In the 1935 case of Posadas, Collector of Internal Revenue v. National City Bank, the U.S Supreme Court ruled in favor of Posadas and against National City Bank. The dispute centered on whether or not a tax imposed by the Philippine government was constitutional under US law since at that time Philippines was a territory controlled by America. The bank argued that this tax violated their rights to equal protection under American law as it discriminated between domestic and foreign corporations operating within its jurisdiction. However, Justice Sutherland writing for majority held that such differential treatment did not violate any provision of the Federal Constitution applicable to territorial legislation; rather it fell within Congress's power over territories which includes authority to allow local governments therein broad discretion in legislative classification provided no fundamental right is infringed upon.

In the dissenting opinion for Posadas, Collector of Internal Revenue v. National City Bank, Justice Benjamin N. Cardozo argued that the majority's decision was a departure from established principles of law and equity. He contended that under existing laws and precedents, taxes were not to be imposed on foreign corporations for income derived from sources outside U.S territory unless explicitly stated by Congress. In this case involving a New York bank operating in Puerto Rico, he believed there was no clear legislative intent to tax such income earned abroad. Furthermore, he pointed out that if Congress had intended to impose such taxation it would have done so clearly rather than leaving it up to judicial interpretation or inference as suggested by the majority ruling.