Bank of Augusta v. Earle

Supreme Court of the United States · 1839 · Civil Procedure

38 U.S. 519 (1839)

Updated July 8, 2026

Civil ProcedureCorporationsinterstate comityforeign corporationscontractsbanking corporationsstate sovereigntycorporate powers

Facts

The Bank of Augusta was a corporation created by Georgia law and had the usual banking powers, including the power to purchase bills of exchange. Its agent in Mobile, Alabama, held the bank's funds for the purpose of purchasing bills, and with those funds discounted and purchased the bill sued on in Mobile for the bank's benefit. The funds used by the agent had been derived from bills and notes discounted in Georgia and payable in Mobile. The defendant argued that the bank could not lawfully make that contract in Alabama, so the bill was void.

Issue

May a corporation created by one state validly make a contract in another state through an agent, when the contract is within the corporation's charter powers, or is such a contract void unless the forum state has expressly authorized it? More specifically, did Alabama's constitution or laws show a policy forbidding the Bank of Augusta's purchase of this bill of exchange in Alabama?

Rule

A corporation created by statute possesses only the powers conferred by its charter, expressly or incidentally, and may exercise those powers outside its creating state only so far as the law of the place where the act occurs permits. By the comity prevailing among nations and among the states of the Union, a corporation created by one sovereignty may make contracts and sue in another sovereignty unless the forum state's laws or policy, expressly or impliedly, forbid the exercise of that power as contrary to its interests or policy.

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

Piedmont Trade Bank was incorporated in North Carolina. Its charter expressly authorizes it to buy and sell bills of exchange, and it sends an agent to Nashville, Tennessee, to purchase a bill there using the bank's funds. Tennessee has no statute on point and no clearly established policy against such transactions by out-of-state corporations.

If the Tennessee maker refuses payment on the ground that the bank is a foreign corporation, what is the strongest argument for the bank's enforcement of the bill?

Explanation. A corporation created by one state may make contracts in another when the contract is within its charter powers and the forum state's law or policy does not expressly or impliedly forbid it. The majority rejected the idea that express legislative permission is always required and instead presumed interstate comity absent a contrary state policy.