The Contracts Clause
Early Interpretations of the Contract Clause
Fletcher v. Peck (1810)
10 U.S. 87 (1810)
Decision: Affirmed
Vote: 6-0
Majority: Marshall, joined by Cushing, Chase, Washington, Livingston
Concur: Johnson
Mr. Chief Justice MARSHALL delivered the opinion of the Court.
The pleadings being now amended, this cause comes on again to be heard on sundry demurrers, and on a special verdict.
The suit was instituted on several covenants contained in a deed made by John Peck, the defendant in error, conveying to Robert Fletcher, the plaintiff in error, certain lands which were part of a large purchase made by James Gunn and others, in the year 1795, from the State of Georgia, the contract for which was made in the form of a bill passed by the Legislature of that State …
The only question, then, presented by this demurrer, for the consideration of the Court is this: did the then Constitution of the State of Georgia prohibit the Legislature to dispose of the lands which were the subject of this contract in the manner stipulated by the contract?
The question whether a law is void for its repugnancy to the Constitution is at all times a question of much delicacy, which ought seldom, if ever, to be decided in a doubtful case. The Court, when impelled by duty to render such a judgment, would be unworthy of its station could it be unmindful of the solemn obligations which that station imposes. But it is not on slight implication and vague conjecture that the legislature is to be pronounced to have transcended its powers, and its act to be considered void. The opposition between the Constitution and the law should be such that the judge feels a clear and strong conviction of their incompatibility with each other.
In this case, the court can perceive no such opposition. In the Constitution of Georgia, adopted in the year 1789, the court can perceive no restriction on the legislative power which inhibits the passage of the Act of 1795. The court cannot say that, in passing that Act, the Legislature has transcended its powers and violated the Constitution …
The third count recites the undue means practised on certain members of the Legislature, as stated in the second count, and then alleges that, in consequence of these practices and of other causes, a subsequent Legislature passed an act annulling and rescinding the law under which the conveyance to the original grantees was made, declaring that conveyance void, and asserting the title of the State to the lands it contained. The count proceeds to recite at large, this rescinding act, and concludes with averring that, by reason of this act, the title of the said Peck in the premises was constitutionally and legally impaired and rendered null and void …
The principle asserted is that one legislature is competent to repeal any act which a former legislature was competent to pass, and that one legislature cannot abridge the powers of a succeeding legislature. The correctness of this principle so far as it respects general legislation cannot be controverted. But if an act be done under a law, a succeeding legislature cannot undo it. The past cannot be recalled by the most absolute power. Conveyances have been made, those conveyances have vested legal estate, and, if those estates may be seized by the sovereign authority, still that they originally vested is a fact, and cannot cease to be a fact.
When, then, a law is in its nature a contract, when absolute rights have vested under that contract, a repeal of the law cannot devest those rights; and the act of annulling them, if legitimate, is rendered so by a power applicable to the case of every individual in the community.
It may well be doubted whether the nature of society and of government does not prescribe some limits to the legislative power; and, if any be prescribed, where are they to be found if the property of an individual, fairly and honestly acquired, may be seized without compensation?
To the Legislature all legislative power is granted, but the question whether the act of transferring the property of an individual to the public be in the nature of the legislative power is well worthy of serious reflection.
The validity of this rescinding act, then, might well be doubted, were Georgia a single sovereign power. But Georgia cannot be viewed as a single, unconnected, sovereign power, on whose legislature no other restrictions are imposed than may be found in its own Constitution. She is a part of a large empire; she is a member of the American Union; and that Union has a Constitution the supremacy of which all acknowledge, and which imposes limits to the legislatures of the several States which none claim a right to pass. The Constitution of the United States declares that no State shall pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts.
Does the case now under consideration come within this prohibitory section of the Constitution?
In considering this very interesting question, we immediately ask ourselves what is a contract? Is a grant a contract?
