would never be less than the amount of stock subscribed by that individual. Despite his concern that general incorporation laws would encourage the proliferation of corporations, Ranney reluctantly assented to the idea because they would eliminate legislatively granted monopolies and allow anyone who wanted to form a corporation to compete on an equal basis (1:260, 369–70). But he believed these provisions to be inadequate protections against corporate rapacity.
On its face the clause establishing minimum shareholder liability allowed the legislature to saddle shareholders with full liability for corporate obligations. Critics of the clause, though, took it for granted that the minimum would prove to be a maximum.15 And if a shareholder’s maximum liability were the amount of his investment, a corporation could run up enormous debts, beyond the value of its outstanding shares, while those individuals who owned the corporation would escape responsibility to the creditors. (The owners were not the thousands or millions of anonymous shareholders who invest in giant corporations today; they were usually a relative handful of men personally involved in the operations or general oversight of the business.16) Ranney moved to amend the report to make each shareholder liable for double the amount of his or her shares, and, in the case of a business corporation that was not created “to construct public improvements,” the stockholders would be “individually liable for all the debts and liabilities” of the corporation (1:369).17
Ranney thought it outrageous that every individual or group of individuals associated for business purposes except those with a charter was fully liable for debts incurred. A merchant who lost a ship or a farmer whose crops were ruined by drought had no exemption from liability, he observed, but a shareholder had the shield of corporate privilege. The shareholders might have taken five times the amount of their stock subscriptions in dividends or profits, but once their stock was gone, their liability was gone. They could “revel in wealth and luxury, while hunger and destitution were grinding in the dust those who had labored for the corporation.” Ranney believed it useless to leave to the General Assembly the matter of liability beyond the amount of the stock subscribed. The shareholders of the numerous corporations formed under general corporation laws would all seek to avoid liability. “They will be in the ear of every member before he comes here, and in his bed after he comes here, if necessary to effect their ends. They will be able to form the most powerful combinations, and raise any amount of money required for corruption purposes.” There would be no hope for “legislative purity” or “honest principle” (1:371).
Members of both parties questioned whether any capitalist would invest in a corporation without knowing the limits of his liability. Democrat Edward Archbold even denied that individual liability, as proposed by Ranney, was sound Democratic doctrine. “The principle, that a man worth $2000, with a family of 7 or 8 children, who wishes to contribute 50 or 100 dollars, towards the construction of a turnpike, or a plank road, shall thereby put to hazard his whole property, is not Democratic nor is the principle that he shall know the amount of his own engagements, and be liable to that extent only, Aristocratic,” Archbold maintained. The question really boiled down to one of expediency. Archbold recommended that the extent of shareholder liability for corporate debts be left to the people’s representatives to determine in the light of changing circumstances and experience (1:373, 387).
Ranney emphatically rejected these contentions. The principle of equal rights, he declared, “lies at the foundation of our institutions,” and he would not sacrifice principle to expediency. (Ranney conceded, though, that in his amendment he had limited liability in cases of public improvements to double the shareholders’ stake “more from the suggestions of others, than the dictates of my own understanding.”) Moreover, no such sacrifice was necessary. Fear of unlimited liability had never prevented men from engaging in enterprises they thought would produce a profit; if a road was worth building, it would be built and pay for itself (1:405).
When Ranney’s amendment finally came to a vote, the committee of the whole accepted the first part, which established minimum shareholder liability at twice the amount of stock subscribed, by a vote of 43 to 33. However, the delegates overwhelmingly rejected the portion that subjected to unlimited liability the shareholders of corporations other than those created to construct public improvements. Just before the vote was taken, Whig Benjamin Stanton noted that the standing committee had considered the matter and had been unable clearly to establish a principle by which to distinguish the different types of corporations. The amendment as adopted by the committee of the whole remained in the constitution (1:429).18
Besides trying to increase shareholder liability, Ranney sought to limit corporate privilege by enabling the General Assembly not just to repeal general incorporation laws but to revoke any corporate charter obtained under such laws. The committee of the whole agreed to the principle. Section 35 of the proposed legislative article prohibited the General Assembly from passing retroactive laws. The committee of the whole, with Ranney’s support, amended the section to allow the lawmakers to amend or repeal any corporate charter granted by any previous General Assembly (1:363, 282; 2:165).
Stanton found it incongruous that a provision forbidding the enactment of retroactive laws allowed the legislature to amend or repeal legally obtained corporate charters. Moreover, he believed that a charter constituted a contract between the incorporators and the state and that a repeal would violate the constitutional prohibition against impairing the obligations of contract. To protect rights that had vested under law before the passage of a repealing act, the convention, on Stanton’s motion, amended Section 35 to say that upon repeal, “the title to property and credits legally acquired under any former law, shall not be affected by such repeal” (2:165–66).
The question now before the delegates was whether to adopt the latest version of Section 35 as part of the report of the committee on the legislature. A motion to reconsider the vote on Stanton’s amendment passed, whereupon Elijah Vance moved to amend Stanton’s amendment to read that on repeal of a corporate charter, “the property or credits legally acquired by any corporation, or holder of a franchise, shall rest in the individual [corporators], subject to the liability of the corporation.” In the ensuing debate delegates argued over whether a corporate franchise was property, a contract, both, or neither. Ranney characterized charters as property—and property, he noted, could be seized by the state in case of public necessity, provided the state compensated the owner. Adverting to the U.S. Supreme Court’s decision in the Charles River Bridge case, Ranney declared that the right of the state was “paramount to every private right.” He voted against Vance’s amendment to Stanton’s amendment, then against Stanton’s amendment, and then, finally, in favor of the amendment (as amended by Vance and Stanton) made by the committee of the whole. He came out on the short end of three close votes. In other words, the attempt to give the General Assembly the explicit power to repeal corporate charters had failed (2:167, 169, 173–75).
But the fight was not yet over. Three days later Samuel Humphreville returned to Section 35, moving that it be amended to give the General Assembly the authority to repeal any corporate charter upon “just and equitable terms,” as determined by the lawmakers. Ranney moved to add language to specify that the right of repeal applied to existing as well as future charters. His purpose, he said, was to guard against court decisions, “founded in error,” holding corporate charters to be contracts that enjoyed constitutional protection from impairment by the legislature. The chief such erroneous decision was Dartmouth College v. Woodward, rendered by the United States Supreme Court in 1819. In the face of arguments that the Supreme Court had already decided the issue, Ranney’s amendment to Humphreville’s amendment passed. But the convention then rejected Humphreville’s amendment by a two-vote margin (2:185, 188–89, 191, 210).
Proponents of the right of repeal kept trying. Vance sought to amend Section 35 to provide that all acts granting corporate franchises could be amended or repealed “upon such terms and conditions pertaining to the inviolability of private property, as is provided in other cases in this Constitution”—in other words, upon payment of compensation as in cases of eminent domain. Ranney favored a declaration of the General Assembly’s
