Story Case

Henry Sanaman, and two other men, organized the White River Construction Corporation under the new provisions of the laws of an eastern state, which provided that "any three or more persons shall be a corporation and entitled to a corporation franchise through a charter when (1) the articles of association are duly filed with the secretary of the state and recorded with the county recorder of the county in which the corporation will have its principal office, (2) said charter shall be issued by the secretary of the state and certified with the seal of the state.

The White River Construction Corporation made a contract for the purchase of lumber from Fred Gor-ham. He now refuses to deliver, maintaining that the corporation has never been a valid organization, since the new law is unconstitutional, because the state legislature cannot delegate this power to create corporations. The case turns on this point.

Ruling Court Case. Franklin Bridge Co., Vs. Wood, Volume 14 Georgia Reports, Page 80

Wood was sued on an indebtedness by the Franklin Bridge Company. Instead of denying the debt, he maintained, as a defense, that this suit should not be allowed, because the plaintiff, the Franklin Bridge Company, was not a corporation, and had no right to sue as such, because the law under which it claimed its franchise was unconstitutional. The law in question provided that a church, trading company, manufacturing company, hotel company, theater company, bridge company, or ferry company, could be incorporated by filing a petition with the county court of the county where the business was to be done, stating the name and purpose of the company. This petition was to be entered upon the records of the court by an appropriate decree, and upon this recording, the associations were to have corporate powers, for a period not longer than fourteen years. The argument against the validity of this law was the fact that the legislature was attempting to delegate to the Court the function which it, alone, had the right to exercise, by making the action of the Court the real source of the corporate franchise.

The Court, in an opinion delivered by Mr. Justice Lumpkin, said: "Corporations are created and can exist only by act of the state. It was formerly asserted in England that the act of the incorporation must be the immediate act of the king, himself, and that he could not delegate it to another. But the law has since been settled, that he can give a general charter to whomever shall go through certain required steps, and can designate subordinate officers to receive and grant the applications. Under our constitutions, this royal power has been vested in the legislatures, so that no other power can establish a corporation. To grant a corporate franchise is to enact a law. If the law, here in question, attempted to give to the courts the power to create corporations, it would be a void delegation of a legislative power, but it did not have the effect. The Court was given no discretion, but was used as a mere instrument to give publicity to the application, and form the process of incorporation. This method can be compared to that of an earlier law, requiring a declaration, by the incorporators, to be recorded with the clerk, in the same manner as a deed, and published in a newspaper once every week for two months. These laws are entirely complete when they leave the legislature. No other power adds to their force, but they merely describe certain conditions to which they shall apply. They were not a delegation of law-making power, but only laws which require acts by additional agencies or instrumentalities to give them effect. The decision of the Court, therefore, was that, where a general law provides that a body shall be incorporated by taking certain steps before subordinate officers, the franchise is, nevertheless, a grant by the legislature." The Franklin Bridge Company was, therefore, qualified to bring this suit, and judgment was given for the plaintiff.

Ruling Law. Story Case Answer

The wrongs and corruptions fostered by the "special acts" of incorporation led all the states in recent years to pass general incorporation laws under which individuals might incorporate in the same uniform manner, in accordance with the same rules and regulations, and without any special privileges.

The power vested in the legislatures to authorize incorporation is a discretionary power, and, therefore, cannot be delegated. It was necessary, therefore, to provide, in the general corporation laws, that only the ministerial functions of perfecting a corporation should be performed by others. Therefore, the laws specifically state how and when corporations shall be formed and permitted, and merely delegates the duty of seeing that these provisions are complied with to other functionaries; that is, the secretary of the state, officer of the Court, or other authority, depending upon the manner in which the law has been framed, investigates the proceedings of the incorporators, and then certifies to the effect that the parties have complied with the law. This is simply a ministerial act and no discretion is vested in these officers. The general incorporation laws, like the one explained in the Story Case, are considered valid by the courts.

Gorham's defense, in the Story Case, is not effective.