A contract is a compact between two or more parties, and is either executory or executed. A contract executed is one in which the object of contract is performed, and this, says Blackstone, differs in nothing from a grant. The contract between Georgia and the purchasers was executed by the grant. A contract executed, as well as one which is executory, contains obligations binding on the parties …
Since, then, in fact, a grant is a contract executed, the obligation of which still continues, and since the Constitution uses the general term “contract” without distinguishing between those which are executory and those which are executed, it must be construed to comprehend the latter as well as the former. A law annulling conveyances between individuals, and declaring that the grantors should stand seised of their former estates, notwithstanding those grants, would be as repugnant to the Constitution as a law discharging the vendors of property from the obligation of executing their contracts by conveyances. It would be strange if a contract to convey was secured by the Constitution, while an absolute conveyance remained unprotected.
If, under a fair construction the Constitution, grants are comprehended under the term “contracts,” is a grant from the State excluded from the operation of the provision? Is the clause to be considered as inhibiting the State from impairing the obligation of contracts between two individuals, but as excluding from that inhibition contracts made with itself?
The words themselves contain no such distinction. They are general, and are applicable to contracts of every description. If contracts made with the State are to be exempted from their operation, the exception must arise from the character of the contracting party, not from the words which are employed.
Whatever respect might have been felt for the State sovereignties, it is not to be disguised that the framers of the Constitution viewed with some apprehension the violent acts which might grow out of the feelings of the moment, and that the people of the United States, in adopting that instrument, have manifested a determination to shield themselves and their property from the effects of those sudden and strong passions to which men are exposed. The restrictions on the legislative power of the States are obviously founded in this sentiment, and the Constitution of the United States contains what may be deemed a bill of rights for the people of each State …
It is, then, the unanimous opinion of the Court that, in this case, the estate having passed into the hands of a purchaser for a valuable consideration, without notice, the State of Georgia was restrained, either by general principles which are common to our free institutions or by the particular provisions of the Constitution of the United States, from passing a law whereby the estate of the plaintiff in the premises so purchased could be constitutionally and legally impaired and rendered null and void.
Sturges v. Crowninshield (1819)
17 U.S. 4 (1819)
Decision: Reversed
Vote: 6-0
Majority: Marshall, joined by Johnson, Duvall, Todd, Livingston, Washington, and Story
MR. CHIEF JUSTICE MARSHALL delivered the opinion of the Court.
This case is adjourned from the Court of the United States for the First Circuit and the District of Massachusetts on several points on which the judges of that court were divided …
The first is whether, since the adoption of the Constitution of the United States, any state has authority to pass a bankrupt law, or whether the power is exclusively vested in the Congress of the United States? This question depends on the following clause in the 8th section of the first article of the Constitution of the United States. “The Congress shall have power,” &c., to “establish a uniform rule of naturalization, and uniform laws on the subject of bankruptcies, throughout the United States.” …
In considering this question, it must be recollected that previous to the formation of the new Constitution, we were divided into independent states, united for some purposes but in most respects sovereign …
These powers proceed not from the people of America, but from the people of the several states, and remain, after the adoption of the Constitution, what they were before except so far as they may be abridged by that instrument … The principle laid down by the counsel for the plaintiff in this respect is undoubtedly correct. Whenever the terms in which a power is granted to Congress or the nature of the power require that it should be exercised exclusively by Congress, the subject is as completely taken from the state legislatures, as if they had been expressly forbidden to act on it. Is the power to establish uniform laws on the subject of bankruptcies, throughout the United States of this description?
Congress is not authorized merely to pass laws, the operation of which shall be uniform, but to establish uniform laws on the subject throughout the United States. This establishment of uniformity is perhaps incompatible with state legislation on that part of the subject to which the acts of Congress may extend. But the subject is divisible in its nature into bankrupt and insolvent laws, though the line of partition between them is not so distinctly marked as to enable any person to say with positive precision what belongs exclusively to the one and not to the other class of laws.
When laws of each description may be passed by the same legislature, it is unnecessary to draw a precise line between them. The difficulty can arise only in our complex system, where the Legislature of the Union possesses the power of enacting bankrupt laws and those of the states the power of enacting insolvent laws …
If the right of the states to pass a bankrupt law is not taken away by the mere grant of that power to Congress, it cannot be extinguished; it can only be suspended by the enactment of a general bankrupt law. The repeal of that law cannot, it is true, confer the power on the states, but it removes a disability to its exercise which was created by the act of Congress. [I]t is sufficient to say that until the power to pass uniform laws on the subject of bankruptcies be exercised by Congress, the states are not forbidden to pass a bankrupt law provided it contain no principle which violates the 10th section of the first article of the Constitution of the United States. This opinion renders it totally unnecessary to consider the question whether the law of New York is or is not a bankrupt law.
