U.S. Supreme Court
Bank of Augusta v. Earle, 38 U.S. 13 Pet. 519 519 (1839)
Bank of Augusta v. Earle
38 U.S. (13 Pet.) 519
ERROR TO THE CIRCUIT COURT OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF ALABAMA
An action was instituted in the Circuit Court of the United States for the District of Alabama by the Bank of Augusta, Georgia, against the defendant, a citizen of Alabama, on bills of exchange drawn at Mobile, Alabama, on New York, which had been protested for nonpayment and returned to Mobile. The bill was made and endorsed for the purpose of being discounted by the agent of the bank, who had funds in his hands belonging to the plaintiffs for the purpose of purchasing bills of exchange, which funds were derived from bills and notes discounted by the bank in Georgia. The bills were discounted by the agent of the bank in Mobile for the benefit of the bank, with their funds, to remit the said funds to the bank. The defendant defended the suit on the facts that the bank of Augusta is a corporation incorporated by an act of the Legislature of Georgia, and have power such as is usually conferred on banking institutions, such as to purchase bills of exchange, &c. The circuit court held that the plaintiffs could not recover on the bills of exchange, and that the purchase of the bills by the agent of the plaintiffs were prohibited by the laws of Alabama, and gave judgment for the defendant. In the case of Bank of the United States of Pennsylvania v. Primrose, the plaintiffs, a corporation by virtue of a law of the State of Pennsylvania, authorized by its charter to sue and be sued in the name of the corporation, and to deal in bills of exchange, and composed of citizens of Pennsylvania and of states of the United States other than the State of Alabama, the agent of the bank resident in Mobile, and in possession of funds belonging to the bank and entrusted with them for the sole purpose of purchasing bills of exchange, purchased a bill of exchange, and paid for the same in notes of the branch of the Bank of Alabama at Mobile. The bill was protested for nonpayment, and a suit was instituted in the circuit court against the payee, the endorser of the bill. The question for the opinion of the circuit court was whether the purchase of the bill of exchange by the Bank of the United States was a valid contract, under the laws of Alabama. The circuit court decided that the contract was void and gave judgment for the defendant. The case of New Orleans & Carrollton Railroad Company v. Earle was similar to that of Bank of Augusta v. Earle. The Supreme Court reversed the judgment of the circuit court in the three cases and held the contracts for the purchase of the bills valid and that the plaintiffs acquired a legal title to the bills by the purchase.
In the case of Bank of the United States v. Deveaux, the Supreme Court decided that in a question of jurisdiction, it might look to the character of the persons composing a corporation, and if it appeared that they were citizens of another state and the fact was set forth by proper averments, the corporation might sue in its corporate name in the courts of the United States. But in that case the Court confined its decision in express terms to a question of jurisdiction, to a right to sue, and evidently went even so far with some hesitation. The propriety of that decision is fully assented to, and it has ever since been recognized as authority in this Court. But the principle has never been extended any farther than it was carried in that case, and has never been supposed to extend to contracts made by a corporation, especially in another sovereignty.
The nature and character of a corporation created by statute, and the extent of the powers which it may lawfully exercise, have upon several occasions been under consideration in this Court. The cases of Head and Amory v. Providence Insurance Company, 2 Cranch 167, and Dartmouth College v. Woodward, 4 Wheat. 636, cited.
Whenever a corporation makes a contract, it is the contract of the legal entity, of the artificial being created by the charter, and not the contract of the individual members. The only rights it can claim are the rights which are given to it in that character, and not the rights which belong to its members as citizens of a state. chanroblesvirtualawlibrary
It may be safely assumed that a corporation can make no contracts and do no acts, either within or without the state which creates it, except such as are authorized by its charter, and those acts must also be done by such officers or agents and in such manner as the charter authorizes. And if the law creating a corporation does not, by the true construction of the words used in the charter, give it the right to exercise its powers beyond the limits of the state, all contracts made by it in other states would be void.
It is very true that a corporation can have no legal existence out of the boundaries of the sovereignty by which it is created. It exists only in contemplation of law and by force of the law, and where that law ceases to operate and is no longer obligatory, the corporation can have no existence. It must dwell in the place of its creation, and cannot migrate to another sovereignty. But although it must live and have its being in that state only, yet it does not by any means follow that its existence there will not be recognized in other places, and its residence in one state creates no insuperable objection to its power of contracting in another. It is indeed a mere artificial being, invisible and intangible, yet it is a person for certain purposes in contemplation of law, and has been recognized as such by the decisions of this Court. It is sufficient that its existence as an artificial person in the state of its creation is acknowledged and recognized by the law of the nation where the dealing takes place, and that it is permitted by the laws of that place to exercise there the powers with which it is endowed.
Courts of justice have always expounded and executed contracts made in a foreign country according to the laws of the place in which they were made, provided that law was not repugnant to the laws or policy of their own country. The comity thus extended to other nations is no impeachment of sovereignty. It is the voluntary act of the nation by which it is offered, and is inadmissible when contrary to its policy, or prejudicial to its interests. But it contributes so largely to promote justice between individuals and to produce a friendly intercourse between the sovereignties to which they belong that courts of justice have continually acted upon it as a part of the voluntary law of nations.
The court can perceive no sufficient reason for excluding from the protection of the law the contracts of foreign corporations when they are not contrary to the known policy of the state or injurious to its interests. It is nothing more than the admission of the existence of an artificial person created by the law of another state and clothed with the power of making certain contracts. It is but the usual comity of recognizing the law of another state.
The states of the Union are sovereign states, and the history of the past and the events which are daily occurring furnish the strongest evidence that they have adopted towards each other the laws of comity in their fullest extent.
In the legislation of Congress, where the states and the people of the several states are all represented, we shall find proof of the general understanding in the United States that by the law of comity among the states, the corporations chartered by one were permitted to make contracts in the others.
It is well settled that by the law of comity among nations, a corporation created by one sovereignty is permitted to make contracts in another and to sue in its courts, and that the same law of comity prevails among the several sovereignties of this Union. The public and well known and long continued usages of trade, the general acquiescence of the states, the particular legislation of some of them, as well as the legislation of Congress, all concur in proving the truth of this proposition.
Franchises are special privileges conferred by government upon individuals, and which do not belong to the citizens of the country generally of common right. It is essential to the character of a franchise that it should be a grant from the sovereign authority, and in this country no franchise can be held which is not derived from a law of the state.
The comity of suit brings with it the comity of contract, and where the one is expressly adopted by the courts, the other must also be presumed, according to the usages of nations, unless the contrary can be shown.
The State of Alabama has not merely acquiesced by silence, but her judicial tribunals have declared the adoption of the law of international comity in the case of a suit.
The State of Alabama never intended by its Constitution to interfere with the right of selling or purchasing bills of exchange.
When the policy of a state is manifest, the courts of the United States would be bound to notice it as a part of its code of laws and to declare all contracts in the state repugnant to it to be illegal and void. chanroblesvirtualawlibrary
These cases were brought from the Circuit Court of the Southern District of Alabama by the plaintiffs in each case by writs of error. The cases of the Bank of Augusta v. Earle and of the Bank of the United States v. Primrose were argued by counsel. The case of New Orleans & Carrollton Railroad Company was submitted by Mr. Ogden on the argument in the other causes.
In the case of Bank of Augusta v. Earle, the facts were the following:
The Bank of Augusta, incorporated by the Legislature of the State of Georgia, instituted in the Circuit Court for the Southern District of Alabama in March, 1837, an action against Joseph B. Earle, a citizen of the State of Alabama, on a bill of exchange, dated at Mobile, November 3, 1836, drawn at sixty days sight by Fuller, Gardner & Co. on C. B. Burland & Co. of New York in favor of Joseph B. Earle and by him endorsed, for six thousand dollars. The bill was accepted by the drawees, but was afterwards protested for nonpayment and was returned with protest to the plaintiffs.
