Friday, April 11, 2014

The Origins of "Necessary and Proper" (Part I: The Corporate Law Background)

John Mikhail

Ever since James Madison and Thomas Jefferson put its meaning at issue in the controversy over the first Bank of the United States, much effort has been spent on determining the original meaning of “necessary and proper” in the Constitution.  This trend has accelerated in recent years, as a Supreme Court inclined toward originalism and textualism has begun to ask whether federal legislation is “proper” under the Necessary and Proper Clause.   Despite this, few scholars have asked where James Wilson drew this particular language from or what he originally meant by this phrase when he first composed it for the Committee of Detail.  Before attempting to grapple with more complex historical questions, such as what the founders as a group understood by “necessary and proper” or what a reasonable English speaker would have taken it to mean in 1787, it seems useful to focus on these preliminary issues.
Recently, Professor Geoffrey Miller has advanced our understanding of this topic by exploring what he calls “The Corporate Law Background of the Necessary and Proper Clause.”  Beginning from the premise that the Constitution itself is an act of incorporation and that “‘[n]ecessary and proper’ feels like a lawyer’s clause—a standard provision that, despite its importance, is not usually the subject of negotiation or debate,” Professor Miller suggests that the origin of this phrase might be located in founding-era corporate charters.  To investigate this thesis, Professor Miller collected hundreds of eighteenth-century and nineteenth-century corporate charters to determine how couplets such as “necessary and proper” were used in these documents.  His impressive database included colonial charters, acts of incorporation for the first and second Banks of the United States, and corporate charters issued by two states, Connecticut and North Carolina, dating from the colonial period through 1819, the year McCulloch v. Maryland was decided.

Examining these sources, Professor Miller found that “necessary and proper” and similar language was ubiquitous throughout this period.  On this basis, he concluded that founding-era corporate law might help us interpret this particular language of the Constitution.  For a law “to be ‘necessary,’” he writes, “there must be a reasonably close connection between constitutionally recognized ends and the means chosen to accomplish those ends; to be ‘proper,’ a law must not, without adequate justification, discriminate against or otherwise disproportionately affect the interests of particular citizens vis-à-vis others.” 
Although Professor Miller’s insight about the corporate law background of the Necessary and Proper Clause seems plausible, his study also has some significant limitations.  For example, most of the corporate charters on which he relies originated after 1787.  Therefore, they could not have influenced the actual drafting of the Necessary and Proper Clause.  In addition, Professor Miller neglects to note that it was Wilson who first wrote the phrase “necessary and proper” for the Committee of Detail.  He thus fails to connect the dots by asking whether Wilson’s own background as a corporate lawyer may have influenced this choice of language. 
As I document in a new article on the Necessary and Proper Clause, when one investigates this issue, the results are revealing and tend to confirm Professor Miller’s thesis.  In this post, I'll summarize some of the main findings of this research, which include the fact that Wilson and his circle of bankers, merchants, and corporate lawyers—Robert Morris, Thomas Willing, Thomas Fitzsimmons, Alexander Hamilton, and others—frequently used the phrase “necessary and proper” or similar language in their articles of association and business correspondence.  In my next post, I’ll explain why this new evidence is not dispositive, in light of the many other prevalent uses of “necessary and proper” and similar couplets during the founding era.

By any measure, Wilson’s corporate law practice and related investment activities were extraordinarily extensive.   To begin with, he was a major shareholder and the primary legal architect of the Illinois-Wabash Company, one of the most significant corporate enterprises in eighteenth-century America.  The company’s vast land claims were a major factor in the political controversies that held up the ratification of the Articles of Confederation until 1781 and that delayed the creation of the national domain until 1784.  Other prominent shareholders of this company included Robert Morris, Thomas Johnson, Charles Carroll, and Samuel Chase.   Incredibly, the company claimed title to roughly thirty million acres in present-day Ohio, Indiana, and Illinois, of which Wilson’s personal share has been estimated at 600,000 acres.   The company’s legal claims to these parcels wound their way through Congress and the courts for decades, until they were finally decided against the company in the landmark case of Johnson v. M’Intosh.   Wilson served as the company’s president from around 1780 until his death in 1798.

Wilson also did legal work for and owned significant shares of the Indiana Company, another of the era's most important land companies.  The Indiana Company claimed title to some 1,800,000 acres in present day West Virginia under a deed given to Sir William Johnson by Indian tribes at the Treaty of Fort Stanwix.  Like the Illinois-Wabash claims, the Indiana Company claims were a major source of political disagreement in the years leading up to the constitutional convention.  Anticipating the theory later made famous by Justice Sutherland in United States v. Curtiss-Wright Export Corp., both companies argued that the United States, not Virginia, had jurisdiction over their claims, because sovereign authority over these territories had passed directly from Great Britain to the United States -- legal arguments that Virginia strenuously resisted.  Shortly after the Constitution was ratified, shareholders of the Indiana Company announced their intention to prosecute their claims in a federal court, and in 1792, the company sued Virginia in the Supreme Court of the United States.  Along with Chisholm v. Georgia, the ensuing litigation, Hollingsworth v. Virginia, was one of the key cases which led to the adoption of the Eleventh Amendment.   