In discussing the question whether a state is prohibited from passing such a law as this, our first inquiry is into the meaning of words in common use — what is the obligation of a contract, and what will impair it? It would seem difficult to substitute words which are more intelligible or less liable to misconstruction than those who are to be explained. A contract is an agreement in which a party undertakes to do or not to do a particular thing. The law binds him to perform his undertaking, and this is, of course, the obligation of his contract. In the case at bar, the defendant has given his promissory note to pay the plaintiff a sum of money on or before a certain day. The contract binds him to pay that money on that day, and this is its obligation. Any law which releases a part of this obligation must, in the literal sense of the word, impair it. Much more must a law impair it which makes it totally invalid and entirely discharges it …
The argument drawn from the omission in the Constitution to prohibit the states from passing insolvent laws admits of several satisfactory answers. It was not necessary, nor would it have been safe, had it even been the intention of the framers of the Constitution to prohibit the passage of all insolvent laws, to enumerate particular subjects to which the principle they intended to establish should apply. [T]he convention did not intend to prohibit the passage of all insolvent laws …
The argument which has been pressed most earnestly at the bar is that although all legislative acts which discharge the obligation of a contract without performance are within the very words of the Constitution, yet an insolvent act containing this principle is not within its spirit, because such acts have been passed by colonial and state legislatures from the first settlement of the country, and because we know from the history of the times that the mind of the convention was directed to other laws which were fraudulent in their character, which enabled the debtor to escape from his obligation and yet hold his property, not to this, which is beneficial in its operation …
It seems scarcely possible to suppose that the framers of the Constitution, if intending to prohibit only laws authorizing the payment of debts by installment, would have expressed that intention by saying “no state shall pass any law impairing the obligation of contracts.” No men would so express such an intention. No men would use terms embracing a whole class of laws for the purpose of designating a single individual of that class. No court can be justified in restricting such comprehensive words to a particular mischief to which no allusion is made.
The fair and we think the necessary construction of the sentence requires that we should give these words their full and obvious meaning … The attention of the convention … was particularly directed to … acts which enabled the debtor to discharge his debt otherwise than was stipulated in the contract. Had nothing more been intended, nothing more would have been expressed. But in the opinion of the convention, much more remained to be done. The same mischief might be effected by other means. To restore public confidence completely, it was necessary not only to prohibit the use of particular means by which it might be effected, but to prohibit the use of any means by which the same mischief might be produced. The convention appears to have intended to establish a great principle that contracts should be inviolable. The Constitution therefore declares that no state shall pass “any law impairing the obligation of contracts.”
…
It is the opinion of the Court that the act of the State of New York, which is pleaded by the defendant in this cause, so far as it attempts to discharge this defendant from the debt in the declaration mentioned, is contrary to the Constitution of the United States, and that the plea is no bar to the action. …
Trustees of Dartmouth College v. Woodward (1819)
17 U.S. 518 (1819)
Decision: Reversed
Vote: 4-1
Majority: Marshall, joined by Johnson and Livingston
Concur: Washington, joined by Livingston
Concur: Story, joined by Livingston
Dissent: Duvall
Not participating: Todd
Mr. Chief Justice MARSHALL delivered the opinion of the Court.
This is an action of trover, brought by the Trustees of Dartmouth College against William H. Woodward, in the State court of New Hampshire, for the book of records, corporate seal, and other corporate property, to which the plaintiffs allege themselves to be entitled …
The Superior Court of judicature of New Hampshire rendered a judgment upon this verdict for the defendant, which judgment has been brought before this court by writ of error. The single question now to be considered is do the acts to which the verdict refers violate the Constitution of the United States?
