Story Case

William Corbett, James Clark, and Henry Meade were the chief stockholders in the Globe City State Bank. This bank was chartered under the state law which provided that the stockholders of the bank should not be liable for its debts beyond the par value of their stock. Two years after the bank was organized, the legislature changed the law to read that the stockholders of this and like banks should be liable to double the value of their stock, if the bank should fail to pay its depositors. One year after this law was passed, the Globe City State Bank became bankrupt, and its depositors, applied to Corbett, Clark and Meade for their money. These men contended that they were not liable, since the corporation was organized under the first law which was a part of their contract, and a part of the contract between the corporation and the state. They contended that any attempt to change his contract by a new law was unconstitutional. The creditors contended that the state could make this new law apply to existing banks and the stockholders. Which is correct?

Ruling Court Case No. 1. Stone Vs. Mississippi, Volume 101 United States Reports, Page 814

By an act of the legislature of the state of Mississippi, a corporation was chartered, under the name of The Mississippi Agricultural, Educational and Manufacturing Aid Society, with a grant of an existence of twenty-five years. The purpose of the corporation was to conduct a lottery. A subsequent legislature passed a law, dissolving the corporation before the expiration of the twenty-five years. This action was brought on behalf of the corporation to test the validity of the act passed, dissolving the corporation.

It was contended on behalf of the corporation that the charter was, in effect, a contract between the state and the corporation; and that any law passed thereafter, before the expiration of its corporate life, which modified or dissolved that contract was void, in that it violated the constitution of the United States, which provides that no state shall make any law which will impair the obligation of a contract.


The charter granted by a legislature does constitute a contract between the state and the corporation; this contract, the state is forbidden to impair. But the right to control matters, manifesting immoral tendencies, which is the police power of the state, cannot be granted away by the state. To attempt to grant away such power is a void attempt. Accordingly, the attempt on the part of the state to grant a charter of twenty-five years' existence to a lottery is not binding upon subsequent legislatures. A subsequent law, which withdraws such charter or modifies it is not void and unconstitutional.

Mr. Chief Justice Waites, who delivered the opinion of the Court, said in part:

"The question is, therefore, directly presented, whether, in view of these facts, the legislature of a state can, by charter of a lottery company, defeat the will of the people, authoritatively expressed, in relation to the further continuance of such business in their midst. We think it cannot. No legislature can bargain away the public health or the public morals. The people themselves cannot do it, much less their servants."

Judgment was, that this law was not unconstitutional.

Ruling Court Case No. 2. Boston Beer Company Vs. Massachusetts, Volume 97 United States Reports, Page 25

In 1828, the Boston Beer Company was incorporated under a special act of the legislature of the state of Massachusetts. The corporation was organized for the purpose of manufacturing and selling malt liquors in all varieties. The charter contained no limit upon the existence of the corporation, and no limitation upon its right to manufacture and sell malt liquors. In 1869, the legislature of Massachusetts passed a Prohibition Law, which forbade the manufacture and sale of all such liquors in that state. This law provided that any such liquors might be seized and destroyed by officers of the state. The Boston Beer Company, in violation of the law above set forth, manufactured and was attempting to sell beer. The beer was seized by the state officers. This action by the company sought to have the state restrained from destroying the beer.

It was contended, on behalf of the corporation, that the charter granted to it in 1828, constituted a contract between the state and the company, which could not be impaired by a subsequent law.


It is a part of the police power of the state to regulate the manufacture and sale of spirituous liquors; this right cannot be forever granted away by one legislature. Any subsequent legislature may, if it deems it advisable, abrogate what the former legislature has done. Accordingly, the law of 1869 is not void.

Mr. Justice Bradley, who delivered the opinion of the Court, said in part:

"The Boston Beer Company was incorporated 'for the purpose of manufacturing malt liquors in all their varieties,' it is true, and the right to manufacture, undoubtedly, as the plaintiff's counsel contends, included the incidental right to dispose of the liquors manufactured. But although this right or capacity was thus granted in the most unqualified form, it cannot be construed as conferring any greater or more sacred right than any citizen had to manufacture malt liquors, nor as exempting the corporation from any control therein to which a citizen would be subject, if the interests of the community should require it. If the public safety or the public morals require the discontinuance of any manufacture or traffic, the hand of the legislature cannot be stayed from providing for its discontinuance by any incidental inconvenience which individuals or corporations may suffer. All rights are held subject to the police power of the state."

