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The Knight Sugar Decision of 1895 and The Modernization of American Corporation Law, 1869–1903*

Published online by Cambridge University Press:  11 June 2012

Charles W. McCurdy
Charles W. McCurdy
Affiliation:
Assistant Professor of History, University of Virginia
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Abstract

No conviction has been more a part of the standard interpretation of American history in the twentieth century than the belief that the U.S. Supreme Court, in a series of late-nineteenth-century decisions bearing on government-business relations, reflected the conservative reaction that seemed to mark the depression of the 1890s. But Professor McCurdy demonstrates that in its 1895 decision in the case of United States v. E. C. Knight Company, which drew a distinction between manufacturing and trade in defining interstate commerce, the Court was not trying to shield a vast, monopolistic aggregation of wealth (Henry O. Havemeyer's “Sugar Trust”) from the will of the people that it be broken up under the Sherman Antitrust Act of 1890. The decision, in fact, was not the beginning of a conservative reaction, but the last effort in a thirty-year attempt to maintain a role for state jurisdiction over the behavior of chartered enterprises.

Type
Research Article
Information
Business History Review , Volume 53 , Issue 3: Legal and Business History , Autumn 1979 , pp. 304 - 342
Copyright
Copyright © The President and Fellows of Harvard College 1979

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References

1 Ohio, Attorney General, Annual Report for the Year Ending December 31, 1898 (Columbus, 1899), 19.Google Scholar See also Monnett's testimony in Reports of the Industrial Commission (19 vols., Washington, 1900–03), I, 297–330.

2 See, generally, Dana, William F., “Monopoly Under the National Antitrust Act,” Harvard Law Review, 7 (1894), 338–355CrossRefGoogle Scholar; Dewey, Donald, Monopoly in Economics and Law (Chicago, 1959), 109–157.Google Scholar

3 For a general treatment, see Hurst, J. Willard, The Legitimacy of the Business Corporation (Charlottesville, 1970), 13–57.Google Scholar

4 Government proceedings for dissolution of corporations that exercised powers not granted to business corporations under general incorporation acts were called quo warranto actions. For a discussion of: the origin and development of that writ, see Thompson, Seymour D., Commentaries on the Law of Private Corporations (7 vols., San Francisco, 1895), V, 5350–5394.Google Scholar See also the text at notes 52–64.

5 See the text at notes 38–43. At this point it must be emphasized that common carrier corporations such as railroad, telegraph, and express companies are not considered in this essay. Beginning in the 1870s judgemade and statutory law alike treated those firms differently. Since interstate transportation and communications were considered commerce per se, state governments could not exclude such firms from their jurisdiction. See Henderson, Gerard C.. The Position of Foreign Corporations in American Law (Cambridge, 1918), 112–131.Google Scholar Moreover, state legislatures often granted connecting railroad companies the power to combine – whether by way of lease, sale of assets, or exchange of stock. The power of manufacturing and mining corporations to engage in similar agreements was closely circumscribed everywhere between the demise of special chartering at mid-century and New Jersey's revision of its general incorporation law in 1889. See Noyes, Walter Chadwick, A Treatise on the Law of Intercorporate Relations (2d. ed., Boston, 1909), 11–77, 473–551.Google Scholar Failure on the part of scholars to recognize these important distinctions has occasionally generated untenable analytical conclusions. See, for example, Fred Freedland, “A History of the Holding Company in New York State: Some Doubts as to the ‘New Jersey First' Tradition,” Fordham Law Review, 24 (1955), 369–411.

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11 Ham, Willburt D., “Ultra Vires Contracts Under Modem Corporate Legislation,” Kentucky Law Journal, 46 (1958), 215–249Google Scholar; Note, “The Adoption of the Liberal Theory of Foreign Corporations,” University of Pennsylvania Law Review, 79 (1931), 956–972, 1119–1138.

