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Subject Area: Law
Topic: The American Revolution and Constitution

§ 213.: Regulation of foreign corporations.— - Christopher G. Tiedeman, A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, vol. 2 [1900]

Edition used:

A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint (St. Louis: The F.H. Thomas Law Book Co., 1900). Vol. 2.

Part of: A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, 2 vols.

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§ 213.

Regulation of foreign corporations.—

It is provided by the United States constitution1 that “the citizens of each State shall be entitled to all the privileges and immunities of citizens of the several States;” and, under this clause of the constitution, the citizen of one State is protected against any discrimination, in another State between himself and the citizens of the latter State. He is entitled to the equal enjoyment of the privileges of the citizen, and any arbitrary discrimination between him and the citizen of the latter State, in the matter of police regulations, would be in violation of this constitutional provision. But corporations are not considered to be citizens within the operation of this guaranty. The legal existence of a corporation is confined to the territory of the State, which brings the corporation into existence. The corporations of one State are not entitled to the privileges or immunities of the citizens of the several States; and, consequently, they cannot claim the right to transact business in any other State but the one in which they were created.2 If they are permitted to exercise their corporate powers in any other State, it is a privilege and not a guaranteed right. A State may, without violating any provision of the constitution of the United States, prohibit altogether the doing of business by foreign corporations within its territory; and if the privilege is granted, it may be coupled with all sorts of conditions, the performance of which constitutes a condition precedent to the enjoyment of the privilege; and these requirements will not be open to constitutional objection, because they are not made applicable to domestic corporations.1 Thus, it has been held to be constitutional for a State law to require a foreign corporation, before it can lawfully do business within the State, to procure a license from the State officials, and to fulfill the conditions precedent to the procurement of the license;2 to open and maintain an office within the State, in the charge of a resident agent, upon whom process against the corporation may be served;3 and to pay a license or franchise tax to the State or municipality, or to both;4 to require fire insurance companies to pay to the fire department of a city a stated percentage of the premiums they receive;1 and to require any foreign corporation to deposit funds with the State authorities, in order to secure the payment of claims which citizens may have or acquire against it.2 It is even permissible for the State legislature to provide for the exaction of a penalty from any agent of a foreign corporation (in this case it was an insurance company), who shall act without authority from the State, although the contract is made out of the State, and provides that he shall be deemed the agent of the other party to the contract.3 In these cases, it is held that the exaction of an arbitrary license of, and the imposition of extraordinary conditions upon, the resident agents of foreign corporations, involve no infringement of the personal rights of the agents, as citizens of the State or of the United States.

But a foreign corporation cannot be taxed for the purchase of raw material, which is shipped from the taxing State to the native State of the corporation for manufacture, for that cannot be considered a “doing of business within the commonwealth.”1 And it has likewise been held that a statute is unconstitutional, which requires foreign corporations to file certificates of their articles of incorporation, as a condition precedent to their transaction of business within the State.2

Most of the State laws, which provide that foreign corporations shall comply with the prescribed conditions precedent before they will be authorized to do business within the State, declare that any contracts, which they may make before they have complied with the requirements of the statute, shall be void and of no effect, so that no suit in the enforcement of them can be maintained in the State courts. The enforcement of this penalty may in the discretion of the legislature be waived by subsequent legislation, validating the otherwise void contracts, without in any constitutional sense interfering with the vested rights of the other parties to the contracts.3

One of the practical effects, which the laws for the regulation of foreign corporations almost universally aim to secure, is the provision for bringing such foreign corporations within the jurisdiction of the State courts, and the recovery of absolute judgments against such corporations. Before such suits quasi in personam may be entertained against a foreign corporation, doing business within the State, personal service must be made upon some one within the State, who may accept such service as the representative of the foreign corporation. The usual provision is that a corporation, in entering into the transaction of business within the State, is properly served with notice when the process is served upon a resident agent of the corporation. The agent who is served must at the time of service be in the employment of the corporation, and must at the time be engaged with its affairs.1 The rights and privileges which a foreign corporation acquires under a license to do business within the State, is not a contract in the constitutional sense, so that the license may not be revoked or amended by subsequent legislation. The license may be amended or revoked altogether,2 as long as the revocation or amendment of the license may not be given a retroactive effect, so as to invalidate any transactions which were entered into, prior to the enactment of the amendatory law;3 or to impose extra burdens upon, or otherwise affect injuriously, the rights of contract of existing creditors of the corporation.4

