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#609 - Can Corporations Be Accountable? Part 1, 29-Jul-1998

by Richard Grossman*

In 1628, King Charles I granted a charter to the Massachusetts Bay
Company. In 1664, the King sent his commissioners to see whether this
company had been complying with the terms of the charter. The governors
of the company objected, declaring that this investigation infringed
upon their rights. On behalf of the King, his commissioners responded:

"The King did not grant away his sovereignty over you when he made you
a corporation. When His Majesty gave you power to make wholesome laws,
and to administer justice by them, he parted not with his right of
judging whether justice was administered accordingly or not. When His
Majesty gave you authority over such subjects as live within your
jurisdiction, he made them not YOUR subjects, nor YOU their supreme
authority."[1]

From childhood, this King had been led to act as a sovereign should.
What about us?

By means of the American Revolution, colonists took sovereignty from
the English monarchy and invested it in themselves. Emerging triumphant
from their struggle with King George and Parliament, they decided they
would figure out how to govern themselves. Alas, a minority of
colonists were united and wealthy enough to define MOST of the human
beings in the 13 colonies as property or as non-persons before the law
and within the society, with no rights that a legal person was bound to
respect.

Ours was a flawed sovereignty from the beginning. Because of its moral
failings and structural inequities, whole classes of people had to
organize and struggle over centuries to gain recognition as part of the
sovereign people--that is, they had to get strong enough as a class to
define themselves and not let either people or institutions define
them: African Americans, native peoples, women, debtors, indentured
servants, immigrants...

To this day, many still must struggle to exercise the rights of
persons, to be recognized as persons by law and by society.

Throughout this nation's history, there has always been plenty of
genuflecting to democracy and self-governance. But the further each
generation gets from the Revolution, the less the majority act like
sovereign people. And when it comes to establishing the proper
relationship between sovereign people and the corporations we create,
recent generations seem to be at a total loss.

Yet, earlier generations were quite clear that a corporation was an
artificial, subordinate entity with no inherent rights of its own, and
that incorporation was a privilege bestowed by the sovereign. In 1834,
for example, the Pennsylvania Legislature declared:

"A corporation in law is just what the incorporation act makes it. It
is the creature of the law and may be moulded to any shape or for any
purpose the Legislature may deem most conducive for the common
good."[2]

During the 19th century, both law and culture reflected this
relationship between sovereign people and their institutions. People
understood that they had a civic responsibility not to create
artificial entities which could harm the body politic, interfere with
the mechanisms of self-governance, assault their sovereignty.

They also understood that they did not elect their agents to positions
in government to sell off the sovereignty of the people. In other
words, they were human beings who tried to act as sovereign people. One
thing they did was to define the NATURE of the corporate bodies they
created. If we look at mechanisms of chartering--and at the language in
corporate charters, state general incorporation laws and even state
constitutions prior to the 20th century--we find precise, defining
language that was often mandatory and prohibatory and self-executory in
nature. These mechanisms DEFINED corporations by denying corporations
political and civil rights, by limiting their size, capitalization and
duration, by specifying their tasks, and by declaring the people's
right to remove from the body politic any corporations which dared to
rebel.

Here is an example of language which sovereign people--responding to
the rise of corporations after the Civil War--placed in the California
Constitution of 1879, and which appears in other state constitutions at
about that time:

"Article I, section 2: All power is inherent in the people...

"Article I, section 10: The people shall have the right freely to
assemble together to consult for the common good, to instruct their
representatives...

"Article XII, section 8: The exercise of the right of eminent domain
shall never be so abridged or construed as to prevent the Legislature
from taking the property and franchises of incorporated companies and
subjecting them to public use the same as the property of individuals,
and the exercise of the police power of the State shall never be so
abridged or construed as to permit corporations to conduct their
business in such manner as to infringe the rights of individuals or the
general well-being of the State."[3]

The principal mechanism which sovereign people used during the 19th
century to assess whether their corporate creations were of a suitably
subordinate nature was called QUO WARRANTO. The QUO WARRANTO form of
action, as attorney Thomas Linzey has noted,[4] is one of the most
ancient of the prerogative writs. In the words of the Delaware Court of
Chancery, "the remedy of QUO WARRANTO extends back to time whereof the
memory of man runneth not to the contrary."

QUO WARRANTO simply means "by what authority?". All monarchs understood
how to use this tool in self-defense. They realized that when a
subordinate entity they had created acted "beyond its authority," it
was guilty of rebellion and must be terminated.

Sovereignty is in our hands now, but the logic is the same: when the
people running a corporation assume rights and powers which the
sovereign had not bestowed, or when they assault the sovereign people,
this entity becomes an affront to the body politic. And like a cancer
ravaging a human body, such a rebellious corporation must be cut out of
our body politic.

