and the taxation of these last-named interests in such States shall exempt the company from taxation on the same in that State in which its principal office is located.

VI. An officer of a corporation must accept his place for his salary alone. If not content with that, he must be so tightly hemmed in by sworn reports that detection of his criminality will be easy.

VII. The punishment of unscrupulous corporation officers must be severe, nothing less than the penitentiary; and the statute of limitations must protect the business for not less than 5 years.

VIII. Officers of an incorporated company shall be debarred from taking advantage of their official position to speculate in stocks, lands, materials, or other thing of value having connection with the affairs of the company.

This last, after full publicity, is the most important of all the regulations which should be enacted to secure honest management of corporations.

NATIONAL INCORPORATIONS

4. LACK OF STATE POWER OF EXCLUSION

11a

By the operation of the Federal Constitution, a State is without power to exclude a corporation of another State, insofar as that corporation is engaged in interstate commerce and the like." In other words, a given State is, in large measure, subject to the corporate policy-perhaps utterly hostile to its own-of any or all of the other States, unless Congress comes to the rescue. The air is full of complaints, on the part of certain States, of such intrusion by other States, and not only of intrusion, but of competing and conflicting intrusion. The power of an invading State in such case rests—it is to be observed-not upon any affirmative constitutional or other provision, but upon the fact that the regulation of such commerce is exclusively for Congress; and that if Congress does not regulate it, it goes without regulation. The field of interstate commerce activity is, so far, a vacant region, where each man raises his Ishmael's-hand against his fellow man, not because he has the right to do so, but because no one who has the power to stay him has interposed. It is not questioned that Congress has the right to put an end to this lawlessness to substitute law for absence of law; to substitute government for anarchy. But, it is constantly said, Congress can do so only in the form of establishing rules for State-chartered corporations. But these rules, it seems clear, may go to the exclusion of such corporations altogether, on the ground of a Federal policy of law to that effect. Or, without going so far, Congress could certainly fix uniform rules of capitalization, stock issue, and all other internal affairs of State-chartered corporations as conditions precedent; for it has been solemnly adjudged that State corporation charters do not override the Constitution and laws of the United States, and without the power to prescribe such symmetry and uniformity there would be no effective power to regulate. The several States, therefore, in order to hold the field for their respective corporations, would, at the demand of Congress, at least have to enact corporation laws according to a form prescribed by Congress. And a power to dictate legislation travels close to a power to legislate.

5. A NO-MAN'S-LAND

*

*

Much of the vagueness and uncertainty that pervades the discussion of this subject arises out of a failure to recognize the fact that the field, except insofar as the national legislature has dealt with it, is unoccupied. No intelligent settlement of this question can ever be had until there is not merely a formal, lifeless, literal admission, but a general, familiar recognition of the fact that-with some slight qualifications not necessary to be dealt with here this vast and all-important field is and can be occupied and controlled by no government at all, except insofar as it is or shall be occupied by the national government. * * We need not elaborate this point or dwell upon it, but it may fairly be said to throw light upon the question

11a Pensacola Teleg. Co. v. West. Un. Teleg. Co. (1877), 96 U. S. 1; Cooper Mfg. Co. v. Ferguson (1885), 113 U. S. 727.

102777-34—PT 69—A

whether Congress, having, admittedly, the power to regulate interstate commerce and the like to an almost unlimited extent, has power to prescribe that no corporations, or no corporations of more than a certain magnitude, shall enter the field unless they be of Federal creation and thus under exclusive Federal control.

Let us turn, now, to certain questions, half legal, half practical, which would present themselves to Congress in enacting a general corporation act. *

4. HOLDING CORPORATIONS

Corporations of this class-including all of what have been aptly termed the “labyrinthine corporations", whether organized as pure holding corporations or not-are, in their very essentials, in conflict with the policy of the general law of corporations; and a national incorporation law would inevitably forbid such a confusion of ideas as they involve. The fundamental and only sound principle of corporation law is that the majority shall rule. The fundamental principle of a holding corporation is that by the simple device of having a majority of the stock of one corporation held by another corporation a majority in the latter--and, thereby, possibly a minority of interest in the original corporation-may rule the original corporation. Tangles of corporations would, almost certainly, not be admitted to Federal incorporation as tangles. A tangle would be obliged to simplify itself, either by abandonment of the holding scheme and a resolving of the tangle into its original elements, or by unifying the mass under one general charter, with proper consideration and protection of all minority rights (Columbia Law Review, June 1905, pp. 427-429, 432-433).