The following facts were agreed upon by the counsel for the plaintiffs and the defendant, and were submitted to the circuit court:
"The defendant defends this action upon the following facts that are admitted by the plaintiffs; that plaintiffs are a corporation, incorporated by an act of the Legislature of the State of Georgia, and have power usually conferred upon banking institutions, such as to purchase bills of exchange, &c. That the bill sued on was made and endorsed for the purpose of being discounted by Thomas McGran, the agent of said bank, who had funds of the plaintiffs in his hands for the purpose of purchasing bills, which funds were derived from bills and notes, discounted in Georgia by said plaintiffs and payable in Mobile, and the said McGran, agent as aforesaid, did so discount and purchase the said bill sued on, in the City of Mobile, state aforesaid, for the benefit of said bank, and with their funds; and to remit said funds to the said plaintiffs."
"If the court shall say that the facts constitute a defense to this action, judgment will be given for the defendant, otherwise for plaintiffs, for the amount of the bill, damages, interest and costs, either party to have the right of appeal or writ of error to the Supreme Court, upon the statement of facts, and the judgment thereon."
The circuit court gave judgment for the defendant.
The Bank of the United States, incorporated by the Legislature of the State of Pennsylvania, as the holders of a bill of exchange protested for nonpayment, for five thousand three hundred and fifty dollars, drawn by Charles Gascoine, at Mobile, on 14 January, 1837, at four months, on J. and C. Gascoine, of New York, in favor of W. D. Primrose, and by him endorsed, instituted in October, 1837, an action against the endorser of the bill, in the Circuit Court for chanroblesvirtualawlibrary
the Southern District of Alabama. The agreed facts of the case, which were submitted to the circuit court, were as follow:
"The plaintiffs are a body corporate, existing under and by virtue of a law of the State of Pennsylvania, authorized by its charter to sue and be sued by the name of the President, Directors, and Company of the Bank of the United States, and to deal in bills of exchange, and is composed of citizens of Pennsylvania and of states of the United States other than the State of Alabama. The defendant is a citizen of the State of Alabama. George Poe, Jr., was the agent of the plaintiffs, resident in Mobile and in the possession of funds belonging to the plaintiffs, entrusted to him for the sold purpose of purchasing bills of exchange. The said George Poe, Jr., as such agent, on 14 January, A.D. 1837, purchased at Mobile the bill declared upon and paid for the same in notes of the branch of the Bank of the State of Alabama at Mobile. The defendant is the payee of the bill, and endorsed it to plaintiffs, the present holders. The bill was presented at maturity to the acceptors, and duly protested for nonpayment, and due and legal notice given to the defendant."
"The question for the opinion of the court on the foregoing statement of facts is whether the purchase of the said bill of exchange by the plaintiffs, as aforesaid, was a valid contract under the laws of Alabama. If the court be of opinion that the said contract was valid and that the said plaintiffs, as holders of the said bill, acquired the legal title thereto by the said purchase, then judgment to be rendered for the plaintiffs for the sum of 5,350 dollars, with interest at eight percent since 30 May, 1837, and ten percent damages on it. But if the court be of opinion that the said purchase was prohibited by the laws of Alabama, and the contract was therefore invalid and void, judgment to be rendered for the defendant."
The circuit court gave judgment for the defendant.
The action of New Orleans & Carrollton Railroad Company, incorporated by an act of the Legislature of Louisiana, was upon a bill of exchange drawn by Fuller, Gardner & Co., of Mobile, in favor of Joseph B. Earle upon Fuller & Yost of New Orleans for five thousand two hundred and ten dollars, protested for nonpayment. The action was against the endorser of the bill, which had been purchased at Mobile by an agent of the plaintiffs, who had funds in his hands belonging to the plaintiffs for the purpose of purchasing bills exchange as a means of remittance to New Orleans. chanroblesvirtualawlibrary
MR. CHIEF JUSTICE TANEY delivered the opinion of the Court.
These three cases involve the same principles, and have been chanroblesvirtualawlibrary
brought before us by writs of error directed to the Circuit Court and Southern District of Alabama. The two first have been fully argued by counsel, and the last submitted to the Court upon the arguments offered in the other two. There are some shades of difference in the facts as stated in the different records, but none that can affect the decision. We proceed therefore to express our opinion on the first case argued, which was Bank of Augusta v. Earle. The judgment in this case must decide the others.
The questions presented to the Court arise upon a case stated in the circuit court in the following words:
"The defendant defends this action upon the following facts that are admitted by the plaintiffs:"
"That plaintiffs are a corporation, incorporated by an act of the Legislature of the State of Georgia, and have power usually conferred upon banking institutions, such as to purchase bills of exchange, &c. That the bill sued on was made and endorsed for the purpose of being discounted by Thomas McGran, the agent of said bank, who had funds of the plaintiffs in his hands for the purpose of purchasing bills, which funds were derived from bills and notes discounted in Georgia by said plaintiffs and payable in Mobile, and the said McGran, agent as aforesaid, did so discount and purchase the said bill sued on in the City of Mobile, state aforesaid, for the benefit of said bank and with their funds, and to remit said funds to the said plaintiffs."
"If the court shall say that the facts constitute a defense to this action, judgment will be given for the defendant, otherwise for plaintiffs, for the amount of the bill, damages, interest, and cost, either party to have the right of appeal or writ of error to the Supreme Court upon this statement of facts, and the judgment thereon."
Upon this statement of facts the court gave judgment for the defendant, being of opinion that a bank incorporated by the laws of Georgia, with a power among other things to purchase bills of exchange, could not lawfully exercise that power in the State of Alabama, and that the contract for this bill was therefore void and did not bind the parties to the payment of the money.
It will at once be seen that the questions brought here for decision are of a very grave character, and they have received from the Court an attentive examination. A multitude of corporations for various purposes have been chartered by the several states; a large portion of certain branches of business has been transacted by incorporated companies or through their agency, and contracts to a very great amount have undoubtedly been made by different corporations out of the jurisdiction of the particular state by which they were created. In deciding the case before us, we in effect determine whether these numerous contracts are valid or not. And if, as has been argued at the bar, a corporation, from its nature and character, if incapable of making such contracts, or if they are inconsistent with the rights and sovereignty of the states in which they are made, they cannot be enforced in the courts of justice. chanroblesvirtualawlibrary
Much of the argument has turned on the nature and extent of the powers which belong to the artificial being called a corporation and the rules of law by which they are to be measured. On the part of the plaintiff in error it has been contended that a corporation composed of citizens of other states are entitled to the benefit of that provision in the Constitution of the United States which declares that "The citizens of each state shall be entitled to all privileges and immunities of citizens in the several states;" that the court should look behind the act of incorporation and see who are the members of it, and if in this case it should appear that the corporation of the Bank of Augusta consists altogether of citizens of the State of Georgia, that such citizens are entitled to the privileges and immunities of citizens in the State of Alabama, and as the citizens of Alabama may unquestionably purchase bills of exchange in that state, it is insisted that the members of this corporation are entitled to the same privilege, and cannot be deprived of it even by express provisions in the Constitution or laws of the state. The case of Bank of the United States v. Deveaux, 5 Cranch 61, is relied on to support this position.
