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Maryland imposes a “stamp tax” on paper that banks used in printing bank notes on all banks not chartered by the state –15,000$. James McCulloch, a cashier at the Baltimore branch refuses to pay. Early court decisions go against McCulloch. Question to be decided – Does any state have the right to tax an agency of the US government? Arguments for both sides Maryland State did have right to tax – Article 1, Section 10 – Not a listed power excluded by the Constitution Questions the constitutionality of the 2nd BUS altogether. McCulloch (National Government) States are forbidden to tax anything beyond real property that the national government owned in the states. Giving that power to the state would give it the power to destroy the national government. Ruling In Favor of McCulloch 2nd Bank of the United States is constitutional – IMPLIED POWERS It is necessary and proper to carry out other “delegated powers” like creation of a national currency, collecting taxes, borrowing money, etc. Maryland does not have the power to tax the 2nd BUS bank in Maryland because it is in violation of the “supremacy clause” of the Constitution. This threatens the sovereignty of the national government. (Remember the Articles!!) Declares the Maryland stamp tax law unconstitutional. Significance: Trying to create a “more perfect union.” Confirms the legitimacy of the elastic clause and validated the supremacy of the national government over its member states. National Gov’t supreme Gibbons v. Ogden (1824) Background • Aaron Ogden had a steam ship service running between NY and New Jersey. The state of NY gave him a monopoly on this service. • Thomas Gibbons developed a rival company on the same waters. • NY state court upheld Ogden’s license and confiscated Gibbon’s ship. Question to be considered
Do the laws passed by the NY legislature violate the constitution of the United States by their attempt to regulate interstate commerce or are they permissible? Arguments of both Sides • Aaron Ogden had “an exclusive license” to operate a steam ship between New Jersey and New York city granted by the NY state legislature. • Ogden’s lawyers argued his license was obtained first and gave him exclusive right to run his steam ship. • Gibbon’s lawyers argued that the Federal license supersedes the NY license, and therefore Ogden did not have a right to a monopoly. Ruling of the Court • The court ruled that the national government indeed did have the power to regulate transportation as the navigation necessary component of commerce. • Furthermore, the Constitution clearly states the supremacy of national laws, thus the federal license trumps the NY license and thus Gibbons had the right to run his steam ship and compete with Ogden. Significance • The ruling enhanced the national government’s power to “pursue the expansion of a national economy.” • Further entrenched the primacy of the national government’s power over state power. • Also Marshall was careful not to take such a broad definition of commerce so as to pose a threat to slavery in the South as some Southerners feared that to overturn the NY decision and broadening the powers of the national gov’t to regulate commerce would pose a threat to the future of slavery. Dartmouth vs. Woodward (1824) Background: • Dartmouth College founded to teach Christianity to settlers and natives. • Granted a charter from King George III in 1769 to start the college. • In 1816, state of New Hampshire voted to abandon old charter and take it over as a state university. Question to be considered: • Did the acts of the New Hampshire State legislature placing Dartmouth under state control, violate the US Constitution? Arguments of two sides: • Dartmouth side – argued by Dartmouth grad and prominent Congressmen most associate with Mass. Claimed the state action was unconstitutional, as the charter represents a contract which is protected by the “contract clause” of the Constitution, which states “No state shall pass any law impairing the obligation of contracts.” Charter from King still valid and thus the university ought to still be private and run by trustees.
New Hampshire – argued that the charter was no longer applicable, since the charter had been given by the King who was no longer sovereign. New Hampshire’s State Court had ruled in favor of the state’s right to take over the college. Ruling of the Court: • With only one dissent vote the Court ruled against the New Hampshire state legislature. The charter was a contract, and therefore ought to be protected and therefore could not be broken by acts of legislation. Significance • Again this is a positive step for the national economy as it protects private corporations from encroachments from the state. • Court also defined corporation as being “an artificial being, invisible, intangible, and existing only in contemplation of law. . . [the properties of which are] supposed best calculated to effect the object for which it was created. Among the most important are immortality and . . . individuality.” Corporations then come to have rights and are protected by the Constitution in this way.