Bank of Augusta v. Earle
13 Pet. 519 (1839)
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Rule of Law:
A corporation chartered by one state is presumed to have the right to make contracts and transact business in another state under the doctrine of interstate comity, provided that the other state has not, through its constitution, statutes, or declared public policy, expressly or implicitly prohibited such activities.
Facts:
- The Bank of Augusta was a corporation incorporated by an act of the Georgia legislature, with powers including the authority to purchase bills of exchange.
- Joseph B. Earle made and endorsed a bill of exchange in Mobile, Alabama.
- Thomas McGran, acting as an agent for the Bank of Augusta, was present in Mobile, Alabama with funds belonging to the bank.
- Using the bank's funds, McGran purchased the bill of exchange from Earle in Mobile for the benefit of the Bank of Augusta.
- The purpose of this transaction was for the Bank of Augusta to remit funds, which it had collected from prior dealings, from Alabama back to Georgia.
Procedural Posture:
- The Bank of Augusta sued Joseph B. Earle in the United States Circuit Court for the Southern District of Alabama to enforce a contract for a bill of exchange.
- The parties submitted an agreed statement of facts to the Circuit Court for a decision on the question of law.
- The Circuit Court gave judgment for the defendant, Earle, holding that a bank incorporated in Georgia could not lawfully exercise its powers in Alabama, rendering the contract void.
- The Bank of Augusta, as plaintiff-in-error, sought a writ of error from the Supreme Court of the United States to review the Circuit Court's judgment.
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Issue:
Does a corporation created by the laws of one state have the legal capacity to make a valid contract, such as purchasing a bill of exchange, within the jurisdiction of another state where it has not been chartered?
Opinions:
Majority - Mr. Chief Justice Taney
Yes. A corporation chartered in one state can make valid contracts in another state based on the principle of comity, so long as the other state has not enacted laws or established a clear policy to the contrary. A corporation's legal existence is confined to the state that created it, meaning it cannot migrate. However, its existence can be recognized in other states, and it can act through agents to make contracts in those states, just as a natural person can. The validity of these contracts depends on the laws of the state where they are made. In the absence of a positive law forbidding it, courts will presume, through the doctrine of comity, that a state permits foreign corporations to engage in transactions that are not contrary to its public policy. Alabama's constitutional provisions on banking are limitations on its own legislature, not a general prohibition against out-of-state banks purchasing bills of exchange, which is an activity individuals are permitted to do. The long history of interstate corporate transactions supports this presumption of comity.
Dissenting - Mr. Justice McKinley
No. A corporation cannot exercise its powers in a state where it is not chartered without the express consent of that state's legislature. The doctrine of comity of nations does not apply between the states of the Union, as they have ceded their national powers to the federal government and cannot enter into compacts with one another. It is the role of a state's legislature, not the federal judiciary, to decide whether to admit foreign corporations. Furthermore, Alabama's constitution establishes a clear and exclusive policy regarding banking, reserving substantial control and profits for the state. Allowing a Georgia bank, which does not conform to Alabama's constitutional requirements for banks, to operate within the state is fundamentally repugnant to this established policy. The Court should not presume Alabama's consent when the transaction is contrary to the spirit of its fundamental law.
Analysis:
This landmark decision was foundational for the development of corporate law and interstate commerce in the United States. It established a critical default rule: a corporation's legal existence is recognized across state lines, and its right to contract is presumed unless a state affirmatively acts to prohibit it. This principle of interstate comity prevented economic balkanization and enabled the growth of national corporations by removing the need for them to seek charters or express permission in every state of operation. The decision placed the burden on states to legislate restrictions, thereby fostering a more unified national market and shaping the legal framework for corporate activity for centuries to come.
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