H. L. PINNEY, C. L. Pinney, W. C. Patterson, and Thomas Brooks, Plffs. in Err.,

v.

R. T. NELSON.

(See S. C. Reporter's ed. 144-151.) Impairing obligation of contract-law enact ed after making of contract-personal liability of stockholder in foreign corpora

1.

tion.

Findings of fact were also made, among which were the following:

*"2. That the Los Angeles Iron & Steel [145] Company was a corporation organized on the 8th day of March, 1893, and incorporated under the laws of the state of Colorado; that the seventh provision of its articles of incorporation is as follows, to wit: The said company is created for the purpose of carrying on part of its business beyond the limits of the state of Colorado, and the principal office of said company in the state The obligation of the contract of the stock shall be kept at the city of Denver, Arapaholders in a foreign corporation cannot be hoe county, and the principal plant and deemed to be impaired by the provision of Cal. Civ. Code, § 322 (which was enacted prior principal operations of said company, beto the incorporation of such corporation), im-yond the limits of the state, shall be in Los posing the same personal liability upon stock-Angeles county, state of California, and holders of foreign corporations doing business such other places in the state of California within the state as upon stockholders in doas may be decided upon by the board of dimestic corporations. rectors. The principal business of said company in the state of Colorado shall be carried on in Arapahoe county.

2. California stockholders in a Colorado corporation whose charter specified that one purpose of the incorporation was the transaction of business by the corporation in California must be deemed to have contracted with ref. erence to the provisions of Cal. Civ. Code, 322, imposing the same personal liability upon stockholders of foreign corporations doing business within the state as upon stockholders in domestic corporations, and are bound thereby, so far, at least, as such liability arises from the corporate business carried on in California.

[No. 65.]

"3. That the defendants are and were at all times herein mentioned residents and citizens of the state of California.

"4. That all the indebtedness of said Los Angeles Iron & Steel Company to plaintiff and to plaintiff's assignors was created by contracts made, executed, and to be performed in the state of California."

"6. That at the time the said indebtedness was created and incurred by the said coinpany there were issued of the capital stock thereof the number of 1,311 shares, and that the defendants were at said times the own

Submitted April 26, 1901. Decided Decem- crs respectively of the number of said shares

IN

ber 2, 1901.

IN ERROR to the Superior Court of Los Angeles County, State of California, to review a judgment in favor of plaintiff in an action to enforce a personal liability of stockholders. Affirmed.

Statement by Mr. Justice Brewer: [144] *This was an action to enforce a personal liability of stockholders. It was commenced in a justice's court of Los Angeles city, Los Angeles county, California, on September 30. 1898, by the defendant in error against the plaintiffs in error. It was subsequently transferred to the superior court of the county, where a trial was had on January 17, 1900, before the court without a jury. A stipulation was signed as to the truth of various averments in the complaint and answer, which concluded as follows:

"And it is stipulated that the only question in this case is as to whether § 322 of the Civil Code of California is in violation of the provisions of the Constitution of the United States; and if it is in violation of such provisions defendants are entitled to judgment; but if said section is not in violation of said provisions, then plaintiff is entitled to judgment as prayed for in his complaint."

NOTE. As to what laws are void as impair ing obligation of contracts-see notes to Franklin County Grammar School v. Bailey (Vt.) 10 L. R. A. 405; Fletcher v. Peck, 3 L. ed. U. S. 162; McCanna & F. Co. v. Citizens' Trust & Surety Co. 24 C. C. A. 20, and Montana Ore

|

as set opposite their respective names, as
follows, to wit: H. L. Pinney, 50 shares; C.
L. Pinney, 42 shares; W. C. Patterson, 35
shares; C. W. Damerel, 91 shares; F. E.
Little, 22 shares; Thomas Brooks, 38
shares."

Upon the stipulation and findings a judg
ment was rendered in favor of the plaintiff.
A writ of error was subsequently sued out
from this to that court, it being the highest
court in the state to which the action could
be taken.

