sounder consideration of the subject has prevailed and led to the conclusion that congress had plenary power over the whole subject.

Congress has granted charters of incorporation with franchises to be exercised in the district of Columbia, as assurance companies, and savings banks and trust companies. A federal charter was also granted to the Maritime Nicaraugua Canal Company for facilitating intercourse between the Atlantic and Pacific oceans.3 The National Trades Union Incorporation Act, infra, Appendix, contains no reference to interstate commerce except that the members must be resident in two or more states. No incorporation had been formed under this act up to July 1, 1911.

8 68 (60). Federal incorporation as a means in the exercise of the commerce power.-As congress can exercise this power of incorporation as a means and not as an end, its power of incorporation under the commerce clause would necessarily therefore be limited in its grant to the carrying on of interstate and foreign commerce, with such corporate powers as would be fairly incidental to such general grant. Congress has no power over the business of manufacturing, mining or other local productive industries conducted in the states, and therefore such powers could not be granted by congress, nor exercised under a congressional grant.

5

It has been suggested that a "franchise to produce," as by manufacturing, would be incidental and essential to a franchise to sell, and therefore, congress would have the power to grant franchises for production as essential to the carrying on of interstate commerce. This position seems clearly untenable in view of the distinct declaration of the supreme court in the Knight case, that commerce is incidental to manufacture and succeeds to it, but is not a part of it, and that the jurisdiction of congress relates to commerce alone. As said in that case

1 Act of February 14, 1865, 13 Stats. 428.

2 Act of March 3, 1865, 13 Stats. 510.

3 Act of February 20, 1899, 25 Stats. 675.

4 United States v. Knight Co., supra.

Appendix A to Report to Commissioner of Corporations, Dec. 1904.

1

and in an earlier case, the result of a contrary ruling would be that congress would be invested to the exclusion of the states with the power to regulate every branch of human industry. A corporation organized to engage in interstate and foreign commerce would necessarily buy in order to sell, and such purchases and sales, both domestic as well as interstate and foreign, could be held incidental, as essential to the exercise of the federal grant. The power "to produce," however, would involve manufacturing, mining and the whole range of local productive industries, and their regulation and control by federal authority, under the commerce power would essentially revolutionize the whole frame-work of our government, with its distinct divisions of the powers of sovereignty between the state and federal governments.

The difficulty does not lie merely in the conflict with the sovereignty of the state, which has exclusive jurisdiction over the business of manufacturing and producing within its borders, but in the limitation of the federal government to the powers expressly granted and to those which are fairly and reasonably incidental to those expressly granted.

While the power of congress to incorporate the quasi-public corporations such as railroads, bridges, canals, telegraph and telephone, and others which are in effect governmental agencies in carrying on interstate commerce, has been conceded, and exercised, the impracticability of separating commerce from manufacture and production in corporate business organizations leads to the doubt whether the incorporating power of congress can practically, even if lawfully, be extended beyond the direct agencies of interstate commerce.

§ 69 (61). Relation of the states to federal corporations.Assuming that corporations are chartered by congress for the carrying on of interstate and foreign commerce, their status in relation to the state government can be determined by analogy to the relation now held by national banks, which are organized under federal law, and by interstate railroad corporations organized under federal law, and corporations, as railroad companies, transacting interstate business, though chartered under state law.

4 Kidd v. Pearson, 128 U. S. 1, 3 2 L. Ed. 346 (1888).

National banks are not chartered under the commerce clause, but as banks of deposit and discount their ordinary business does not differ in any wise from that of the state banks in the same communities. The Pacific railroads were incorporated by congress, and though chartered by the federal power, they transact local as well as through business, and as to the former are subject to the laws of the states where they operate. It would seem, however, from expressions in the opinions cited, that this subjection to state control in the regulation of local rates results from a failure of congress to express any intention in the acts of incorporation that the company should be exempt from state control.

Assuming, therefore, that congress should incorporate companies for the purpose of carrying on interstate and foreign commerce, such companies could make domestic as well as interstate and foreign sales. Congress would have visitorial power over such corporations, as it has over national banks, but its domestic business would be subject to state regulation and control, as the domestic business of interstate carriers is subject to such state control. The state power of taxation would extend to the property of such corporations within its jurisdiction as it does now to the property of national banks. The franchise "to do," that is, the franchise to transact interstate and foreign commerce, which would be held by such corporation under the federal grant, would not be subject to state taxation, and neither the right to transact such business, nor such interstate and foreign business conducted by state corporations would be subject to state taxation; but the "business" so exempt is to be distinguished from the property employed in the jurisdiction in the transaction of the business, which would be subject to state taxation.

It has been suggested that federal incorporation of business companies would be ineffective without a "franchise to produce," as states could pass discriminating laws prohibiting sales to such corporations. It is obvious however, that any state statutes interfering with or discriminating against fed

1 The Secretary of the Treasury, December, 1904, recommends that congress should make provision for the incorporation and regulation of trust companies.

2 Reagan V. Mercantile Trust Co., 154 U. S. 413 (1894), 38 L. Ed. 1028; Smyth v. Ames, 169 U. S 466 (1898), 42 L. Ed. 819.

eral corporations in the exercise of their federal franchise would be clearly violative of the federal supremacy in the regulation of interstate commerce.1

§ 70 (62). The requirement of federal franchise for business corporations in interstate commerce.-Another method of proposed regulation of interstate commerce is through the requirement of a federal franchise or license for state corporations to transact interstate commerce. This is the method which was recommended by the commissioner of corporations in 1904.2

Assuming that such a system was adopted, its effectiveness would of course depend upon its exclusiveness. Thus corporations not having such federal license would be excluded from the transaction of interstate commerce. It is true also that if a system of federal incorporation was adopted, it would not be effective if its adoption was voluntary, as under the present system corporate charters are sought from the states which are the most liberal in their incorporation laws. The adoption of federal charters could doubtless be made effective through the exercise of the federal power of taxation, as the same power was effective in the establishment of the national banking system.

The requirement of either method, therefore, would mean the exercise of the power of prohibition by congress by means of regulation, in that corporations not having the necessary franchise would be precluded from transacting interstate commerce. Such a policy as to the parties transacting interstate commerce would be essentially novel, as the power of prohibition has been heretofore exercised only as to the subjects of commerce, as in the lottery cases.

1

The supreme court held that a state statute providing that an agent of an interstate express company should take out a license showing that the company he represented was possessed of a capital of $150,000, was invalid. The court said that to carry on interstate commerce was not a franchise or a privilege granted by the state, but a right which every citizen of the United States was entitled to exercise under the constitution and laws of the United States, and the accession of mere corporate facilities in carrying on their business could not have the effect of depriving them of such right, unless congress should see fit to interpose some contrary regulation on

merce and a prohibition of all corporations or corporate agencies from engaging in interstate or foreign commerce without such federal franchise or license, and to include the imposition of all necessary requirements, as to corporate organization and management, as a condition precedent to the grantlicense, with the right to refuse or ing of such federal franchise or

withdraw such franchise or license in case of violation of law, with the proper right of judicial appeal to prevent abuse of power.

See review of this report in the Michigan Law Review of February, 1905, by Professor H. L. Wilgus, "Federal License or National Incorporation."

1 Crutcher v. Kentucky, 141 U. S. 47, 35 L. Ed. 649 (1891).