and death is vested in the creative sovereignty. Yet the State's power over corporations is not without limitations. The corporation is a person within the meaning of the State and the Federal Constitutions. Like other persons, it can not be deprived of vested rights without due process of law, nor can its power be abridged or revoked without its consent, unless the right has been reserved by the State. Even under the cloak of police power, legislative interference with vested corporate rights is prohibited, except when imperatively necessary for the purpose of protecting "the comfort, safety or welfare of society". §2. The Fiction of Corporate Unity. In contemplation of law, the corporation is a legal person9 having an existence wholly distinct and separate from that of its members1o. Even where a single individual acquires all of the stock of a corporation, the corporate identity is not affected thereby, but remains separate and unchanged11. Upon the same principle, the fact that the officers and stockholders of two corporations are identical, establishes no legal identity between the Road Co., 32 Mich. 248-265; Stewart v. Father Matthew Society, 41 Mich. 67; C. L. 1897, Sec. 9950. 6. Smyth v. Ames, 169 U. S. 466, 42 L. ed. 819-840; Attorney General v. Looker, 111 Mich. 498; City of Detroit v. Plank Road Co., 43 Mich. 140; Railroad Commissioner v. Grand Rapids & I. Ry. Co., 130 Mich. 248-250. 7. Michigan State Bank v. Hastings, 1 Doug. (Mich.) 224-234. That such right has been reserved in this state by constitution, see Beecher's Const. 1908, Art. XII, Sec. 1. 8. Lake Shore & M. S. Ry. Co. v. Smith, 173 U. S. 683, 43 L. ed. 858; Smith v. Lake Shore & M. S. Ry. Co., 114 Mich. 460-482. 9. By statute, "The word 'person' may extend and be applied to bodies politic and corporate, as well as to individuals." C. L. 1897. Sec. 50, Par. 12. It is a general rule that when a constitution or statute refers to "persons" generally, without naming corporations. the term includes corporations, unless otherwise specified. Minneap olis & St. L. R. Co. v. Beckwith, 129 U. S. 26, 32 L. ed 585-586. Marshall Corp. p. 40; Turnbull v. Prentiss Lumber Co., 55 Mich. 387393. 10. Randall v. Dudley, 111 Mich. 437; Doyle v. Mizner, 40 Mich. 160164; Rust v. Bennett, 39 Mich. 521522; Hanson v. Donkersley, 37 Mich. 186; Talbott v. Scripps, 31 Mich. 268. It is held that a contract for the benefit of a corporation can not be deemed to confer an individual benefit upon any one of its stockholders. Thus, a suretyship contract of a married woman for the benefit of a corporation in which she was a stockholder would not be supportable as a contract for the benefit of her separate estate.-Russel v. People's Savings Bank, 39 Mich. 671-674. So a promise by a stockholder to pay a debt of the corporation is a promise to pay the debt of another within the meaning of the statute of frauds.-Hanson v. Donkersley, ante. 11. Randall V. Dudley, 111 Mich. 437. corporations12. A corporation is so distinct from its stockholders that knowledge possessed by a non-official stockholder is not notice to the corporation13, nor is a stockholder charged with constructive notice of corporate transactions11. The fiction of the corporation's separate identity reaches its utmost limit, perhaps, in that class of cases in which the courts hold that an officer or agent of a corporation may know a thing for one purpose and, at the same time, remain ignorant of it for another purpose. Necessarily, whatever information a corporation gains is nothing more than the information of its human agents. Apparently anything known to a corporate agent would be known to the corporation. But the rule is otherwise. However anomalous it may seem that a single brain may, at one and the same time, know and not know a certain fact, the exigencies of corporate administration amply sustain the rule. Thus, where a corporate officer or agent acts in a dual capacity, wherein he has, or represents, an interest adverse to that of the corporation, his knowledge of matters disadvantageous to the corporation, and which he might naturally be tempted to conceal, will not be held to be the knowledge of the corporation15. A less strained application of a similar principle is this: that facts coming to the attention of a corporate agents, or admissions made by such agent17, unrelated to his duty, and outside the scope of his employment, are not the knowledge or admissions of the corporation. The stockholders are not the corporation, nor are the directors. When the charter, or by-laws, make the validity of an act dependent upon authorization by the board of directors, the separate concurrence of the directors as indi 12. Mason v. Finch, 28 Mich. 282-284. 