Fletcher v. Peck

Fletcher v. Peck,[1610] which was decided in 1810, has the double claim to fame that it was the first case in which the Supreme Court held a State enactment to be in conflict with the Constitution,[1611] and also the first case to hold that the contracts clause protected public grants. By an act passed on January 7, 1795, the Georgia Legislature directed the sale to four land companies of public lands comprising most of what are now the States of Alabama and Mississippi. As soon became known, the passage of the measure had been secured by open and wholesale bribery. So when a new legislature took over in the winter of 1795-1796, almost its first act was to revoke the sale made the previous year.

Meantime, however, the land companies had disposed of several millions of acres of their holdings to speculators and prospective settlers, and following the rescinding act some of these took counsel with Alexander Hamilton as to their rights. In an opinion which was undoubtedly known to the Court when it decided Fletcher v. Peck, Hamilton characterized the repeal as contravening "the first principles of natural justice and social policy," especially so far as it was made, "to the prejudice * * * of third persons * * * innocent of the alleged fraud or corruption; * * * [Moreover, he added,] the Constitution of the United States, article first, section tenth, declares that no State shall pass a law impairing the obligations of contract. This must be equivalent to saying no State shall pass a law revoking, invalidating, or altering a contract. Every grant from one to another, whether the grantor be a State or an individual, is virtually a contract that the grantee shall hold and enjoy the thing granted against the grantor, and his representatives. It, therefore, appears to me that taking the terms of the Constitution in their large sense, and giving them effect according to the general spirit and policy of the provisions, the revocation of the grant by the act of the legislature of Georgia may justly be considered as contrary to the Constitution of the United States, and, therefore null. And that the courts of the United States, in cases within their jurisdiction, will be likely to pronounce it so."[1612] In the debate to which the "Yazoo Land Frauds," as they were contemporaneously known, gave rise in Congress, Hamilton's views were quoted frequently.

So far as it invokes the obligation of contracts clause, Marshall's opinion in Fletcher v. Peck performs two creative acts. He recognizes that an obligatory contract is one still to be performed—in other words, is an executory contract; also that a grant of land is an executed contract—a conveyance. But, he asserts, every grant is attended by "an implied contract" on the part of the grantor not to claim again the thing granted. Thus, grants are brought within the category of contracts having continuing obligation and so within article I, Sec. 10. But the question still remained of the nature of this obligation. Marshall's answer to this can only be inferred from his statement at the end of his opinion. The State of Georgia, he says, "was restrained" from the passing of the rescinding act "either by general principles which are common to our free institutions, or by particular provisions of the Constitution of the United States."[1613]

New Jersey v. Wilson

The protection thus thrown about land grants was presently extended, in the case of New Jersey v. Wilson,[1614] to a grant of immunity from taxation which the State of New Jersey had accorded certain Indian lands; and several years after that, in the Dartmouth College Case,[1615] to the charter privileges of an eleemosynary corporation.

Corporate Charters, Different Ways of Regarding

There are three ways in which the charter of a corporation may be regarded. In the first place, it may be thought of simply as a license terminable at will by the State, like a liquor-seller's license or an auctioneer's license, but affording the incorporators, so long as it remains in force, the privileges and advantages of doing business in the form of a corporation. Nowadays, indeed, when corporate charters are usually issued to all legally qualified applicants by an administrative officer who acts under a general statute, this would probably seem to be the natural way of regarding them were it not for the Dartmouth College decision. But in 1819 charters were granted directly by the State legislatures in the form of special acts, and there were very few profit-taking corporations in the country.[1616] The later extension of the benefits of the Dartmouth College decision to corporations organized under general law took place without discussion.

