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The case questioned the validity of laws governing foreign corporations as concerns the legality of business transactions. The dispute was between the Bank of Augusta as the petitioner against Joseph Earle on a bill of exchange that the bank had purchased in Mobile but was in dispute because the law prohibited such a transaction.
This is because; the bank could not own the bills of exchange, although it had remitted cash for the bill through its agent, applying discounts from Georgia. The bank was a chartered registered organization in the city of Georgia, where as the defendant was a bonafide member of Alabama.
Because the payee refused to remit cash for the bill, the bank protested the transaction; hence, taking back the bill to where it was purchased from (Mobile). However, because the defendant failed to remit cash for the bill, the bank wanted to own the bill, a petition that the circuit court refuted; hence, ruling in favour of the defendant. Although this was the case, the Supreme Court overturned the ruling, hence giving the bank authority of owning the bill of exchange (Fairman, 2003, p.1).
The circuit court justified its decision by stating that, such a transaction was invalid and unconstitutional, hence due to its illegality the defendant was not liable for any expenses incurred by the bank. The Supreme Court defended its decision of reversing the case by stating that, the bank had the rights of suing the defendant because of the charter laws that defined operations of such an organisation.
Constitutional Questions from the Case
Because the case involved the interstate purchase of bills of exchange, the main question here was; does the constitution legalise such interstate business transactions; hence, making this transactions of the bank a valid contract?
Depending on provisions specified in charters defining operations of corporations, an organisation should conduct its business activities within specified areas of jurisdiction hence, if in case such an organisation goes overboard and conducts its transactions in areas not stated in its charter, then such transactions are void.
This therefore raises another constitutional question as to whether it is legal for the courts to apply contractual laws and terms in a country or state; foreign to where the laws were created, in case it is a corporation from that country or state, which is in dispute.
Therefore, depending on the state of such foreign contractual laws; whether repugnant or agreeing to contractual laws of the foreign country, is it constitutional for such laws to be applicable in this like scenario?
Summary of the Court’s Decision
Owing to conditions that surrounded the case, the bank presented the case to the Supreme Court via a writ of error. After reviewing the facts presented previously by the defendant that is; the bank was a chartered organisation, which has organisational powers to transact businesses for instance, buying of bills of exchange. Hence, following this facts and after critically analysing interstate contractual terms, the court reversed the judgement.
Following provisions in the constitutions as concerns privileges that all United States citizens should enjoy, the constitution gives all United States citizens the right to enjoy protection and benefits of incorporation.
In this regard, the court had to consider the incorporation of the Bank of Augusta; hence, because the bank incorporated all Georgia’s citizens, they had the rights of conducting business transactions with Alabama’s civilians freely, a right not even constitutional provisions could deny them (Justia; U.S. Supreme Court, 2010, p.1).
Further, in criticizing the circuit court, the court observed that, the lower court’s judgement was unfair because its premises were limited to only the residence area of the business, rather than its right to indict. On the other hand, although the lower courts took into consideration the rapport of the concerned bank, still the bank had the right of indicting its title in any court so long as it was within the U.S.
Although it supported the lower courts argument for making such a decision, still the court stated that, there were hitches in its decision because the principles used by the court had not received any extension, in terms of application in interstate contracts; something that could lead to biasness in terms of privilege and benefits to all nationals of U.S.
In addition, following provisions in the constitution as concerns contractual properties, and previous cases of the nature, which the courts had argued, the court stated that, the charter agreements signed by corporations bounded practises that such organisations were to embrace, depending on their jurisdiction areas.
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Considering such provisions, the Augusta’s charter granted the bank the rights to conduct foreign transactions; primarily on bills of exchange; hence, what it did was legal because the charter never restricted the bank, something that the Alabama law had constrained.
In addition, although corporations were bound by laws of a certain state; hence, their activities were invalid in foreign environments, it was not wrong for such corporations to use their agents in such foreign countries so long as they never breached the contractual laws of that country.
Applying the laws, corporations had freedoms of conducting business in foreign markets, although the laws that bound them never worked in such foreign countries. The only main thing that such corporation’s agents were to avoid is breaking rules governing business transactions, something that valid contracts guaranteed.
