Story Case

The Schultz and Henry Coupon Company conducted a large business in New York and Chicago through a trading stamp method. It maintained stores in these two cities to redeem trading stamps given by merchants who purchased the stamps from the Schultz and Henry Company. The S. & H. Company, as it was known, did not ship any merchandise between states, but all the coupons were forwarded from the home office in New York. The state of Illinois passed an act, levying a tax upon coupons issued to merchants. The S. & H. Company objected to this tax, on the ground that the shipment of coupons from New York to the merchants amounted to interstate commerce, and such regulation by the state was void. Is this correct?

Ruling Court Case. Paul Vs. State Of Virginia, Volume 8 Wallace Reports, Page 168

An act of the legislature of Virginia provided that no insurance company, not incorporated under the laws of that state, should conduct its business within that state without previously obtaining a license for that purpose. The act further provided that it should not receive such license until it had deposited with the treasurer of the state, bonds of a specific character to an amount varying from thirty to fifty thousand dollars, according to the extent of the capital employed. It was further provided that a person who engaged in such business without complying with the law should be liable to a penalty of not less than $50, nor more than $500.

Samuel Paul, a resident of the state of Virginia, was appointed agent to represent in Virginia several New York insurance companies. He complied with the law in all respects save that provision requiring a deposit of bonds with the treasurer of the state. Notwithstanding this fact, however, he proceeded to solicit business on behalf of the New York company. For this he was indicted, convicted, and sentenced to pay the sum of $50.

He now contends that his conviction is illegal. He claims that insurance is interstate commerce and that the state of Virginia cannot pass laws regulating it, because the power to regulate interstate commerce is given to Congress.

Mr. Justice Field said: "Issuing a policy of insurance is not a transaction of commerce. The policies are merely contracts of indemnity against loss by fire entered into between the corporations and the assured, for a consideration paid by the latter. These contracts are not articles of commerce in any proper meaning of the word. They are not subjects of trade and barter offered in the market as something having an existence and value independent of the parties to them. They are not commodities to be shipped or forwarded from one state to another, and then put up for sale. They are like other personal contracts between parties which are completed by their signatures and the transfer of the consideration. Such contracts are not interstate transactions, though the parties may be domiciled in different states. The policies do not take effect - are not executed contracts - until delivered in Virginia. They are then local transactions, and are governed by the local law. They do not constitute a part of the commerce between the states any more than a contract for the purchase and sale of goods in Virginia by a citizen of New York whilst in Virginia, would constitute a portion of such commerce." Conviction affirmed.

Ruling Law. Story Case Answer

In the famous lottery case, Volume 188 United States Reports, Page 321, the late Chief Justice Fuller said: "Is the carriage of lottery tickets from one state to another commercial intercourse? If a lottery ticket is not an article of commerce, how can it become so when placed in an envelope or box or other covering and transported by an express company? To say that the mere carrying of an article which is not an article of commerce in, and of itself, nevertheless becomes such the moment it is to be transported from one state into another, is to transform a non-commercial article into a commercial one simply because it is trans-ported."

The courts seem to make a distinction between an article which has intrinsic value in itself, and a thing which merely represents value. The latter is an article of commerce. Therefore, a contract is not an article of commerce; in and of itself, the slip of paper on which it is written is of no value; hence its transportation is not commerce.

The Ruling Court Case shows that contracts of insurance are not commodities of barter, exchange, or sale, and hence are not commodities to be shipped in the sense of commerce. It would seem that the same is true of trading stamps or coupons which merely represent value. This being true, the tax imposed in the Story Case would be enforcible.