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16 Massachusetts, Committee on Corporation Laws, Report of the Committee on Corporation Laws Created by Act of 1902 (Boston, 1903), 20.Google Scholar

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20 See, generally, Porter, Glenn, The Rise of Big Business, 1860–1910 (Arlington Heights, Ill., 1973).Google Scholar

21 Welton v. Missouri, 91 U.S. 275 (1876).

22 For a more detailed discussion, see McCurdy, Charles W., “American Law and the Marketing Structure of the Large Corporation, 1875–1890,” Journal of Economic History, 38 (1978), 631–649.CrossRefGoogle Scholar

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26 The changing role of traveling salesmen in American merchandizing is thoroughly treated in Hollander, Stanley C., “Nineteenth Century Anti-Drummer Legislation in the United States,” Business History Reciew, 38 (1964), 479–500.Google Scholar

27 Welten v. Missouri, 91 U.S. 275 (1876) at 278 and at 280–281. Tieman v. Rinker, 101 U.S. 123 (1880) at 126.

28 Hurst, James Willard, Law and the Conditions of Freedom in the Nineteenth-Century United States (Evanston, Ill., 1956), 44.Google Scholar

29 Robbins v. Shelby County Taxing District, 120 U.S. 489 (1887) at 498.

30 Ibid. at 497.

31 Ibid. at 498.

32 DISCRIMINATORY MERCANTILE LICENSING INVALIDATED: Welton v. Missouri, 91 U.S. 275 (1876) – sewing-machine dealer; Webber v. Virginia, 103 U.S. 344 (1880) – same; Walling v. Michigan, 116 U.S. 446 (1886) – liquor dealer. NON-DISCRIMINATORY MERCANTILE LICENSING INVALIDATED AS INTERFERING WITH NEGOTIATONS PRIOR TO SHIPMENT, OR WITH PERFORMANCE OF INTERSTATE TRANSPORTATION SERVICES: Robbins v. Shelby County Taxing District, 120 U.S. 489 (1887) – manufacturer's drummer; Asher v. Texas, 128 U.S. 129 (1888) – same; Stoutenburgh v. Hennick, 129 U.S. 141 (1889) – same; Brennan v. Titusville, 153 U.S. 289 (1894) – same; Leloup v. Port of Mobile, 127 U.S. 640 (1888) – telegraph agent (reversing Osborne v. Mayor of Mobile, 16 Wall. 479 [U.S. 1873]); McCall v. California, 136 U.S. 104 (1890) – express company agent; Crutcher v. Kentucky, 141 U.S. 47 (1891) – same.

33 Robbins v. Shelby County Taxing District, 120 U.S. 489 (1887) at 497.

34 NON-DISCRIMINATORY LICENSE TAXES SUSTAINED: Machine Co. v. Gage, 100 U.S. 676 (1879) – sewing-machine dealer; Emert v. Missouri, 156 U.S. 296 (1894) – same; Tiernan v. Rinker, 102 U.S. 123 (1880) – liquor dealer. SALES TAXES SUSTAINED: Woodruff v. Parham, 8 Wall. 123 (U.S. 1868) – auction sales; Hinson v. Lott, 8 Wall. 148 (U.S. 1868) – liquor excise; Brown v. Houston, 114 U.S. 622 (1885) – coal sold from barges; Pittsburgh & Southern Coal Co. v. Bates, 156 U.S. 577 (1895) – same.

35 Coe v. Errol, 116 U.S. 517 (1886) at 527.

36 Welton v. Missouri, 91 U.S. 275 (1876) at 281.

37 Duckworth v. Arkansas, 314 U.S. 390 (1941) at 400.

38 In Cooper Manufacturing Co. v. Ferguson, 113 U.S. 727 (1885), Justice Stanley Matthews made this distinction crystal clear:

Whatever power may be conceded to a State to prescribe conditions on which foreign corporations may transact business within its limits, it cannot be admitted to extend so far as to prohibit or regulate commerce among the States; for that would be to invade the jurisdiction which, by the terms of the Constitution of the United States, is conferred exclusively upon Congress. … It is quite competent, no doubt, for Colorado to prohibit it from carrying on within that State its business of manufacturing machinery. But it cannot prohibit it from selling in Colorado, by contracts made there, its machinery manufactured elsewhere, for that would be to regulate commerce among the States. (emphasis added)

The quotation in the text is from Coe v. Errol, 116 U.S. 517 (1886) at 527.