Secondly, a corporate charter may be regarded as a franchise constituting a vested or property interest in the hands of the holders, and therefore as forfeitable only for abuse or in accordance with its own terms. This is the way in which some of the early State courts did regard them at the outset.[1617] It is also the way in which Blackstone regards them in relation to the royal prerogative, although not in relation to the sovereignty of Parliament; and the same point of view finds expression in Story's concurring opinion in Dartmouth College v. Woodward, as it did also in Webster's argument in that case.[1618]

The Dartmouth College Case

The third view is the one formulated by Chief Justice Marshall in his controlling opinion in Trustees of Dartmouth College v. Woodward.[1619] This is that the charter of Dartmouth College, a purely private institution, was the outcome and partial record of a contract between the donors of the college, on the one hand, and the British Crown, on the other, which contract still continued in force between the State of New Hampshire, as the successor to the Crown and Government of Great Britain, and the trustees, as successors to the donors. The charter, in other words, was not simply a grant—rather it was the documentary record of a still existent agreement between still existent parties.[1620] Taking this view, which he developed with great ingenuity and persuasiveness, Marshall was able to appeal to the obligation of contracts clause directly, and without further use of his fiction in Fletcher v. Peck of an executory contract accompanying the grant.

A difficulty still remained, however, in the requirement that a contract must, before it can have obligation, import consideration, that is to say, must be shown not to have been entirely gratuitous on either side. Nor was the consideration which induced the Crown to grant a charter to Dartmouth College a merely speculative one. It consisted of the donations of the donors to the important public interest of education. Fortunately or unfortunately, in dealing with this phase of the case, Marshall used more sweeping terms than were needful. "The objects for which a corporation is created," he wrote, "are universally such as the government wishes to promote. They are deemed beneficial to the country; and this benefit constitutes the consideration, and in most cases, the sole consideration of the grant." In other words, the simple fact of the charter having been granted imports consideration from the point of view of the State.[1621] With this doctrine before it, the Court in Providence Bank v. Billings,[1622] and again in Charles River Bridge Company v. Warren Bridge Company,[1623] admitted, without discussion of the point, the applicability of the Dartmouth College decision to purely business concerns.

Classes of Cases Under the Clause

The cases just reviewed produce two principal lines of decisions stemming from the obligation of contracts clause: first, public grants; second, private executory contracts. The chief category of the first line of cases consists, in turn, of those involving corporate privileges, both those granted directly by the States and those granted by municipalities by virtue of authority conferred upon them by the State;[1624] while private debts, inclusive of municipal debts, exhaust for the most part the second line.

Public Grants

Municipal Corporations.—Not all grants by a State constitute "contracts" within the sense of article I, section 10. In his Dartmouth College decision Chief Justice Marshall conceded that "if the act of incorporation be a grant of political power, if it creates a civil institution, to be employed in the administration of the government, * * *, the subject is one in which the legislature of the State may act according to its own justment," unrestrained by the Constitution[1625]—thereby drawing a line between "public" and "private" corporations which remained undisturbed for more than half a century.[1626] It has been subsequently held many times that municipal corporations are mere instrumentalities of the State for the more convenient administration of local governments, whose powers may be enlarged, abridged, or entirely withdrawn at the pleasure of the legislature.[1627] The same principle applies, moreover, to the property rights which the municipality derives either directly or indirectly from the State. This was first held as to the grant of a franchise to a municipality to operate a ferry, and has since then been recognized as the universal rule.[1628] As was stated in a case decided in 1923: "The distinction between the municipality as an agent of the State for governmental purposes and as an organization to care for local needs in a private or proprietary capacity," while it limits the legal liability of municipalities for the negligent acts or omissions of its officers or agents, does not, on the other hand, furnish ground for the application of constitutional restraints against the State in favor of its own municipalities.[1629] Thus no contract rights are impaired by a statute removing a county seat, even though the former location was by law to be "permanent" when the citizens of the community had donated land and furnished bonds for the erection of public buildings.[1630] Likewise a statute changing the boundaries of a school district, giving to the new district the property within its limits which had belonged to the former district, and requiring the new district to assume the debts of the old district, does not impair the obligation of contracts.[1631] Nor was the contracts clause violated by State legislation authorizing State control over insolvent communities through a Municipal Finance Commission.[1632]