It is true that in the case referred to, this Court decided that in a question of jurisdiction they might look to the character of the persons composing a corporation, and if it appeared that they were citizens of another state and the fact was set forth by proper averments, the corporation might sue in its corporate name in the courts of the United States. But in this case the Court confined its decision in express terms to a question of jurisdiction; to a right to sue; and evidently went even so far with some hesitation. We fully assent to the propriety of that decision, and it has ever since been recognized as authority in this Court. But the principle has never been extended any farther than it was carried in that case, and has never been supposed to extent to contracts made by a corporation, especially in another sovereignty. If it were held to embrace contracts, and that the members of a corporation were to be regarded as individuals carrying on business in their corporate name, and therefore entitled to the privileges of citizens in matters of contract, it is very clear that they must at the same time take upon themselves the liabilities of citizens and be bound by their contracts in like manner. The result of this would be to make a corporation a mere partnership in business, in which each stockholder would be liable to the whole extent of his property for the debts of the corporation, and he might be sued for them in any state in which he might happen to be found. The clause of the Constitution referred to certainly never intended to give to the citizens of each state the privileges of citizens in the several states and at the same time to exempt them from the liabilities which the exercise of such privileges would bring upon individuals who were citizens of the state. This would be to give the citizens of other states far higher and greater privileges than are enjoyed by the citizens of the state itself. Besides, it would deprive every state of all control over the extent chanroblesvirtualawlibrary
of corporate franchises proper to be granted in the state, and corporations would be chartered in one to carry on their operations in another. It is impossible upon any sound principle to give such a construction to the article in question. Whenever a corporation makes a contract, it is the contract of the legal entity -- of the artificial being created by the charter -- and not the contract of the individual members. The only rights it can claim are the rights which are given to it in that character, and not the rights which belong to its members as citizens of a state, and we now proceed to inquire what rights the plaintiffs in error, a corporation created by Georgia, could lawfully exercise in another state, and whether the purchase of the bill of exchange on which this suit is brought was a valid contract and obligatory on the parties.
The nature and character of a corporation created by a statute, and the extent of the powers which it may lawfully exercise, have upon several occasions been under consideration in this Court.
In the case of Head and Amory v. Providence Insurance Company, 2 Cranch 127, Chief Justice Marshall, in delivering the opinion of the Court, said
"Without ascribing to this body, which in its corporate capacity is the mere creature of the act to which it owes its existence, all the qualities and disabilities annexed by the common law to ancient institutions of this sort, it may correctly be said to be precisely what the incorporating act has made it; to derive all its powers from that act, and to be capable of exerting its faculties only in the manner which that act authorizes."
"To this source of its being, then, we must recur to ascertain its powers and to determine whether it can complete a contract by such communications as are in this record."
In the case of Dartmouth College v. Woodward, 4 Wheat. 636, the same principle was again decided by the Court. "A corporation," said the Court,
"is an artificial being, invisible, intangible, and existing only in contemplation of law. Being a mere creature of the law, it possesses only those properties which the charter of its creation confers upon it either expressly, or as incidental to its very existence."
And in the case of Bank of the United States v. Dandridge, 12 Wheat. 64, where the questions in relation to the powers of corporations and their mode of action were very carefully considered, the Court said
"But whatever may be the implied powers of aggregate corporations by the common law and the modes by which those powers are to be carried into operation, corporations created by statute must depend both for their powers and the mode of exercising them upon the true construction of the statute itself."
It cannot be necessary to add to these authorities. And it may be safely assumed that a corporation can make no contracts and do no acts either within or without the state which creates it except such as are authorized by its charter, and those acts must also be done by such officers or agents and in such manner as the charter authorizes. And if the law creating a corporation does not, by chanroblesvirtualawlibrary
the true construction of the words used in the charter, give it the right to exercise its powers beyond the limits of the state, all contracts made by it in other states would be void.
The charter of the Bank of Augusta authorizes it, in general terms, to deal in bills of exchange, and consequently gives it the power to purchase foreign bills as well as inland -- in other words, to purchase bills payable in another state. The power thus given clothed the corporation with the right to make contracts out of the state insofar as Georgia could confer it. For whenever it purchased a foreign bill and forwarded it to an agent to present for acceptance, if it was honored by the drawee, the contract of acceptance was necessarily made in another state, and the general power to purchase bills without any restriction as to place, by its fair and natural import, authorized the bank to make such purchases wherever it was found most convenient and profitable to the institution, and also to employ suitable agents for that purpose. The purchase of the bill in question was therefore the exercise of one of the powers which the bank possessed under its charter, and was sanctioned by the law of Georgia creating the corporation so far as that state could authorize a corporation to exercise its powers beyond the limits of its own jurisdiction.
But it has been urged in the argument that notwithstanding the powers thus conferred by the terms of the charter, a corporation, from the very nature of its being, can have no authority to contract out of the limits of the state, that the laws of a state can have no extraterritorial operation, and that as a corporation is the mere creature of a law of the state, it can have no existence beyond the limits in which that law operates, and that it must necessarily be incapable of making a contract in another place.
It is very true that a corporation can have no legal existence out of the boundaries of the sovereignty by which it is created. It exists only in contemplation of law and by force of the law, and where that law ceases to operate and is no longer obligatory, the corporation can have no existence. It must dwell in the place of its creation, and cannot migrate to another sovereignty. But although it must live and have its being in that state only, yet it does not by any means follow that its existence there will not be recognized in other places, and its residence in one state creates no insuperable objection to its power of contracting in another. It is indeed a mere artificial being, invisible and intangible; yet it is a person for certain purposes in contemplation of law, and has been recognized as such by the decisions of this Court. It was so held in the case of United States v. Amedy, 11 Wheat. 412, and in Beaston v. Farmer's Bank of Delaware, 12 Pet. 135. Now natural persons, through the intervention of agents, are continually making contracts in countries in which they do not reside and where they are not personally present when the contract is made, and nobody has ever doubted the validity of these agreements. And what greater objection can there be to the capacity of an artificial person chanroblesvirtualawlibrary
by its agents to make a contract within the scope of its limited powers in a sovereignty in which it does not reside, provided such contracts are permitted to be made by them by the laws of the place?
The corporation must no doubt show that the law of its creation gave it authority to make such contracts through such agents. Yet as in the case of a natural person, it is not necessary that it should actually exist in the sovereignty in which the contract is made. It is sufficient that its existence as an artificial person in the state of its creation is acknowledged and recognized by the law of the nation where the dealing takes place and that it is permitted by the laws of that place to exercise there the powers with which it is endowed.
Every power, however, of the description of which we are speaking which a corporation exercises in another state depends for its validity upon the laws of the sovereignty in which it is exercised, and a corporation can make no valid contract without their sanction, express or implied. And this brings us to the question which has been so elaborately discussed -- whether, by the comity of nations and between these states, the corporations of one state are permitted to make contracts in another. It is needless to enumerate here the instances in which, by the general practice of civilized countries, the laws of the one will, by the comity of nations, be recognized and executed in another where the right of individuals are concerned. The cases of contracts made in a foreign country are familiar examples, and courts of justice have always expounded and executed them according to the laws of the place in which they were made, provided that law was not repugnant to the laws or policy of their own country. The comity thus extended to other nations is no impeachment of sovereignty. It is the voluntary act of the nation by which it is offered, and is inadmissible when contrary to its policy or prejudicial to its interests. But it contributes so largely to promote justice between individuals and to produce a friendly intercourse between the sovereignties to which they belong that courts of justice have continually acted upon it, as a part of the voluntary law of nations. It is truly said in Story's Conflict of Laws 37 that
"In the silence of any positive rule affirming or denying or restraining the operation of foreign laws, courts of justice presume the tacit adoption of them by their own government unless they are repugnant to its policy or prejudicial to its interests. It is not the comity of the courts, but the comity of the nation which is administered, and ascertained in the same way, and guided by the same reasoning by which all other principles of municipal law are ascertained and guided."
