad compa nies a nd th e effect

th ereof. There ar e also sta tu tes with respect to th e consolidation of un ion depot

compa nies with subur ban ra ilway compan ies and th e consolidation of street an d

electr ic railways.

This section h as n ot genera ted an y substan tial am oun t of litigation.


The const itu tions of eleven st at es (Arka nsa s, Colora do, Illinois, Kentu cky, Mont an a,

North Dakota, Penn sylvania, Sout h Da kota, Texas, Ut ah an d Washington) forbid

th e consolidation of stock, pr opert y or fra nchises of ra ilroads with par allel or com-

petin g lines, an d th e const itu tion of West Virginia forbids su ch consolidation with -

out th e consent of the legislatu re.

The const itut ions of four sta tes (Illinois, Missour i, Nort h Dakota an d South Dakota)

ha ve a provision pa ra lleling th e Michigan requ iremen t of sixty days pu blic notice as

provided by law in th e case of all consolidations.

The const itu tions of th ree st at es (Mississippi, Missour i and S out h Ca rolina ) forbid

consolidation with r ailroad corpora tions of oth er st at es if th e resu lting corpora tion

is a foreign corp ora tion, an d th e Oklah oma an d Texas const itu tions forbid consoli-

dat ions wit h a ny foreign corp ora tions.

Comment

The convention ma y well reach th e conclusion th at th e subject ma tt er of th is section

is one for legislative consider at ion, an d need not be included in th e const itu tion.

9. Bank ing an d Trust Compa ny Laws

Art icle XII: Section 9. No general law pr oviding for th e incorporat ion of tru st com-

pan ies or corporat ions for bank ing pur poses, or regulating t he bu siness

th ereof, sha ll be adopted, am ended or r epealed except by a vote of two-

th irds of th e members of each house of the legislatu re. Such laws sh all

not au th orize the issue of bank notes or pa per credit t o circulat e as

money.


21/24



Art icle XV, Section 2 of th e cons tit ut ion of 1850 provided:

No genera l banking law sha ll have effect u nt il th e same sh all, after its pas-sa ge, be submit ted t o a vote of th e electors of th e sta te a t a genera l election

an d be appr oved by a m ajority of th e votes cast th ereon at such election.

Section 1 of th e sam e Art icle XV permitt ed th e legislat ur e, by a vote of two-th irds of

th e members elected t o each house, to creat e a single bank with bran ches, by a

special a ct, a nd Section 3 pr ovided:

The officers an d st ockholders of every corpora tion or a ssociat ion for ban king

pur poses, issuing bank notes or paper credits t o circulat e as money, sha ll be

individua lly liable for a ll debts contr acted du ring the term of th eir being officers

or stockholders of such corporation or association, equally and ratably to theextent of their respective shares of stock in any such corporation or association.

Sections 4, 5 a nd 6 of Art icle XV of the 1850 cons t itu tion r espectively provided for

th e registr y of bills or notes issu ed or circulat ed as money provided for p riority of

bill-holders of ban ks a s a gainst other credit ors in t he event of insolvency, an d for-

bade t he su spens ion of specie paym ent s by an y person, associat ion or corpora tion.

Eliminat ion of the power to au th orize the issua nce of bank n otes or pa per credit to

circulat e as money has evidently ma de th ese provisions un necessar y.


Section 9 h as n ot been a mended.

In t he 1907-08 debates t her e was exten sive discussion of th ese sections. Debate

centered on the question of whether banks or trust companies should be specifically

forbidden t o issue ba nk n otes or pa per credit t o circulat e as m oney; if th ey were t o

be so forbidden , th e pr ovisions of Sections 3, 4, 5 a nd 6 of Art icle XV of the 1850

constitution would be unnecessary. The convention vacillated somewhat during the

debates; eventu ally the power to issue bank notes or paper credit t o circulat e as

money was forbidden, the other sections became unnecessary and were removed.

The pr ohibition of issua nce of money by stat e ban ks wa s st at ed to be just ified by

experience in th e stat e and t hr oughout th e coun tr y and well au th enticated publicsentimen t on th e question.