During the first hundred years of these United States, people mobilized
so that legislatures, attorneys general and judges would summon
corporations to appear and answer to QUO WARRANTO. In 1890, the highest
court in New York State revoked the charter of the North River Sugar
Refining Corporation in a unanimous decision:

"The judgment sought against the defendant is one of corporate death.
The state which created, asks us to destroy, and the penalty invoked
represents the extreme rigor of the law. The life of a corporation is,
indeed, less than that of the humblest citizen, and yet it envelopes
great accumulations of property, moves and carries in large volume the
business and enterprise of the people, and may not be destroyed without
clear and abundant reason... Corporations may, and often do, exceed
their authority only where private rights are affected. When these are
adjusted, all mischief ends and all harm is averted. But where the
transgression has a wider scope, and threatens the welfare of the
people, they may summon the offender to answer for the abuse of its
franchise and the violation of its corporate duty... The abstract idea
of a corporation, the legal entity, the impalpable and intangible
creation of human thought, is itself a fiction, and has been
appropriately described as a figure of speech... The state permits in
many ways an aggression of capital, but, mindful of the possible
dangers to the people, overbalancing the benefits, keeps upon it a
restraining hand, and maintains over it a prudent supervision, where
such aggregation depends upon its permission and grows out of its
corporate grants... the state, by the creation of the artificial
persons constituting the elements of the combination and failing to
limit and restrain their powers, becomes itself the responsible
creator, the voluntary cause, of an aggregation of capital... the
defendant corporation has violated its charter, and failed in the
performance of its corporate duties, and that in respects so material
and important as to justify a judgment of dissolution... Unanimous."[5]

Such a judgment should not be regarded as punishment of the
corporation, but rather a vindication of the sovereign people. When our
sovereignty has been harmed, we are the ones who must be made whole.
The concept is similar to what Hannah Arendt described in her book
EICHMANN IN JERUSALEM (1963), writing about Nazi crimes against
humanity,

"The wrongdoer is brought to justice because his act has disturbed and
gravely endangered the community as a whole, and not because, as in
civil suits, damage has been done to individuals who are entitled to
reparation. The reparation effected [here] is of an altogether
different nature; it is the body politic itself that stands in need of
being 'repaired,' and it is the general public order that has been
thrown out of gear and must be restored, as it were. It is, in other
words, the law, not the plaintiff, that must prevail."[6]

There is no shortage of court decisions affirming the sovereignty of
the American people over corporate fictions, recognizing the need to
restore the general public order. In RICHARDSON V. BUHL, the Nebraska
Supreme Court in the late 19th century declared:

"Indeed, it is doubtful if free government can long exist in a country
where such enormous amounts of money are... accumulated in the vaults
of corporations, to be used at discretion in controlling the property
and business of the country against the interest of the public and that
of the people, for the personal gain and aggrandizement of a few
individuals."[7]

[Continued next week.]

=====

* Richard Grossman is co-director of the Program on Corporations, Law
and Democracy (POCLAD), P.O. Box 246, South Yarmouth, MA 02664-0246.
Phone (508) 398-1145; E-mail: people@poclad.org. For $25.00, POCLAD
offers a "contact kit" including bibliography, articles, a resource
list, and a one-year subscription to their new quarterly journal.

[1] Neil Berman, "A Short History of Corporations in Massachusetts,"
written for POCLAD, October 1995, p. 2.

[2] Carter Goodrich, ed., THE GOVERNMENT AND THE ECONOMY, 1783-1861,
Indianapolis: Bobbs-Merrill, 1967, p. 44 (Report of the Packer
Committee of the Pennsylvania Legislature).

[3] Excerpts from the "California Constitution of 1879," selected by
the author, March 1996 (POCLAD memo).

[4] Thomas Linzey, et al., Brief in Support of Motion for Peremptory
Judgment, COMMUNITY ENVIRONMENTAL LEGAL DEFENSE FUND V. THOMAS CORBETT,
ATTORNEY GENERAL OF PA ET AL., CIV. NO. 1074 M. D. 1996, p.[4], citing
WILMINGTON CITY RAILWAY CO. V. PEOPLE'S RAILWAY CO., 47A, 245, 248
(Del. Ch. 1900).

[5] PEOPLE V. NORTH RIVER SUGAR REFINING CORP., 24 N. E. 834 (1890).

[6] Hannah Arendt, EICHMANN IN JERUSALEM, New York: Viking Penguin,
1977.

[7] RICHARDSON V. BUHL, 43 N. W. Rep. 1102.

Descriptor terms: richard grossman; corporations; american history;
sovereignty;

Consumers Union (CU) did not test cheeses wrapped in PVDC food wrapping
as reported in REHW #603. CU tested for plasticizers in cheese wrapped
in PVC food wrapping. Although the wraps contained no phthalate
plasticizers (phthalates found in the cheese are apparently from
another source), CU did find high levels of adipates, a related group
of plasticizers, as we reported. Details of Consumer's Union's tests
can be viewed at <www.consunion.org>.