Adopting as we do the principle here stated, we proceed to inquire whether, by the comity of nations, foreign corporations are permitted to make contracts within their jurisdiction, and we can perceive no sufficient reason for excluding them when they are not contrary to the known policy of the state or injurious to its interests. chanroblesvirtualawlibrary
It is nothing more than the admission of the existence of an artificial person created by the law of another state and clothed with the power of making certain contracts. It is but the usual comity of recognizing the law of another state. In England, from which we have received our general principles of jurisprudence, no doubt appears to have been entertained of the right of a foreign corporation to sue in its courts since the case of Henriquez v. Dutch West India Company, decided in 1729, 2 L.Raymond 1532. And it is a matter of history which this Court is bound to notice that corporations created in this country have been in the open practice for many years past of making contracts in England of various kinds and to very large amounts, and we have never seen a doubt suggested there of the validity of these contracts by any court or any jurist. It is impossible to imagine that any court in the United States would refuse to execute a contract by which an American corporation had borrowed money in England, yet if the contracts of corporations made out of the state by which they were created are void, even contracts of that description could not be enforced.
It has, however, been supposed that the rules of comity between foreign nations do not apply to the states of this Union, that they extend to one another no other rights than those which are given by the Constitution of the United States, and that the courts of the general government are not at liberty to presume, in the absence of all legislation on the subject, that a state has adopted the comity of nations towards the other states as a part of its jurisprudence or that it acknowledges any rights but those which are secured by the Constitution of the United States. The Court thinks otherwise. The intimate union of these states as members of the same great political family, the deep and vital interests which bind them so closely together, should lead us, in the absence of proof to the contrary, to presume a greater degree of comity and friendship and kindness towards one another than we should be authorized to presume between foreign nations. And when (as without doubt must occasionally happen) the interest or policy of any state requires it to restrict the rule, it has but to declare its will, and the legal presumption is at once at an end. But until this is done, upon what grounds could this Court refuse to administer the law of international comity between these states? They are sovereign states, and the history of the past and the events which are daily occurring furnish the strongest evidence that they have adopted towards each other the laws of comity in their fullest extent. Money is frequently borrowed in one state by a corporation created in another. The numerous banks established by different states are in the constant habit of contracting and dealing with one another. Agencies for corporations engaged in the business of insurance and of banking have been established in other states and suffered to make contracts without any objection on the part of the state authorities. These usages of commerce and trade have been so general and public and have been practiced for so long a period of time and so generally acquiesced chanroblesvirtualawlibrary
in by the states that the Court cannot overlook them when a question like the one before us is under consideration. The silence of the state authorities while these events are passing before them shows their assent to the ordinary laws of comity which permit a corporation to make contracts in another state. But we are not left to infer it merely from the general usages of trade and the silent acquiescence of the states. It appears from the cases cited in the argument, which it is unnecessary to recapitulate in this opinion, that it has been decided in many of the state courts -- we believe in all of them where the question has arisen -- that a corporation of one state may sue in the courts of another. If it may sue, why may it not make a contract? The right to sue is one of the powers which it derives from its charter. If the courts of another country take notice of its existence as a corporation so far as to allow it to maintain a suit and permit it to exercise that power, why should not its existence be recognized for other purposes, and the corporation permitted to exercise another power which is given to it by the same law and the same sovereignty, where the last mentioned power does not come in conflict with the interest or policy of the state? There is certainly nothing in the nature and character of a corporation which could justly lead to such a distinction and which should extent to it the comity of suit and refuse to it the comity of contract. If it is allowed to sue, it would of course be permitted to compromise, if it thought proper, with its debtor; to give him time; to accept something else in satisfaction; to give him a release; and to employ an attorney for itself to conduct its suit. These are all matters of contract, and yet are so intimately connected with the right to sue that the latter could not be effectually exercised if the former were denied.
We turn in the next place to the legislation of the states.
So far as any of them have acted on this subject, it is evident that they have regarded the comity of contract, as well as the comity of suit, to be a part of the law of the state unless restricted by statute. Thus, a law was passed by the State of Pennsylvania, March 10, 1810, which prohibited foreigners and foreign corporations from making contracts of insurance against fire and other losses mentioned in the law. In New York also a law was passed March 18, 1814, which prohibited foreigners and foreign corporations from making in that state insurances against fire, and by another law passed April 21, 1818, corporations chartered by other states are prohibited from keeping any office of deposit for the purpose of discounting promissory notes or carrying on any kind of business which incorporated banks are authorized by law to carry on. The prohibition of certain specified contracts by corporations in these laws is by necessary implication an admission that other contracts may be made by foreign corporations in Pennsylvania and New York, and that no legislative permission is necessary to give them validity. And the language of these prohibitory acts most chanroblesvirtualawlibrary
clearly indicates that the contracts forbidden by them might lawfully have been made before these laws were passed.
Maryland has gone still farther in recognizing this right. By a law passed in 1834, that state has prescribed the manner in which corporations not chartered by the state, "which shall transact or shall have transacted business" in the state, may be sued in its courts upon contracts made in the state. The law assumes in the clearest manner that such contracts were valid, and provides a remedy by which to enforce them.
In the legislation of Congress also, where the states and the people of the several states are all represented, we shall find proof of the general understanding in the United States that by the law of comity among the states, the corporations chartered by one were permitted to make contracts in the others. By the Act of Congress of June 23, 1836, 4 Story's Laws 2445, regulating the deposits of public money, the Secretary of the Treasury was authorized to make arrangements with some bank or banks to establish an agency in the states and territories where there was no bank or none that could be employed as a public depository to receive and disburse the public money which might be directed to be there deposited. Now if the proposition be true that a corporation created by one state cannot make a valid contract in another, the contracts made through this agency in behalf of the bank, out of the state where the bank itself was chartered, would all be void both as respected the contracts with the government and the individuals who dealt with it. How could such an agency, upon the principles now contended for, have performed any of the duties for which it was established?
But it cannot be necessary to pursue the argument further. We think it is well settled that by the law of comity among nations, a corporation created by one sovereignty is permitted to make contracts in another and to sue in its courts, and that the same law of comity prevails among the several sovereignties of this Union. The public and well known and long continued usages of trade, the general acquiescence of the states, the particular legislation of some of them, as well as the legislation of Congress all concur in proving the truth of this proposition.
But we have already said that this comity is presumed from the silent acquiescence of the state. Whenever a state sufficiently indicates that contracts which derive their validity from its comity are repugnant to its policy or are considered as injurious to its interests, the presumption in favor of its adoption can no longer be made. And it remains to inquire whether there is anything in the Constitution or laws of Alabama from which this Court would be justified in concluding that the purchase of the bill in question was contrary to its policy.
The Constitution of Alabama contains the following provisions in relation to banks:
"One state bank may be established with such number of
branches as the general assembly may from time to time deem expedient, provided that no branch bank shall be established nor bank charter renewed under the authority of this state without the concurrence of two-thirds of both houses of the general assembly, and provided also that not more than one bank or branch bank shall be established nor bank charter renewed but in conformity to the following rules:"
"1. At least two-fifths of the capital stock shall be reserved for the state."
"2. A proportion of power, in the direction of the bank, shall be reserved to the state, equal at least to its proportion of stock therein."
"3. The state and individual stockholders shall be liable respectively for the debts of the bank, in proportion to their stock holden therein."
"4. The remedy for collecting debts shall be reciprocal, for and against the bank."
"5. No bank shall commence operations until half of the capital stock subscribed for be actually paid in gold and silver, which amount shall in no case be less than one hundred thousand dollars."
