CHAPTER XX

CONTROL OF DOMESTIC AND FOREIGN CORPORATIONS

§ 428. State control of corporations. Domestic corporations are the creatures of the state; and the state has the clear right to regulate its own creations. The power of classification upheld by the Supreme Court admits of discriminations between domestic corporations and also between foreign corporations. Foreign corporations are admitted to a state on such conditions as each state may prescribe, provided always that such discrimination does not interfere with any transaction by such corporations of interstate or foreign commerce. The Illinois statutes of 1869 and 1874, in regard to insurance companies, do not impair the obligation of any contract which the Chicago Life Insurance Company had with the state, nor deny it the equal protection of the law, nor deprive it of property without due process of law, nor impair the obligation of the contracts which the company has made with its creditors and policy holders. The act of 1869 does not contain any regulation respecting the affairs of any corporation of Illinois which is not reasonable in its character, or which is not promotive of the interests of all concerned in its management. It only guards against mismanagement and misconduct; its requirements constitute reasonable regulations of the business of such local corporations; it does not impair the obligation of any contract which the company has with the state; the conditions imposed upon the rights of the company to continue the issuing of policies are neither arbitrary nor oppressive. The same general observations apply to the act of 1874, which, recognizing the contract right of the company to carry on business as a

corporation, does not, by a legislative decree merely, based upon the ex parte representations of public officers, assume to withdraw that right. There is no denial of the equal protection of the laws, nor any deprivation of property without due process of law; for that statute authorizes a public officer to bring the company before a judicial tribunal, which, after full opportunity for defense, may determine whether it is insolvent, or its condition such as to render its continuance in business hazardous to the insured or to the public, or whether it has exceeded its corporate powers, or violated the rules, restrictions or conditions prescribed by law; grounds which, if established, constitute sufficient reason why the corporate franchises and privileges granted by the state should no longer be enjoyed. Chicago Life Insurance Co. v. Needles, 113 U. S. 574.

§ 429. Statute applicable to fire insurance only. A fire insurance company is not denied the equal protection of the laws by a statute applicable to fire insurance only, which makes the entire amount of the insurance payable in case of total loss, except as reduced by depreciation of the property after it was insured. Mr. Justice McKenna in delivering the opinion of the court said: "It is not necessary to state the reasoning upon which classification by legislation is based or justified. This court has had many occasions to do so, and only lately reviewed the subject in Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283. We said in that case that 'the state may distinguish, select and classify objects of legislation, and necessarily the power must have a wide range of discretion.' And this because of the functions of legislation and the purposes to which it is addressed. Classification for such purposes is not invalid because not depending on scientific or marked differences in things or persons or in their relations. It suffices if it is practical, and is not reviewable unless palpably arbitrary. The classification of the Missouri statute is certainly not arbitrary. We

see many differences between fire insurance and other insurance, both to the insurer and the insured,—differences in the elements insured against and the possible relation of the parties to them, producing consequences which may justify, if not demand, different legislative treatment. Of course it is not for us to debate the policy of any particular treatment; and the freedom of discretion which we have said the state has is exhibited by analogous, if not exact, examples to the Missouri statute in Missouri P. Railway Co. v. Mackey, 127 U. S. 205, and in Minneapolis & St. L. Railway v. Beckwith, 129 U. S. 26." Orient Insurance Co. v. Daggs, 172 U. S. 557.

§ 430. Statute as to effect of false answers by applicant for life insurance. The power of the legislature to define the public policy of the state in respect to life insurance, and to impose conditions on the transaction of business by life insurance companies within the state, is exercised without violation of the Federal Constitution by the Ohio statutes providing that an answer by an applicant shall not bar recovery on the policy unless clearly proved to be wilfully false and fraudulently made and also material, and that it induced the company to issue the policy, and that the agent of the insurer had no knowledge of the falsity or fraud of such answer. It was for the legislature of Ohio to define the public policy of that state in respect of life insurance, and to impose such conditions on the transaction of business by life insurance companies within the state as was deemed best. Mr. Chief Justice Fuller, in delivering the opinion of the court, said: "We do not perceive any arbitrary classification or unlawful discrimination in this legislation, but, at all events, we cannot say that the Federal Constitution has been violated in the exercise in this regard by the state of its undoubted power over corporations." John Hancock Mutual Life Ins. Co. v. Warren, 181 U. S. 73.

§ 431. State regulation of foreign corporations. A foreign corporation engaged in booking theatrical companies

and vaudeville acts for theatre owners in consideration of a weekly booking fee and a commission on the actors' salaries may, consistently with the equal protection clause of the Federal Constitution, be required to file a copy of its charter with the secretary of state, conformably to a local statute, as a condition precedent to its right to sue upon a contract made in its conduct of such business. Interstate Amusement Co. v. Albert, 239 U. S. 560.

§ 432. State anti-trust laws. A discrimination in favor of agricultural products or live stock in the hands of the producer or raiser, made by the Illinois trust act exempting them from the provisions which prohibit a recovery of the price of articles sold by any trust or combination formed in restraint of trade or competition in violation of that act, renders it repugnant to the Fourteenth Amendment, in respect to the equal protection of the laws. What may be regarded as a denial of the equal protection of the laws is a question not always easily determined, as the decisions of the Supreme Court and of the highest courts of the states will show. It is sometimes difficult to show that a state enactment, having its source in a power not controverted, infringes rights protected by the national Constitution. No rule can be formulated that will cover every case. Upon this general question the Supreme Court has said that the guaranty of the equal protection of the laws means "that no person or class of persons shall be denied the same protection of the laws which is enjoyed by other persons or other classes in the same place and under like circumstances. These principles applied to this case condemn the statute of Illinois. Under that statute all except producers of agricultural commodities and producers of live stock, who combine their capital, skill or acts, for any of the purposes named in the act may be punished as criminals, while agriculturists and live-stock raisers in respect of their products or live stock in hand, are exempted from the operation of the statute, and may combine and do that which, if done by

others would be a crime against the state notwithstanding all are in the same general class, that is, they are all alike engaged in domestic trade which is of right open to all, subject to such regulations, applicable alike to all in like conditions, as the state may legally prescribe. To declare that some of the persons engaged in domestic trade or commerce shall be deemed criminals if they violate the regulations prescribed by the state for the purpose of protecting the public against illegal combinations formed to destroy competition and to control prices, and that others of the same class shall not be bound to regard these regulations, but may combine their capital, skill or acts to destroy competition and to control prices for their special benefit is so manifestly a denial of the equal protection of the laws that the act is clearly repugnant to the Constitution. Connolly v. Union Sewer Pipe Co., 184 U. S. 540.

§ 433. Discrimination against dealers in articles manufactured from produce of another state. The Tennessee merchant tax imposed on a corporation dealing only in goods manufactured from the produce of other states, makes no unconstitutional discrimination, because of the provision of the state constitution that "no article manufactured of the produce of this state shall be taxed otherwise than to pay inspection fees," where the highest court of the state has held that this provision refers only to a direct levy of taxation upon articles manufactured from the produce of the state and that the merchants' tax applies equally to all merchants. The argument is made that under the facts found by the court below it was erroneously held that the steel company because of the business it carried on in the state of Tennessee was a merchant within the statutes, and the power to review this question, it is insisted, should be exercised because the question is Federal in its nature. The contention is without merit. As the levy of the merchants' tax violated no Federal right, the mere determination of who were merchants