[Michigan Law Review, February 1904, pp. 358, 372, 373, 374, 375, 376, 379, 380, 381, 382, 393, 394, 395]

NEED OF A NATIONAL INCORPORATION LAW

When the report of the committee on uniformity of legislation was submitted to the last American Bar Association, and consideration of the legal problems growing out of modern commercial combinations was urged as a matter proper for discussion and action by that association, it was gravely argued by distinguished lawyers present that there was no legal problem to be solved. The committee on commercial law, however, thought otherwise and said:

"The American people look to the American bar for leadership on this question. Some one must lead. If not the lawyer, then it will be the demagogue."

IV. Power to control our commerce and corporations: 1. In general. If the predicament we are in is due to unregulated commerce, and the inadequate control of the corporations carrying it on, we should get relief by proper regulation of both; but the 2 are so related that attempts to regulate one without the other, or for one government to try to regulate the commerce, and 45 different governments undertake to regulate the corporations that carry it on, will inevitably result in failure. As we have seen, the particular devices whereby evil is wrought or danger threatened are unjust discriminations in transportation, predatory competition, overcapitalization, and dishonest corporate management-the first two are matters of commerce, and the last two of corporation law-and though, separable in the mind, they are inextricably bound together in fact. Nothing less than one system of regulation that can reach all can be succesful. Where is the power to do this?

To secure the uniformity of regulations was the reason the power to regu late national commerce was given to Congress, and it is idle to consider that uniformity will ever be attained by leaving, or further surrendering, this power to the States, as has been suggested.

As to regulating the corporations created by the States, it would seem that a State could control its own corporations, and exclude the foreign corporation-but the very corporation to be controlled is the one that carries on

national commerce-and this takes it out of any effective control, at least when organized in another State.

串

3. National power. If State power is too weak for effecting regulation, what power has the National Government over national commerce and over the corporations carrying it on?

As to commerce, Mr. Justice Harlan, in the Lottery Case," cautiously said: "The whole subject is too important, and the questions suggested by its consideration are too difficult of solution to justify any attempt to lay down a rule determining in advance the validity of every statute that may be enacted under the commerce clause."

13

Nevertheless, after an extensive review of the cases from Gibbons v. Ogden " to Hanley v. Kansas City Southern Ry.," he concludes that "Congress alone has power to occupy, by legislation, the whole field of interstate commerce and as stated In re Rahrer,15 "The framers of the Constitution never intended that the legislative power of the Nation should find itself incapable of disposing of a subject specifically committed to its charge", and points out that— Commerce among the States embraces navigation, intercourse, communication, traffic, the transit of persons and the transmission of messages by telegraph. * * The power to regulate commerce among the several States is vested in Congress as absolutely as it would be in a single government, having in its constitution the same restrictions on the exercise of the power as are found in the Constitution of the United States."

*

Commerce includes the subject-matter of traffic and intercourse, the fact of traffic and intercourse, and the instrumentalities by which it is carried on. The subject matter may be "things, goods, chattels, merchandise, or persons."

20

The fact of intercourse includes the negotiations of the sale of goods which are in other States whether by solicitors or sample," the purpose of goods between citizens of different States, made in either State," communication between persons by the transmission of intelligence by telegraph 19 or telephone the transit of persons," or the transportation of persons or property by express, or piping of oil or gas, or driving of cattle," in completion of a commercial transaction across State lines, and also the written documents* whereby such transactions are effected.

23

21

24

22

As to the instrumentalities, Chief Justice Waite said in Pensacola Tel. Co. v. Western Union Telegraph Co.:"

"Post offices and post roads are established to facilitate the transmission of intelligence. Both commerce and the postal service are placed within the power of Congress, because, being national in their operation, they should be under the protecting care of the National Government. The powers thus granted are not confined to the instrumentalities of commerce, or the postal service known or in use when the Constitution was adopted, but they keep pace with the progress of the country, and adapt themselves to the new developments of time and circumstances. They extend from the horse with its rider to the stage coach, from the sailing vessel to the steamboat to the railroad, and from the railroad to the telegraph, as these new agencies are successively

12 188 U. S. 321, (1903).

138 Wheat. 1 (1824).

14 187 U. S. 617.

15 140 U. S. 545.