The 1908 const itut ion su bstitut ed th e two-th irds legislat ive requirement for t he

referendu m pr ovision t ha t h ad pr eviously existed. It was pointed out in t he debat es

th at th e general ban king law in existence in 1908 was su bmitted t o th e people in

accordance with the 1850 constitution, and it provided for its own amendment by

two-th irds vote of th e legislat ur e. There appa rent ly was some doubt a s t o the const i-


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XII

Corporations

tu tiona lity of th at provision in t he light of the r eferendu m r equirement of the 1850

constitution; incorporation of the two-thirds vote requirement in the 1908 constitu-

tion was int ended t o rem ove th at doubt. Delegat e George W. Moore, cha irm an of th e

bank ing committ ee, said, I do not th ink a bank ing law should be amended lightly,

an d I t hink th e provision in t he genera l law is a good one, and it should be clearedup in t his man ner, th at is the rea son for t he proposal. Fu rt her, Mr. H. M.

Cam pbell said, The r eason... is simply to provide all th e safeguar ds possible ar ound

the passing of acts creating financial corporations whose operations might and do

affect th e pu blic genera lly.

Objection to the su bstit ut ion of a t wo-thir ds legislat ive vote for a referend um was

ma de on t he ground t ha t, in t he words of delegat e J am es H. H all, It looks t o me as

th ough it wa s un just to the sm all towns a nd t he people, and in favor of th e large

bank ing corporat ions, an d it wa s moved to strike out t he t wo-th irds requirem ent.

His m otion was defeat ed, 54 to 13.


Since at least 1887, the legislat ur e ha s prescribed ru les under th is section. The

incorporat ion a nd r egulat ion of bank s an d tr ust compa nies ar e now compr ehen-

sively regulat ed in t he Michigan fina ncial instit ut ions a ct, P .A. 341 of 1937 as

amended, M.S.A, Section 23.711 et seq. There are other statutes in related fields,

rela tin g to the form at ion or r egulat ion, or both , of:

Credit unions, P.A. 285 of 1925, M.S.A. Section 123.481 et seq.

Cooper at ive savin gs a ssociat ions , P.A. 206 of 1877, M.S.A., Section 23.511et seq.

Building an d loan an d sa ving an d loan a ssociat ions, P .A. 1887, M.S.A., Sec-

tion 23.541 et seq.

There has evidently been little or no litigation under this section.


The ban king comm issioner is a const itu tional officer in Louisiana , and Ok lah oma ,

an d th e constit ut ion of Virginia sp ecifically aut horizes th e legislat ur e to crea te adivision or bur eau of ban king.

The circulat ion of paper money by stat e ban ks is cons tit ut iona lly forbidden in Ar-

kan sas, Californ ia, Nevada, Oregon a nd Washington.

Fifteen state constitutions specifically authorize the passage of a general banking

law. The Minnesota cons tit ut ion r equires a two-th irds vote of th e legislatu re for


23/24


adoption of a general ban king law an d t he Wisconsin const itut ion requires a two-

th irds vote of all mem bers elected t o each h ouse. The Iowa, Illinois, Kans as a nd

Ohio const itu tions r equire ba nk ing laws t o be appr oved by a ma jorit y of all votes

cast at a genera l election a fter passa ge by th e legislat ur e.

10. Pr ovisions Omitt ed in the 1908 Const itu tion

Aside from the sections of Article XV of the 1850 constitution discussed above in

connection with Section 9 of Art icle XII of the 1908 cons tit ut ion, cert ain other pr ovi-

sions r elat ing to corpora tions in th e 1850 const itu tion did not sur vive. They ar e:

Section 16 of Article XV provided that previous notice of any application for an

altera tion of th e cha rt er of an y corporat ion sh all be given in su ch m an ner as m ay be

prescribed by law. This provision, evidently referr ing to th e alter at ion of cha rt ers ofcorpora tions form ed by sp ecial a cts, People ex rel. E llis v. Ca lder, 153 Mich. 724,

out lawed by Section 1 of Article XII in t he 1908 const itu tion, was of cour se n o

longer n ecessar y.

Art icle XIX, Section 9 of the 1850 cons t itu tion p rovided for legisla t ive modificat ion

of char ter s of min ing corpora tions in th e Upper P enins ula . Referr ing to corp ora tions

orga nized un der special acts, this section a lso ha d no place in th e 1908 const itu tion.


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Documents

CRC Comparative Analysis of the Michigan Constitution