IN THE MATTER OF THE APPLICATION OF FRANK H. GRISWOLD, CHARLES BIGELOW, HERBERT S. GRISWOLD, AND JOSEPH J. MCNALLY FOR ARTICLES OF INCORPORATION CREATING A CORPORATION UNDER AND BY VIRTUE OF THE LAWS OF PORTO RICO.a

[Submitted June 14, 1899 Case No. 443. Division of Insular Affairs, War Department.]

SYNOPSIS.

1. A corporation is a creature of the law. In the absence of a law providing for its incorporation, a corporation can not be created.

2. The royal decree of Spain dated August 16, 1878, was the law under which corporations were created in Porto Rico at the time said island was ceded to the United States. Said decree does not confer the right to incorporate upon the public to be exercised by such persons as desire to form a corporation. Under the Spanish monarchy the people possess only such rights as are conferred upon them by the Crown. The authority to grant the right to incorporate was retained by the Crown of Spain and exercised as a prerogative. By said decree such prerogative was delegated to the governors-general of the Spanish dependencies. 3. The Federal Government of the United States is not authorized by the Constitution to acquire or exercise the prerogatives of the Crown of Spain. A like incompetency exists as to the officers of the United States now in charge of the civil affairs in Porto Rico.

4. When the Spanish sovereign withdrew from Porto Rico and ceded the island to the United States, such of his sovereign rights as were not inimical to a republic passed to the sovereign people of the United States, where they will remain until that sovereign disposes of them by expressing its will in regard thereto by laws duly enacted.

5. When Spanish sovereignty was withdrawn from Porto Rico, the Spanish governorgeneral, and all other officers of the Crown of Spain whose authority consisted in the exercise of royal prerogatives delegated to them, ceased to exercise such authority. Said delegated prerogatives did not pass to the officers of the United States now in charge of the civil affairs of said island.

6. Said royal decree of August 16, 1878, is now inoperative in Porto Rico.

7. There is no Federal statute of the United States authorizing the formation of a corporation with domicile in Porto Rico.

Said proposed corporation is to have a capital stock of $200,000, divided into 2,000 shares of $100 each. Said corporation is to be known as the Porto Rico Brewing Company, and to be authorized, as stated in its proposed articles of incorporation, to engage in the

business of

ART. 6.

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* Manufacturing any and all kinds of malt and spirituous liquors from grain and other products, and the utilizing of any and all material that may be purchased for the purpose of manufacturing said malt and spirituous liquors, the manufacture of ice, the installment of an electric plant and the right to manufacture and

"If such corporation can not be created under the laws of Porto Rico as now existing, then said applicants desire to become incorporated as a Porto Rico corporation under and by virtue of the Federal authority of the United States.

produce electric fluid, the establishment and maintenance of cold-storage warerooms, the right to purchase and traffic in cold-storage products, the right to trade and traffic in all products such as it has a right to manufacture, and the right to engage in any lawful business that may be necessary or incidental to the exercise of the above-mentioned corporate privileges and purpose; and when such incidental business is conducted by the corporation it will not be limited to the transacting of such business in a mere incidental manner, but may obtain the best results therefrom.

ART. 7. That said body corporate shall have the right of perpetual succession, a common seal, the right to make by-laws and regulations not inconsistent with the laws of the land, the right to sue and be sued by their corporate name "Porto Rico Brewing Company," and the right to exercise its corporate privileges under protection of its charter, upon paying all general and universal taxes and without paying any special tax assessed against it or its property by special law or ordinance.

It will be noticed that these applicants seek to create a corporation and at the same time endow said corporation with special rights, privileges, and exemptions. Under the Spanish régime such benefits were sometimes bestowed upon both persons and corporations, but they were secured by separate and different procedures.

Among other special privileges sought to be secured by these proposed articles of incorporation is one to be allowed to conduct the business of manufacturing and selling malt, spirituous, and vinous liquors "without paying any special tax assessed against it or its property." (See art. 7.)

Eventually Porto Rico will be subject to internal-revenue laws; its municipalities will possess the right in some degree to impose municipal license tax and other regulations on the sale of such liquors. They will also have authority to pave the streets, construct sanitary and storm-water sewers, and make other public improvements which confer special value and benefits on particular properties and justify the levy of special taxes on the property so benefited.

Another privilege sought is that "its shareholders shall be liable only for the par value of their stock. (See art. 9.)

Ordinarily stockholders in a corporation are liable for the unpaid portion of the par value of the stock they own, and are subject to an additional liability of 100 per cent on said stock.

This Department, while temporarily engaged in administering the government of civil affairs in Porto Rico, ought not to embarrass the future permanent government of the island by granting concessions of this character, if it were admitted that the Department had the legal right so to do.

The proposed corporation can not be created under and by virtue of the laws as they existed in the island of Porto Rico under Spanish dominion, for the reason that the office and the official upon whom the Spanish law conferred the authority to create such corporations have ceased to possess the right to exercise authority in Porto Rico.

The

Regulations for the formation of corporations in the colonies," established by royal decree of the Crown of Spain, dated August 16, 1878, provide as follows:

CHAPTER I, ART. 2. These corporations shall be constituted by means of publie instruments, which must be approved, as well as their regulations, by the competent authority and in the manner hereafter stated.

That manner is set forth in Chapter II of said regulations, a copy of which is hereto attached.

For corporations of the character desired by these applicants said law requires that the persons desiring to create the corporation first secure the permission of the governor-general to take the initial stepsthat is, the governor-general must authorize the preliminary undertaking (chap. 2, art. 18), which undertaking consists of securing subscription for at least one-half of the capital stock. (Chap. 2, art. 20.) This stock being subscribed, the subscribers meet, and by resolution agree to the articles of incorporation and the by-laws. Thereupon the matter is again presented to the governor-general by submitting for his approval the original of the articles of incorporation and a copy of the by-laws and the resolution of the meeting at which they shall have been adopted, and also a sworn statement of the stock subscribed. (Chap. 2, art. 20.) The governor-general then investigates the entire matter and approves or disapproves of the proposed incorporation. (Chap. 2, art. 21.)