39 Bank of Augusta v. Earle, 13 Pet. 519 (U.S. 1839) at 588. In this landmark case, the Court held that the State of Alabama had given a Georgia corporation implied permission to engage in banking within its jurisdiction. The Alabama legislature had not passed a statute excluding foreign banking corporations; therefore, said Taney, the Court must presume from principles of interstate comity that permission was implied. In short, it was up to the several states to regulate foreign corporations. Silence was effectively equivalent to a grant of authority. It has been argued with great force (Monkkonen, Eric, “Bank of Augusta v. Earle: Corporate Growth vs. States Rights,” Alabama Historical Quarterly, 34 [1972], 130Google Scholar) that the Court's stance created “continuing difficult[ies] in controlling corporate behavior … [for] corporate behavior is implicitly sanctioned, while regulation has become, at best, a rear-guard attempt to follow the economy.” This contention, however, is valid only for the period before 1877. In Pennoyer v. Neff, 95 U.S. 714 (1877), the Court held that no plaintiff could bring an action against any non-resident – including foreign corporations – by merely serving notice by publication. This decision compelled every state to act promptly. Failure to enact foreign corporation laws in the aftermath of Pennoyer would have meant that the citizens of one state would be powerless to sue corporations chartered in other states for tort, breach of contract, and the like. The immediate result, then, was an avalanche of legislation on foreign corporations across the country. And as the several states drafted new laws, they necessarily considered the relative costs and benefits of exclusion versus licensing (see the text at notes 44–46). Foreign corporations that were granted permission to hold property and engage in intra-state business were then required to appoint local agents upon whom process might be served. See Walker, William Laurens, “Foreign Corporation Laws; The Loss of Reason,” North Carolina Law Review, 47 (1968), 1–30.Google Scholar Thereafter, cases hinging on the comity doctrine were rare and they involved marginal, usually non-business, corporations. The leading case involving comity between 1877 and 1903 was Christian Union v. Yount, 101 U.S. 356 (1879).

40 Paul v. Virginia, 8 Wall. 168 (U.S. 1869) at 181–182.

41 The best digest of the restrictive features in nineteenth-century general incorporation laws is still that compiled in Justice Louis Brandeis's learned opinion in Liggett v. Lee, 288 U.S. 517 (1933) at 550–556.

42 Paul v. Virginia, 8 Wall. 168 (U.S. 1869) at 182.

43 Pembina Mining Co. v. Pennsylvania, 125 U.S. 181 (1888); Horn Silver Mining Co. v. New York, 143 U.S. 305 (1892); New York v. Roberts, 171 U.S. 658 (1898); American Sugar Refining Co. v. Louisiana, 179 U.S. 89 (1900); Diamond Glue Co. v. U.S. Glue Co., 187 U.S. 611 (1903). All these decisions sustained exclusion of, or various forms of discrimination against, the local exercise of franchises by foreign corporations. The traffic cases (see note 32) were distinguished on the ground that productive operations such as mining and manufacturing did not constitute interstate commerce.

44 Kimball, Spencer L., Insurance and Public Policy: A Study in the Legal Implementation of Social and Economic Policy Based on Wisconsin Records, 1835–1957 (Madison, 1960), 260–269Google Scholar; Pritchett, B. Michael, “Northern Institutions in Southern Financial History: A Note on Insurance Investments,” Journal of Southern History, 41 (1975), 391–396.CrossRefGoogle Scholar

45 See the cases digested in Thompson, Corporations, VI, 6304–6320, 6326.

46 Stimson, Frederick Jessup, American Statute Law, Volume II: An Analytical and Compared Digest of the Statutes of all the States and Territories Relating to General and Business and Private Corporations (Boston, 1892), 210–211.Google Scholar See also the testimony of Max Pam, a Chicago corporation lawyer, in Reports of the Industrial Commission, I, 1035–1036.

47 Pound, Roscoe, “Visitorial Jurisdiction over Corporations in Equity,” Harvard Law Review, 49 (1936), 369–395CrossRefGoogle Scholar; Dodd, E. Merrick, American Business Corporations Before 1860 (Cambridge, 1954), 57–61.Google Scholar

48 Freund, Ernst, The Police Power: Constitutional Rights and Public Policy (Chicago, 1904), 39Google Scholar; Holcombe, Arthur N., State Government in the United States (New York, 1920), 305–307.Google Scholar

49 See the statutes digested in Report on a Bill Requiring Corporations Engaged in Interstate Commerce to Make Returns … [1903], House Report No. 3375, 57th Congress, 2d Session (Serial 4414), 8–17.