Now from these provisions in the Constitution it is evidently the policy of Alabama to restrict the power of the legislature in relation to bank charters and to secure to the state a large portion of the profits of banking in order to provide a public revenue, and also to make safe the debts which should be contracted by the banks. The meaning, too, in which that state used the word "bank" in her Constitution is sufficiently plain from its subsequent legislation. All of the banks chartered by it are authorized to receive deposits of money, to discount notes, to purchase bills of exchange, and to issue their own notes payable on demand to bearer. These are the usual powers conferred on the banking corporations in the different states of the Union, and when we are dealing with the business of banking in Alabama, we must undoubtedly attach to it the meaning in which it is used in the constitution and laws of the state. Upon so much of the policy of Alabama, therefore, in relation to banks as is disclosed by its constitution, and upon the meaning which that state attaches to the word bank, we can have no reasonable doubt. But before this Court can undertake to say that the discount of the bill in question was illegal, many other inquiries must be made and many other difficulties must be solved. Was it the policy of Alabama to exclude all competition with its own banks by the corporations of other states? Did the state intend by these provisions in its Constitution and these charters to its banks to inhibit the circulation of the notes of other banks, the discount of notes, the loan of money, and the purchase of bills of exchange? Or did it design to go still further and forbid the banking corporations of other states from making a contract of any kind within its territory? Did it mean to prohibit its own banks from keeping mutual accounts with the banks of other states and from entering into any contract with chanroblesvirtualawlibrary
them, express or implied? Or did she mean to give to her banks the power of contracting within the limits of the state with foreign corporations, and deny it to individual citizens? She may believe it to be the interest of her citizens to permit the competition of other banks in the circulation of notes in the purchase and sale of bills of exchange and in the loan of money. Or she may think it to be her interest to prevent the circulation of the notes of other banks and to prohibit them from sending money there to be employed in the purchase of exchange or making contracts of any other description.
The state has not made known its policy upon any of these points. And how can this Court, with no other lights before it, undertake to mark out by a definite and distinct line the policy which Alabama has adopted in relation to this complex and intricate question of political economy? It is true that the state is the principal stockholder in her own banks. She has created seven, and in five of them the state owns the whole stock, and in the others two-fifths. This proves that the state is deeply interested in the successful operation of her banks, and it may be her policy to shut out all interference with them. In another view of the subject, however, she may believe it to be her policy to extend the utmost liberality to the banks of other states in the expectation that it would produce a corresponding comity in other states towards the banks in which she is so much interested. In this respect it is a question chiefly of revenue and of fiscal policy. How can this Court, with no other aid than the general principles asserted in her constitution, and her investments in the stocks of her own banks, undertake to carry out the policy of the state upon such a subject in all of its details and decide how far it extends and what qualifications and limitations are imposed upon it? These questions must be determined by the state itself, and not by the courts of the United States. Every sovereignty would without doubt choose to designate its own line of policy, and would never consent to leave it as a problem to be worked out by the courts of the United States from a few general principles which might very naturally be misunderstood or misapplied by the court. It would hardly be respectful to a state for this Court to forestall its decision and to say, in advance of her legislation, what her interest or policy demands. Such a course would savor more of legislation than of judicial interpretation.
If we proceed from the Constitution and bank charters to other acts of legislation by the state, we find nothing that should lead us to a contrary conclusion. By an act of assembly of the state passed January 12, 1827, it was declared unlawful for any person, body corporate, company, or association to issue any note for circulation as a bank note without the authority of law, and a fine was imposed upon anyone offending against this statute. Now this act protected the privileges of her own banks in relation to bank notes only, and contains no prohibition against the purchase of bills of exchange or against any other business by foreign banks which chanroblesvirtualawlibrary
might interfere with her own banking corporations. And if we were to form our opinion of the policy of Alabama from the provisions of this law, we should be bound to say that the legislature deemed it to be the interest and policy of the state not to protect its own banks from competition in the purchase of exchange or in anything but the issuing of notes for circulation. But this law was repealed by a subsequent law, passed in 1833, repealing all acts of assembly not comprised in a digest then prepared and adopted by the legislature. The law of 1827 above mentioned was not contained in this digest, and was consequently repealed. It has been said at the bar in the argument that it was omitted from the digest by mistake, and was not intended to be repealed. But this Court cannot act judicially upon such an assumption. We must take their laws and policy to be such as we find them in their statutes. And the only inference that we can draw from these two laws is that after having prohibited under a penalty any competition with their banks by the issue of notes for circulation, they changed their policy and determined to leave the whole business of banking open to the rivalry of others. The other laws of the state therefore, in addition to the constitution and charters, certainly would not authorize this Court to say that the purchase of bills by the corporations of another state was a violation of its policy.
The decisions of its judicial tribunals lead to the same result. It is true that in the case of State v. Stebbins, 1 Stewart 312, the court said that since the adoption of their constitution, banking in that state was to be regarded as a franchise. And this case has been much relied on by the defendant in error.
Now we are satisfied from a careful examination of the case that the word "franchise" was not used and could not have been used by the court in the broad sense imputed to it in the argument. For if banking includes the purchase of bills of exchange and all banking is to be regarded as the exercise of a franchise, the decision of the court would amount to this -- that no individual citizen of Alabama could purchase such a bill. For franchises are special privileges conferred by government upon individuals and which do not belong to the citizens of the country generally, of common right. It is essential to the character of a franchise that it should be a grant from the sovereign authority, and in this country no franchise can be held which is not derived from a law of the state.
But it cannot be supposed that the Constitution of Alabama intended to prohibit its merchants and traders from purchasing or selling bills of exchange and to make it a monopoly in the hands of their banks. And it is evident that the court of Alabama, in the case of State v. Stebbins, did not mean to assert such a principle. In the passage relied on they are speaking of a paper circulating currency, and asserting the right of the state to regulate and to limit it.
The institutions of Alabama, like those of the other states, are founded upon the great principles of the common law, and it is chanroblesvirtualawlibrary
very clear that at common law the right of banking in all of its ramifications belonged to individual citizens, and might be exercised by them at their pleasure. And the correctness of this principle is not questioned in the case of State v. Stebbins. Undoubtedly the sovereign authority may regulate and restrain this right, but the Constitution of Alabama purports to be nothing more than a restriction upon the power of the legislature in relation to banking corporations, and does not appear to have been intended as a restriction upon the rights of individuals. That part of the subject appears to have been left, as is usually done, for the action of the legislature, to be modified according to circumstances, and the prosecution against Stebbins was not founded on the provisions contained in the constitution, but was under the law of 1827 above mentioned, prohibiting the issuing of bank notes. We are fully satisfied that the state never intended by its constitution to interfere with the right of purchasing or selling bills of exchange, and that the opinion of the court does not refer to transactions of that description when it speaks of banking as a franchise.
The question then recurs does the policy of Alabama deny to the corporations of other states the ordinary comity between nations, or does it permit such a corporation to make those contracts which from their nature and subject matter, are consistent with its policy, and are allowed to individuals? In making such contracts, a corporation no doubt exercises its corporate franchise. But it must do this whenever it acts as a corporation, for its existence is a franchise. Now it has been held in the court of Alabama itself, in 2 Stewart 147, that the corporation of another state may sue in its courts, and the decision is put directly on the ground of national comity. The state therefore has not merely acquiesced by silence, but her judicial tribunals have declared the adoption of the law of international comity in the case of a suit. We have already shown that the comity of suit brings with it the comity of contract, and where the one is expressly adopted by its courts, the other must also be presumed according to the usages of nations unless the contrary can be shown.
The cases cited from 7 Wend. 276 and from 2 Rand. 465 cannot influence the decision in the case before us. The decisions of these two state courts were founded upon the legislation of their respective states, which was sufficiently explicit to enable their judicial tribunals to pronounce judgment on their line of policy. But because two states have adopted a particular policy in relation to the banking corporations of other states, we cannot infer that the same rule prevails in all of the other states.