So, also, a regulation of a foreign corporation, which has the direct effect of discriminating against the citizens of another State, will be void because it violates the constitutional guaranty to the citizens of all the States of equal privileges and immunities in each State. Thus, a State statute, which provides that, in case of insolvency of a foreign corporation, the creditors, resident within the State, shall have, in the distribution of the assets found within the State, priority over the claims of non-resident creditors, was declared to be an unconstitutional discrimination against foreign creditors.1 But it has been held very recently in New York, that the section of the State banking law, which requires foreign corporations, doing business within the State under its provisions, to deposit funds with a State official for the exclusive protection of resident creditors, who shall in case of insolvency of the foreign corporation have a prior lien upon such funds, is a valid regulation, and does not contravene any constitutional provision.2

A foreign corporation cannot be denied the right to sue in the courts of the State, on contracts made within the State for the sale of goods manufactured outside of the State, if the contracts themselves are valid and beyond the jurisdiction of the State, under the constitutional prohibition of the regulation of interstate commerce.3 In the absence of special regulations, whenever a corporation does business in another State, it is so far considered a corporation of that State as to be amenable to its ordinary police regulations.4

[1]U. S. Const., Art. IV., § 2, cl. 1.

[2]See State v. Del. & A. Tel. & Telephone Co., 7 Houst. 269; Daggs v. Orient Ins. Co. of Hartford, Conn., 136 Mo. 382. But it has been held in some cases, while confirming the proposition that a foreign corporation is not a citizen in the constitutional sense, and that it may be excluded from the prosecution of its business within a State, or admitted upon the most arbitrary or discriminating terms, that the statute, imposing these arbitrary and discriminating terms, must be confined in its application to corporations. If it is applied to individuals or natural persons, under the description of firms or unincorporated associations, the statute is in so far void and unconstitutional, because it contravenes the constitutional guaranty of equal privileges and immunities to the citizens of all the States. Barnes v. People, 168 Ill. 425; State v. Stone, 118 Mo. 388; State ex rel. Hoadley v. Board of Insurance Commissioners, 37 Fla. 564.

[1]Liverpool Ins. Co. v. Mass., 1 Wall. 506; Bank of Augusta v. Earle, 13 Pet. 519; Blacke v. McClung, 172 U. S. 239; In re Application of Peter Schoenhofer Brewing Co., 8 Pa. Super. Ct. 141; Purdy v. N. Y. & N. H. R. R. Co., 61 N. Y. 353; Tatem v. Wright et al., 23 N. J. L. 429; Slaughter v. Commonwealth, 13 Gratt. 767; Osborn v. Mobile, 44 Ala. 493; Commonwealth v. Milton, 12 B. Mon. 212; People v. Thurber, 13 Ill. 554; Wood Mowing Machine Co. v. Caldwell, 54 Ind. 270 (23 Am. Rep. 641); Am. Union Tel. Co. v. W. U. Tel. Co., 67 Ala. 26 (42 Am. Rep. 90); Caldwell v. Armour (Del. Super.), 43 Atl. 517. See, contra, Pyrolunite Manganese Co. v. Ward, 73 Ga. 491. It is very common to subject foreign insurance companies to special and strict police regulations. Exempt Firemen’s Fund v. Roome, 93 N. Y. 313 (45 Am. Rep. 217); Thorne v. Travelers’ Ins. Co., 80 Pa. St. 15 (21 Am. Rep. 89); Cincinnati M. H. Assurance Co. v. Rosenthal, 55 Ill. 85 (8 Am. Rep. 626); Pierce v. People, 106 Ill. 11 (46 Am. Rep. 683); Fire Department of Milwaukee v. Helfenstein, 16 Wis. 136. See Doyle v. Ins. Co., 94 U. S. 535; Goodrel v. Kreichbaum, 70 Iowa, 362; State v. Phipps, 50 Kans. 609.

[2]Pembina Con. Silver M. & M. Co. v. Pennsylvania, 125 U. S. 181; Goodrell v. Kreichbaum, 70 Iowa, 362.

[3]St. Louis A. & T. Ry. Co. v. Fire Assn. of Philadelphia, 60 Ark. 325.