13. International Wrecking & Transportation Co. v. McMorran, 73 Mich. 467-470. 14. World Mfg. Co. v. Cycle Co., 123 Mich. 620-624. "A corporator is not charged with constructive notice of corporate acts. and may deal with the corporation as a stranger may, where his personal connection with the corporate action is not such as to notify him of reasons to the contrary."-Justice Cooley, in Rice v. Peninsular Club, 52 Mich. 87-90. 15. People's Savings Bank V. Hine, 131 Mich. 181-183; State Savings Bank v. Montgomery, 126 16. Cook's Corp. Sec. 727. See also Zeigler's v. Valley Coal Co., 150 Mich. 82-85. 17. Peek V. Detroit Novelty Works, 29 Mich. 313: Allington and Curtis Co. v. Reduction Co., 133 Mich. 427-435; Beunk v. Velley City Desk Co., 128 Mich. 526567; Ward's C. & P. L. Co. v. Elkins, Mich. 439-442. In the last named case, the statements of a steamboat clerk, not shown to have been made in relation to matters within the scope of his duty, were held inadmissible as evidence. viduals will be insufficient18. Where the strict application of this principle would defeat justice, the law of estoppel usually intervenes19. §3. The Fiction Disregarded. When a corporation exists as a mere cloak for the concealment of individual fraud, the courts, in furtherance of justice, will look beyond the corporate shadow to the men within the shadow20. Fraud is none the less fraud when perpetrated through accomplices. Where corporate officers are mere "dummies," used as a blind to hide the fact that those in control are plundering the corporation, deceiving the public, or defrauding stockholders, creditors or the State, equity will brush aside the puppets and charge the wrong doing, and its consequences, upon the true, originative source of the illegal action21. Another point at which the fiction of corporate unity fails is this: each stockholder is so far a part of the corporation itself, that he is bound by judgments against the corporation and can not, in the absence of fraud, attack their validity in collateral proceedings, even though the corporation may have had a good defense which was not interposed22. A further illustration of the failure of the fiction of corporate unity arises in cases where judges, or their relatives within prohibited degrees, are stockholders in a corporation before the court. In such cases the judge is disqualified to the same extent as though the corporation were a 18. Lockwood v. Thunder Bay River Boom Co., 42 Mich. 536-539; Finley Shoe & Leather Co. v. Kurtz, 34 Mich. 88-91; Bond v. Pontiac Oxford & P. A. R. Co., 62 Mich. 651; Johnson V. Farmers Mutual Fire Ins. Co., 110 Mich. 488-490; Warner v. Life Association, 100 Mich. 157. In Finley Shoe & Leather Co. v. Kurtz, ante., Chief Justice Cooley said: "Where joint action is required by law, individual action is of no avail, and it. at most, only puts the individuals under honorary obligations, of which the law can take no notice." 19. Mich. Cent. R. Co. v. Chicago K. & S. Ry. Co., 132 Mich. 324. 20. Ruttle v. What Cheer Coal Mining Co., 153 Mich. 300. In this case Foss furnished the entire capital, exercised sole management, and owned all except two shares of the stock, of a corporation operated in his own interest. In commenting upon this state of fact, Justice Blair said: "In fact, Mr. E. B. Foss was the corporation. 21. Chicago and Grand Trunk Ry. Co. v. Miller, 91 Mich. 166183; Lucas v. Friant, 111 Mich. 426-435; Miner v. Belle Isle Ice Co., 93 Mich. 97-110; Jones V. Green, 129 Mich. 203-207; Buckhout & Witwer, 16 D. L. N. 417 (July, 1909). 22. Mutual Fire Ins. Co. V. Phoenix Furniture Co., 108 Mich. 170; Powell v. Oregonian R. Co. 3 L. R. A. 201. natural person to whom the judge, or those akin to him, sustained relationship by ties of blood or marriage23. §4. The Corporation as a "Person." The business corporation is born a trustee. It holds its capital stock-its very "life blood"—as a trust fund for its creditors24 and stockholders25. Custodian of the savings of many, it must divide its profits with an impartial hand26. It has no power, save by sanction and grant of the State27. Though a child of sovereignty, it is brought forth but to serve and to obey28. The law of the land is its decalogue, and its high priests are the courts of chancery29. Within the scope of its charter powers, and so far as is consistent