A corporation is the creature of a law. (Head . Providence Insurance Company, 2 Cranch, U. S., 127.) In attempting to create a corporation pursuant to the provisions of an existing law the procedure required by said law must be strictly adhered to.

By the law of the Spanish dependencies the tribunal vested with the power of granting the right to incorporate, as desired herein, was the governor-general. Under the government now in charge of civil affairs in Porto Rico there is no such office or official. The officer in the United States Army who is now acting as governor of said island is an official of the United States and derives his authority from this Government and not from the Crown of Spain.

In Munford . Wardwell (6 Wall., 423, 435) the United States Supreme Court say:

Mexican rule came to an end in that department (California) on the 7th of July, 1846, when the government of the same passed into the control of our military authorities. Municipal authority also was exercised for a time by subordinate officers appointed by our military commanders. Such commander was called military governor, and for a time he claimed to exercise the same civil power as that previously vested in the Mexican governor of the department. By virtue of that supposed authority Gen. S. N. Kearney, March 10, 1847, as military governor of the territory, granted to the town of San Francisco all the right, title, and interest of the United States to the beach and water lots on the east front of the town included between certain described points, excepting such lots as might be selected for Government

use.

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But the power to grant lands or confirm titles was never vested in our military governors, and it follows as a necessary consequence that the grant, as originally made, was void and of no effect. Nothing passed to the town by the grant.

The power to grant the right to incorporate or to create a corporation was never vested in our military governors. The powers of the present governor of Porto Rico are further limited by the fact that since peace is declared he no longer exercises the rights of a belligerent in actual war..

To definitely determine the exact law of many subjects in Porto Rico under Spanish sovereignty will require extensive review and comparison of the royal decrees promulgated for said island. When this Department is called upon to enforce a Spanish law in Porto Rico, the first question is, What are the provisions of said law? That being determined, the next inquiry is. Are such provisions in harmony with the theory and character of the United States Government? If found to be inimical to our form of government, either in the spirit of the law or the instruments by which the law is carried into effect, this Department declines to enforce said law for the purpose of creating rights not theretofore in existence. Whether the existing government in Porto Rico is considered a military or a civil government, the result is the same. Either is an instrument of the United States and must be utilized in accord with the home Government or sovereignty upon which it depends.

Under the Spanish monarchy the people exercise only such rights as the Government confers upon them. Under the Republic of the United States the Government exercises only such rights as the people confer upon it. When Porto Rico was ceded to the United States our Federal Government did not succeed to the prerogatives over said island inherent in the Crown of Spain under the monarchy. Our Federal Government has never been authorized to receive or in any way secure said prerogatives by transfer from a monarch or otherwise, and much less is it authorized to exercise such prerogatives. Pollard's Lessee. Hagan (How., U. S. (2), 212, 235):

Since our Government can not exercise such prerogatives, it follows that our Government's officers can not exercise them. Take the matter of creating a corporation in a Spanish dependency as an example. The power to confer the right is vested in the Crown of Spain. The exercise of that power is a prerogative of the Crown. The royal decree of August 16, 1878, simply delegates this exercise of power, or prerogative, to the governors-general of the several dependencies, and provides the manner of applying to said officers for the exercise of that prerogative by them. The grant of power is to the officer, not to the persons applying for the incorporation. The officer may grant the privilege or not, as he sees fit. The applicants do not possess the right to incor

porate, nor to take the preliminary steps thereto, until it is given to them by the governor-general. It can not be admitted that this prerogative passed to the officer of the United States who is now acting as the governor of said island. He is not the delegate of the Crown

of Spain.

This application does not call for the exercise of a right conferred upon the people, or such persons as desire to form a corporation. It calls for the exercise of a power heretofore possessed by the Crown of Spain and by the Crown delegated to a Crown officer. When the sovereignty of Spain withdrew from the island, the royal decree of August 16, 1878, became null and void. Therefore there is no existing law in Porto Rico under which a corporation may be organized. Persons desiring to conduct business in said island by means of a corporation must organize such corporation elsewhere.

It appears from the documents filed herein that this application has been presented to the council of secretaries for the Department of Porto Rico, and that body has given its consent to the incorporation under the articles of incorporation proposed. The same want of authority in the council of secretaries and the absence of a law under which to proceed, prevent that body from giving legal effect to the act of incorporation, as prevent the military governor and this Department.

It therefore appears that applicants can not form a corporation of the kind and character set forth in their application under the existing laws of Porto Rico.

The suggestion that said applicants desire to form a corporation in Porto Rico under some general law of the United States need not be discussed. There are no Federal laws of the United States under which such a corporation could be formed, were it admitted that said laws, if existing, would be in force in Porto Rico.

As at present advised, this Department considers said royal decree of August 16, 1878, as being the law of incorporation in Porto Rico at the date of cession to the United States. If the provisions of that law have been modified so as to confer the power to grant incorporation upon some officer or body which did not become functus officio upon the withdrawal of Spanish sovereignty, a different question would be presented.

Many persons seem to entertain the belief that special rights, privileges, and exemptions in the territory ceded by Spain to the United States may be conferred by this Department, or by the various officers now in charge of civil affairs in said territory, by the exercise of mere volition on the part of said officers or by arbitrary exercise of power.

This misconception seems to be founded on the widespread, but not properly understood, idea that said territory is conquered territory and that the will of the conqueror is the law of the conquered. Without stopping to discuss the limitations and modifications of this