Article 12. § 15, of the Constitution of
California, adopted in 1879, reads:

"No corporation organized outside the limits of this state shall be allowed to transact business within this state on more favorable conditions than are prescribed by law to similar corporations organized under the laws of this state."

*Section 322 of the Civil Code of Califor-[146] nia. as amended March 15, 1876, provides as follows:

"Each stockholder of a corporation is in-
dividually and personally liable for such
proportion of its debts and liabilities as the
amount of stock or shares owned by him
bears to the whole of the subscribed capital
stock or shares of the corporation, and for
a like proportion only of each debt or claim
against the corporation. Any creditor of
Purchasing Co. v. Boston & M. Consol. Copper
& Silver Min. Co. 35 C. C. A. 12.

On the individual liability of stockholders for
corporate debts-see notes to United States v.
Stanford, 40 L. ed. U. S. 751, and Hatch v.
Dana, 25 L. ed. U. S. 885.

The objection that a statute impairs the obligations of their contract cannot be urged by persons either contracting within the jurisdiction of the statute, or voluntarily enThe individual liability of the stockholder tering within the jurisdiction of the statute under the national bank act is an essential in the performance of their contract, or in element in the contract by which the stock-the enjoyment of benefits of their contract, holder became a member of the corporation. many years after the enactment of the statIt is voluntarily entered into by subscribing ute. for and accepting shares of stock; its obliga

tion becomes a part of every contract, debt, 30 L. ed. 1059, 7 Sup. Ct. Rep. 916. and engagement of the bank itself,-as much When plaintiffs in error subscribed to the so as if they were made directly by the stock-articles of incorporation they expressly holders, instead of by the corporation.

tion that the stockholders become bound for
the debts of the corporation.

Second Nat. Bank v. Hall, 35 Ohio St. 166.

[146] *Mr. Justice Brewer delivered the opinion of the court:

other law than that of the place, and when
that is so that other law will control. That
the parties have some other law in view and
contract with reference to it is shown by an
express declaration to that effect. In the
absence of such declaration it may be dis-
closed by the terms of the contract and the
purpose with which it is entered into. In
Pritchard v. Norton, 106 U. S. 124, 27 L.
cd. 104, 1 Sup. Ct. Rep. 104, many cases
were cited by Mr. Justice Matthews, deliver-

propositions were illustrated and enforced,
and on page 136, L. ed. p. 108, Sup. Ct. Rep.
p. 112, it was said:

The plaintiffs in error rely upon the proposition that the liability of a stockholder is determined by the charter of the corporation [147]*and the laws of the state in which the incorporation is had. "If the constitution to which a corporator has agreed does not pro-ing the opinion of the court, in which these vide for individual liability to creditors, he cannot be charged with individual liability anywhere." 2 Morawetz, Priv. Corp. 2d ed. 8874. They invoke the lex loci contractus, "The law we are in search of, which is to and say that the stockholders' contract was decide upon the nature, interpretation, and made in Colorado, that being the state invalidity of the engagement in question, is which the Los Angeles Iron & Steel Com- that which the parties have, either expresspany was incorporated; that by the laws of ly or presumptively, incorporated into their that state there is no personal liability of contract as constituting its obligation. It stockholders; that it is not within the power has never been better described than it was of California to change the terms of that incidentally by Mr. Chief Justice Marshall, contract, the Federal Constitution (art. 1, in Wayman v. Southard, 10 Wheat. 1, 48, §10) forbidding a state to pass a law im- 6 L. ed. 253, 264, where he defined it as a pairing the obligation of contracts; that principle of universal law,-'the principle while California, which prescribes an indi- that in every forum a contract is governed by vidual liability of stockholders, may if it the law with a view to which it was made.' sees fit exclude every corporation of anoth-The same idea had been expressed by Lord er state whose stockholders do not assent to Mansfield in Robinson v. Bland, 2 Burr. such liability, yet if it fails to do so, and 1077, 1078: "The law of the place,' he said, such Colorado corporation actually comes in- 'can never be the rule where the transaction to California to transact business, such com- is entered into with an express view to the ing into the state and the transaction of law of another country as the rule by which business therein do not change the terms of it is to be governed.' And in Lloyd v. Guithe stockholders' contracts, or impose a per- bert, L. R. 1 Q. B. 115, 120, in the court of sonal liability; and also that in such a case exchequer chamber, it was said that 'it is an attempt to enforce the statutory provi- necessary to consider by what general law sions of California so far as to change the the parties intended that the transaction personal liability of corporators in the for- should be governed, or, rather, by what geneign corporation is in conflict with the due eral law it is just to presume that they have process and equal protection clauses of the submitted themselves in the matter.' 1st section of the 14th Amendment. Breton v. Miles, 8 Paige, 261."