50 For an account of this bizzare episode, see Destler, Chester M., Roger Sherman and the Independnt Oil Men (Ithaca, 1967), 83–193.Google Scholar

51 Henderson, The Position of Foreign Corporations, 77–100; Frankfurter, Felix and Landis, James M., The Business of the Supreme Court: A Study in the Federal Judicial System (New York, 1927), 56–145.Google Scholar

52 Head v. Providence Insurance Co., 2 Cranch 127 (U.S. 1804) at 165–166.

53 Cowell v. Colorado Springs Co., 100 U.S. 55 (1879) at 60–61. The leading tort case was Salt Lake City v. Hollister, 118 U.S. 256 (1886).

54 For a thorough discussion of the Court's evolving position, see Colson, Clyde L., “The Doctrine of Ultra Vires in United States Supreme Court Decisions,” West Virginia Law Quarterly, 42 (1936), 179–217, 297–337.Google Scholar

55 National Bank v. Matthews, 96 U.S. 258 (1877) at 267.

56 Central Transportation Co. v. Pullman's Palace Car Co., 139 U.S. 24 (1890). For a detailed account of the transactions that ultimately precipitated the suit, see Wall, Joseph Frazier, Andrew Carnegie (New York, 1970), 138–143, 187–188, 199–212.Google Scholar

57 In the interim, Carnegie and other insiders had anonymously sold all their Central Transportation stock. Only the proverbial “widows and orphans” retained their holdings of what quickly become a company without any assets. See Wall, Carnegie, 211.

58 Central Transportation Co. v. Pullman's Palace Car Co., 139 U.S. 24 (1890) at 52–53.

59 Ibid. at 53–54. For a summary treatment of the conflicting decisions on restraint of trade at common law, see Letwin, Law and Economic Policy in America, 77–81.

60 Ibid. at 48.

61 Ibid. at 54. In a subsequent action, framed on a quantum meruit rather than a covenant theory, the Central Transportation stockholders did recover the value – $710,846 at 1870 prices – of all the physical property that Pullman had leased and depreciated. The Court did not permit recovery for loss of the contracts and patents transferred to Pullman. See Pullman's Palace Car Co. v. Central Transportation Co., 171 U.S. 138 (1898). The Court's ultra vires decisions generated a spirited exchange in the law journals between George Wharton Pepper and Seymour D. Thompson. Thompson's contention that the Court's decisions were “in a state of hopeless and inextricable confusion” was rebutted effectively by Pepper. See Pepper, George Wharton, “Recent Development of Corporation Law by the Supreme Court of the United States,” American Law Register, 43 (1895), 296–313, 448–459CrossRefGoogle Scholar; Thompson, Seymour D., “The Doctrine of Ultra Vires in Relation to Private Corporations,” American Law Review, 28 (1895), 376–407Google Scholar; Pepper, “The Unauthorized or Prohibited Exercise of Corporate Power,” Harvard Law Review, 9 (1895), 255–272Google Scholar; Pepper, “Rights Under Unauthorized Corporate Contracts,” Yale Law Journal, 8 (1898), 24–32Google Scholar.

62 State v. American Cotton Oil Trust, 1 Ry. & Corp. L.J. 509 (La. 1888); People v. Chicago Gas Trust Co., 130 Ill. 268 (1889); State v. North River Sugar Refining Co., 121 N.Y. 582 (1889); People v. American Sugar Refining Co., 7 Ry. & Corp. L.J. 83 (Cal. 1895); State v. Nebraska Distilling Co., 29 Neb. 700 (1890); Distilling & Cattle Feeding Co. v. People, 156 Ill. 448 (1895); State v. Standard Oil Co., 49 Ohio St. 137 (1892).

63 See Boisot, Louis Jr., “The Legality of Trust Combinations,” American Law Register, 39 (1891), 751–770.CrossRefGoogle Scholar The same principle applied to the ultra vires sale of a prosperous corporation's entire assets to a foreign corporation. The rationale for these doctrines was stated most starkly in People v. Ballard, 134 N.Y. 269, 274 (1892):

A corporation is purely artificial, having no natural or inherent power, but only such as its charter confers. The charter of the corporation … was the statute [general incorporation law] under which it was organized. Upon filing the certificate of incorporation it came into existence with power to do only that which is expressly or impliedly authorized by the statute. A corporation cannot cease to exist of its own will. Its life continues until either the charter period has expired, or the court has decreed a dissolution [for cause, including bankruptcy]. The law made it, and the law only can put an end to it. As it cannot take its own life directly, it cannot do so indirectly, for that would be a fraud upon the law and against public policy. While a corporation may sell its property to pay its debts, or to carry on its business, it cannot sell its property in order to deprive itself of existence. It cannot sell all its property to a foreign corporation…. That would be the practical destruction of the corporation by its own act, which the law will not tolerate. Whether the process … is called reorganization, consolidation or amalgamation, it was the exercise of a power not delegated and void.

