PAUL v. VIRGINIA
U.S. Supreme Court
SAMUEL B. PAUL, Plff. in Err. (*)
COMMONWEALTH OF VIRGINIA
75 U.S. (8 Wall.) 168, 19 L. Ed. 357 (1869)
(See S. C. 8 Wall. 168-185.)
Corporation, not a citizen special privileges not secured by Constitution law requiring insurance companies of other States to file security, is constitutional.
A corporation is not a citizen within the meaning of that provision of the Constitution, which declares that the citizens of each State shall be entitled to all the privileges and immunities of citizens of the several States.
Special privileges enjoyed by citizens in their own States are not secured in other States by this provision such as grants of corporate existence and powers.
States may exclude a foreign corporation entirely or they may exact such security for the performance of its contracts with their citizens as, in their judgment, will best promote the public interest.
A law of a State requiring insurance companies of other States to file security before they can issue policies in the State, is constitutional.
Such law does not conflict with the provision of the Constitution, that Congress shall have power to regulate commerce among the several States.
Argued Oct. 12, 1869. Decided Nov. 1, 1869.
IN ERROR to the Supreme Court of Appeals for the State of Virginia.
This case arose in the Circuit Court for the City of Petersburg, in the State of Virginia, upon a presentment made by a grand jury against the plaintiff in error, for issuing an insurance policy without a license required by the statutes of the State. Judgment having been given against the defendant, he filed a petition in the Supreme Court of Appeals of Virginia for a writ of supersedeas.
A full statement of the case appears in the opinion of the court.
Messrs. J. M. Carlisle, J. D. McPherson, and B. R. Curtis, for plaintiff in error:
Such legislation was expressly forbidden by the Articles of Confederation, by which (Art. 4, § 1), it is provided, that "The better to secure and perpetuate mutual friendship and intercourse among the people of the States in this Union, the free inhabitants, etc., shall be entitled to all the privileges and immunities of free citizens of the several States, … and the people of each State shall have free ingress and egress to and from any other State, and shall enjoy therein all the privileges of trade and commerce subject to the same duties, impositions and restrictions as the inhabitants thereof respectively." 1 Stat. at L. 4.
2. It cannot be supposed that the Constitution was intended to be less efficient in these respects than the Articles of Confederation had been. One of the great objects was to secure a more perfect Union. The defect in Article 4 of the Confederation was, not that it imposed too great restrictions upon the powers of the States, but that it was wholly without the protection and support of a supreme Federal power. The want of a power to regulate commerce, not only with foreign nations, but among the several States, is stated by Story to have been "One of the leading defects of the Confederation, and probably as much as any one cause conduced to the establishment of the Constitution."
Accordingly, we find the whole subject covered by the two clauses above referred to.
Art. 4 guarantees to the citizens of each State all the privileges and immunities of citizens in the several States, omitting to specify such privileges as applying to trade and commerce, such specification being unnecessary, because the whole subject of commerce among the several States was expressly and exclusively granted to Congress by Art. 1, § 8.
Indeed the words "privileges and immunities" in article 4 of the Constitution, have been held to include the right of exemption from any higher impositions than other citizens are liable to.
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Corfield v. Coryell, 4 Wash. (C.C.) 371, 2; Kent, Com. 72.
3. That these provisions of the Virginia Statute are essentially and distinctly a regulation of commerce between Virginia and other States, can only be denied upon the idea that the business of insurance is not comprehended by the term "commerce."
But the term "commerce," as used in the Constitution, has been authoritatively construed to have a signification wide enough to induce all these subjects. In Gibbons v. Ogden, 9 Wheat. 189, Chief Justice Marshall said: "Commerce undoubtedly is traffic, but it is something more; it is intercourse. It describes the commercial intercourse between nations and parts of nations in all its branches."
Indeed, the right to sell merchandise and the right to insure it would seem, in the nature of things, to be inseparable.
In Almy v. Cal. 24 How. 169, 174, 16 L. ed. 644, 646, Chief Justice Taney, speaking of a tax on a bill of lading, uses this language:
"A tax or duty on a bill of lading, though differing in form from a tax on the article shipped, is in substance, the same thing." See that opinion passim.
In Bk. of Augusta v. Earle, 13 Pet. 590, agencies for corporations engaged in the business of insurance are referred to as "usages of trade and commerce."
And if a New York merchant has a right to establish an agency to sell his goods in Virginia, it would seem difficult to deny to that agent the right to effect an insurance there with a New York company, through its agent, upon equally favorable terms as with a Virginia company.