Public Offices.—On the same ground of public agency, neither appointment nor election to public office creates a contract in the sense of article I, section 10, whether as to tenure, or salary, or duties, all of which remain, so far as the Constitution of the United States is concerned, subject to legislative modification or outright repeal.[1633] Indeed there can be no such thing in this country as property in office, although the common law sustained a different view which sometimes found reflection in early cases.[1634] When, however, services have once been rendered, there arises an implied contract that they shall be compensated at the rate which was in force at the time they were rendered.[1635] Also, an express contract between the State and an individual for the performance of specific services falls within the protection of the Constitution. Thus a contract made by the governor pursuant to a statute authorizing the appointment of a commissioner to conduct, over a period of years, a geological, mineralogical, and agricultural survey of the State, for which a definite sum had been authorized, was held to have been impaired by repeal of the statute.[1636] But a resolution of a New Jersey local board of education reducing teachers' salaries for the school year 1933-1934, pursuant to an act of the legislature authorizing such action, was held not to impair the contract of a teacher who, having served three years, was by earlier legislation exempt from having his salary reduced except for inefficiency or misconduct.[1637] Similarly, it was held that an Illinois statute which reduced the annuity payable to retire teachers under an earlier act did not violate the contracts clause, since it had not been the intention of the earlier act to propose a contract but only to put into effect a general policy.[1638] On the other hand, the right of one, who had become a "permanent teacher" under the Indiana Teachers Tenure Act of 1927, to continued employment was held to be contractual and to have been impaired by the repeal in 1933 of the earlier act.[1639]

Revocable Privileges Versus "Contracts": Tax Exemptions.—From a different point of view, the Court has sought to distinguish between grants of privileges, whether to individuals or to corporations, which are contracts and those which are mere revocable licenses, although on account of the doctrine of presumed consideration mentioned earlier, this has not always been easy to do. In pursuance of the precedent set in New Jersey v. Wilson,[1640] the legislature of a State "may exempt particular parcels of property or the property of particular persons or corporations from taxation, either for a specified period or perpetually, or may limit the amount or rate of taxation, to which such property shall be subjected," and such an exemption is frequently a contract within the sense of the Constitution. Indeed this is always so when the immunity is conferred upon a corporation by the clear terms of its charter.[1641] When, on the other hand, an immunity of this sort springs from general law, its precise nature is more open to doubt, as a comparison of decisions will serve to illustrate.

In Piqua Branch of the State Bank v. Knoop,[1642] a closely divided Court held that a general banking law of the State of Ohio which provided that companies complying therewith and their stockholders should be exempt from all but certain taxes, was, as to a bank organized under it and its stockholders, a contract within the meaning of article I, section 10. "The provision was not," the Court said, "a legislative command nor a rule of taxation until changed, but a contract stipulating against any change, from the nature of the language used and the circumstances under which it was adopted."[1643] When, however, the State of Michigan pledged itself, by a general legislative act, not to tax any corporation, company, or individual undertaking to manufacture salt in the State from water there obtained by boring on property used for this purpose and, furthermore, to pay a bounty on the salt so manufactured, it was held not to have engaged itself within the constitutional sense. "General encouragements," said the Court, "held out to all persons indiscriminately, to engage in a particular trade or manufacture, whether such encouragement be in the shape of bounties or drawbacks, or other advantage, are always under the legislative control, and may be discontinued at any time."[1644] So far as exemption from taxation is concerned the difference between these two cases is obviously slight; but the later one is unquestionable authority for the proposition that legislative bounties are repealable at will.

