Board of Regents of the University v. Trustees of the Endowment Fund of the University

⁵⁶¹ Henderson, J., delivered the opinion of the Court. The question presented on this appeal, from a final decree entered after the Chancellor had overruled a demurrer to a bill of complaint and the appellants declined to answer, is the constitutional validity of Chapter 5 of the Acts of 1952. This Act undertook to amend the Charter of the corporation operating under the name of “The Trustees of the Endowment Fund of the University of Maryland” to .provide that thereafter its members should be the Regents of the University of Maryland and that “all the rights, powers, duties, obligations, and functions” of its members should be conferred upon the Regents. By its decree, the court below held that the Act is unconstitutional and enjoined the Board of Regents “from interfering with, taking possession of or attempting to exercise any control over the funds, property and assets” of the corporation, and also enjoined the Maryland Trust Company, the agent and custodian of the securities and funds of the corporation, from delivering the same to the Regents.

Since the Maryland Trust Company is in the nature of a stakeholder we shall hereinafter refer to the corporation whose charter was amended as “the appellee”. The appellee contends that the Act violates: (1) Article I, Section 10 of the Federal Constitution prohibiting the impairment by a state of the obligation of contracts, (2) the Fourteenth Amendment to the Federal Constitution and its State equivalent, Article 23 of the Maryland Declaration of Rights, regarding due process, (3) the Fourteenth Amendment regarding equal protection of the laws, and (4) Article III, Section 40 of the Maryland Constitution prohibiting the taking of private property for public use without just compensation. It also contends (5) that the Act violates Article III, Section 29 of the Maryland Constitution regarding defective title, and (6) Article III, Section 33 regarding special laws. Before discussing any of these points it is necessary to state the corporate and legislative history in some detail. ⁵⁶² The appellee was originally incorporated on June 29, 1893, under the name of “The Trustees of the Endowment Fund of the Faculty of Physic of the University of Maryland of Baltimore City”, pursuant to the General Corporation Laws of Maryland.

Since then the charter has been amended three times: by Chapter 529, Acts of 1904; by Chapter 435, Acts of 1929; and by Articles of Amendment filed with the State Tax Commission of Maryland on April 9, 1946, pursuant to the General Corporation Laws of Maryland. At the time the corporation was formed the University of Maryland consisted only of the professional schools in Baltimore City, the part of the University now located at College Park being then known as the Maryland Agricultural College. For the early history of the University see The Regents of the University of Maryland v. Williams, 9 G. & J. 365 (1838). A principal school of the University of Maryland in 1893 was the Medical School.

The original charter of the appellee recited that it was formed by the nine incorporators as “* * * a corporation for educational purposes in connection with and in aid of the School of Medicine * * * and for the specific object of receiving, investing and controlling an endowment fund for said School of Medicine and applying the income thereof in the discretion of said Trustees to the exclusive benefit of said School”. Management was lodged in an executive committee of four of the trustees. Its corporate existence was limited to a period of 40 years. By Chapter 529, Acts of 1904, the charter was amended so as to change the name to its present form, to correspondingly enlarge its purposes, and to give the corporation perpetual succession.

It was provided in Section 2 that the nine persons who were then the members “shall severally continue as such until their membership be terminated by death, resignation or removal.” In the event of a vacancy, the remaining members were authorized to fill the vacancy from alumni of the University of Maryland, the membership at all times to consist of ⁵⁶³ five graduates of the School of Medicine and four graduates of the School of Law. These eligibility requirements were eliminated by Chapter 435, Acts of 1929. Section 4, Chapter 529, Acts of 1904, provided for an executive committee of four to be elected by the members annually from among their own number, who were empowered to manage the affairs of the corporation and to elect a president and secretary and treasurer. It was directed to report annually to the General Alumni Association of the University.