64 State v. North River Sugar Refining Co., 121 N.Y. 582 (1889) at 626.

65 New Jersey, Laws, 1889, chap. 269. Before the New Jersey legislature could capitalize fully on the idea of selling liberal charters for tax revenues, it had to amend the crude 1889 statute on two occasions. For an account of the maneuverings in Trenton during the 1890s, see Stoke, Harold, “Economic Influences Upon the Corporation Laws of New Jersey,” Journal of Political Economy, 38 (1930), 551–579.CrossRefGoogle Scholar

66 Steffens, Lincoln, “New Jersey: A Traitor State,” McClure's Magazine, 24 (1905), 41.Google Scholar

67 Reports of the Industrial Commission, XIX, 598–599.

68 Useful secondary accounts of the Sherman Act's legislative history include Letwin, Law and Economic Policy in America, 85–95; Thorelli, Hans B., The Federal Antitrust Policy: Origination of an American Tradition (Baltimore, 1954), 164–232Google Scholar; Morgan, Donald G., Congress and the Constitution: A Study of Responsibility (Cambridge, 1966), 140–162CrossRefGoogle Scholar; Bork, Robert H., “Legislative Intent and the Policy of the Sherman Act,” Journal of Law and Economics, 9 (1966), 7–48.CrossRefGoogle Scholar

69 Congressional Record, 50th Congress, 1st Session (1888), 719. Hereafter cited as Cong. Rec., 50.1 (1888), 719.

70 Protection of Trade and Commerce Against Unlawful Restraints and Monopolies … [1890], House Report No. 1707, 51st Congress, 1st Session (Serial 2812), 1.

71 Cong. Rec., 51.1 (1890), 2456, 2460, 2462.

72 See the discussion in Morgan, Congress and the Constitution, 143–150.

73 See, for example, Regan in Cong. Rec., 51.1 (1890), 2469; Gray in Ibid., 51.1 (1890), 2567.

74 Ibid., 51.1 (1890), 2468.

75 Ibid., 51.1 (1890), 7512; Ibid., 51.1 (1890), 2604.

76 Ibid., 51.1 (1890), 2727–2728.

77 For a convenient digest of committee opinion on the constitutional question, see Bork, “Legislative Intent and the Policy of the Sherman Act,” 34n.

78 Letwin, Law and Economic Policy, 94.

79 Morgan, Congress and the Constitution, 148.

80 Cong. Rec., 51.1 (1890), 3148.

81 Quoted in Letwin, Law and Economic Policy, 94. Relying on an entry in the Judiciary Committee's minute book indicating the members' unanimous agreement that the Edmunds draft was constitutional, Letwin mistakenly concluded that Sherman's misgivings were unjustified. The scope of the Sherman Act had been narrowed considerably; and the Judiciary Committee's assumption that the Edmunds draft was within Congress's power under the commerce clause was undoubtedly based on their belief that the Justice Department would proceed only against monopolies that had been created through the use of predatory marketing tactics. Congressman Culberson, House manager of the final bill, explained the scope of federal action contemplated by the framers in precisely those terms. See the discussion in the text at notes 85–87. Letwin's interpretation would require us to believe that the seven Senate Judiciary Committee members who had spoken against Sherman's original bill on constitutional grounds (Senator George on four occasions) had changed their views over the course of ten days!

82 Cong. Rec., 51.1 (1890), 3145.

83 Letwin, Law and Economic Policy, 95.

84 Cong. Rec., 51.1 (1890), 3147.

85 Ibid., 51.1 (1890), 4091. See the text at note 70.

86 The Bacon Committee had published two volumes of testimony. See Report on the Investigation of Trusts … [1889], House Report No. 3112, 50th Congress, 1st Session (Serial 2606); Report on Investigation of Trusts … [1890], House Report No. 4165, 50th Congress, 2d Session (Serial 2675).