16 McCall v. California, 136 U. S. 104: Lottery case. 188 U. S. 321 (1903).

17 Cooper v. Ferguson, 113 U. S. 727 (1885); Robbins v. Taring District, 120 U. S. 489. 59 Am. R. 267 (1887); U. S. v. E. C. Knight Co., 156 U. S. 1 (1895) Hopkins V. U. S., 171 U. S. 578 (1898); Addystone Pipe Co. v. U. S., 175 U. S. 211 (1899).

18 Same cases as preceding note. McNaughton v. McGirl, 20 Mont. 124, 63 Am. St. R. 610 (1897).

19 Pensacola Tel. Co. v. U. S. Tel. Co., 96 U. S. 1 (1877); Western Union Tel. Co. v. Pendleton, 122 U. S. 347.

20 Matter of Pennsylvania Tel. Co., 48 N. J. Eq. 91, 27 Am. St. R. 462.

Passenger cases, 7 How. 283 (1848); Crandall v. Nevada, 6 Wall. 35 (1867); People Compagnie Generale, 107 U. S. 59; Covington Bridge Co. v. Kentucky, 154 U. S. 204, 218.

The Daniel Ball, 10 Wall. 557 (1870); State Freight Tax cases, 15 Wall. 232 (1872); Philadelphia Steamship Co. v. Pennsylvania, 122 U. S. 326 (1887).

Crutcher v. Kentucky, 141 U. S. 47 (1891).

24 State v. Indiana, etc., Co., 120 Ind. 575 (1889).

Kelley v. Rhroads, 188 U. S. 1 (1903).

Almy v. California, 24 How. 169; Fairbanks v. U. 8., 181 U. S. 283. 96 Ü. S. 1. 9, 12.

brought into use to meet the demands of increasing population and wealth. They were intended for the government of the business to which they relate to all times and under all circumstances."

*

As to corporations. The next point for consideration is what power has Congress to establish corporations to engage in interstate commerce.

Although by the Articles of Confederation, Congress had no power except such as was expressly delegated to it, yet within three months after these Articles went into effect, the Congress of the Confederation approved a proposition to incorporate the Bank of North America. The power to do this was hardly questioned. Later, in defense of the bank, James Wilson, in 1782, laid down the doctrine of implied constitutional powers in the following words: "Whenever an object occurs, to the direction of which no particular State is competent, the management of it must, of necessity, belong to the United States in Congress assembled." 20 In the Constitutional Convention of 1787, Mr. Madison twice moved that Congress have power "To grant charters of corporation in cases where the public good may require them and the authority of a single State may be incompetent." It was rejected partly because it was unnecessary," and might lead to creation of monopolies." Mr. Wilson thought it necessary to prevent a State from obstructing the general welfare, and observed that mercantile monopolies "are already included in the power to regulate trade." Mr. Gerry refused to sign the final report because (among other thing) under the power over commerce, monopolies may be established." " In 1791, upon the recommendation of Mr. Hamilton, Congress chartered the Bank of the United States. The constitutionality of the bill to establish it was attacked in the House of Representatives, and President Washington, after taking the written opinions of the Attorney General, Randolph, the Secretary of State, Jefferson (both of whom opposed it), and of the Secretary of the Treasury, Hamilton, signed the bill." These opinions are classic on the subject of the implied powers of the Government. Among other things Hamilton argued :

66

935

*

Congress may create a corporation in relation "to the trade with foreign countries, or to the trade between the States, or with the Indian tribes: because it is the province of the Federal Government to regulate those objects, and because it is incident to a general sovereign or legislative power to regulate a thing, to employ all the means which relate to its regulation to the best and greatest advantage.' And further, "Suppose a new and unexplored branch of trade should present itself with some foreign country, suppose it was manifest that to undertake it with advantage required a union of capitals of a number of individuals, * * what reason can there be to doubt that the National Government would have a constitutional right to institute and incorporate such a company? None. They possess a general authority to regulate trade with foreign countries. This is a means which has been practiced to that end, by all the principal commercial nations, who have trading companies to this day which have subsisted for centuries. * A power to regulate trade, is a power to make all needful rules and regulations concerning trade. Why may it not, then, include that of erecting a trading company? It is remarkable that the State conventions, who had proposed amendments in relation to this point, have most, if not all of them, expressed themselves nearly thus; Congress shall not grant monopolies, nor erect any company with exclusive advantages of commerce. Thus at the same time expressing their sense that the power to erect trading companies or corporations was inherent in Congress, and objecting to it no further than as to the grant of exclusive privileges."