With reference to the contention that the law of California impairs the obligation of the contract of the stockholders, it is enough to say that that law, both constitutional and statutory, was enacted long before the incorporation of the Los Angeles Iron & Steel Company, and that therefore § 10 of article 1 of the Federal Constitution has no application. "It is equally clear that the law of the state to which the Constitution refers in that clause must be one enacted after the making of the contract. the obligation of which is claimed to be impaired.' Lehigh Water Co. v. Easton, 121 U. S. 388, 391. 30 L. ed. 1059, 1060, 7 Sup. Ct. Rep. 916, 918. See also Central Land Co. v. Laidley, 159 U. S. 103, 111. 40 L. ed. 91, 94, 16 Sup. Ct. Rep. 80; McCullough v. Virginia, 172 U. S. 102. 116, 43 L. ed. 382, 387, 19 Sup. Ct. Rep. 134.

Passing to a consideration of the stockholders' contract in the light of the other [148] contention, it may be said that ordinarily *it is controlled by the law of the state in which the incorporation is had. That is the place of contract, and, generally, the law of the place where a contract is made governs its nature, interpretation, and obligation. While this is so, it is also true that parties in making a contract may have in view some

Le

The subject was also discussed at length by Mr. Justice Gray in Liverpool & G. W. Steam Co. v. Phenix Ins. Co. 129 U. S. 397, 32 L. ed. 788, 9 Sup. Ct. Rep. 469. In Coghlan v. South Carolina R. Co. 142 U. S. 101, 110, 35 L. ed. 951, 954. 12 Sup. Ct. Rep. 150, 152, Mr. Justice Harlan, referring to these two opinions, observed: "The elaborate and careful review of the adjudged [149} cases, American and English, in the two cases last cited. leaves nothing to be said upon the general subject."

In Bank of Augusta v. Earle, 13 Pet. 519, 588, 10 L. ed. 274, 307, Chief Justice Taney said:

"It is very true that a corporation can have no legal existence out of the boundaries of the sovereignty by which it is created.

But although it must live and have its being in that state only, yet it does not by any means follow that its existence there will not be recognized in other places; and its residence in one state creates no insuperable objection to its power of contracting in another. It is indeed a mere artificial being, invisible and intangible, yet it is a person for certain purposes in contemplation of law, and has been recognized as such by the decisions of this court. It was so held in the case of United States v. Amedy. 11

Wheat. 412, 6 L. ed. 507, and in Beaston v.
Farmers' Bank, 12 Pet. 135, 9 L. ed. 1030.
Now, natural persons, through the interven-
tion of agents, are continually making con-
tracts in countries in which they do not re-
side and where they are not personally pres-
ent when the contract is made, and nobody
has ever doubted the validity of these agree-
ments. And what greater objection can
there be to the capacity of an artificial per-
son, by its agents, to make a contract with-
in the scope of its limited powers, in a sov-
ereignty in which it does not reside, provided
such contracts are permitted to be made by
them by the laws of the place?"

And then, after discussing the question of
comity, added (p. 589, L. ed. p. 308):

"Adopting, as we do, the principle here stated, we proceed to inquire whether, by the comity of nations, foreign corporations are permitted to make contracts within their jurisdiction, and we can perceive no sufficient reason for excluding them when they are not contrary to the known policy of the state, or injurious to its interests.