Therefore, this gave such corporations suing and claiming rights, so long they never breached that state’s policies. The laws of comity supported this fact; corporations could make valid contracts in foreign business environments, something that guaranteed such organisations suing rights, remembering that, such a country’s policies took precedence.
On the other hand, following provisions of the constitution as concerns restrictions on establishment of new banks and renewal of charters, states such as Alabama created policies to ensure its corporations gained maximum profits; hence, securing public revenue. Although this was the case, the court noted that, these states gave its banks rights of notes transfer, a factor that encouraged competition.
In this regard, application of constitutional provisions limited operational rights of banks, something that the court might have further misinterpreted, hence the needing the state itself to resolve issues of foreign contractual terms, rather than the courts (Find Law, 2010, p.1).
The fact that the law; act of assembly, prohibited unlawful circulation of bank notes concreted the point in that, banks could buy bills of exchange in foreign markets, because there existed no exclusions in the act on the purchase of bills of exchange. The same applied to the state of Alabama because, considering provisions in these act, the state had never illegalised the purchase of foreign bonds.
Alabama, like any other state was to adhere to the common law that governed the U.S. citizenry and their activities. Although this was the case, the court established that the Alabama law was restricting some rights, primarily comity among nations and states. Hence, to ensure interstate comity existed, corporations were to work within their franchise; hence, ensuring that, such corporations had suing rights.
Finally, noting the fact that, this was not an interstate case, but rather it was a dispute between two parties in contract, and considering that, the parties signed an agreement willingly the contract was valid. Hence, in this case, the state law on prohibition of foreign contracts could not work. However, the court stated that, it is important to use state’s laws in cases where there were clear expressions of their violation.
Decisions from the case made foreign contracts valid, something that previously the law of nations had prohibited. In addition, to making sure agreements existed between nations; to avoid inter-territorial restrictions, many countries adopted such policies, hence boosting their business prospects.
Although Alabama has adopted such policies, the state of Georgia is yet to adopt such measures. In addition, although such freedoms guarantee business freedom, it is important to note that, organisations must adhere to provisions in their charters because, not only do they determine individuals’ business jurisdiction, but they also ensure validity of contracts and other business transactions.
National comity can have no meaning, if the federal government does not give individual states power to manage their affairs. To ensure validity of contracts and other agreements within or outside the U.S., the federal government in its constitution gave the congress power of passing any contracts before individuals or states venture into them.
In addition, there are clear provisions as concerns the comity of nations in the conflict laws. That is, depending on the willingness of parties in dispute, the country where the transaction took place has the power of accepting or rejecting laws applicable in other nations or territories.
In addition, considering congressional provisions as concerns the control of businesses, Alabama had no power of giving directions as concerns purchase and sale of bills of exchange. However, it is important to note that, because nowadays majority of courts use majority opinions, sometimes it may be hard for them to take into consideration this congressional power.
This is because, the comity of nations have the authority of determining the legality of majority of agreements. Hence, unless the courts give banks contractual powers, there are likelihoods of loses resulting from transactions in prohibited zones.
It is also important to note that, in many ways the reducing of state’s commerce powers by entrusting all the powers on the federal government through its judicial system or legislative organs in many ways can help to protect commerce by ensuring all citizens whether local or international have commerce security. Control of commerce by the state of Alabama constricted bank’s operations hence, it was constitutionally right for the government to deprive the state some powers as away of ensuring equality in commerce.
In conclusion, this case has been of importance in the shaping of state corporation’s contractual laws, primarily because it formed the foundation of legislation and amendments currently incorporated in the constitutional, which have helped to remove free trade limiting factors.
Fairman, C. (2003). Bank of Augusta v. Earle. Dictionary of American History. Web.
Find Law. U.S. Supreme court: Bank of Augusta v. Earle, 38 U.S. 519 (1839). Find Law. Web.
Justia; U.S. Supreme Court. Bank of Augusta v. Earle, 38 U.S. 519 (1839). Justia. Web.