This court can be insensible neither to the magnitude nor delicacy of this question. The validity of a legislative act is to be examined; and the opinion of the highest law tribunal of a State is to be revised — an opinion which carries with it intrinsic evidence of the diligence, of the ability, and the integrity, with which it was formed. On more than one occasion, this Court has expressed the cautious circumspection with which it approaches the consideration of such questions, and has declared that in no doubtful case would it pronounce a legislative act to be contrary to the Constitution. But the American people have said in the Constitution of the United States that “no State shall pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts.” In the same instrument, they have also said, “that the judicial power shall extend to all cases in law and equity arising under the Constitution.” On the judges of this Court, then, is imposed the high and solemn duty of protecting, from even legislative violation, those contracts which the Constitution of our country has placed beyond legislative control; and however irksome the task may be, this is a duty from which we dare not shrink.
The title of the plaintiffs originates in a charter dated the 13th day of December, in the year 1769, incorporating twelve persons therein mentioned, by the name of “The Trustees of Dartmouth College,” granting to them and their successors the usual corporate privileges and powers, and authorizing the Trustees, who are to govern the college, to fill up all vacancies which may be created in their own body.
The defendant claims under three acts of the Legislature of New Hampshire, the most material of which was passed on the 27th of June, 1816 … Among other alterations in the charter, this act increases the number of Trustees to twenty-one, gives the appointment of the additional members to the executive of the State, and creates a Board of Overseers with power to inspect and control the most important acts of the Trustees. This Board consists of twenty-five persons … The majority of the Trustees of the college have refused to accept this amended charter, and have brought this suit for the corporate property, which is in possession of a person holding by virtue of the acts which have been stated.
It can require no argument to prove that the circumstances of this case constitute a contract. An application is made to the Crown for a charter to incorporate a religious and literary institution. In the application, it is stated that large contributions have been made for the object, which will be conferred on the corporation as soon as it shall be created. The charter is granted, and on its faith the property is conveyed. Surely, in this transaction, every ingredient of a complete and legitimate contract is to be found. The points for consideration are, 1. Is this contract protected by the Constitution of the United States? 2. Is it impaired by the acts under which the defendant holds? …
- On the first point, it has been argued that the word “contract,” in its broadest sense, would comprehend the political relations between the government and its citizens, would extend to offices held within a State, for State purposes, and to many of those laws concerning civil institutions, which must change with circumstances and be modified by ordinary legislation, which deeply concern the public, and which, to preserve good government, the public judgment must control. That even marriage is a contract, and its obligations are affected by the laws respecting divorces. That the clause in the Constitution, if construed in its greatest latitude, would prohibit these laws. Taken in its broad, unlimited sense, the clause would be an unprofitable and vexatious interference with the internal concerns of a State, would unnecessarily and unwisely embarrass its legislation, and render immutable those civil institutions, which are established for purposes of internal government, and which, to subserve those purposes, ought to vary with varying circumstances. [A]s the framers of the Constitution could never have intended to insert in that instrument a provision so unnecessary, so mischievous, and so repugnant to its general spirit, the term “contract” must be understood in a more limited sense. That it must be understood as intended to guard against a power of at least doubtful utility, the abuse of which had been extensively felt, and to restrain the legislature in future from violating the right to property. That, anterior to the formation of the Constitution, a course of legislation had prevailed in many, if not in all, of the States, which weakened the confidence of man in man, and embarrassed all transactions between individuals, by dispensing with a faithful performance of engagements. To correct this mischief by restraining the power which produced it, the State legislatures were forbidden “to pass any law impairing the obligation of contracts,” that is, of contracts respecting property, under which some individual could claim a right to something beneficial to himself, and that, since the clause in the Constitution must in construction receive some limitation, it may be confined, and ought to be confined, to cases of this description, to cases within the mischief it was intended to remedy.
The general correctness of these observations cannot be controverted. That the framers of the Constitution did not intend to restrain the States in the regulation of their civil institutions, adopted for internal government, and that the instrument they have given us is not to be so construed, may be admitted …
The parties in this case differ less on general principles, less on the true construction of the Constitution in the abstract, than on the application of those principles to this case and on the true construction of the charter of 1769. This is the point on which the cause essentially depends. If the act of incorporation be a grant of political power, if it create a civil institution, to be employed in the administration of the government, or if the funds of the college be public property, or if the State of New Hampshire, as a government, be alone interested in its transactions, the subject is one in which the legislature of the State may act according to its own judgment, unrestrained by any limitation of its power imposed by the Constitution of the United States.
