Bank of Augusta v. Earle

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38 U.S. 519 (1839), argued 30 Jan.-1 Feb. 1839, decided 9 Mar. 1839 by vote of 8 to 1; Taney for the Court, Baldwin concurring, McKinley in dissent. This case marked the first time the Supreme Court ruled on the powers of a state over a corporation chartered in another state. Three banks chartered outside of Alabama bought bills of exchange in that state and sued the makers of the bills when the makers refused to pay the bills on the grounds that foreign banks were not authorized to do business in Alabama.

The banks argued that a foreign corporation had a constitutional right to do business in any state and that an adverse ruling would invalidate millions of dollars of financial transactions, causing the current depression to worsen. The makers of the bills contended that a state could exclude a foreign corporation from doing business within its boundaries and that Alabama had done so.

The Supreme Court adopted a middle ground, holding that a state could exclude a foreign corporation from doing business or could impose reasonable conditions on that business, but that the exclusion or conditions must be clearly stated. Since Alabama had not expressly prohibited foreign banks from dealing in bills of exchange, the Court ruled for the banks and thereby avoided the financial disorder that had been predicated for a contrary holding. The principles of the case continue to be good law, although the Supreme Court has ruled that a state may not, through its regulation of foreign corporations, impose an undue burden on interstate commerce.

Robert M. Ireland

Subjects: Law.

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