"It is nothing more than the admission of the existence of an artificial person created by the law of another state, and clothed with the power of making certain contracts. It is but the usual comity of recognizing the law of another state."

those laws do not enter into the contract
and control as to all business done in pur-
suance of that contract within the limits of
California? Suppose these same stockhold-
ers in Colorado had formed a partnership
with the expressed intent of carrying où
business in California, would not that ex-
pressed intent be a clear reference to the
laws of California and an incorporation of
those laws into the liabilities created by the
partnership business in California? And if
this rule obtains as to contracts of partners
between themselves, why not also as to con-
tracts of stockholders between themselves in
forming a corporation?

*In this case it appears that the business[151]
transactions out of which these liabilities
arose were carried on in California. They
resulted from business done in California by
virtue of an express contract made by the
stockholders with reference to such business.
It is unnecessary to express an opinion up-
on the question whether any personal lia-
bility would be assumed by the stockholders
in reference to business transacted in Colo-
rado. Parties may contract with special
reference to carrying on business in sepa-
rate states, and when they make an express
contract therefor the business transacted in
each of the states will be affected by the
laws of those states, and may result in a
difference of liability. Neither is it neces-
sary to express any opinion upon the ques-
tion whether the defendants could have been
held liable under the California statutes, in-
dependently of the provisions of the Colo-
rado charter. All that we here hold is that
when a corporation is formed in one state,
and by the express terms of its charter it is
created for doing business in another state,
and business is done in that state, it must
be assumed that the charter contract was
made with reference to its laws; and the lia-
bilities which those laws impose will attend
the transaction of such business.
The judgment of the Superior Court is
affirmed.

v.

[150] *As, then, a corporation can have no legal
existence outside of the state in which it is
incorporated, the contract of the stockhold-
ers with one another, by which the corpora
tion is created, is presumed to have been
made with reference to the laws of that
state, nothing being said in the charter to
the contrary. But as comity permits a cor-
poration to enter another state and do busi-
ness therein, it is competent for the stock-
holders in making their charter to contract
with reference to the laws of a state in which
they propose the corporation shall do busi-
ness. And in this case the stockholders in
their charter specified that the purpose of
the incorporation was partly business be-
yond the limits of Colorado, and that the
principal part of such outside business
should be carried on in California. Not
content to rely upon the general authori- HENRY W. DOOLEY et al., Plffs. in Err.,
ty which by the rules of comity the Colora-
do corporation would have to enter Califor-
nia and transact business therein, they in
terms set forth that a part of the purpose
of the incorporation was the transaction of
business by the corporation in California.
Now, when they in terms specified that they
were framing a corporation for the purpose
of having that corporation do business in
California, is it not clear that they were
contracting with reference to the laws of
that state? Contracting with reference to
the laws of that state they must be assumed
to know the provisions of those laws; that
by them a personal liability was cast upon
the stockholders in corporations formed un-
der the laws of the state, and that that same
liability was also imposed upon the stock-
holders of corporations formed under the
laws of other states and doing business with-
in California. How can it be said that

UNITED STATES.

(See S. C. Reporter's ed. 151-176.) Constitutional law-Foraker act-duty on exports-imports into Porto Rico.

1.

2.

The tax imposed upon goods Imported into Porto Rico from New York under the provi sions of the Foraker act of April 12, 1900 (31 Stat. at L. 77, chap. 191), is not a tax or duty on articles exported from the United States within the meaning of U. S. Const. art. 1. 9. declaring that no tax or duty shall be laid on articles exported from any state, since the goods are not exported to a foreign country.

A duty on Imports to Porto Rico, within the power of Congress under U. S Const. art. 1, § 8. "to lay and collect taxes, duties, Imposts, and excises," is imposed by the Foraker act of April 12, 1900 (31 Stat. at L. 77. chap.

(152]

S.

191), as temporary legislation for the Island,
since the tax is for the benefit of Porto Rico,
and can be abolished by the legislative as
sembly of Porto Rico at will. Per Justices
Brown, Gray, Shiras, and McKenna.

The constitutional provision that "all du-
ties, imposts, and excises shall be uniform
throughout the United States" (U. S. Const.
art. 1, § 8) does not apply to the tax Imposed
by the Foraker act of April 12, 1900 (31 Stat.
at L.. 77, chap. 191), upon goods imported into
Porto Rico from New York. Per Justice
White.