[4]Pembina Con. Silver M. & M. Co. v. Pennsylvania, 125 U. S. 181; People v. Wemple, 131 N. Y. 64; State v. Underground Cable Co. (N. J.), 18 A. 581; Honduras Commercial Co. v. State Board of Assessors, 54 N. J. L. 278; McClellan v. Pettigrew, 44 La. Ann. 356; Southern Building & Loan Assn. of Knoxville v. Norman (Ky.), 32 S. W. 952; Moline Plow Co. v. Wilkinson, 105 Mich. 57; Western Union Tel. Co. v. City of Fremont, 39 Neb. 692.

[1]Fire Department of City of New York v. Stanton, 159 N. Y. 225; aff’g 28 App. Div. 334; 51 N. Y. S. 242.

[2]People v. Granite State Provident Assn., 58 N. Y. S. 510; 41 App. Div. 257.

[3]Pierce v. People, 106 Ill. 11 (46 Am. Rep. 683). See, also, Paul v. Virginia, 8 Wall. 168; Hooper v. California, 155 U. S. 648; Hickman v. State, 62 N. J. L. 499; McClellan v. Pettigrew, 44 La. Ann. 356, wherein the license tax was exacted of the resident agent of the foreign corporation. And see State ex rel. Crow v. Fireman’s Fund Ins. Co. (Mo. ’99), 52 S. W. 595, wherein the court sustained the constitutionality of the forfeiture of the licenses to insurance companies, because of their violation of the Missouri anti-trust law, in maintaining a combination through their local agents to fix the rates of insurance. But see, contra to the text, Shaw Piano Co. v. Ford (Tex. Civ. App.), 41 S. W. 198. In this case, a foreign corporation, through an agent, sold a piano stored within the State, without having taken out any permit, as required by the statute. The notes, given in payment of the price, were made payable to the foreign corporation. It was held that it could recover on them, for the reason that they represented the results of an interstate transaction.

[1]Commonwealth v. Standard Oil Co., 101 Pa. St. 119.

[2]Lyon-Thomas Hardware Co. v. Reading Hardware Co. (Tex. Civ. App., 21 S. W. 300; Bateman v. Milling Co., 1 Tex. Civ. App. 90; American Starch Co. v. Bateman (Tex. Civ. App.), 22 S. W. 771; Gunn v. White Sewing Machine Co., 57 Ark. 24.

[3]Butler v. United States Sav. & Loan Co. (Tenn.), 37 S. W. 385; Mutual Benefit L. Ins. Co. v. Winne (Mont.), 49 P. 446.

[1]St. Clair v. Cox, 106 U. S. 350. See Connecticut Mut. Life Ins. Co. v. Spratley, 99 Tenn. 322; s. c. 172 U. S. 602.

[2]Hartford Fire Ins. Co. v. Raymond, 70 Mich. 485; Connecticut Mut. Life Ins. Co. v. Spratley, 99 Tenn. 322; s. c. 172 U. S. 602; Sandall v. Atlanta Mut. Life Ins. Co. (S. C.), 31 S. E. 230; Aetna Standard Iron & Steel Co., 1 Ohio L. D. 180; 1 Ohio C. D. 142.

[3]American Building & Loan Assn. v. Rainbolt, 48 Neb. 434.

[4]New York L. E. & W. Ry. Co. v. Commonwealth, 153 U. S. 628; s. c. 150 Pa. St. 234. In this case, the State statute required the foreign railroad corporations, whose lines extended through Pennsylvania, to collect for the State a certain tax upon that part of its bonded indebtedness, which is held by residents of the State, and to deduct the same from the interest on such bonds. The statute was held to be unconstitutional, so far as it was applied to existing bonds of the corporation, which were issued under the authority of the domicile of the corporation and upon which the interest was alone payable at the home office of the company.

[1]Blake v. McClung, 172 U. S. 239; Maynard v. Granite State Provident Assn., 92 Fed. 435; 34 C. C. A. 438.

[2]People v. Granite State Provident Assn. (N. Y. 1900), 55 N. E. 1053; affg. s. c. 55 N. Y. S. 510; 41 App. Div. 257.

[3]Hargraves Mills v. Harden, 56 N. Y. S. 937; 25 Misc. Rep. 665.

[4]Peik v. Chicago, etc., R. R. Co., 94 U. S. 164; Milnor v. N. Y., etc., R. R. Co., 53 N. Y. 164; McGregor v. Erie Railway, 35 N. J. L. 115.