with the character of its being a corporation may do all things that a natural person may do, except as it is restricted by statute3o. It is, in fact, competent and not unusual for legislative bodies to confer upon corporations appropriate powers far exceeding those enjoyed by private individuals. Thus, we have railway corporations with power to exercise the right of eminent domain, and banking corporations with sharply restricted power to issue currency. Within the limitations stated, corporations have power to contract31; to buy, hold and sell appropriate real 23. Davis Colliery Co. v. Charlevoix Sugar Co., 15 D. L. N. 974976, (Dec. 1908); Martin v. Ins. Co. 139 Mich. 148; C. L. 1897, Sec. 1109; Peninsular Ry. Co. v. Howard, 20 Mich. 18-25. In the case last mentioned, Justice Christiancy said: "It is not a matter of discretion with the judge or other persons acting in a judicial capacity, nor is it left to his own sense of propriety or decency; but the principle forbids him to act in such capacity at all when he is thus interested, or when he may possibly he subjected to the temptation. His powers are absolutely subject to this limitation." 24. International Fair & Exposition Association v. Walker, 88 Mich. 62-71. In this case Chief Justice Champlin declared, that, "The capital stock authorized is the life blood of the corporation," and this expression was quoted with approval by Justice Grant in Continental Paint Co. v. Sec'y of 25. Upton v. Tribilcock, 91 U. S. 45, 23 L. ed. 203-205. 26. Phillips v. Jacobs, 145 Mich. 108; Smith v. Smith, Sturgeon & Co., 125 Mich. 234. 27. Dewey v. Central Car & Mfg. Co., 42 Mich. 399, 401. 28. Middleton V. Flat River Booming Co., 27 Mich. 533-535. 29. C. L. 1897, Secs. 9755, 9757. et. seq. 30. Thompson V. Waters, 25 Mich. 227. 31. Cicotte V. St. Anne's Church, 60 Mich. 552; McCracken V. Halsey Fire Engine Co., 57 Mich. 361; Regents v. Detroit Y. M. S., 12 Mich. 138; Ismon v. Loder, 135 Mich. 345-350. estate and personal property33; to acquire property by will, or by gift, and to mortgage, pledge or otherwise dispose of any of the property thus acquired34. Like a natural person, a corporation may prefer one creditor over another in states where, as in Michigan, preferences by way of mortgage or pledge are not prohibited. A corporation may become the trustee for another, and may hold in trust any property which it might hold in its own right. It may become an agent as well as a principal, an employee as well as an employer37. Constrained, by the nature of its being, to carry on its business by means of agents, a corporation principal is, in general, upon the same footing as other principals, and may be held, under like circumstances, for the frauds38 and torts39 of its agents. Thus it may become liable for libel, slander40 and malicious prosecution11. §5. The Partnership Contrasted with the Corporation. The partnership is the primitive type of association for profit. Its simplicity of formation, its breadth of powers, its freedom from enforced publicity, its immunity from special legislation and State control, afford it favor, even today, with those who prefer temporary convenience to permanent advantages. A partnership of more than three members is usually unwieldy. It is like an army composed exclusively of generals. Each partner is a principal; each has an equal voice in the management; each is an agent of the firm, and may bind all of his associates by contracts, however improvident. Each partner may mortgage or sell the firm's property, and if he misappropriates the proceeds, the sole remedy of his associates is by way of an accounting in chancery. For the firm's obligations, 32. Thompson V. Waters, 25 Mich. 214. 33. Regents v. Detroit Y. M. S., 12 Mich. 138-160. 34. Joy v. Jackson & Mich. P. R. Co., 11 Mich. 155-164. 35. Longley V. Hosiery Co., 128 Mich. 194-197; Kock v. Bostwick, 113 Mich. 302; Bank of Montreal v. Salt & Lumber Co., 90 Mich. 345-349; Kendall v. Bishop, 76 Mich. 634; Turnbull v. Lumber Co., 55 Mich. 396; Town v. Bank of River Raisin, 2 Doug. (Mich.) 530. 36. White v. Rice, 112 Mich. 403-408. 37. McWilliams v. Detroit Central Mills Co., 32 Mich. 242-276. 38. Lasier v. Appleton Land & Iron Co., 130 Mich. 588-590. 39. Wachsmuth V. Merchants National Bank, 96 Mich. 426; Bath v. Katon, 37 Mich. 199. 40. Randall v. Evening News Association, 97 Mich. 136-140; Bacon v. Mich. Cent. R. Co. 55 Mich. 224-228. 41. Cascarella v. National Grocer Co., 151 Mich. 15-19; Ironwood Store Co. v. Harrison, 75 Mich. 197-203. |