It was decided that the law was valid; and that the liquor was illegally manufactured and might be destroyed by the state, in accordance with the law.

Ruling Court Case No. 3. Maynard Vs. Looker, Volume 179 United States Reports, Page 46

The Constitution of the state of Michigan, adopted in 1850, contained the following clause: "Corporations may be formed under the general laws, but shall not be created by special charter, except for municipal purposes. All laws passed, pursuant to this section, may be amended, altered or repealed." The general law of Michigan of 1869, made provision for the incorporation of insurance companies. The law provided, among other things, that the election of officers and directors should be made in such way as the stockholders, by by-laws, agreed upon. In 1870, the Michigan Mutual Life Insurance Company was organized under the law just mentioned. By the articles of association of this corporation, it was provided that "the election of directors shall be had at the annual meeting of the company, which shall be held on the last Tuesday in January. * * * They shall be chosen by ballot, and a majority of all votes cast shall elect. Every shareholder shall be entitled to one vote for directors for every share of guaranteed capital standing in his name on the books of the company." In 1885, the legislature of Michigan passed a law which provided that, "in all elections for directors of any corporation organized under any general law of this state, other than municipal, every stockholder shall have the right to vote in person or by proxy, the number of shares of stock owned by him for as many persons as there may be directors to be elected; or to cumulate said shares, and give one candidate as many votes as will equal the number of directors, multiplied by the number of shares of his stock."

There were nine directors to be elected in January, of 1896. The total number of votes cast was 4,893. Looker, and eight others, all named as defendants, received 3,655 votes each. Joseph Dusenbury, who controlled 1,283 votes, undertook, under the statute of 1885, to multiply the number of his shares by nine, making the number 11,142, and to divide this number equally and cast 5,571 votes for himself and the same number for Will Dusenbury. His right to do this was rejected by the company. Thereupon, Joseph and Will Dusenbury, in the name of Maynard, as attorney general, brought this action to have themselves declared directors of the corporation.

It was contended by the corporation that, under the law, under which it was incorporated, it had the right to say how the directors of the company should be elected; and that the subsequent law, providing for cumulative voting, was void, so far as it concerned a corporation previously organized.


The charter of a corporation is a contract between the corporation and the state. The state may not pass any law, thereafter, which will impair the obligation of that contract. But the state may always reserve the right to alter, modify or repeal any such charter, if it choose. In this case, by the constitution of 1850, the state expressly reserved the right to alter, modify or repeal any such charter. Such being the case, the law of 1885, which provided for cumulative voting for directors, was within the reserved power of the state over the corporation. Accordingly, Joseph and Will Dusenbury were elected directors of this corporation and are entitled to be declared so.

Mr. Justice Gray, who delivered the opinion of the Court, said in part: "Remembering that the Dartmouth College case (which was the cause of the general introduction into the legislation of the several states of a provision reserving the power to alter, amend or repeal acts of incorporation), concerned the right of a legislature to make a change in the number and mode of appointment of the trustees or managers of a corporation, we cannot assent to the theory that an express reservation of the general power does not secure to the legislature the right to exercise it in this respect."

Judgment was held that Joseph and Will Dusenbury be declared duly elected directors of the Michigan Mutual Life Insurance Company.

Ruling Law. Story Case Answer

The courts, at an early time, laid down the rule that the charter granted to a corporation was a contract. The Constitution of the United States forbids a state to pass any law which will impair the obligation of a contract. Therefore, no state - unless it has reserved the right to do so - may change the charter of a corporation, without the consent of that corporation. But this does not deprive the state of the right to regulate corporations, in matters, where the morals, safety and health of the public are concerned. This is illustrated by the Court Cases of Stone vs. Mississippi, and Boston Beer Company vs. Massachusetts.

When it was decided that the charter of a corporation was a contract, which the state could not change without the consent of the corporation, each state, thereafter, in chartering corporations, expressly reserved the right to alter, amend, or modify corporate charters as it chose. When a state has done this, it may then proceed as it pleases with a corporation in reference to its charter.

If, in the Story Case, there was a law existing in the state expressly reserving to the state the right to amend, or alter, corporate charters, then, the legislature could make the new law apply to the Globe City Bank and its stockholders, and the latter are liable to pay to the depositors. If the right to amend was not reserved, the new law could not be made to apply.