87 Cong. Rec., 51.1 (1890), 4089, 4091.

88 For a useful discussion, see Letwin, Law and Economic Policy, 100–142. But see also Eggert, Gerald, Richard Olney: Evolution of a Statesman (University Park, Pa., 1974), 87–100.Google Scholar

89 See, generally, Bork, Robert H., “The Role of Reason and the Per Se Concept: Price Fixing and Market Division,” Yale Law Journal, 74 (1965), 775–847.CrossRefGoogle Scholar

90 United States v. Standard Oil Co., 221 U.S. 1 (1911) at 75.

91 For statistical data on New Jersey incorporations, see Evans, George Heberton, Business Incorporations in the United States, 1800–1943 (New York, 1948), 126–131.Google Scholar Evans classified as “large” corporations those whose capitalization exceeded $10 million. See also Keasby, Edward Q., “New Jersey and the Great Corporations,” Harvard Law Review, 13 (1899), 198–212, 264–278.CrossRefGoogle Scholar

92 Eggert, Olney, 89–91.

93 See, generally, Eichner, Alfred S., The Emergence of Oligopoly: Sugar Refining as a Case Study (Baltimore, 1969).Google Scholar

94 Beginning in the Progressive Era, many constitutional commentators argued that the result in Knight stemmed from inadequate presentation of the government's argument by Attorney General Olney. See, for example, Edmunds, George F., “The Interstate Trust and Commerce Act of 1890,” North American Review, 194 (1911), 816Google Scholar; Taft, William Howard, The Antitrust Act and the Supreme Court (New York, 1914), 59.Google Scholar Underlying this view, reiterated most recently by Fisher, Joe A., “The Knight Case Revisited,” The Historian, 35 (1973), 365–383CrossRefGoogle Scholar, is the assumption that the Court would have ruled for the United States if Olney had proved what everyone already knew: sugar refined in the four Pennsylvania plants absorbed by American Sugar Refining would eventually enter “the stream of interstate commerce.” Presumably, such proof would have included contracts between manufacturers and their wholesalers indicating the former's intention to sell refined sugar outside Pennsylvania. There is ample indirect evidence, however, to suggest that such proof would not have affected the Court's stance. In all the contemporaneous foreign corporation cases involving manufacturing, intent to sell in one state commodities produced in another state had never been a sufficient defense against taxation and regulation (see the discussion in note 106). Debate in Congress indicates that the architects of the Sherman Act understood, in conformity with the Court's recent decisions, that jurisdiction could be established only upon showing that monopolization stemmed from marketing practices that were unlawful at common law. In 1890 Sherman had taken the very position that, two decades later, Edmunds and Taft suggested the attorney general ought to have taken more strongly in Knight. But Sherman had lost that battle; ironically, Edmunds had been among his chief antagonists. The rise of the Olney-was-at-fault interpretation of Knight is best explained, I think, as an attempt to restrict the case's value as precedent and thus to carve out a larger federal role in corporation law once the states' inertia on the matter bearne fully apparent after 1903.

95 Eggert, Olney, 98.

96 United States v. E.C. Knight Co., 156 U.S. 1 (1895) at 16. See also Addyston Pipe & Steel Co. v. United States, 175 U.S. 211 (1899), upholding criminal penalties for members of a combination created to control the marketing of pipe rather than its manufacture.

97 The concept of a “no man's land” was stated in its most widely-cited form in Corwin, Edward S., The Twilight of the Supreme Court (New Haven, 1934), 20.Google Scholar Corwin there alluded to the Court's “dormant” commerce power decisions (e.g. Welton), suggested that those cases enabled large-scale corporations to evade state regulation, and then noted that Knight set up a “no thoroughfare” sign to Congress once it attemoted to travel the very highway that the Court had opened up for the corporations. Corwin's analysis ignored foreign corporation law, however; and the Paul doctrine provided the missing link in the formal chain of control mechanisms that the Court expounded between 1869 and 1903. Particularly after 1917, the Court's insistence on maintaining an array of commerce doctrines based on dual federalism created practical gaps between policy objectives and constitutional authority. At no point, however, did juridicial commerce theories create situations in which neither the several states nor the Congress could devise solutions for policy problems. For an incisive discussion of the historical relationship between “formal power” and “real power” in the federal system, see Scheiber, Harry N., “Federalism and the American Economic Order, 1790–1910,” Law and Society Review, 10 (1975), 57–118.CrossRefGoogle Scholar

