Opinion — Cosmopolitan Club v. Virginia

COSMOPOLITAN CLUB v. COMMONWEALTH OF

VIRGINIA.

ERROR TO THE SUPREME COURT OF APPEALS OF THE STATE OF

VIRGINIA,

No. 130. Argued January 23, 1908.—Decided February 24, 1908.

The charter of a private corporation may be forfeited or annulled for the

misuse of its corporate privileges and franchises, and its forfeiture or annul-

ment, by appropriate judicial proceedings, for such a reason would not

impair the obligation of the contract, if any, arising between the State and

the corporation out of the mere granting of the charter. The charter

granted to a club, held, in this case, not to amount to such a contract

WAL uy Ksiave:

i

COSMOPOLITAN CLUB v. VIRGINIA.

208 U. 8. Argument for Appellant.

that the club could disregard the valid laws subsequently enacted by the

State, regulating the sale of liquor.

The judgment of a court of competent jurisdiction of Virginia, made after

a hearing, that a corporation of that State had violated the liquor laws of

the State, and that in pursuance of statutory provisions the charter

rights and franchises of the club ceased without further proceedings, held,

in this case not to have violated any right belonging to the club under the

contract or due process clauses of the Constitution of the United States.

THE facts are stated in the opinion.

Mr. R. Randolph Hicks for appellant:

Charters of incorporation are within the protection of the

contract clause of the Constitution. Dartmouth College Case,

4 Wheat. 518.

The judgment complained of annulled the charter of appel-

lant, and unless the State of Virginia retained the right, by

some constitutional provision or legislative act, of repealing,

forfeiting or modifying the charter of appellant the judgment

is erroneous. The constitution in effect in Virginia on the date

of the granting of appellant’s charter contained no such reser-

vation, though such a provision does appear in the constitu-

tion of Virginia adopted in the year 1903, and which is now in

force. Section 1173, Code, is the only section in which the

legislature retained the right of repealing, altering or modifying

the charter of any bank and likewise retained the right of re-

pealing, altering or modifying the provisions of chapter 47 of

the Code of Virginia. Said section nowhere reserved to the

legislature the right of repealing, altering or modifying charters

granted under the provisions of § 1145 of said Code. In order

to vest in the legislature this right the court must write into

§1173 the words “charters granted under” in front of the

words ‘the provisions of chapter 47.” The reservation of the

right to repeal, alter or modify the provisions of chapter 47

does not give the right to alter or modify or amend a charter

granted under those provisions. Courts cannot supply words

in a statute where there is no ambiguity and the meaning of

the language is plain. Maillard v. Lawrence, 16 How. 261 H

380 OCTOBER TERM, 1907.

Argument for Appellant. 208 U.S,

United States v. Fisher, 2 Cranch, 399; Levy v. McCartee, 6

Pet. 102; United States v. Weltberger, 5 Wheat. 94; Denn v.

Reives, 10 Pet. 527.

When the meaning of a statute is plain, consequences and

motives are not to be considered and though the literal inter-

pretation may defeat the object of the act, still it must be

adopted. King v. Barnham, 15 E. C. 1.157. See also St. Paul

v. Phelps, 137 U.S. 528; Bate v. Sulzberger, 157 U. 8. 1; Had-

den v. Collector, 5 Wallace, 107; Sturges v. Crowninshield, 4

Wheat. 202.

In the case at bar the privilege of selling intoxicating liquors

was granted by a subsequent act of the legislature. The rights

thus conferred might, at any time, be withdrawn and the

legislature might have prescribed a fine or imprisonment for

a misuse of this privilege, but the legislature could not take

away the contractual rights as set out in the charter of incor-

poration as a punishment for the misuse of this privilege when

those contractual rights were perfectly innocent, not inhibited

by the statute, nor even subject to inhibition by the legislature.

Washington Bridge Co. v. State, 18 Connecticut, 53; Bailey v.

Phila. R. R. Co., 4 Harr. 389; State v. Noyes, 47 Maine, 189;

Pingry v. Washburn, 1 Aiken, 264; Miller v. New York & R. R.

Co., 21 Barb. 513; People v. Jackson & Michigan Plank Road

Co., 9 Michigan, 285-307; Sloan v. Pacific R. R. Co., 61 Missouri,

24; Attorney General v. Chicago & C. R. R. Co., 35 Wisconsin,

425,

If this conclusion is not correct, then the legislature may at

any time destroy any charter by prohibiting some one power

in the charter which is properly a subject of police regulation

and imposing as a punishment the destruction of all the other

ipnocent rights and thus do indirectly what it cannot do di-

rectly. Undoubtedly the contract evidenced in the charter

may be forfeited like any other contract by nonuser or misuser,

in regard to matters which are of the essence of the contract

between the corporation and the State. Dartmouth College v.