* * **

*

Distinctions that are yet important were drawn as clearly in these great arguments as they ever have been since. Mr. Hamilton had argued that the

28 2 Kent. Comm. 254; 1 Wilson's Works, p. 549.

201 Wilson's Works, p. 558.

30 Journal of Conv. (Aug. 18), p. 549; (Sept. 14), p. 725; the wording in the last case was "to grant charters of incorporation where the interest of the United States might require, and the legislative provisions of individual States may be incompetent."

31 Mr. King, Journal Conv., p. 726.

32 Mr. King and Mr. Mason (Id.).

33 Id., p. 740.

341 Stat. at L. 191; 2 Kent. Comm. 248.

Argument of Hamilton, Ford's Ed. of Federalist, p. 657.

36 Hamilton's Argument, Ford's Federalist, p. 676.

establishment of a bank had a natural relation to the regulation of trade by creating a convenient and adequate medium of exchange to carry on commerce. * *

"Congress may create corporations as appropriate means of executing the powers of government, as, for instance, a bank for the purpose of carrying on the fiscal operations of the United States, or a railroad corporation for the purpose of promoting commerce among the States." 37

43

Early in the century Congress authorized the construction of the National Road from the Potomac to the Ohio Rivers; and Congress has authorized the incorporation of the present national banks," the Union Pacific," Northern Pacific," Atlantic and Pacific," and the Texas and Pacific railways; the Maritime Canal Co. of Nicaragua," various bridge companies," and National Trades Unions; State incorporated telegraph companies have been authorized to construct their lines on all post roads, even where a State had granted to another company all the exclusive right to construct such line," and all railroads are made post roads for such purposes.*

46

From the foregoing it seems certain that the power of the National Government is ample to enable it to create whatever transmission, transportation, or trading corporations, to engage in interestate commerce, that it may deem wise to establish.

*

*

3. The third method. A national incorporation law. No power or authority to do these in the proper and uniform way resides anywhere except in the National Government. The Government, of course, could act either by prescribing the condition under which corporations to engage in interstate commerce might be formed by the States and forbid others from carrying on such commerce; or might itself provide for the formation of corporations to carry on the interstate commerce might be formed by the States and forbid others from carrying on such commerce; or might itself provide for the formation of corporations to carry on the interstate commerce of the country. In the former case, in every particular except what the Government prescribed there would be variation among the States that would breed differences, conflicts, and litigation; and besides the State alone would have direct and positive authority over the corporations it created. Of what possible advantage could this be, except to retain certain taxing privileges, many of them unjust, or to retain litigation within the State courts. But if the foregoing enumerated things are necessary to be regulated in order to give relief from the ills we suffer, the conditions necessary to prescribe would be so nearly equivalent to passing an incorporation act by the Government itself, without retaining control over the creature created, that it seems to me it would be much wiser to enact a national incorporation law in such a manner as to give the National Government unequivocally the ordinary powers of complete control that any State has over its own corporations.

That such an act will in the future, after we have tried and failed in every other way, be the only simple and adequate remedy is generally admitted by several who have closely studied the matter," yet nearly all shrink from advocating it because of various imaginary dangers, some of which may be enumerated: (1) Enormous centralization of our Government. (2) Overburdening the United States courts. (3) Substantially bringing all our property and civil rights under the jurisdiction of the National Government.

Mr. Stimson has stated the general objections as strongly as any I have

seen:

Luxton v. North River Bridge Co., 153 U. S. 525 (1894).

Indiana v. U. S., 148 U. S. 148.

12 Stat. L. 665 (1862).

0 12 Stat. L. 489 (1862). 413 Stat. L. 365 (1864). 42 14 Stat. L. 292 (1866). 4 17 Stat. L. 59 (1872). 4425 Stat. L. 673 (1889).

As North River Bridge Co., July 11, 1890, 153 U.S. 525. 24 Stat. L. 86 (1886).

Pensacola Tel. Co. v. W. U. Tel. Co., 96 U. S. 1 (1877).

Rev. Stat., sec. 3964; 17 Stat. L. 308, sec. 201.

Indus, Com. R. vol. XIX, p. 645; Mr. Stimson's Opinion as Advisory Counsel, to the Commission, vol. XIX, p. 711; Mr. Huffcut, statement to Commission, vol. XIX, p. 722.