98 Stewart, Artemus, “Recent Decisions,” American Law Register, 43 (1895), 88.Google ScholarPaul, Arnold apparently took this criticism seriously in Conservative Crisis and the Rule of Law: Attitudes of Bar and Bench, 1887–1896 (Ithaca, 1960), 182–183.Google Scholar

99 Central Transportation Co. v. Pullman's Palace Car Co., 139 U.S. 24 (1890) at 54.

100 Merz Capsule Co. v. United States Capsule Co., 67 Fed. 414 (1895) at 417.

101 Ibid. at 418.

102 McCutcheon v. Merz Capsule Co., 71 Fed. 787 (1896) at 794 and at 793.

103 De La Vergne Refrigerating Machine Co. v. Germans Savings Institution, 175 U.S. 40 (1899) at 54–58.

104 When minority stockholders did refuse to assent to ultra vires consolidations, however, the courts consistently enjoined prospective mergers. See Small v. Minneapolis Electro Matrix Co., 45 Minn. 264 (1891); Easun v. Buckeye Brewing Co., 51 Fed. 156 (1892); Marble v. Harvey, 92 Tenn. 115 (1892); Byrne v. Schuyler Electric Mfg. Co., 65 Conn. 336 (1895); Forrester v. Boston Mining Co., 21 Montana 544 (1898). See also Kitchel, W. Lloyd, “The Power of Stockholders to Bind a Corporation,” Yale Law Journal, 5 (1895), 83–92.CrossRefGoogle Scholar

105 United States v. E.C. Knight Co., 156 U.S. 1 (1895) at 16.

106 Although the Court remained consistent on this point (see note 43), corporations often attempted to use the commerce clause both ways in order to escape regulation altogether. Some firms that argued that their operations (being production) were not subject to Congress's supervision under the commerce power also argued that their operations (being commerce) were not subject to state supervision under foreign corporation laws. Thus in July 1894, at the very time counsel for American Sugar Refining was preparing its brief for the Knight Case, another lawyer for American Sugar Refining was appearing before a Massachusetts trial court to argue that the state's new foreign corporation law (requiring detailed annual reports on capitalization, assets, and the like) was unconstitutional “as being an interference with the commerce clause of the Constitution of the United States.” American Sugar Refining lost the Massachusetts case and eventually settled, paying the fine prescribed by the state's foreign corporation law, plus costs. (Massachusetts, Attorney General, Report for the Year Ending January 16, 1895 [Boston, 1895], 15).Google Scholar A similar crusade against the Louisiana foreign corporation law culminated in 1900 with a Supreme Court opinion upholding the statute. (American Sugar Refining Co. v. Louisiana, 179 U.S. 89 [1900]).

The most direct link between the commerce clause doctrine enunciated in Knight and the Court's stance on foreign corporation laws came in Diamond Glue Co. v. United States Glue Co., 187 U.S. 611 (1903). An Illinois firm (Diamond Glue), the nation's largest and technologically most advanced manufacturer of glue products, had agreed to supervise the construction and later the operation of a factory to be built in Milwaukee by a Wisconsin corporation (U.S. Glue). The Illinois firm was also to have full control of the handling and interstate distribution of the Milwaukee plant's entire output. The agreement was to last for five years, at which time the plant (including all the capital equipment installed by Diamond Glue) was to become the property of U.S. Glue. After construction of the plant was completed, however, U.S. Glue refused to release control of the premises. Diamond Glue brought an action for breach of contract in federal court, and U.S. Glue set up as a defense the former's failure to comply with the registration requirements in the Wisconsin foreign corporation law. On appeal to the Supreme Court, Justice Oliver Wendell Holmes upheld U.S. Glue's demurrer:

It is said that the contract in suit, as carried out, was concerned in part with interstate commerce, and therefore was free from the operation of the Wisconsin [foreign corporation] statute…. [But] the foundation of the commerce outside the State was doing business within it. The superintendence and manufacture had to come before the sale. The requirements of this act before allowing the plaintiff to do business in the State, if good as to that business taken by itself, are not made bad by the presence in the contract of an ulterior term which the plaintiff might or did intend to carry out by transporting the products of the business elsewhere. United States v. E.C. Knight Co., 156 U.S. 1, 13 …

