Story Case

The Illinois Trust Company was a corporation, organized under the laws of the state of Illinois, to engage in the business of banking in the city of Chicago. After several years, it decided to establish a branch bank at Gary, Indiana. There was a law in the state of Indiana, which imposed a heavy license upon any corporation, engaged in banking in that state, unless organized under the laws of the state of Indiana. It was contended, by the Illinois Trust Company, that this law was in violation of the Federal Constitution, which guaranteed to the citizens of each state the privileges and immunities of the citizens of the several states. What should be the decision of the Court under such circumstances?

Ruling Court Case No. 1. State Of Virginia Vs. Paul, Volume 8 Wallace Reports, United States Supreme Court, Page 168

The Legislature of the state of Virginia passed an act, which provided that no insurance company, not incorporated under the laws of the state, should carry on its business within the state, without previously obtaining a license for that purpose. The act further provided that the license should not be granted until the corporation, or its agent, had deposited with the treasurer of the state, bonds of a specified character, to an amount varying from thirty to fifty thousand dollars, according to the amount of capital employed in the business. A subsequent act, passed during the same month, declared that no person should, without a license authorized by law, act as agent for any foreign insurance company, under a penalty of not less than $50, nor exceeding $500, for each offense. Samuel Paul, a resident of Virginia, was appointed the agent of several insurance companies, incorporated in the state of New York, to carry on the general business of insurance against fire; and, in pursuance of the law of Virginia, he filed with the auditor of public accounts of the state, his authority from the various companies to act as their agent. He then applied to the proper officer for a license to act as agent for these insurance companies. He complied, or offered to comply, with all statutory regulations, except to deposit with the state treasurer the bonds required by law. Because of his failure to do this, his request for a license was denied. Notwithstanding this denial, he undertook to act in the state as agent for the New York companies, without any license; he offered to issue policies of insurance in their behalf, and, in one instance, did issue a policy in their name to a citizen of Virginia. For this violation of the statute, he was indicted and convicted and fined $50. He contended that the conviction was illegal, because the law, requiring him to make a deposit of these bonds, was unconstitutional. He claimed that the law was in violation of that part of the Constitution of the United States which provides: "The citizens of each state shall be entitled to all the privileges and immunities of citizens in the several states."

Decision

A corporation is not a citizen within the meaning of that part of the constitution which provides that, "the citizens of each state shall be entitled to all the privileges and immunities of citizens in the several states." Therefore, the corporation or corporations can transact business in another state than the state of its creation, only by complying with the rules and regulations of that state.

Mr. Justice Field, who delivered the opinion of the Court, said in part: "Now, a grant of corporate existence is a grant of special privileges to the corporators, enabling them to act for certain designated purposes as a single individual, and exempting them (unless otherwise specially provided) from individual liability. The corporation, being the mere creation of local law, can have no legal existence beyond the limits of the sovereignty where created. * * * The recognition of its existence, even by other states, and the enforcement of its contracts made therein, depend entirely upon the comity of those states, a comity which is never extended where the existence of the corporation, or the exercise of its powers is prejudicial to their interests, or repugnant to their policy. Having no absolute right of recognition in other states, but depending for such recognition and the enforcement of its contracts upon their assent, it follows, as a matter of course, that such assent may be granted upon such terms and conditions as those states may think proper to impose. They may exclude the foreign corporation entirely; they may restrict its business to particular localities, or they may exact such security for the performance of its contracts with their citizens as in their judgment will best promote the public interest. The whole matter rests in their discretion."

It was, therefore, decided that the conviction was not illegal.

Note: See same case briefed under "Corporation as a Citizen."

Ruling Court Case No. 2. Kane Vs. Barrow Steamship Company, Volume 170 United States Reports, Page 100

The Barrow Steamship Company is a corporation, organized under the laws of Great Britain, ana is a common carrier engaged in running a steamship line from English ports to ports in America. Kane, while a passenger for hire, upon one of the boats belonging to the steamship company, was assaulted by an agent, or servant, of the company. The assault was made while the boat was at port in Londonderry, Ireland. Kane brought an action for damages in the circuit court of the United States.

It was contended, in behalf of the steamship company, that, being a foreign corporation, no suit could be maintained against it in this country without its consent, express or implied.

Mr. Justice Gray delivered the opinion of the Court: By the Federal Constitution, the judicial power of the courts of the United States extends to all controversies "between citizens" of a state and "foreign citizens and subjects." The words "citizens and subjects" have always been held by the court to include corporations. Consequently, the courts of the United States do have power to hear suits against a foreign corporation at the instance of a citizen of this country.

Ruling Law. Story Case Answer

A corporation is not a citizen within the meaning of the Constitution of the United States, which provides that the "citizens of each state shall be entitled to the privileges and immunities of the citizens in the several states." Consequently, each state has the absolute right to prevent foreign corporations from entering, if it chooses. Having the power to prevent them from coming in, it has, of course, the power to allow them to enter on such terms and conditions as it chooses. It may require of them the fulfillment of conditions which are required of a corporation organized under its own law. Accordingly, in the Story Case, the state of Indiana had the right to keep the Illinois corporation from establishing a branch bank within the state, or to permit it to enter, provided it pay a heavy license. Consequently, the Illinois Trust Company cannot complain. The right of the state to exclude foreign corporations does not, however, extend to the exclusion of corporations engaged in interstate commerce, or corporations organized under the national government.