CHAPTER 19 HOW TO RUN A PRIVATE BUSINESS

Copyright 2005

In this section we will look at how to conduct a private business which is business which does not affect a public interest, and not subject to state regulation under the police powers.

In Hale v Henkel, 201 US 43, 74, the court stated the difference between business conducted by an individual and by a corporation:

[T]here is a clear distinction in this particular between an individual and a corporation, and that the latter has no right to refuse to submit its books and papers for an examination at the suit of the state. The individual may stand upon his constitutional rights as a citizen. He is entitled to carry on his private business in his own way. His power to contract is unlimited. He owes no duty to the state or to his neighbors to divulge his business, or to open his doors to an investigation, so far as it may tend to criminate him. He owes no such duty to the state, since he receives nothing therefrom, beyond the protection of his life and property. His rights are such as existed by the law of the land long antecedent to the organization of the state, and can only be taken from him by due process of law, and in accordance with the Constitution. Among his rights are a refusal to incriminate himself, and the immunity of himself and his property from arrest or seizure except under a warrant of the law. He owes nothing to the public so long as he does not trespass upon their rights.

Upon the other hand, the corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It receives certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter.

AFFECTING A PUBLIC INTEREST

To minimize government regulation over your business, you should not do anything that affects a public interest. The phrase ”affecting a public interest” has been explained:

While there is no such thing as absolute freedom of contract and it is subject to a variety of restraints, they must not be arbitrary or unreasonable. Freedom is the general rule, and restraint the exception. The legislative authority to abridge can be justified only by exceptional circumstances. [Citing deleted] [Wolff Co. v. Industrial Court, 262 U.S. 522, 534 (1922)]

Businesses said to be clothed with a public interest justifying some public regulation may be divided into three classes.

(1) Those which are carried on under the authority of a public grant of privileges which either expressly or impliedly imposes the affirmative duty of rendering a public service demanded by any member of the public. Such are the railroads, other common carriers and public utilities.

(2) Certain occupations, regarded as exceptional, the public interest attaching to which, recognized from earliest times, has survived the period of arbitrary laws by Parliament or Colonial legislatures for regulating all trades and callings. Such are those of the keepers of inns, cabs and grist mills. [Citings deleted]

(3) Businesses which though not public at their inception may be fairly said to have risen to be such and have become subject in consequence to some government regulation. They have come to hold such a peculiar relation to the public that this is superimposed upon them. In the language of the cases, the owner by devoting his business to the public use, in effect grants the public an interest in that use and subjects himself to public regulation to the extent of that interest although the property continues to belong to its private owner and to be entitled to protection accordingly. [Citings deleted] [Wolff, supra, 535]

... [T]he mere declaration by a legislature that a business is affected with a public interest is not conclusive of the question whether its attempted regulation on that ground is justified. The circumstances of its alleged change from the status of a private business and its freedom from regulation into one in which the public have come to have an interest are always subject of judicial inquiry. [Wolff, supra, 536]

It has never been supposed, since the adoption of the Constitution, that the business of the butcher, or the baker, the tailor, the wood chopper, the mining operator or the miner was clothed with such a public interest that the price of his product or his wages could be fixed by State regulation. . . . but nowadays one does not devote one’s property or business to the public use or clothe it with a public interest merely because one makes commodities for, and sells to, the public in the common callings of which those above mentioned are instances. [Wolff, supra, 537]

Property does become clothed with a public interest when used in a manner to make it of public consequence, and affect the community at large. When, therefore, one devotes his property to a use in which the public has an interest, he, in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the common good, the extent of the interest he has thus created. He may withdraw his grant by discontinuing the use; but so long as he maintains the use, he must submit to the control. [Italics in original] [Wolff, supra, 540]

... [A] business is not affected with a public interest merely because it is large, because the public is warranted in having a feeling of concern with respect to its maintenance, or because of the mere fact that the public derives benefit, accommodation, ease, or enjoyment from the maintenance or operation of the business, and that while the word ”interest” as here used has always been limited narrowly as strictly denoting ”a right,” that synonym more nearly than any other expresses the sense in which it is to be understood. [16A Am Jur 2d Constitutional Law, Sec. 428]

The statement that one has dedicated his property to a public use is, therefore, merely another way of saying that if one embarks in a business which public interest demands shall be regulated, he must know regulation will ensue. [Nebbia v. New York, 291 U.S. 502, 534 (1933)]¹

The touchstone of public interest in any business, its practices and charges, clearly is not the enjoyment of any franchise from the state, [citing deleted]. Nor is it the enjoyment of a monopoly; ... . [Nebbia, supra, 534]

Many other decisions show that the private character of a business does not necessarily remove it from the realm of regulation of charges or prices. The usury laws fix the price which may be exacted for the use of money, although no business more essentially private in character can be imagined than that of loaning one’s personal funds. [Nebbia, supra, 535]

Price control, like any other form of regulation, is unconstitutional only if arbitrary, discriminatory, or demonstrably irrelevant to the policy the legislature is free to adopt, and hence an unnecessary and unwarranted interference with individual liberty. [Nebbia, supra, 539]