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
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. chanrobles.com-red
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. chanrobles.com-red
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 chanrobles.com-red
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. chanrobles.com-red