Story Case

The United States Government created a corporation for the purpose of building and maintaining the Panama Canal. This was a corporation created by Act of Congress. When The National Portland Cement Company received an order from the Panama corporation for a shipment of cement it sought advice from its counsel regarding the feasibility of taking the order. The attorneys investigated the question of validity of the corporation. In discussion it was urged that Congress had no power to create this corporation since it could exercise only the express powers given to it by the Constitution and the Constitution makes no statement giving authority to Congress to create corporations to dig canals. How should counsel advise their client, The National Cement Company?

Ruling Court Case. Mcculloch Vs. Maryland, Volume 4 Wheaton's Reports, Page 316. (United States Supreme Court.)

The Second Bank of the United States was given a charter by act of Congress in 1816. One of its branches was located in Baltimore, Maryland, and Mr. McCulloch was its cashier. The State of Maryland passed a "stamp tax law," taxing all bank notes. The branch of the bank of the United States refused to pay the tax and the state proceeded against the Cashier to enforce the collection. He brought this suit in the United States Courts, to prevent the state of Maryland from collecting the tax from him. The state denied that the bank was entitled to any protection from the United States, because its charter of incorporation was wholly void for the want of power in Congress to pass a law of incorporation.

Mr. Chief Justice Marshall delivered the opinion of the Court: " The theory of our national union is that the source of power is the separate states, and that the national government has only those powers which the states have conferred upon it by the Constitution. Any branch of the national government can rightfully and lawfully act only in so far as the constitution gives it power, and Congress is given no power, in direct words, to create corporations. But the power need not be conferred by words that minutely describe every phase of it. The very nature of a constitution which must apply over a long period of time and to an infinite number of particular cases, requires that it be general in its terms. It is required only that the great outlines be marked, that its main objects be designated, and the minor ingredients may then be deduced from the nature of the whole. Since the national government is expressly given the power to collect taxes and to borrow money, and will necessarily have large financial plans to carry out it is included in those powers that it may take the incidental steps necessary to perform them. One of the usual and necessary methods of handling large sums of money and credits is through a bank. Therefore, Congress has power to establish a bank for the purpose. The ordinary and natural method of establishing a bank is to incorporate it. Thus Congress has power to charter a bank. The power to incorporate is traditionally the incident of the power to govern; Congress is not sovereign in all respects, but in those things which are by the constitution delegated to it, it is sovereign and may exercise its sovereignty by means of corporations. Its power to create corporations is not general, but is limited to the main powers. Wherever one of those is the primary object, and the creation of a corporation is an appropriate means or a necessary incident, then the corporation may lawfully be created/'

Because of the supremacy of the laws of the United States over the laws of any state, a statute law cannot be enforced where it is in conflict with a United States law. It was held in this case, that the Maryland taxing statute gave the state a dominion over the bank which needed only to be increased in degree to destroy it. Such a control was held to be inconsistent with and in conflict with the purposes of the charter, and, therefore, against the laws of the United States, since the charter had been found to be a constitutional law. The state of Maryland was not allowed to collect the tax. Judgment was given for the plaintiff.

Ruling Law. Story Case Answer

There is no article in the constitution which gives Congress express power to create a corporation. For this reason in the early days of government, it was earnestly contended by many that Congress could, under no circumstances, create any corporation, but this contention was forever closed by Chief Justice Marshall, in the celebrated case of McCulloch vs. Maryland. He admitted that Congress was given no express power to create or charter a corporation; but there were many express powers which could not adequately be carried out by the Federal Government unless certain necessary powers were implied. In this manner, he laid down the great principle that Congress has the implied power to create a corporation in case a corporation is reasonably necessary in assisting Congress to carry out its express powers.

It can in other words, create a corporation as a means, although not as an end. Thus, in controlling interstate commerce the creation of corporations may become necessary and would not be questioned today. In maintaining the efficiency of the army and the navy Congress may create corporations. A notable example of its exercise of this power is the creation of a corporation for the construction of the Panama Canal. As the powers of the National Government become more centralized under our present economical and social tendencies, it is most probable that the number, variety, and importance of national corporations will correspondingly increase.

The report of counsel on the Story Case was favorable, assuring the National Cement company that the Panama Corporation was a valid organization.