In National Bank v. Watsontown Bank, the United States Supreme Court was asked to decide whether a national bank could sue a state bank in federal court. The case arose when the National Bank of Watsontown, Pennsylvania, sued the Watsontown Bank in federal court for the payment of a promissory note. The Watsontown Bank argued that the National Bank could not sue in federal court because it was a state bank and the National Bank was a national bank. The Supreme Court held that the National Bank could sue the Watsontown Bank in federal court. The Court reasoned that the National Bank was a corporation created by an act of Congress and was therefore a citizen of the United States. The Court further reasoned that the Watsontown Bank was also a citizen of the United States because it was a corporation created by the laws of Pennsylvania. Therefore, the Court held that the National Bank could sue the Watsontown Bank in federal court. In conclusion, the Supreme Court held that the National Bank could sue the Watsontown Bank in federal court because both banks were citizens of the United States. This decision established the precedent that national banks could sue state banks in federal court.

Justice Field delivered the dissenting opinion in National Bank v. Watsontown Bank, arguing that Congress did not have the power to pass a law allowing national banks to sue state banks in federal court. He argued that this was an exercise of judicial power and thus unconstitutional under Article III of the Constitution. Furthermore, he argued that it violated states' rights by taking away their sovereign right to regulate banking within their borders without interference from other states or from Congress. He also noted that such a law would create an unequal playing field between national and state banks since only one type could take advantage of this privilege; therefore, he concluded it should be struck down as unconstitutional.