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Bank of Augusta v. Earle

Supreme Court of the United States · Civil Procedure

Civil ProcedureCorporationsInterstate comityforeign corporationinterstate contractscomitycorporate powerscharter powers

Facts

The plaintiffs were a corporation created by Georgia with the usual banking powers, including the power to purchase bills of exchange. The bill sued on was made and endorsed to be discounted by Thomas M'Gran, the bank's agent in Mobile, Alabama, who held the bank's funds for purchasing bills there and remitting those funds to the bank. M'Gran discounted and purchased the bill in Mobile for the benefit of the bank and with its funds. The dispute turned on whether that Alabama contract was void because the bank was a foreign corporation.

Issue

May a bank incorporated in Georgia, acting through an agent, validly purchase and discount a bill of exchange in Alabama? More broadly, can a corporation created by one state make contracts in another state when the contract is within its chartered powers and the other state has not clearly forbidden it?

Rule

A corporation created by statute possesses only the powers conferred by its charter, express or incidental, and may exercise those powers outside its home state only so far as the creating state authorizes and the other sovereignty sanctions. Although a corporation has no legal existence outside the state of its creation, another state may, by the comity of states, recognize that existence and permit it to make contracts there, unless such contracts are contrary to the host state's policy or prejudicial to its interests. In the absence of a clear contrary policy, courts presume such comity exists.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Pine Harbor Finance, a corporation chartered in South Carolina, is expressly authorized by its charter to purchase and sell bills of exchange. It sends its employee, Lena Ortiz, to Nashville, Tennessee, where she uses company funds to buy a bill payable in Kentucky. Tennessee has no statute or clearly announced policy forbidding foreign corporations from making that kind of contract.

If the maker later refuses to pay and argues the contract is void solely because Pine Harbor Finance is a foreign corporation, how should a court rule?

Explanation. The majority held that although a corporation has no legal existence outside its creating state, another state may recognize that existence by comity for purposes of contracting. The contract is valid if it is within the corporation's chartered powers, made through authorized agents, and not contrary to the host state's clearly known policy. Here, purchasing bills is expressly authorized, the transaction was carried out through an agent, and Tennessee has not clearly prohibited it. (Derived from Bank of Augusta v. Earle (n.d.).)