Story Case

The Peoples' Street Car Company operated a line of electric street cars in the town of Decatur, Indiana, under a franchise secured from that state, and incorporated as a part of the charter powers of the company. In January, 1915, the company, by a majority vote of the stockholders, decided to equip and maintain a line of electric motor busses along one of the boulevards of Decatur. The minority stockholders objected to the new venture, giving as their reason that the company did not have the power to do this. The majority stockholders maintained that a broad interpretation of the charter powers gave the corporation this right. Should the charter be construed broadly to include this power, or should it be construed narrowly?

Ruling Court Case. Downing Vs. Mt. Washington Road Company, Volume 40 New Hampshire Reports, Page 230

Downing brought this action to recover the price of an omnibus and a baggage wagon which he had sold the Mt. Washington Road Company. The company-was, in fact, engaging in the business of running a hotel on the top of the mountain, and establishing lines of carriages for taking visitors up there. But, in this action, it pleaded that it was not liable for the price of these wagons, because it was not within its charter powers to purchase them.

The Court decided that this was a defense that the company had a right to raise, and that it covered this situation. The company was given the ordinary powers of a corporation, in addition to its special power to lay out, make, and keep in repair, the road to the top of Mount Washington, and to charge tolls of all travellers on its road. As this did not include the power to run a carriage line, nor to buy busses or baggage wagons for that purpose, the corporation could not be held liable on this purchase.

In the opinion, delivered by Mr. Chief Justice Bell, the Court said: "Corporations are creatures of the legislature, having no other powers than such as are given to them by their charters, or such as are incidental, or necessary to carry into effect the purposes for which they were established. In giving construction to the powers of a corporation, the language of the charter should, in general, neither be construed strictly nor liberally, but according to the fair and natural import of it, with reference to the purposes and objects of the corporation. But, if the powers conferred are against common right, and trench in any way upon the privileges of other citizens, they are, in cases of doubt, to be construed strictly, but not so as to impair or defeat the objects of the incorporation. In the present case, the power to take the lands of others and to take tolls of travellers, must be strictly construed, if doubts should arise on those points; but it is not seen that the other grants to the defendant corporation should not receive a fair and natural construction."

Judgment was given for the defendant.

Ruling Law. Story Case Answer

It has been stated that a corporation will be considered as having those powers which are incidental and necessary to carry out the express powers. This also applies to public service corporations. However, the charter and franchise rights of a public service corporation will be construed narrowly. A franchise consists of a grant of public right, for instance, as in the Story Case, to the use of a public street. Concerning this public right, the courts are particularly jealous, knowing that usually a corporation will encroach upon it and extend it, if possible. Therefore, the Courts uniformily hold that a grant of such rights shall be narrowly construed. A right of franchise will not be implied. If it is not clearly given, the Courts will say that it does not exist. In the Story Case, the minority stockholders are correct; the purchase and operating of motor busses will be denied to the corporation if its charter does not expressly state that this power exists. This power cannot be implied as incidental or necessary to the maintenance of a street railway line.