The power to levy a tax or impose a burden or restriction, however inconsiderable, necessarily involves the power absolutely to prohibit the thing so taxed or restricted. "The power to tax involves the power to destroy."
McCulloch v. Maryland, 4 Wheat. 316, quoted by Mr. Justice Miller, in Crandall v. Nevada, 6 Wall. 46, 18 L. ed. 785.
The power here claimed by the State of Virginia, therefore, is the power to exclude all companies, not incorporated by the State of Virginia, from trade and commerce within the State. The language of the statute is not "corporations," but "companies."
5. But if the statute can be construed to apply only to an incorporated company, it comes to the same thing; for a corporation created by the laws of one of the States, and composed of citizens of that State is a citizen of that State within the meaning of the Constitution. R. R. Co. v. Letson, 2 How. 497.
And such is the rule of international law.
6. In no view of this statute can it be regarded as a police regulation. It concerns only the exercise of a business not only lawful and permitted, but encouraged. It does not at all concern the manner of that business, but only the persons who shall exercise it in respect of their being citizens of the State of Virginia.
7. The statute in question is a regulation of commerce between Virginia and the other States in the Union, upon a subject which must in its nature be exclusively Federal.
Messrs. C. Robinson and Thos. R. Bowden, for defendant in error:
This is a personal tax imposed upon the person who acts as the agent of a foreign insurance company within the State, and is not a tax imposed upon such foreign insurance company.
No question was made by the pleadings, as appears in the record, which give this court jurisdiction, in this case, and without which it has been frequently decided this court has no jurisdiction.
Miller v. Nicholls, 4 Wheat. 311; Crowell v. Randall, 10 Pet. 368; Bank v. Sharp, 6 How. 301; and Baldwin v. Payne, 6 How. 332; and R. R. Bkg. Co. v. Marshall, 12 How. 165.
If this is to be regarded as a civil case, it could not have been stayed or reversed after verdict for any defect, in perfection or omission in the pleadings, which could not be regarded on demurrer, or for any other defect, imperfection or omission which might have been taken advantage of on a demurrer or answer, but was not so taken advantage of.
See Code, Va. 1860, ch. 181, § 3, p. 743. If it be considered a criminal case, the Act of the Legislature of Virginia is equally clear that "Judgment in any criminal case after a verdict, shall not be arrested nor reversed upon any exception to the indictment of other accusation, if the offense be charged therein with sufficient certainty for judgment to be given thereon, according to the very right of the case. Code, Va. 1860, ch. 207, § 12, 832.
Samuel B. Paul could not act as the agent of these companies in Virginia until they had complied with the laws of the State of Virginia. They had no existence in that State. This court has frequently decided that a corporation is a mere legal entity, and can have no legal existence outside of the dominion of the State by which it is created.
Bk. of Augusta v. Earle, 13 Pet. 519; Cov. Drawbridge v. Shepherd, 20 How. 227, 15 L. ed. 896; R. R. Co. v. Wheeler, 1 Black. 286, 17 L. ed. 130.
Judge Samuels delivered the unanimous opinion of the Court of Appeals of Virginia, in the case of Slaughter v. Commonwealth, 13 Gratt. 767. We think the cases referred to by him fully sustain the decision of the Court of Appeals in affirming the judgments of the courts below, and rely upon it in this case as a full and complete answer to the argument of the appellant in this case.
Mr. Justice Field delivered the opinion of the court:
An Act of the Legislature of Virginia, passed on the 3d of February, 1866, provides that no insurance company not incorporated under the laws of that State, shall carry on its business within the State without previously obtaining a license for that purpose; and that it shall not receive such license until it has deposited with the Treasurer of the State, bonds of a specified character to an amount varying from $30,000 to $50,000, according to the extent of the capital employed.
A subsequent Act, passed during the same month, declares that no person shall, without a license authorized by law, act as agent for any foreign insurance company, under a penalty of not less than $50, nor exceeding $500, for each offense; and that every person offer-
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ing to issue or making any contract or policy of insurance for any company created or incorporated elsewhere than in the State, shall be regarded as an agent of a foreign company.