Each state must decide for itself. And it will be remembered that it is not the State of Alabama which appears here to complain of an infraction of its policy. Neither the state nor any of its constituted authorities has interfered in this controversy. The objection is taken by persons who were parties to those contracts and chanroblesvirtualawlibrary
who participated in the transactions which are now alleged to have been in violation of the laws of the state.
It is but justice to all the parties concerned to suppose that these contracts were made in good faith and that no suspicion was entertained by either of them that these engagements could not be enforced. Money was paid on them by one party and received by the other. And when we see men dealing with one another openly in this manner, and making contracts to a large amount, we can hardly doubt as to what was the generally received opinion in Alabama at that time in relation to the right of the plaintiffs to make such contracts. Everything now urged as proof of her policy was equally public and well known when these bills were negotiated. And when a court is called on to declare contracts thus made to be void upon the ground that they conflict with the policy of the state, the line of that policy should be very clear and distinct to justify the court in sustaining the defense. Nothing can be more vague and indefinite than that now insisted on as the policy of Alabama. It rests altogether on speculative reasoning as to her supposed interests, and is not supported by any positive legislation. There is no law of the state which attempts to define the rights of foreign corporations.
We, however, do not mean to say that there are not many subjects upon which the policy of the several states is abundantly evident from the nature of their institutions and the general scope of their legislation, and which do not need the aid of a positive and special law to guide the decisions of the courts. When the policy of a state is thus manifest, the courts of the United States would be bound to notice it as a part of its code of laws and to declare all contracts in the state repugnant to it to be illegal and void. Nor do we mean to say whether there may not be some rights under the Constitution of the United States which a corporation might claim under peculiar circumstances in a state other than that in which it was chartered. The reasoning as well as the judgment of the Court is applied to the matter before us, and we think the contracts in question were valid, and that the defense relied on by the defendants cannot be sustained.
The judgment of the circuit court in these cases must therefore be
Reversed with costs.
MR. JUSTICE BALDWIN delivered an opinion assenting to the judgment of the court on principles which were stated at large in the opinion. This opinion was not delivered to the reporter.
MR. JUSTICE McKINLEY delivered an opinion dissenting from the judgment of the Court.
I dissent from so much of the opinion of the majority of the Court as decides that the law of nations furnishes a rule by which validity can be given to the contracts in these cases and from so much as chanroblesvirtualawlibrary
decides that the contracts which were the subjects of the suits were not against the policy of the laws of Alabama.
This is the first time since the adoption of the Constitution of the United States that any federal court has, directly or indirectly, imputed national power to any of the states of the Union, and it is the first time that validity has been given to such contracts, which, it is acknowledged, would otherwise have been void by the application of a principle of the necessary law of nations. This principle has been adopted and administered by the Court as part of the municipal law of the State of Alabama, although no such principle has been adopted or admitted by that state. And whether the law of nations still prevails among the states notwithstanding the Constitution of the United States, or the right and authority to administer it in these cases are derived from that instrument, are questions not distinctly decided by the majority of the Court. But whether attempted to be derived from one source or the other, I deny the existence of it anywhere for any such purpose.
Because the municipal laws of nations cannot operate beyond their respective territorial limits, and because one nation has no right to legislate for another, certain rules founded in the law of nature and the immutable principles of justice have, for the promotion of harmony and commercial intercourse, been adopted by the consent of civilized nations. But no necessity exists for such a law among the several states. In their character of states they are governed by written constitutions and municipal laws. It has been admitted by the counsel and decided by the majority of the Court that without the authority of the statutes of the states chartering these banks, they would have no power whatever to purchase a bill of exchange, even in the state where they are established. If it requires the exertion of the legislative power of Pennsylvania, for instance, to enable the United States Bank to purchase a bill of exchange in that state, why should it not require the same legislative authority to enable it to do the same act in Alabama? It has been contended in argument that the power granted to the bank to purchase a bill of exchange at Philadelphia, in Pennsylvania, payable at Mobile, in Alabama, would be nugatory unless the power existed also to make contracts at both ends of the line of exchange. The authority to deal in exchange may very well be exercised by having command of one end of the line of exchange only. To buy and sell the same bill at the bank is dealing in exchange, and may be exercised with profit to the bank, but not perhaps as conveniently as if it could make contracts in Alabama as well as at the bank.
But if it has obtained authority to command but one end of the line of exchange, it certainly has no right to complain that it cannot control the other when that other is within the jurisdiction of another state whose authority or consent it has not even asked for. The bill of exchange which is the subject of controversy between the Bank of Augusta and Earle and that which is the subject of controversy between the United States Bank and Primrose chanroblesvirtualawlibrary
were both drawn at Mobile and made payable at New York. Neither of the banks had authority from any state to make a contract at either end of the line of exchange here established. Here, then, they claim and have exercised all the rights and privileges of natural persons, independent of their charters, and claim the right, by the comity of nations, to make original contracts everywhere because they have a right, by their charters, to make like contracts in the states where they were created, and have "a local habitation and a name."
It is difficult to conceive of the exercise of national comity by a state having no national power. Whatever national power the old thirteen states possessed previous to the adoption of the Constitution of the United States they conferred by that instrument upon the federal government. And to remove all doubt upon the question whether the power thus conferred was exclusive or concurrent, the states are by the tenth section of the First Article of the Constitution expressly prohibited from entering into any treaty, alliance, or confederation, and without the consent of Congress from entering into any agreement or compact with another state or with a foreign power. By these provisions, the states have, by their own voluntary act and for wise purposes, deprived themselves of all national power and of all the means of international communication, and cannot even enter into an agreement or compact with a sister state for any purpose whatever without the consent of Congress. The comity of nations is defined by Judge Story in his Conflict of Laws to be the obligations of the laws of one nation in the territories of another, derived altogether from the voluntary consent of the latter. And in the absence of any positive rule affirming or denying or restraining the operation of foreign laws, courts of justice presume the tacit adoption of them by their own government unless they are repugnant to its policy or prejudicial to its interests. Conflict of Laws 37.
Now I ask again what is the necessity for such a rule of law as this? Have not the states full power to adopt or reject what laws of their sister states they please? And why should the courts interfere in this case when the states have full power to legislate for themselves and to adopt or reject such laws of their sister states as they think proper? If Alabama had adopted these laws, no difficulty could have arisen in deciding between these parties. This Court would not then have been under the necessity of resorting to a doubtful presumption for a rule to guide its decision. But when the Court has determined that they have the power to presume that Alabama has adopted the laws of the states chartering these banks, other difficult questions arise. How much of the charter of each bank has been adopted? This is a question of legislative discretion which, if submitted to the legislature of the state, would be decided upon reasons of policy and public convenience. And the question of power to pass such a law under the Constitution of Alabama would have to be considered and decided. These are chanroblesvirtualawlibrary
very inconvenient questions for a judicial tribunal to determine. As the majority of the Court has not expressly stated whether Alabama has adopted the whole charters of the banks or what parts they have adopted, there is now no certainty what the law of Alabama is on the subject of these charters.
But these are not all the difficulties that arise in the exercise of this power by the judiciary. Many questions very naturally present themselves in the investigation of this subject, and the first is to what government does this power belong? Secondly, has it been conferred upon the United States, or has it been reserved to the states by the Tenth Amendment of the Constitution? If it be determined that the power belongs to the United States, in what provision of the Constitution is it to be found? And how is it to be exercised? By the judiciary, or by Congress? The counsel for the banks contended that the power of Congress to regulate commerce among the several states deprives Alabama of the power to pass any law restraining the sale and purchase of a bill of exchange, and by consequence the whole power belongs to Congress. The Court, by the opinion of the majority, does not recognize this doctrine in terms. But if the power which the Court exercised is not derived from that provision of the Constitution, in my opinion it does not exist.