Wilson was also a principal shareholder of the Canaan Company, a joint venture with William Bingham that Wilson helped to establish and organize with the aim of purchasing land on the Susquehanna River in southern New York.  Wilson helped to manage the company’s legal and business affairs throughout the 1780s, efforts that ultimately helped to create the city of Binghamton.   Together with his brother-in-law, Mark Bird, Wilson also was a principal of Delaware Works, a large manufacturing enterprise that owned several mills, forges, and furnaces on land adjacent to the Delaware River.  The two men planned to build the company into one of the largest nail manufacturers in the country.  

The list of other land companies, banks, and business ventures with which Wilson was associated is long and varied.  It includes the Vandalia Company, the Holland Company, the Georgia Land Company, and the Great Dismal Swamp Company.   In addition, Wilson was an original investor in the Insurance Company of North America.   Perhaps most significantly, from 1780 onwards, Wilson was actively involved in the creation, design, and operation of the Bank of North America, the nation’s first national bank.   Finally, Wilson was also intimately involved with that bank’s predecessor, the Bank of Pennsylvania.

All of these activities appear to confirm Professor Miller’s basic insight that whoever drafted the Necessary and Proper Clause was immersed in “the conventions and usages of corporate law.”  But is there evidence that Wilson’s use of the phrase “necessary and proper” may have been influenced directly by his professional experiences as a lawyer for these banks and land companies?  Yes, there is.  Consider just five illustrations.

Wilson’s Plan for the Bank of Pennsylvania.  On July 5, 1780, Wilson and his partners published a “Plan for the Bank of Pennsylvania” in the Pennsylvania Gazette.  The draft plan in the Wilson Papers, dated June 25, authorized a Board of Inspectors to “have full Access at all reasonable hours to the Books and Papers of this Bank . . . and, if they think it necessary or proper, [to] hold a general meeting of the Sureties, in order to lay the Proceedings before them, to ask their Advice, or to propose any new Regulations, a Change of Officers, or any other Matter or Thing they shall judge fit.”    The draft plan also called for subscribers “to give their Bonds to the Director of the Bank, in such sums as each shall think proper, binding himself for the Payment thereof, if it shall become necessary in order to fulfill and discharge the Notes or Contracts of the Bank.”

Morris’s Letter to Congress on the Bank of North America.  On May 17, 1781, after consulting with Wilson and his other advisors,  Robert Morris submitted his plan to Congress for incorporating the Bank of North America.  In his cover letter to the President of Congress (Samuel Huntington), Morris asked “whether it may not be necessary and proper that Congress should make immediate application to the several States to invest them with the powers of incorporating a bank, and for prohibiting all other banks or bankers in these States, at least during the war.”

Morris’s Plan for the Bank of North America.  On May 26, 1781, Congress took up and debated Morris’s proposal to incorporate the Bank of North America.  The eighth and ninth articles of the proposed charter, which Wilson probably had a hand in drafting, enumerated the powers of the Board of Directors as follows:

VIII. That the Board of Directors determine the manner of doing business, and the rules and forms to be pursued, appoint the various officers which they may find necessary, and dispose of the money and credit of the Bank for the interest and benefit of the proprietors, and make, from time to time, such dividends, out of the profits, as they may think proper.
IX. That the Board be empowered, from time to time, to open new subscriptions, for the purpose of increasing the capital of the Bank, on such terms and conditions as they shall think proper.

Act of Incorporation for the Bank of North America.  On December 31, 1781, Congress passed an ordinance incorporating the subscribers to the Bank of North America.  The ordinance designated Thomas Willing as the first president of the bank, and it named Willing and eleven others, including Wilson and Fitzsimmons, as its first directors.   A preamble to the ordinance held that “it is proper and necessary that the Subscribers to this Bank should be incorporated in order to carry into full effect the good ends proposed by it.”   After enumerating several of the bank’s powers, the ordinance concluded with this sweeping clause:

And be it further ordained, That the said corporation may make, ordain, establish and put into execution, such laws, ordinances and regulations, as shall seem necessary and convenient to the government of the said corporation. . . . And be it further ordained, That the said corporation shall have full power and authority to make, have, and use a common seal, with such device and inscription as they shall think proper.

Willing’s Letter to Wilson.  On May 12, 1785, the president of the Bank of North America, Thomas Willing, wrote to Wilson to update him on some of the bank’s recent activities and to enlist his assistance to protect its corporate charter, which was then under attack by the Pennsylvania legislature.  Willing instructed Wilson to take whatever appropriate steps were needed to promote the bank’s interests in Congress: “As to the business of the bank, the whole must be left to your prudence to take such steps in Congress as the magnitude of the question and the complexion of that body may render necessary and proper.”

All of these examples and others like them demonstrate that Wilson was intimately acquainted with the phrase “necessary and proper” and similar language before he incorporated this phrase into the Constitution while serving on the Committee of Detail.  Do they also prove that Wilson’s corporate law practice actually led him to use this language when drafting the Necessary and Proper Clause?  This inference is tempting, but a closer look at the full record suggests that any such conclusion may be overdrawn.  Although it does seem likely that the basic sweeping clause function of the Necessary and Proper Clause was informed by Wilson’s sophisticated understanding of the law of corporations, the “necessary and proper” language itself may or may not have derived from his experiences as a corporate lawyer.  The main reason for resisting this plausible-seeming inference is that the evidence reviewed thus far is just the tip of the iceberg.  On balance, the weight of the evidence appears to point in a different direction, as I will explain in my next post.

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