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filed, should be deemed due service of process upon
corporation until the filing of an amended or subsequent list, and in default of filing any list, service of process should be made upon any of the trustees named in the original articles of incorporation.
Another point which needs some attention is that of the obtaining of evidence in actions against corporations. Our statutes provide (Code of Procedure, $ 1661) that either party may file interrogatories in an action for the discovery of facts and documents material to the support or defense of the action, to be answered on oath by the adverse party. There are decisions holding that this section does not apply to a corporation, for the reason that it is a substitute for the actual presence of the adverse party on the stand, and a corporation cannot so testify. I think the practice in this state has been to require the answering of interrogatories by corporations, but the statute on this subject should be plain and should contain a provision, which has been enacted in some states, to the effect that the party filing the interrogatories may designate the officer or officers of the corporation who shall be required to make answer. Under the present statute, any interrogatories, if required to be answered at all, can doubtless be answered by the president, secretary, cashier or managing agent of a corporation, or any other agent upon whom service of summons could be made, at the election of the corporation. In practice, we find interrogatories frequently answered by officers who have no personal knowledge on the subject, and hence the object of the statute to obtain a discovery is frustrated. This should be remedied.
The numerous appointments of receivers that have been made during the present business depression have emphasized the necessity of some statute regulating the winding up of insolvent corporations. While our statutes contain very full provisions for the winding up of affairs of insolvent individuals, there is absolutely no legislation on the subject of winding up corporations except the provision that courts may appoint a receiver. What is to be done after the appointment of a receiver, what notice is to be given to creditors, what orders are to be made for the disposition of its property and the management of its business, are matters which are left entirely to the discretion of the several courts, and probably the practice in the several counties differs widely on this subject. Receivers are
appointed upon the application of one creditor, or sometimes of the stockholders and officers of the corporation, and no notice of such appointment is required to be given. Receivers file reports which are approved by ex parte orders of the court, and by similar orders, without notice to any party in interest, important contracts are authorized, sales of large bodies of property directed and other important transactions of vital interest to creditors carried into effect without their knowledge. It is not the office of this paper to sug. gest the details of the legislation desired upon this subject, but the statute should require the filing of a copy of the order of appointment in the office of the county auditor of each county where the corporation is known to hold real estate, and the immediate notification of the creditors, both by the publication of a notice and the mailing of a copy thereof to each known creditor. Provision should be made for the filing of claims, and the rights of creditors who fail to file their claims within the time prescribed should be defined by law and not left to the arbitrary discretion of the court. Any creditor should have the right to file notice of appearance in the action by a resident attorney, and no order affecting the rights of creditors or the property involved should be made in the action without notice to attorneys who have so appeared. The experience of individual members of the bar will no doubt suggest other points which should be embraced in a statute covering this subject. Doubtless there are cases where a large majority, perhaps all the creditors, favor the indefinite continuation of a receivership with the hope of better times, where exceptional circumstances may justify the continuation of the corporate business by the receiver. Such cases could be provided for. But the ordinary and usual purpose of a receivership should be to wind up the corporation and not simply to enable interested parties to stand off creditors and run the business through the medium of a court of justice. Courts are not organized for the operation of railroads or mercantile enterprises, and the fact that the proprietor of such enterprises is a corporation should make no material difference in the application of the principle.
The constant violation of the constitutional prohibition against the acceptance of passes from transportation companies by public officers has been mentioned, I think, at every meeting of this Association for several years. The vicious practice continues to flourish, and appears to be increasing. Pressure should be brought to bear upon the next legislature to abolish this practice, which is in the nature of petty bribery. As a concession to members of the legislature, it might be well by way of compromise to omit any emergency clause in the bill, so that the act will not take effect prior to the departure of the legislators from the seat of government to their homes.
The organization of corporations with large nominal capital and small assets, whereby innocent creditors are deceived by a fictitious show of financial responsibility, leads to frequent abuses. Property of doubtful or speculative value is conveyed to the corporation by the stockholders, often at a valuation grossly disproportionate to its worth, and the stockholders' liability is thereby extinguished. A statutory provision requiring a small percentage of each subscription to the capital siock to be paid in cash before beginning business would check this pernicious practice. Many states have passed enactments of this nature.