The Act also specifically provided that the Act should take effect only after the provisions thereof had been accepted by resolution of the corporation. It was so accepted, as was the amendment of 1929. At a meeting of the members of the corporation held on March 12, 1946, Articles of Amendment were adopted which struck out all sections of the charter and inserted four new sections. These articles were duly filed with the State Tax Commission under the general law.

Except for the persons who were named as the then members, the four sections were virtually identical with the provisions of the charter as amended by the Acts of 1904 and 1929, but a requirement that all investments be registered in the name of the trustees was eliminated. Accordingly, the corporation may be described as a non-stock corporation of a charitable nature, composed of nine members with perpetual succession who are self-perpetuating, the power of management being lodged in an executive committee of four members. Among the powers set out in Section 3 are: “to receive, hold, invest and control any money, funds or other property * * * as an endowment fund or funds for said University of Maryland, and either any or all of its several separate faculties and departments, and to apply the income of such fund or funds in its discretion to the benefit of said University and the several faculties and departments thereof to whichever such fund or funds may respectively appertain.” It is also empowered to accept “money, funds or other property in trust for said University and ⁵⁶⁴ any or all- of its several faculties and departments, and the same to administer according to the declared purpose of such trusts”. At the 1951 session of the General Assembly there was introduced and passed House Bill No. 701, reading as follows: “AN ACT to repeal Section 2 of Chapter 435 of the Acts of 1929, said Act amending the Charter of the Trustees of the Endowment Fund of the University of Maryland, and to enact in lieu thereof a new section, said section to be known as Section 2 and relating to the membership of the Corporation known as ‘The Trustees of the Endowment Fund of the University of Maryland’. “Section 1.

Be it enacted by the General Assembly of Maryland, That Section 2, Chapter 435 of the Acts of 1929, be and it is hereby repealed. “Sec. 2. And be it further enacted, That a new section to be known as Section 2, said section to be in lieu of Section 2 of Chapter 435 of the Acts of 1929 and in lieu of Section 2 of Chapter 529 of the Acts of 1904, be and the same is hereby enacted to read as follows: “2. The said corporation shall have perpetual succession and its members shall be the Regents of the University of Maryland, constituted and organized at present, and such other or additional members of the said Regents of the University of Maryland as may, from time to time, be appointed as authorized by law; and all the rights, powers, duties, obligations, and functions now conferred by any and every provision of law or by the Charter of ‘The- Trustees of the Endowment- Fund of the University of Maryland’ shall be conferred upon the Regents of the University of Maryland, it being the intention of this Act that said Regents shall, ⁵⁶⁵ from the date of passage hereof, be considered for all purposes as the sole members of the Corporation found [sic] under Articles of Incorporation dated the 29th day of June, 1893, and recorded among the Charter Records of Baltimore City in Liber J. B. No. 31 at folio 167, as said charter has been amended from time to time. “Sec. 3. And be it further enacted, That this Act shall take effect June 1, 1951.” H. B. 701 having been presented to the Governor, he returned it to the House without his approval on May 7, 1951, noting that the corporation was chartered under the General Corporation Laws and did not derive its existence from legislative act, that the bill would “defeat the purposes” for which the trusts had been created and “frustrate the purpose of the donors”, and that its constitutionality appeared to be “extremely questionable”.

Acts of 1951, pp. 2143, 2144. Nevertheless, the bill was passed over his veto, and became effective June 1, 1952, as Chapter 5, Acts of 1952. It has never been accepted or acted upon by the corporation. The endowment funds now held by the Trustees amount to about $2,000,000, and the annual income to about $38,000.

There are some 42 separate funds, some of which are restricted. In soliciting contribution to the Endownment Fund, emphasis had always been placed on the permanence of the Endowment Fund, the fact that only interest would be expended, and that the Fund would always be managed and controlled by a separate corporation completely independent of the governing body of the University. The University of Maryland, as now constituted, was formed in 1920 by merger of the old University and the Maryland State College of Agriculture. Chapter 480, Acts of 1920.

