The Corporate Law Background of the Necessary and Proper Clause: A Synopsis and Practical Effect

Candice I. Walker

What exactly does the phrase “necessary and proper” mean as it pertains to Article I, Section 8 of the United States Constitution? Did the Framers intend for the doublet to be interpreted as a sort of “rhetorical flourish—” as synonymous terms merely sounding attractive, but having little independent content and thus, arguably guilty of superfluity?  Or was the clause written with an implicit understanding that the words would carry distinct meanings? Further, what other implications was the phrase intended to have?

“The Constitution itself offers little clue . . . [t]he records of the Constitutional Convention provide scant evidence as to how the Framers understood the Clause, and the ratifying debates are not illuminating. Case law has also been less than enlightening. In McCullough v. Maryland, what appears to be the first and last attempt at deciphering the perplexing Clause, the Supreme Court seemed to buckle under the challenge and instead settled on this: Congress has broad discretion to make commercial decisions so long as they are plainly adapted to a constitutionally permitted end, and the Court will not question Congress on these commerce-related issues. The McCullough Court thus concluded that “necessary and proper” is whatever the Congress says it is.

In his article, The Corporate Law Background of the Necessary and Proper Clause, Geoffrey P. Miller offers a convincing attempt at unraveling the “fantastic” age-old “jumble” and concludes the following after his examination of a series of eighteenth and nineteenth century corporate charters: the two words in the Clause do have distinct meanings, and more importantly, “proper” means that no federal law may, “without adequate justification, discriminate against or otherwise disproportionately affect the interests of particular citizens vis-à-vis others.” This interpretation raises an interesting implication with respect to equal protection under the law.

 Miller’s article begins by describing the ambiguity of “necessary and proper,” noting the lack of attention given to the clause during the Founding era.  He suggests that the Clause is “a [] provision, which, despite its importance, is not usually the subject of negotiation or debate” and likely common in usage. This “commonness” would explain why so few people saw a need for any interpretive probing or attention whatsoever, at the time of its drafting.

Next, Miller finds that the doublet “necessary and proper” was part of the standard vernacular of attorneys of the day and suggests that guidance on the origin and meaning of the Clause might be found in the conventions and usages of corporate law. After all, “the [United States] Constitution, [] is itself a corporate charter—a document creating a body corporate and defining its powers.”

After surveying a series of eighteenth and nineteenth century corporate charters, Miller observed an apparent parallel between these corporate charters from the Founding era and the U.S. Constitution. The study unearthed an overwhelming incidence of clauses including the terms “necessary” and “proper,” that defined the legislative discretion of those responsible for overseeing corporate entities. Miller determined that if the words in the Constitution are to mean what the people of the United States at that time thought the words or phrase meant, then the definitions of necessary and proper as used in the corporate charters are certainly relevant, if not dispositive.

Thus, Miller’s deconstruction of these “scope clauses,” as he named them, and analysis of their operation within the eighteenth and nineteenth century charters yielded the following findings. First, there is no evidence that the Necessary and Proper Clause, standing alone, confers any authority on Congress. The scope clauses in the early charters did not grant authority. By virtue of semantics, Miller explains, the terms were merely adjectival and simply “modif[ied] authority otherwise granted,” and that the same is true of the Constitution’s Necessary and Proper Clause.

 Miller’s main argument is that that the term proper might then convey the idea that “in carrying out a given authority, the company or its managers should design the actions taken so as to consider the effects on stakeholders in the firm.” Thus, by analogy, “proper” in the Constitution requires that laws not only serve the general interest of the country as a whole, but must also take into account the individual interests of particular citizens. Therefore, they may not disadvantage a class of citizens. And even if a law qualifies as “necessary,” it could still be outside congressional authority if, without adequate justification, it discriminates against or disproportionately affects the interests of individual citizens vis-à-vis others.

To the extent the Clause confers any authority at all, evidence from the early charters suggests that it does not confer general legislative power on Congress, but instead “limits [it] to actions that are necessary and proper for carrying into execution the powers expressly granted.” Miller extends this line of reasoning: corporate practice frequently used doublets. However, they were nearly absent in ordinary grants of corporate authority to,  for example, decide meeting times, declare dividends, hire employees, set salaries, etc. Contrarily, doublets were most observed in clauses conferring legislative powers to directors, commissioners, or trustees—clauses most like the grant of legislative authority associated with the Necessary and Proper Clause, which Miller emphasizes, suggested deliberateness on the part of the Framers to “impose a meaningful scope limitation on the exercise of such broad-ranging authority.”

Additionally, Miller maintains that the corporate law background suggests that the Necessary and Proper Clause does not bestow upon the Congress unilateral discretion to draw the boundaries of its authority. Had the Framers intended this outcome, the Clause would expressly confer authority to self-decide power. For example, Congress might have been expressly granted the power to “make all Laws which as to it shall seem necessary and proper,” as were many of the legislative bodies in the charters Miller surveyed expressly. Instead, it was granted the mere power to make all Laws which shall be necessary.

Miller concludes with the idea that the corporate law background provides support for the suggestion that “necessary” and “proper” carry distinct meanings in the constitutional context. The former “requires that there be a reasonably close connection between constitutionally recognized ends and legislative means. . . .” The latter means that federal law may not, without adequate justification, discriminate against or otherwise disproportionately affect the interests of particular citizens vis-à-vis others.” He suggests that this line of reasoning can inform views of contemporary issues and thus affect that which concerns corporate shareholders as the definition of “proper” plays a distinctive role in their interests.

Miller’s theory about the definition of proper raises an interesting implication for equal protection under the law. If Miller’s interpretation of “proper” within the context of the Necessary and Proper Clause—to mean that federal laws may not unjustifiably discriminate against or disproportionately affect the interests of certain individuals vis-à-vis others—is accepted as true,  and this interpretation was intended by the Framers, then strong argument exists that equal protection under the law existed (or at least should have existed) long before the Equal Protection Clause was passed and ratified in 1866 and 1868, respectively. Equal protection must (or should) have existed at the time of the Constitution’s ratification in 1788, and therefore, under the Commerce Clause. This would have, then, rendered any Congressional enactment at that time having a disparate impact, on, for example, minority groups, outside the bounds of congressional authority.

The Corporate Law Background of the Necessary and Proper Clause’s analysis of the Necessary and Proper Clause, and the implication of Miller’s viewpoints respecting the Clause’s purported corporate origins are at the very least, meticulously researched and compelling. Nevertheless, his definition of “proper” is likely to gain traction only if his interpretation is applicable in such a way that prohibits Congress from unfairly burdening parts of the population with laws that have a disparate impact on certain groups.

Candice I. Walker is a Staff Editor for the Delaware Journal of Corporate Law, Volume 40, and a Research Assistant to Professor Bruce Grohsgal, the Helen S. Balick Visiting Professor in Business Bankruptcy Law.

Suggested Citation: Candice I. Walker, The Corporate Law Background of the Necessary and Proper Clause: A Synopsis and Practical Effect, Del. J. Corp. L (April 27, 2015), www.djcl.org/blog.

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