If ever Congress shall exercise this power to the broad extent contended for, the power of the states over commerce and contracts relating to commerce will be reduced to very narrow limits. The creation of banks, the making and endorsing of bills of exchange and promissory notes, and the damages on bills of exchange all relate more or less to the commerce among the several states. Whether the exercise of these powers amounts to regulating the commerce among the several states is not a question for my determination on this occasion. The majority of the Court has decided that the comity of nations gives validity to these contracts.
And what are the reasons upon which this doctrine is now established? Why, the counsel for the banks say we are obliged to concede that these banks had no authority to make these contracts in the State of Alabama in virtue of the laws of the states creating them or by the laws of Alabama. Therefore, unless this Court will extend to them the benefit of the comity of nations, they must lose all the money now in controversy, they will be deprived hereafter of the benefit of a very profitable branch of their business as bankers, and great public inconvenience will result to the commerce of the country. And besides all this, there are many corporations in the north which were created for the purpose of carrying on various branches of manufactures, and particularly that of cotton. Those engaged in the manufacture of cotton will be unable to send their agents to the south to sell their manufactured articles and to purchase cotton to carry on their business, and may lose debts already created. This is the whole amount of the argument upon which the benefit of this doctrine is claimed. Because banks cannot make money in places and by means not authorized by their charters, chanroblesvirtualawlibrary
because they may lose by contracts made in unauthorized places, because the commerce of the country may be subjected to temporary inconvenience, and because corporations in the north, created for manufacturing purposes only, cannot, by the authority of their charters, engage in commerce also, this doctrine, which has not heretofore found a place in our civil code, is to be established. Notwithstanding it is conceded that the states hold ample legislative power over the same subject, it is deemed necessary on this occasion, to settle this doctrine by the supreme tribunal. The majority of the Court having in its opinion conceded that Alabama might make laws to prohibit foreign banks to make contracts, thereby admitted by implication that she could make laws to permit such contracts, I think it would have been proper to have left the power there, to be exercised or not as Alabama in her sovereign discretion, might judge best for her interest or her comity. The majority of the Court thought and decided otherwise. And here arises the radical and essential difference between them and me.
They maintain a power in the federal government, and in the judicial department of it, to do that which in my judgment belongs exclusively to the state governments, and to be exercised by the legislative and not the judicial departments thereof. A difference so radical and important growing out of the fundamental law of the land has imposed on me the unpleasant necessity of maintaining, single-handed, my opinion against the opinion of all the other members of the Court. However unequal the conflict, duty impels me to maintain it firmly, and although I stand alone here, I have the good fortune to be sustained to the whole extent of my opinion by the very able opinion of the Court of Appeals of Virginia in the case of Marietta Bank v. Pendell, 2 Ran. 465. If Congress has the power to pass laws on this subject, it is an exclusive power, and the states would then have no power to prohibit contracts of any kind within their jurisdictions. If the government of the United States has power to restrain the states under the power to regulate commerce, whether it be exerted by the legislative or the judicial department of the government is not material; it being the paramount law, it paralyzes all state power on the same subject. And this brings me to the consideration of the second ground on which I dissent.
It was contended by the counsel for the banks that all the restraints imposed by the Constitution of Alabama in relation to banking were designed to operate upon the legislature of the state, and not upon the citizens of that or any other state. To comprehend the whole scope and intention of that instrument, it will be necessary to ascertain from the language used what was within the contemplation and design of the convention. The provision in the Constitution on the subject of banking is this:
"One state bank may be established, with such number of branches as the general assembly may from time to time deem expedient, provided that no branch bank shall be established nor bank charter renewed under
the authority of this state without the concurrence of two-thirds of both houses of the general assembly, and provided also that not more than one bank nor branch bank shall be established nor bank charter renewed at anyone session of the general assembly, nor shall any bank or branch bank be established or bank charter renewed but in conformity with the following rules: "
"1. At least two-fifths of the capital stock shall be reserved for the state."
"2. A proportion of power in the direction of the bank shall be reserved to the state equal at least to its proportion of stock therein."
"3. The state and the individual stockholders shall be liable, respectively, for the debts of the bank in proportion to their stock holden therein."
"4. The remedy for collecting debts shall be reciprocal for and against the bank."
"5. No bank shall commence operations until half of the capital stock subscribed for shall be actually paid in gold or silver, which amount shall in no case be less than one hundred thousand dollars."
There are a few other unimportant rules laid down, but they are not material to the present inquiry. The inquiry naturally suggests itself to the mind why did Alabama introduce into her constitution these very unusual and specific rules? If they had not been deemed of great importance, they would not have been found there. Can anyone say, therefore, that this regularly organized system, to which all banks within the State of Alabama were to conform, did not establish for the state, her legislature, or other authorities a clear and unequivocal policy on the subject of banking? It has been conceded in the argument and by the opinion of the majority of the Court that these constitutional provisions do restrict and limit the power of the legislature of the state. Then the legislature cannot establish a bank in Alabama, but in conformity with the rules here laid down. They have established seven banks, five of them belonging exclusively to the state, and two-fifths of the stock of the other two, with a proportionate power in the direction, reserved to the state. Each of these banks is authorized to deal in exchange.
It is proper to stop here and inquire whether the subject of exchange is proper to enter into the policy of the legislation of a state, and whether it is a part of the customary and legitimate business of banking. All the authorities on the subject show that in modern times it is a part of the business of banking. See Postlethwaite's Commercial Dictionary, title Bank; Tomlin's Law Dictionary, title Bank; Rees' Cyclopaedia, title Bank; Vatt. 105. This last author quoted, after showing that it is the duty of the sovereign of a nation to furnish for his subjects a sufficiency of money for the purposes of commerce, to preserve it from adulteration, and to punish those who counterfeit it, proceeds to say,
"There is another custom more modern and of no less use to commerce than the establishment of money -- namely, exchange, or the business of the bankers, by means of whom a merchant remits immense sums from
one end of the world to the other with very little expense, and if he pleases, without danger. For the same reasons that sovereigns are obliged to protect commerce, they are obliged to protect this custom by good laws in which every merchant foreigner or citizen may find security."
From these authorities it appears that exchange is a part of modern banking, or at least to intimately connected with it that all modern banks have authority to deal in it. And it also appears that it is as much the duty of a state to provide for exchange as for money or a circulating medium for its subjects or citizens.
When the State of Alabama reserved to herself, by her fundamental law, at least two-fifths of the capital and control of all banks to be created in the state, and by her laws has actually appropriated to herself the whole of the capital, management, and profits of five out of seven banks and two-fifths of the other two, had she not the same right to appropriate the banking right to deal in exchange to herself to the same extent? While performing her duty under the Constitution by providing a circulating medium for the citizens, she was not unmindful of her duty in relation to exchange, and that is also provided for. Has she not provided increased security and safety to the merchant by making herself liable for the payment of every bill of exchange sold by the five banks belonging to her and for two-fifths of all sold by the other two? And has she not also provided by law that all the profits derived from thus dealing in bills of exchange shall go into the public treasury for the common benefit of the people of the state? And has she not, by the profits arising from her banking, including the profits on exchange, been enabled to pay the whole expenses of the government, and thereby to abolish all direct or other taxation? See Aikin's Digest 651.
It was not the intention of the legislature, by conferring the power upon these banks to purchase and sell bills of exchange, to deprive the citizens of the state or any other natural person of the right to do the same thing. But it was the intention to exclude all accumulated bank capital which did not belong to the state, in whole or in part, according to the Constitution, from dealing in exchange, and such is the inevitable and legal effect of those laws. Let us test this principle. It is admitted by the majority of the Court in its opinion that these constitutional provisions were intended as a restraint upon the legislature of the state. If so intended, the legislature can pass no law contrary to the spirit and intention of the Constitution or contrary to the spirit and intention of the charters of the banks created in pursuance of its provisions. Now were the laws chartering the banks which are parties to this suit contrary to the spirit and intention of the Constitution and laws of Alabama? That is the precise question.