If we broaden this review of needed legislation to the federal government, we ad proposed measures worthy of consideration within the domain of the national legislature. An important piece of legislation is an act which passed the House of Representatives on March 24th, last, and which has been referred to the Committee on Judiciary in the Senate. It provides that all railroad corporations organized and incorporated under any law of the United States shall, for all purposes of jurisdiction, be held to be citizens of the respective states into which their line of railway or any branch thereof may extend, or in which such corporations may carry on business, and that service of process upon such corporations may be made according to the laws of the respective states in which suits shall be brought. This bill, if enacted into law, will put railroad corporations organized by congress in the same situation as the national banks, so far as concerns their right to invoke the jurisdiction of the federal courts. At present, as a well known federal judge has observed in a recent number of the American Law Review, the federal railroad corporations have the right to remove all suits to the federal courts simply by reason of the law of their creation, where the amount involved exceeds $2,000, and the right of appeal from the judgment of the circuit court of appeals to the supreme court, a right not enjoyed by natural persons or by any other corporation not chartered by congress. This inequality of the law should be remedied speedily by the enactment of the legislation referred to. This, of course, would not in any way change the present law allowing corporations to invoke the jurisdiction of the federal courts where the controversy is between citizens of different states, nor would it affect the rule that corporations are conclusively presumed to be composed of citizens of the state under whose laws they are incorporated.
The use of railroad bills of lading as collateral security has become general in this state, and by our statute these bills are negotiable instruments. In practice, the lumber, hops and other products shipped from this state seldom reach their destination without passing over the lines of several successive carriers, and in many cases the final carrier has delivered the goods without requiring the production of the bill of lading, thus ignoring its negotiable character and leaving the holder to seek compensation through litigation. The effect of inter-state bills of lading should be defined by congress, and proper provision be made for the protection of transferees thereof.
The occurrences of the past few years, during which many of the great railroad corporations of the country have been operated by receivers, have suggested many doubts regarding the propriety of a system which allows corporate managers, when involved in financial embarrassments, to throw the burden of the administration of a great railroad system upon the courts of law, especially in the cases of those immense corporations organized by congress, the Pacific railroads.
It is true that the people have great confidence in the judiciary of this country - far more than in the legislative or executive departments, but it is not plain that this confidence will continue if the judiciary is forced into the business of conducting railroads, with all their numerous details and business ramifications. When we see the spectacle of a great railroad corporation organized by the government of the United States, conducted for years by three receivers, who after handling many millions of dollars, ask to be discharged from their trust without an accounting, and when we consider the further fact that they are men who by their own confession cannot account, we may well inquire whether any greater abuse could follow even from direct government ownership. I say these men, by their own confession, could not account, because when they were cited by the circuit court of another circuit to account for their doings as receivers appointed in that circuit, they refused to appear in person and sent an attorney only to say that they did not intend to file an account, and were thereupon removed from office.
The judges of courts of the country, particularly the federal judges, are, without exception, men of high character and probably are more respected than any body of judges in the world. Yet the administration of great railroad receiverships, which must of necessity be carried on without the personal observation of these judges, and which afford opportunities for many kinds of crookedness, cannot fail to produce scandals of a startling character, which rightfully or wrongfully, will in many cases be laid at the chancellor's door.
In considering this question, let us bear in mind that the federal constitution gives congress no express power to form a corporation; that every corporation so formed finds its constitutional warrant only in the fact that the powers which it exercises were conferred upon congress itself, and that the courts recognize the existence of the corporation only because congress has seen fit to create it as one means for the carrying out of enterprises which the government itself might have performed more directly by any other means.
In this connection, I wish to call attention to a speech made by a distinguished public man in 1870, when the Northern Pacific Railroad had but recently been incorporated, and was at most a doubtful venture. Referring to the railroad companies incorporated by congress, particularly the Northern Pacific, he said:
“The wealth, power and dominion thus conferred on these great and favored corporations will make them the overshadowing and ruling power in at least a dozen states. In reality, they, and not
, the state legislatures, will choose senators in congress; they, and not the unbiased voice of the people, will elect representatives; they, and not the free states, will speak in the choice of presidents. Think of a road stretching from Lake Superior to the Pacific ocean, embracing within its branches more than two thousand miles of