In May, 1866, the defendant, a resident of the State of Virginia, was appointed agent of several insurance companies incorporated in the State of New York, to carry on the general business of insurance against fire; and in pursuance of the law of Virginia, he filed with the auditor of public accounts of the State his authority from the companies to act as their agent. He then applied to the proper officer of the district for a license as such agent within the State, offering at the time to comply with all the requirements of the statute respecting foreign insurance companies, including a tender of the license tax, excepting the provisions requiring a deposit of bonds with the Treasurer of the State, and the production to the officer of the Treasurer's receipt. With these provisions neither he nor the companies represented by him complied, and on that ground alone, the license was refused. Notwithstanding this refusal, the defendant undertook to act in the State as agent for the New York companies without any license, and offered to issue policies of insurance in their behalf, and in one instance did issue a policy in their name to a citizen of Virginia. For this violation of the statute he was indicted and convicted in the Circuit Court of the City of Petersburg, and was sentenced to pay a fine of $50. On error to the Supreme Court of Appeals of the State, this judgment was affirmed, and the case is brought to this court under the 25th section of the Judiciary Act.
The corporators of the several insurance companies were at the time, and still are, citizens of New York, or of some one of the States of the Union other than Virginia. And the business of insurance was then, and still is, a lawful business in Virginia, and might then and still may be carried on by all resident citizens of the State, and by insurance companies incorporated by the State, without a deposit of bonds, or a deposit of any kind, with any officer of the Commonwealth.
On the trial in the court below, the validity of the discriminating provisions of the Statute of Virginia between her own corporations and corporations of other States was assailed. It was contended that the statute in this particular was in conflict with that clause of the Constitution which declares that "The citizens of each State shall be entitled to all the privileges and immunities of citizens in the several States," and the clause which declares that Congress shall have power "to regulate commerce with foreign nations and among the several States." The same grounds are urged in this court for the reversal of the judgment.
The answer which readily occurs to the objection founded upon the first clause consists in the fact that corporations are not citizens within its meaning. The term "citizens" as there used applied only to natural persons, members of the body politic, owing allegiance to the State, not to artificial persons created by the Legislature, and possessing only the attributes which the Legislature has prescribed. It is true that is has been held that where contracts or rights of property are to be enforced by or against corporations, the courts of [75 U.S. 178] the United States will, for the purpose of maintaining jurisdiction, consider the corporation as representing citizens of the State under the laws of which it is created, and to this extent will treat a corporation as a citizen within the clause of the Constitution extending the judicial power of the United States to controversies between citizens of different States. In the early cases when this question of the right of corporations to litigate in the courts of the United States was considered, it was held that the right depended upon the citizenship of the members of the corporation, and its proper averment in the pleadings. Thus, in the case of Hope Ins. Co. v. Boardman, 5 Cranch. 57, where the company was described in the declaration as "a company legally incorporated by the Legislature of the State of Rhode Island and Providence Plantations, and Established at Providence," the judgement was reversed because there was no averment that the members of the corporation were citizens of Rhode Island, the court holding that an aggregate corporation as such was not a citizen within the meaning of the Constitution.
In the later cases this ruling was modified, and it was held that the members of a corporation would be presumed to be citizens of the State in which the corporation was created, and where alone it had any legal existence, without any special averment of such citizenship, the averment of the place of creation and business of the corporation being sufficient; and that such presumption could not be controverted for the purpose of defeating the jurisdiction of the court. Louisville R. R. Co. v. Letson, 2 How. 497; Marshall v. Balt. and O. R. R. Co. 16 How. 314; Covington Drawbridge Co. v. Shepherd, 20 How. 233, 15 L. Ed. 898; Ohio and Miss. R. R. Co. v. Wheeler, 1 Black, 297, 17 L. ed. 133.