Woodward, 4 Wheat. 658; State v. Council Bluffs, 11 Nebraska,

ages

COSMOPOLITAN CLUB »v. VIRGINIA. 381

208 U.S. Opinion of the Court.

356; S.C.,9 N. W. Rep. 564; Commonwealth v. Commercial

Bank, 28 Pa. St. 389; Hodsdon v. Couriland, 16 Maine, 314.

But this misuser must be a misuser or nonuser of the

rights granted in the charter, which was not the case with

appellant. As far as the record shows there has been neither

misuse nor nonuse of any contractual right granted in the

charter of incorporation.

Mr. William A. Anderson, Attorney General of the State of

Virginia, for defendant in error.

Mr. Justice Haran delivered the opinion of the court.

Complaint having been made in due form that the Cosmo-

politan Club, a corporation of Virginia, formed to promote

social intercourse, athletic and physical culture, and to en-

courage manly sports, had violated and evaded the laws of

that commonwealth regulating the licensing and sale of liquors,

the corporation court of the city of Norfolk, where the club had

its domicil, gave notice that it would, on a named day, inquire

into the truth of the charge.

The proceeding was based on a statute of Virginia passed

March 12, 1904, amendatory of a previous statute, and pro-

viding that “upon complaint of any person that any such

corporation so chartered as a social club is being conducted, or

has been conducted, for the purpose of violating or evading the

laws of this State regulating the licensing and sale of liquors,

and after service of such complaint on such corporation at

least ten days before the hearing of said complaint, the cir-

cuit court of the county or the corporation court of the city

wherein is located its place of business or meeting, or the judge

thereof in vacation, shall inquire into the truth of said com-

1 Chapter 116, An act to amend and reénact § 142 of an act of the General

Assembly of Virginia, entitled “An Act to amend and reénact §§ 75-147,

inclusive, of an act approved April 16, 1903,” and to provide how social

clubs chartered since April 16, 1903, shall obtain licenses to sell ardent spirits,

ete. Acts of Assembly, 1904, p. 214.

382 OCTOBER TERM, 1907.

Opinion of the Court. 208 U. 3.

plaint ; and if the court, or judge in vacation, shall adjudge that

the said corporation is being conducted, or has been conducted,

for the purpose of violating or evading the laws of the State

regulating the licensing and sale of liquors, the chartered rights

and franchises of said corporation shall cease and be void

without any further proceedings, and the said corporation and

all persons concerned in the violation or evasion of said law

shall be subject to the penalties prescribed herein.”

At the hearing of the case the club, by its counsel, moved to

dismiss the complaint on the ground that under the constitu-

tions of Virginia and of the United States the court had no

power to entertain it and that the act under which it was filed

was contrary to those constitutions. The motion to dismiss

was overruled and the parties introduced their evidence. The

result was a judgment by the corporation court that the club

had been conducted for the purpose of violating and evading

the laws of Virginia regulating the licensing and sale of liquors.

The defendant then applied to the Supreme Court of Appeals

of Virginia for a writ of error and supersedeas. The latter

court, upon inspection of the record, refused the application

upon the ground that the judgment was plainly right. The

president of that court allowed a writ of error for the review

of its judgment by this court.

It is contended by the plaintiff in error that the judgment

against it was inconsistent with the contract clause of the

Constitution of the United States. The charter of the club,

it is insisted, was a contract between it and Virginia, which

could not be amended or annulled unless at the time it was

granted, the State, by constitutional provision or by legislative

act, had retained or reserved the right of repealing, forfeiting

or modifying it. Neither the state constitution nor any stat-

ute, it was alleged —and we assume such to be the fact—con-

tained any such reservation at the time the club’s charter was

granted,

Assuming that the charter of the club constituted a contract

between it and the State, it would not follow that the statute

COSMOPOLITAN CLUB »v. VIRGINIA. 383

208 U. 3, Opinion of the Court.

' of Virginia, enacted in 1904, after the granting of such charter,

was inconsistent with the clause of the Constitution forbidding

a State from passing any law impairing the obligation of a

contract. The principle is well established that the charter of

a private corporation may be forfeited or annulled for the

misuse of its corporate privileges and franchises, and that its

forfeiture or annulment, by appropriate judicial proceedings,

for such a reason, would not impair the obligation of the con-

tract arising between the State and the corporation out of the

mere granting of the charter. In Chicago Life Ins. Co. v.

Needles, 113 U. 8. 574, 580, an insurance company contested

the validity, under the contract cause of the Constitution, of

a statute of Illinois prescribing certain regulations (not in force

when the company’s charter was granted) in reference to the

conduct of life insurance business in that State. This court

overruled the contention, observing: “The right of the plain-

tiff in error to exist as a corporation, and its authority, in that

! capacity, to conduct the particular business for which it was

created, were granted, subject to the condition that the privi-

leges and franchises conferred upon it should not be abused, or

so employed as to defeat the ends for which it was established,

and that, when so ebused or misemployed, they might be with-

drawn or reclaimed by the State, in such way and by such

modes of procedure as were consistent with law. Although no

such condition is expressed in the company’s charter, it is

necessarily implied in every grant of corporate existence.