The Regents were vested with the powers of management, and the Act of 1920 was duly approved by the governing boards of the merging institutions. By Chapter 925, Acts of 1941, the number of Regents ⁵⁶⁶ was increased from 9 to 11. The corporation has the status of a State agency. University of Maryland v. Maas, 173 Md. 554 ; University v. Murray, 169 Md. 478 .

All of the Regents are appointed, from time to time, by the Governor. The contention that the transfer, of the entire power of management and control of the appellee corporation and its funds from the Executive Committee selected by its members to the Board of Regents of the University, is an impairment of the obligation of contract, is met at the outset by the contention that the alteration of the charter is within the power reserved to the Legislature. Following the decision of the Dartmouth College case, 4 Wheat. (U. S.) 518 (1819), that the corporate charter of an educational institution was a contract which the State was forbidden to change by legislative enactment, a reservation of the power to alter or repeal charters thereafter granted was written into the constitutions of many states.

It was written into our Constitution of 1851 and restated in our Constitution of 1867 in these words: “* * * all charters granted or adopted in pursuance of this section, and all charters heretofore granted and created subject to repeal or modification, may be altered from time to time, or be repealed; * * *.” ■ Article III, Section 48. In the General Corporation Law of 1868 (Chapter 471, Acts of 1868) it was provided in Section 77 that every corporate-charter, when granted, should be subject to “all provisions and regulations which may hereafter, by any change in or amendment of the laws of this State, be made applicable to such corporation.” In Code (1951), Art. 23, Sec. 1(g), it is provided that “The charter of every corporation formed prior to June 1, 1951, which is subject to repeal or modification and the charter of every corporation formed under the provisions of this Article shall be subject to repeal or modification by public general law of the Generar Assembly.” Passing the question as to whether the reserved power can be validly exercised by á special act under ⁵⁶⁷ the circumstances of the instant case, the question arises whether the contract clause of the Federal Constitution can ever be invoked in the case of a corporation formed subject to the reserved power of alteration or repeal. The appellant contends that the reserved power is one of the terms of the contract, and any objections to its exercise must be sought in other provisions of the basic law. In what appears to be the latest expression of the United States Supreme Court on the subject, Phillips Petroleum Co. v. Jenkins, 297 U. S. 629, 634 , it was said: “The reservation of power to amend is a part of the contract between the State and the corporation and therefore § 10 of Art. I of the Federal Constitution does not apply.” Cf.

Noble State Bank v. Haskell, 219 U. S. 104, 109 . But continuing, the court said: “The reserved power is not unlimited and cannot be exerted to defeat the purpose for which the corporate powers were granted, or to take property without compensation, or arbitrarily to make alterations that are inconsistent with the scope and object of the charter or to destroy or impair any vested property right.” Many other cases state the proposition that the reserved power cannot be exercised so as to defeat or substantially impair the fundamental purpose for which a corporation is formed. Holyoke Co. v. Lyman, 15 Wall. (U. S.) 500, 522; Shields v. Ohio, 95 U. S. 319, 324 ; Fair Haven R. R. Co. v. New Haven, 203 U. S. 379, 388 ; Breslav v. N. Y. & Queens Elec.

Light & Power Co., 249 App. Div. 181, 185 , aff. without opinion, 273 N. Y. 593 ; Sprigg v. Western Tel. Co., 46 Md. 67, 78 . In Webster v. Cambridge Seminary, 78 Md. 193, 205 , Chief Judge Robinson said: “The right * * * of the Legislature to alter and amend the charter of the defendant corporation is not, and could not, be denied. At the same time we agree with the appellant that it could not change fundamentally the nature and character of the charter itself.

It could not, under the guise of an amendment, substitute a new and different charter with distinct and different purposes, and oblige the stockholders to accept it. Nor could it divest prop ⁵⁶⁸ erty rights acquired under the legitimate exercise of the powers granted. Independent altogether of the contract clause of the Federal