But in no case which has come under our observation, either in the state or Federal Courts, has a corporation been considered a citizen within the meaning of that provision of the Constitution which declares that the citizens of each State shall be entitled to all the privileges and immunities of citizens of the several States. In Bank of August v. Earle, 13 Pet. 586, [75 U.S. 179] the question arose whether a bank, incorporated by the laws of Georgia, with a power, among other things, to purchase bills of exchange, could lawfully exercise that power in the State of Alabama; and it was contended, as in the case at bar, that a corporation, composed of citizens of other States, was entitled to the benefit of that provision, and that the court should look beyond the Act of Incorporation and see who were its members, for the purpose of affording them its protection, if found to be citizens of others States, reference being made to an early decision upon the right of corporations to litigate in the Federal Courts in support of the position. But the court, after expressing approval of the decision referred to (Bank of U. S. v. Deveaux, 5 Cranch, 61), observed that the decision was confined in express terms to a question of jurisdiction: that the principle had never been carried further, and that it had never been supposed to extend to contracts made by a corporation, especially in another sovereignty from
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that of its creation; that if the principle were held to embrace contracts, and the members of a corporation were to be regarded as individuals carrying on a business in the corporate name and, therefore, entitled to the privileges of citizens, they must at the same time take upon themselves the liabilities of citizens, and be bound by their contracts in like manner; that the result would be to make the corporation a mere partnership in business with the individual liability of each stockholder for all the debts of the corporation; that the clause of the Constitution could never have intended to give citizens of each State the privileges of citizens in the several States, and at the same time to exempt them from the liabilities attendant upon the exercise of such privileges in those States; that this would be to give the citizens of other States higher and greater privileges than are enjoyed by citizens of the State itself, and would deprive each State of all control over the extent of corporate franchises proper to be granted therein. "It is impossible," continued the court, "upon any sound principle, to give such a construction to the article in question. [75 U.S. 180] Whenever a corporation makes a contract it is the contract of the legal entity, the artificial being created by the charter, and not the contract of the individual members. The only rights it can claim are the rights which are given to it in that character, and not the rights which belong to its members as citizens of a State."
It was undoubtedly the object of the clause in question to place the citizens of each State upon the same footing with citizens of other States, so far as the advantages resulting from citizenship in those States are concerned. It relieves them from the disabilities of alienage in other States; it inhibits discriminating legislation against them by other States; it gives them the right of free ingress into other States, and egress from them; it insures to them in other States the same freedom possessed by the citizens of those States in the acquisition and enjoyment of property and in the pursuit of happiness; and it secures to them in other States the equal protection of their laws. It has been justly said that no provision in the Constitution has tended so strongly to constitute the citizens of the United States one people as this. Lemmon v. People, 20 N. Y. 607.
Indeed, without some provision of this kind removing from the citizens of each State the disabilities of alienage in the other States, and giving them equality of privilege with citizens of those States, the Republic would have constituted little more than a league of States; it would not have constituted the Union which now exists.
But the privileges and immunities secured to citizens of each State in the several States, by the provision in question, are those privileges and immunities which are common to the citizens in the latter States under their Constitution and laws by virtue of their being citizens. Special privileges enjoyed by citizens in their own States are not secured in other States by this provision. It was not intended by the provision to give to the laws of one State any operation in other States. They can have not such operation, except by the permission, express or implied, of those States. The [75 U.S. 181] special privileges which they confer must, therefore, be enjoyed at home, unless the assent of other States to their enjoyment therein be given.
Now, a grant of corporate existence is a grant of special privileges to the corporators, enabling them to act for certain designated purposes as a single individual, and exempting them (unless otherwise specially provided) from individual liability. The corporation being the mere creation of local law, can have no legal existence beyond the limits of the sovereignty where created. As said by this court in Bank of Augusta v. Earle, "It must dwell in the place of its creation, and cannot migrate to another sovereignty." The recognition of its existence even by other States, and the enforcement of its contracts made therein, depend purely on the comity of those States a comity which is never extended where the existence of the corporation or the exercise of its powers are prejudicial to their interests or repugnant to their policy. Having no absolute right of recognition in other States, but depending for such recognition and the enforcement of its contracts upon their assent, it follows, as a matter of course, that such assent may be granted upon such terms and conditions as those States may think proper to impose. They may exclude the foreign corporation entirely; they may restrict its business to particular localities, or they may exact such security for the performance of its contracts with their citizens as in their judgment will best promote the public interest. The whole matter rests in their discretion.
If, on the other hand, the provision of the Constitution could be construed to secure to citizens of each State in other States the peculiar privileges conferred by their laws, an extraterritorial operation would be given to local legislation utterly destructive of the independence and the harmony of the States. At the present day corporations are multiplied to an almost indefinite extent. There is scarcely a business pursued requiring the expenditure of large capital, or the union of large numbers, that is not carried on by corporations. It is not too much to say that the wealth and [75 U.S. 182] business of the country are to a great extent controlled by them. And if, when composed of citizens of one State, their corporate powers and franchises could be exercised in other States without restriction, it is easy to see that, with the advantages thus possessed, the most important business of those States would soon pass into their hands. The principal business of every State would, in fact, be controlled by corporations created by other States.
