Background
On April 8, 1816, the Congress of the United States passed an act titled "An Act to Incorporate the Subscribers to the Bank of the United States" which provided for the incorporation of the Second Bank of the United States. The Bank first went into full operation in Philadelphia, Pennsylvania. In 1817, the Bank opened a branch in Baltimore, Maryland, and transacted and carried on business as a branch of the Bank of the United States by issuing bank notes, discounting promissory notes, and performing other operations usual and customary for banks to do and perform. Both sides of the litigation admitted that the President, directors, and company of the Bank had no authority to establish the Baltimore branch, or office of discount and deposit, other than the fact that Maryland had adopted the Constitution of the United States.
On February 11, 1818, the General Assembly of Maryland passed an act titled, "an act to impose a tax on all banks, or branches thereof, in the State of Maryland, not chartered by the legislature":
Be it enacted by the General Assembly of Maryland that if any bank has established or shall, without authority from the State first had and obtained establish any branch, office of discount and deposit, or office of pay and receipt in any part of this State, it shall not be lawful for the said branch, office of discount and deposit, or office of pay and receipt to issue notes, in any manner, of any other denomination than five, ten, twenty, fifty, one hundred, five hundred and one thousand dollars, and no note shall be issued except upon stamped paper of the following denominations; that is to say, every five dollar note shall be upon a stamp of ten cents; every ten dollar note, upon a stamp of twenty cents; every twenty dollar note, upon a stamp of thirty cents; every fifty dollar note, upon a stamp of fifty cents; every one hundred dollar note, upon a stamp of one dollar; every five hundred dollar note, upon a stamp of ten dollars; and every thousand dollar note, upon a stamp of twenty dollars; which paper shall be furnished by the Treasurer of the Western Shore, under the direction of the Governor and Council, to be paid for upon delivery; provided always that any institution of the above description may relieve itself from the operation of the provisions aforesaid by paying annually, in advance, to the Treasurer of the Western Shore, for the use of State, the sum of $15,000.
And be it enacted that the President, cashier, each of the directors and officers of every institution established or to be established as aforesaid, offending against the provisions aforesaid shall forfeit a sum of $500 for each and every offence, and every person having any agency in circulating any note aforesaid, not stamped as aforesaid directed, shall forfeit a sum not exceeding $100, every penalty aforesaid to be recovered by indictment or action of debt in the county court of the county where the offence shall be committed, one-half to the informer and the other half to the use of the State...
James William McCulloch, head of the Baltimore Branch of the Second Bank of the United States, refused to pay the tax. The lawsuit was filed by John James, an informer who sought to collect one half of the fine as provided for by the statute. The case was appealed to the Maryland Court of Appeals where the state of Maryland argued that "the Constitution is silent on the subject of banks." It was Maryland's contention that because the Constitution did not specifically state that the federal government was authorized to charter a bank, the Bank of the United States was unconstitutional. The court upheld Maryland. The case was then appealed to the Supreme Court.
Read more about this topic: McCulloch V. Maryland
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