But if this be a private eleemosynary institution, endowed with a capacity to take property for objects unconnected with government, whose funds are bestowed by individuals on the faith of the charter; if the donors have stipulated for the future disposition and management of those funds in the manner prescribed by themselves, there may be more difficulty in the case, although neither the persons who have made these stipulations, nor those for whose benefit they were made should be parties to the cause. Those who are no longer interested in the property may yet retain such an interest in the preservation of their own arrangements as to have a right to insist that those arrangements shall be held sacred … It becomes then the duty of the Court, most seriously to examine this charter and to ascertain its true character …
From this review of the charter, it appears that Dartmouth College is an eleemosynary institution incorporated for the purpose of perpetuating the application of the bounty of the donors to the specified objects of that bounty; that its Trustees or Governors were originally named by the founder and invested with the power of perpetuating themselves; that they are not public officers, nor is it a civil institution, participating in the administration of government, but a charity school or a seminary of education incorporated for the preservation of its property and the perpetual application of that property to the objects of its creation …
Can this be such a contract as the Constitution intended to withdraw from the power of State legislation?
This is plainly a contract to which the donors, the Trustees, and the Crown (to whose rights and obligations New Hampshire succeeds) were the original parties. It is a contract made on a valuable consideration. It is a contract for the security and disposition of property. It is a contract on the faith of which real and personal estate has been conveyed to the corporation. It is, then, a contract within the letter of the Constitution, and within its spirit also, unless the fact that the property is invested by the donors in Trustees for the promotion of religion and education, for the benefit of persons who are perpetually changing, though the objects remain the same, shall create a particular exception taking this case out of the prohibition contained in the Constitution …
The opinion of the Court, after mature deliberation, is that this is a contract the obligation of which cannot be impaired without violating the Constitution of the United States. This opinion appears to us to be equally supported by reason and by the former decisions of this Court.
- We next proceed to the inquiry whether its obligation has been impaired by those acts of the Legislature of New Hampshire to which the special verdict refers.
From the review of this charter which has been taken, it appears that the whole power of governing the College, of appointing and removing tutors, of fixing their salaries, of directing the course of study to be pursued by the students, and of filling up vacancies created in their own body, was vested in the Trustees. On the part of the Crown, it was expressly stipulated that this corporation thus constituted should continue forever, and that the number of Trustees should forever consist of twelve, and no more. By this contract, the Crown was bound, and could have made no violent alteration in its essential terms without impairing its obligation.
A repeal of this charter at any time prior to the adoption of the present Constitution of the United States would have been an extraordinary and unprecedented act of power, but one which could have been contested only by the restrictions upon the legislature, to be found in the constitution of the State. But the Constitution of the United States has imposed this additional limitation –that the legislature of a State shall pass no act “impairing the obligation of contracts.”
On the effect of this law, two opinions cannot be entertained. Between acting directly and acting through the agency of Trustees and Overseers, no essential difference is perceived. The whole power of governing the College is transferred from Trustees, appointed according to the will of the founder, expressed in the charter, to the Executive of New Hampshire …
Upon the whole, I am of opinion that the above acts of New Hampshire, not having received the assent of the corporate body of Dartmouth College, are not binding on them, and, consequently that the judgment of the State Court ought to be reserved.
[Judgment affirmed.]
Mr. Justice STORY [concurring].
In my judgment, it is perfectly clear that any act of a legislature which takes away any powers or franchises vested by its charter in a private corporation, or its corporate officers, or which restrains or controls the legitimate exercise of them, or transfers them to other persons without its assent is a violation of the obligations of that charter. If the legislature mean to claim such an authority, it must be reserved in the grant. The charter of Dartmouth College contains no such reservation, and I am therefore bound to declare that the acts of the Legislature of New Hampshire now in question do impair the obligations of that charter, and are consequently unconstitutional and void …
Under these impressions, I have pondered on the case before us with the most anxious deliberation. I entertain great respect for the Legislature whose acts are in question. I entertain no less respect for the enlightened tribunal whose decision we are called upon to review. In the examination, I have endeavored to keep my steps super antiquas vias of the law, under the guidance of authority and principle. It is not for judges to listen to the voice of persuasive eloquence or popular appeal. We have nothing to do, but to pronounce the law as we find it, and, having done this, our justification must be left to the impartial judgment of our country …