[No. 207.]

late interstate and foreign commerce, which is exclusively a subject of national legisla tion, by imposing duties thereon, it is plainly an attempted exercise of the powers conferred on Congress as a national government, viz., the power to regulate commerce, conferred by cl. 3, § 8, art. 1, of the Constitution, and the power to levy duties, imposts, and excises conferred by clause 1 of the same section; and as such its tariff regulations are unconstitutional and void because the duties levied and collected under them are not uniform throughout the United States.

Argued January 8, 9, 10, 11, 1901. Decided tion is a geographical uniformity.

The uniformity required by the Constitu

December 2, 1901.

'N ERROR to the Circuit Court of the

I United States for the Southern District of New York to review a dismissal of a petition on demurrer in an action against the United States to recover duties paid under protest upon imports into Porto Rico from New York. Affirmed.

Statement by Mr. Justice Brown:

*This was an action begun in the circuit court as a court of claims by the firm of Dooley, Smith, & Co., to recover duties exacted of them and paid under protest to the collector of the port of San Juan, Porto Rico, upon merchandise imported into that port from the port of New York after May 1, 1900, and since the Foraker act. This act requires all merchandise "coming into Porto Rico from the United States" to be "entered at the several ports of entry upon payment. of fifteen per centum of the duties which are required to be levied, collected, and paid upon like articles of merchandise imported from foreign countries." [31 Stat. at L. 77, chap. 191, § 3.]

Knowlton v. Moore, 178 U. S. 41, 44 L. ed. 969, 20 Sup. Ct. Rep. 747.

the same force and effect in every place where the subject of it is found.

The tax is uniform when it operates with

Head Money Cases, 112 U. S. 580, sub nom. Edye v. Robertson, 28 L. ed. 798, 5 Sup. Ct. Rep. 247.

The geographical uniformity required is not confined to the states, but extends to the whole "American empire."

Loughborough v. Blake, 5 Wheat. 317, 5 L. ed. 98.

The act, so far as its tariff regulations on commerce between Porto Rico and the states are concerned, cannot be sustained as an exercise of the power of Congress to govern the territories. The tax is not a local tax for local purposes, but a tax laid under the 8th section of the 1st article of the Constitution.

The duties collected under the act of April 12, 1900, from the plaintiffs, at the island of Porto Rico, on articles exported by them from the state of New York, were illegally exacted, and the collection of them was in violation of that provision of the Constitution which says that "no tax or duty shall A demurrer was interposed by the dis-be laid on articles exported from any state." trict attorney upon the ground that the court had no jurisdiction of the subject of the action, and also that the complaint did not state facts sufficient to constitute a cause of action. The demurrer to the complaint for insufficiency was sustained, and the petition and in no place where it has jurisdic

tion dismissed.

Mr. Henry M. Ward also filed a separate brief for plaintiffs in error.

For his contentions, see his brief as reported in Dooley v. United States, 45 L. ed. U. S. 1077.

Messrs. William G. Choate and Joseph Larocque, Jr., also filed a brief for plaintiffs in error:

As the act in question purports to regu

This clause, so far as we are aware, has never received judicial interpretation. We believe, however, that the language is explic it, and is susceptible of but one meaning, which is that Congress has, under no condi

tion to levy a tax, the right to exercise the taxing power with respect to articles which have been, are being, or are to be, exported from any state, whether to a foreign country or to another part of the United States. rial whether the taxing power is exercised in Viewed from this standpoint, it is immatethe port of New York or in the port of San Juan with respect to articles exported from

New York to Porto Rico.

Solicitor General Richards argued the cause and filed a brief for defendant in er

ror.

For his contentions, see his briefs as reported in Dooley v. United States, 45 L. ed. U. S. 1078, and De Lima v. Bidwell, 45 L. ed. U. S. 1045.

Attorney General Griggs also argued the cause for defendant in error.

For his contentions, see his brief as reported in Goetze v. United States, 45 L. ed. U. S. 1067. See also his argument as re