107 Philadelphia Fire Association v. New York, 119 U.S. 110 (1886) at 129. Not surprisingly, legal scholars like Seymour D. Thompson who applauded Harlan's dissenting opinion in Knight also tended to support proposals for a federal incorporation law that would supplant all state statutes, including the discriminatory foreign corporation laws. See Thompson, , “Abuses of the Corporate Privilege,” Reports of the Ninth Annual Meeting of the Bar Association of the State of Kansas (Topeka, 1892), 43Google Scholar; Thompson, , “Notes of Recent Decisions,” American Law Review, 29 (1895), 293–306.Google Scholar See also Paul, Conservative Crisis and the Rule of Law, 58, 183–184.

108 United States v. E.C. Knight Co., 156 U.S. 1 (1895) at 16.

109 Adams, “State Control of Trusts,” 478.

110 Ibid.

111 Connor, John B., “Neglect of the Old Principle of Public Benefit in Recent Corporation Laws,” in Head, Franklin H., ed., Chicago Conference on Trusts (Chicago, 1900), 344.Google Scholar

112 In addition to the evidence discussed in the text, see the comments of the Missouri and Texas attorneys general in Ibid., 106–115, 567–568.

113 Mississippi, Attorney General, Second Biennial Report of Wiley N. Nash, 1898–1899 (Jacksonville, Fla., 1899), 5.Google Scholar

114 In some states the foreign corporation laws had been drafted so poorly that after the license of a foreign corporation had been revoked (a rare occurence except for insurance companies), secretaries of state had no discretion to refuse a second license to a “new” corporation formed in still another state by the same corporators and with the same assets as the firm banished earlier. Texas officials were vexed by this problem in dealing with the Waters-Pierce Oil Co., a Standard affiliate. See Texas, Attorney General, Report for the Year 1899–1900 (Austin, 1900), 7–8, 75–81. The Supreme Court sustained the initial revocation of the company's license in Waters-Pierce Oil Co. v. Texas, 177 U.S. 28 (1900).

115 See, for example, the Massachusetts Report of the Committee on Corporation Laws (cited at note 16), 19, 265–297.

116 “The St. Louis Antitrust Conference,” Public Opinion, 27 (1899), 387–388.

117 The St. Louis Antitrust Conference advocated the following “remedies” (as reported in Ibid):

The enactment by each of the states of the Union of legislation for the adequate and proper control and regulation of corporations chartered by that state.

The enactment by each state of laws that will prevent the entrance of any foreign-created corporation into its limits for any other purpose than interstate commerce, except on terms that will put the foreign-created corporation on a basis of equality with the domestic-created corporation of the state entered, and subject to the same laws, rules, and regulations of the state that it enters which are applicable to the domestic corporations of that state.

The enactment of state legislation declaring that a corporation created in one state to do business exclusively in other states than the one wherein it was created shall be prohibited from admission into anv state.

That no corporation should be formed in whole or in part by any other corporation.

That no corporation shall own or hold any stock in another corporation engaged in a similar or comnetitive business, and that no officer or director of a corporation shall be the officer or director or the owner of stock in another corporation engaged in similar or competitive business …

[T]hat each state pass laws providing that no corporation which is a member of any pool or trust in that state or elsewhere can do business in that state.

118 Report of the Commissioner of Corporations … [1904], House Doc. No. 165, 58th Congress, 3d Session (Serial 4830), 40. See also Zillmer, Raymond T., “State Laws: Survival of the Unfit,” University of Pennsylvania Law Review, 62 (1914), 509–524.CrossRefGoogle Scholar

119 State Boards of Commissioners for Promoting Uniformity of Legislation in the United States, Report of the Twelfth National Conference (Danbury, Conn., 1902), 7.Google Scholar

120 Indiana, Attorney General, Biennial Report for the Year November 1, 1900 to October 31, 1901 (Indianapolis, 1902), 25.Google Scholar

121 Stephen J. Field to Don M. Dickinson, June 30, 1893, Dickinson Papers (Library of Congress).

122 Field to Dickinson, August 17, 1893, Dickinson Papers (L.C.).