It must be borne in mind that these were banks, and nothing but banks, that made the contracts in Alabama, and in that character and that only have they been considered in the opinion of the majority of the Court. Were those banks chartered by the Legislature of Alabama, two-thirds of both houses concurring? Was at least two-fifths of the capital stock and of the management of these chanroblesvirtualawlibrary
banks reserved to the state? Did the profits arising from the purchase of these bills of exchange go into the Treasury of Alabama? All these questions must be answered in the negative. Then these are not constitutional banks in Alabama, and cannot contract there? The majority of the Court has decided these causes upon the presumption that Alabama had adopted the laws of Georgia, Louisiana, and Pennsylvania chartering these banks. And this presumption rests for its support upon the fact that there is nothing in the laws or the policy of the laws of Alabama to resist this presumption. I suppose it will not be contended that the power of this Court to presume that Alabama had adopted these laws is greater than the power of Alabama to adopt the laws for herself. Suppose these banks had made a direct application to the Legislature of Alabama to pass a law to authorize them to deal in bills of exchange in that state, could the legislature have passed such a law without violating the constitution of the state?
An incorporated bank in Alabama is not only the mere creature of the law creating it, as banks are in other states, but it is the creature of a peculiar fundamental law, and if its charter is not in conformity to the provisions of the fundamental law, it is void. It must be recollected that the banks, which are the plaintiffs in these suits, when they present themselves to the legislature, asking permission to use their corporate privileges there, are not demanding a right, but asking a favor, which the legislature may grant or refuse as it pleases. If it should refuse, it would violate no duty, incur no responsibility. If, however, the Court exercise the power, it is upon the positive obligation of Alabama that the presumption must arise, or the right does not exist. A positive rule of law cannot arise out of an imperfect obligation by presumption or implication. But to put it on the foot of bare repugnance of the law presumed to be adopted to the laws of the country adopting, if there be any repugnance, the Court ought not to presume the adoption. Story's Conflict of Laws 37. The charter of every bank not created in conformity with the Constitution of Alabama must at least be repugnant to it. The presumption is that the charters of all these banks were repugnant, there being no reason or inducement to make them conform in the states where they were created. The power of the Court to adopt the laws creating these banks as they actually existed, and the power of the Legislature of Alabama to adopt them in a modified form or to grant the banks a mere permission to do a specified act, present very different questions, and involve very different powers. If, therefore, the legislature could not adopt the charters in the least objectionable form nor authorize the banks to deal in exchange without violating the Constitution of Alabama, how can it be said that the contracts in controversy are not against the policy of the laws of Alabama? And by what authority does the majority of this Court presume that Alabama has adopted those laws? The general rule is that slight evidence and circumstances shall defeat a mere legal presumption of law. This case will be a signal exception to that rule. chanroblesvirtualawlibrary
In the case of Pennington v. Townsend, 7 Wend. 278, the Protection and Lombard Bank, chartered by New Jersey, by agents undertook to do banking business in New York, and there discounted the check which was the subject of the suit in violation of the restraining acts of 1813 and 1818, the first of which enacts that no person unauthorized by law shall become a member of any association for the purpose of issuing notes or transacting any other business which incorporated banks may or do transact. The act of 1818 enacts that it shall not be lawful for any person, association, or body corporate to keep any office of deposit for discounting, or for carrying on any kind of banking business, and affixes a penalty of $1,000, to be recovered, &c. Under these laws, the contract between the parties was held to be void, and the court says
"The protection against the evil intended to be remedied, to-wit, preventing banking without the authority of the legislature of the state, is universal in its application within the state, and without exception unless qualified by the same power which enacted it or by some other paramount law. Such is not the law incorporating this bank."
Is there anything in these laws which more positively prohibits banking in New York without the authority of the legislature of that state than there is in the Constitution of Alabama, prohibiting all banking except in the manner prescribed by the constitution? Can it be believed that she intended to protect herself against the encroachments of her own legislature only, and to leave herself exposed to the encroachments of all her sister states? Does the language employed in these provisions of the constitution justify any such construction? It is general, comprehensive, and not only restrictive but expressly prohibitory. Whatever is forbidden by the Constitution of Alabama can be done by no one within her jurisdiction, and it was sufficient for her to know that no bank could do any valid banking act there without violating her Constitution. It was contended by the counsel for the banks that no law could be regarded as declaring the policy of the state unless it was penal and inflicted some punishment for its violation. This doctrine is as novel as it is unfounded in principle. I know of no such exclusive rule by which to reach the mind and intention of the legislature. If the language used shows clearly that particular acts were intended to be prohibited, and the act is afterwards done, it is against the policy of the law and void. Suppose the Legislature of Alabama were to establish a bank, disregarding all the conditions and restrictions imposed by the Constitution; would it not violate that instrument, and therefore the act be void? And can Georgia, Louisiana, or Pennsylvania, by their respective legislatures, do in Alabama what her own legislature cannot do? The relations which these states hold towards each other in their individual capacity of states under the Constitution of the United States is that of perfect independence. In the case of Buckner v. Finley, 2 Pet. 590, Chief Justice Marshall said
"For all national purposes embraced by the federal Constitution, the states and the citizens thereof are one
united under the same sovereign authority and governed by the same laws. In all other respects, the states are necessarily foreign to and independent of each other."
It is in this foreign and independent relation that these four states stand before this Court in these cases. The condition of Alabama, taken with a view to this relation, cannot be worse than that of an independent nation in like circumstances. What that would be we will see from authority.
"Nations being free and independent of each other in the same manner as men are naturally free and independent, the second general law of their society is that each nation ought to be left in the peaceable enjoyment of that liberty it has derived from nature. The natural society of nations cannot subsist if the rights which each has received from nature are not respected. None would willingly renounce its liberty; it would rather break off all commerce with those that should attempt to violate it. From this liberty and independence it follows that every nation is to judge of what its conscience demands, of what it can or cannot do, of what is proper or improper to be done, and consequently to examine and determine whether it can perform any office for another without being wanting in what it owes to itself. In all cases, then, where a nation has the liberty of judging what its duty requires, another cannot oblige it to act in such or such a manner. For the attempting this would be doing an injury to the liberty of nations. A right to offer constraint to a free person can only be invested in us in such cases where that person is bound to perform some particular thing for us or from a particular reason that does not depend on his judgment -- or, in a word, where we have a complete authority over him."
Vatt. 53- 54.
Now apply these just and reasonable principles to Alabama in her relation of a foreign and independent state, reposing upon the rights reserved to her by the Tenth Amendment of the Constitution of the United States, and then show the power that can compel her to pass penal laws to guard and protect those perfect, ascertained, constitutional rights from the illegal invasion of a bank created by any other state. If this power exists at all, it can be shown, and the authority by which it acts. But not even a reasonable pretense for any such power or authority has been shown. The conclusion must therefore be that Alabama, as an independent foreign state, owing no duty, nor being under any obligation to either of the states by whose corporations she was invaded, was the sole and exclusive judge of what was proper or improper to be done, and consequently had a right to examine and determine whether she could grant a favor to either of those states without injury to herself, unless indeed there be a controlling power in this Court derived from some provision of the Constitution of the United States. As none such has been set up or relied upon in the opinion of the majority of the Court, for the present I have a right to conclude that none such exists. And without considering any of the minor points discussed in the argument or noticed in the opinion, I dismiss the subject.