If the right asserted of the foreign corporation, when composed of citizens of one State, to transact business in other States were even restricted to such business as corporations of those States were authorized to transact, it would still follow that those States would be unable to limit the number of corporations doing business therein. They could not charter a company for any purpose, however restricted, without at once opening the door to a flood of corporations from other States to engage in the pursuits. They could not repel an intruding corporation, except on the condition of refusing
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incorporation for a similar purpose of their own citizens; and yet it might be of the highest public interest that the number of corporations in the State should be limited; that they should be required to give publicity to their transactions; to submit their affairs to proper examination; to be subject to forfeiture of their corporate rights in case of mismanagement, and that their officers should be held to a strict accountability for the manner in which the business of the corporations is managed, and be liable to summary removal.
"It is impossible" to repeat the language of this court in Bk. of Augusta v. Earle, 13 Pet. 586, "upon any sound principle, to give such a construction to the article in question" a construction which would lead to results like these.
We proceed on the second objection urged to the validity of the Virginia Statute, which is founded upon the commercial clause of the Constitution. It is undoubtedly true, as stated by counsel, that the power conferred upon Congress to regulate commerce includes as well commerce carried on by corporations as commerce carried on by individuals. At [75 U.S. 183] the time of the formation of the Constitution a large part of the commerce of the world was carried on by corporations. The East India Company, the Hudson's Bay Company, the Hamburgh Company, the Levant Company and the Virginia Company may be named among the many corporations then in existence which acquire, from the extent of their operations, celebrity throughout the commercial world. This state of facts forbids the supposition that it was intended in the grant of power to Congress to exclude from its control the commerce of corporations. The language of the grant makes no reference to the instrumentalities by which commerce may be carried on; it is general, and include alike commerce by individuals, partnership, associations and corporations.
There is, therefore, nothing in the fact that the insurance companies of New York are corporations to impair the force of the argument of counsel. The defect of the argument lies in the character of their business. Issuing a policy of insurance is not a transaction of commerce. The policies are simple 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 signature and the transfer of the consideration. Such contracts are not inter-state transactions, though the parties may be domiciled in different States. The policies do not take effect are not executed contracts until delivered by the agent in Virginia. They are, then, local transactions, and are governed by 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.
[75 U.S. 184] In Nathan v. La., 8 How. 73, this court held that a law of that State imposing a tax on money and exchange brokers, who dealt entirely in the purchase and sale of foreign bills of exchange was not in conflict with the constitutional power of Congress to regulate commerce. The individual thus using his money and credit, said the court, "is not engaged in commerce, but in supplying an instrument of commerce. He is less connected with it than the ship-builder, without whose labor foreign commerce could not be carried on." And the opinion shows that, although instruments of commerce, they are the subject of state regulation and, inferentially, that they may be subject of direct state taxation.
"In determining," said the court, "on the nature and effect of a contract, we look to the lex loci where it was made, or where it was to be performed. And bill of exchange, foreign or domestic, constitute, it would seem, no exception to this rule. "Some of the States have adopted the law merchant; others have not. The time within which a demand must be made on a bill, a protest entered, and notice given, and the damages to be recovered, vary with the usages and legal enactments of the different States. These laws, in various forms and in numerous cases have been sanctioned by this court." And again: "For the purposes of revenue, the Federal Government has taxed bills of exchange, foreign and domestic, and promissory notes, whether issued by individuals or banks. Now, the Federal Government can no more regulate the commerce of a State than a State can regulate the commerce of the Federal Government; and domestic bills or promissory notes are as necessary to the commerce of a State as foreign bills to the commerce of the Union. And if a tax on an exchange broker who deals in foreign bills be a regulation of foreign commerce, or commerce among the States, much more would a tax upon state paper, by Congress, be a tax on the commerce of a State."
If foreign bills of exchange may thus be the subject of [75 U.S. 185] state regulation, much more so may contracts of insurance against loss by fire.
We perceive nothing in the Statute of Virginia which conflicts with the Constitution of the United States; and the judgment of the Supreme Court of appeals of that State must, therefore, be affirmed.
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(*) Citizenship of corporations and their stockholders see notes, 3 L. ed. U. S. 36; 27 L. ed. U. S. 87
"Persons" in statute include corporations; when deemed citizens see note, 6 L. ed. U. S. 503.
Are corporations persons? see note, 19 L.R.A. 223.
Restrictions on business of foreign insurance companies see note, 24 L.R.A. 298.
Exclusion, regulation and taxation of foreign corporations see note, 24 C.C.A. 13.