Terrett v. Taylor, 9 Cranch, 43, 51; Angell & Ames on Corpora-

tions (th ed.), §774, note. Equally implied, in our judgment,

is the condition that the corporation shall be subject to such

reasonable regulations, in respect to the general conduct of its

affairs, as the legislature may, from time to time, prescribe,

which do not materially interfere with or obstruct the sub-

stantial enjoyment of the privileges the State has granted, and

serve only to secure the ends for which the corporation was

created. Sinking Fund Cases, 99 U. 8S. 700; Commonwealth v.

Farmers’ & Mechanics’ Bank, 21 Pick. 542; Commercial Bank v.

384 OCTOBER TERM, 1907.

Opinion of the Court. 208 U. 3,

Mississippi, 4 Sm. & Marsh, 439, 497, 503. If this condition

be not necessarily implied, then the creation of corporations,

with rights and franchises which do not belong to individual

citizens, may become dangerous to the public welfare through

the ignorance, or misconduct, or fraud of those to whose man-

agement their affairs are intrusted. It would be extraordinary

if the legislative department of a government, charged with the

duty of enacting such laws as may promote the health, the

morals, and the prosperity of the people, might not, when un-

restrained by constitutional limitations upon its authority, pro-

vide, by reasonable regulations, against the misuse of special

corporate privileges which it has granted, and which could not,

exeept by its sanction, express or implied, have been exercised

at all.”

These principles were expressly reaffirmed, upon a review of

the adjudged cases, in New Orleans Waterworks Co. v. Louisiana,

185 U. 8. 336, 347.

It must, therefore, be held that the contract between the

club and the State did not authorize the club to disregard the

valid law of the State regulating the licensing and sale of

liquors. Such a course upon the part of the club was alleged

to be a misuse of its corporate privileges and franchises. The

distinct charge against the club in the corporation court was

that it was being conducted for the purpose of violating and

evading the statute regulating the licensing and sale of liquors —

a statute which the commonwealth could rightfully enact under

its power to care for the health and morals of its people. And

the court adjudged that the charge against the club was sus-

tained—the result being that, by the statute, the chartered

rights and franchises of the club ceased without any further

proceedings. Even if this court could reéxamine the judgment

of the corpdration court on the facts, the present record would

not justify us in holding that error was committed.

Was this result consistent with the due process enjoined by

the Constitution? This question must be answered in the

affirmative. The proceedings against the club were had in a

——

COSMOPOLITAN CLUB », VIRGINIA. 385

208 U.S. Opinion of the Court.

court competent under the constitution and laws of Virginia

to determine the questions raised by the complaint against the

club. This must be assumed to be the case after the highest

court of Virginia refused a writ of error upon the ground that

the judgment of the corporation court was plainly right. The

mode of proceeding against the club was not unusual in such

cases. As carly as Terrett v. Taylor, 9 Cranch, 43, 51, this court

said: “A private corporation created by the legislature may

lose its franchises by a misuser or nonuser of them; and they

may be resumed by the government under a judicial judgment

upon quo warranio to ascertain and enforce the forfeiture.”

So in New Orleans Waterworks v. Louisiana, above cited, the

first of several questions raised there was that since the charter

of a certain waterworks company prescribed mandamus as the

remedy to maintain a lawful tariff of water rates, was not the

substitution by the writs of forfeiture of charter, as a remedy

for the maintenance of unlawful rates, a breach of the contract,

and a deprivation of the property without due process of law,

and a denial of the equal protection of the laws? The court

answered the question by saying (p. 351): “The answer to the

first question, as to mandamus being the exclusive remedy for

illegal rates, is that the state court has otherwise construed

the charter, and has held that mandamus is not. the only

remedy, but that the company was liable to be proceeded

against by quo warranto at the suit of the State through its

attorney general. The claim that by so proceeding there is

any impairment of the obligation of a contract by any subse-

quent legislation, or that there has thus been a deprivation of

property without due process of law, or a denial of the equal

protection of the laws, has no colorable foundation. An ex-

amination of this question, among others, was made by the

State court after full hearing by all parties, and all that can

possibly he claimed on the part of the plaintiff in error is that

such court erroneously decided the law. That constitutes no

Federal question.”

It thus appears that the club ceased to exist as a corpo-

VoL. covii—25

386 OCTOBER TERM, 1907.

Argument for Plaintiff in Error. 208 U.8.

ration by virtue of a judgment of a court of competent jurisdic-

tion, all the parties being before it and given full opportunity

to be heard. Such a judgment cannot be held to he.ve violated

any right belonging to the club under the contract or other

clause of the Federal Constitution. Foster v. Kansas, 112

U. 8. 201, 206; Kennard v. Louisiana, 92 U. 8. 480; Louisiana

Waterworks Co. v. Louisiana, above cited.

Judgment affirmed.