Furthermore, exemptions from taxation have in certain cases been treated as gratuities repealable at will, even when conferred by specific legislative enactments. This would seem always to be the case when the beneficiaries were already in existence when the exemption was created and did nothing of a more positive nature to qualify for it than to continue in existence.[1645] Yet the cases are not always easy to explain in relation to each other, except in light of the fact that the Court's wider point of view has altered from time to time.[1646]

Vested Rights.—Lastly, the term "contracts" is used in the contracts clause in its popular sense of an agreement of minds. The clause therefore does not protect vested rights that are not referable to such an agreement between the State and an individual, such as the right to recovery under a judgment. The individual in question may have a case under the Fourteenth Amendment, but not one under article I, section 10.[1647]

Reservation of the Right to Alter and Repeal

So much for the meaning of the word "contract" when public grants are meant. It is next in order to consider four principles or doctrines whereby the Court has itself broken down the force of the Dartmouth College decision in great measure in favor of State legislative power. By the logic of the Dartmouth College decision itself the State may reserve in a corporate charter the right to "amend, alter, and repeal" the same, and such reservation becomes a part of the contract between the State and the incorporators, the obligation of which is accordingly not impaired by the exercise of the right.[1648] Later decisions recognize that the State may reserve the right to amend, alter, and repeal by general law, with the result of incorporating the reservation in all charters of subsequent date.[1649] There is, however, a difference between a reservation by a statute and one by constitutional provision. While the former may be repealed as to a subsequent charter by the specific terms thereof, the latter may not.[1650]

The Right to Reserve: When Limited.—Is the right which is reserved by a State to "amend" or "alter" a charter without restriction? When it is accompanied, as it generally is, by the right to "repeal," one would suppose that the answer to this question was self-evident. None the less, there are a number of judicial dicta to the effect that this power is not without limit, that it must be exercised reasonably and in good faith, and that the alterations made must be consistent with the scope and object of the grant, etc.[1651] Such utterances amount, apparently, to little more than an anchor to windward, for while some of the State courts have applied tests of this nature to the disallowance of legislation, it does not appear that the Supreme Court of the United States has ever done so.[1652]

Quite different is it with the distinction pointed out in the cases between the franchises and privileges which a corporation derives from its charter and the rights of property and contract which accrue to it in the course of its existence. Even the outright repeal of the former does not wipe out the latter or cause them to escheat to the State. The primary heirs of the defunct organization are its creditors; but whatever of value remains after their valid claims are met goes to the former shareholders.[1653] By the earlier weight of authority, on the other hand, persons who contract with companies whose charters are subject to legislative amendment or repeal do so at their own risk: any "such contracts made between individuals and the corporation do not vary or in any manner change or modify the relation between the State and the corporation in respect to the right of the State to alter, modify, or amend such a charter, * * *"[1654] But later holdings becloud this rule.[1655]

Corporations As Persons Subject To The Law.—But suppose the State neglects to reserve the right to amend, alter, or repeal—is it, then, without power to control its corporate creatures? By no means. Private corporations, like other private persons, are always presumed to be subject to the legislative power of the State; from which it follows that immunities conferred by charter are to be treated as exceptions to an otherwise controlling rule. This principle was recognized by Chief Justice Marshall in the case of Providence Bank v. Billings,[1656] in which he held that in the absence of express stipulation or reasonable implication to the contrary in its charter, the bank was subject to the taxing power of the State, notwithstanding that the power to tax is the power to destroy.

Corporations and the Police Power.—And of course the same principle is equally applicable to the exercise by the State of its police powers. Thus, in what was perhaps the leading case before the Civil War, the Supreme Court of Vermont held that the legislature of that State had the right, in furtherance of the public safety, to require chartered companies operating railways to fence in their tracks and provide cattle yards. In a matter of this nature, said the Court, corporations are on a level with individuals engaged in the same business, unless, from their charter, they can prove the contrary.[1657] Since then the rule has been applied many times in justification of State regulation of railroads,[1658] and even of the application of a State prohibition law to a company which had been chartered expressly to manufacture beer.[1659]

The Strict Construction of Public Grants

Long, however, before the cases last cited were decided, the principle which they illustrate had come to be powerfully reinforced by two others, the first of which is that all charter privileges and immunities are to be strictly construed as against the claims of the State; or as it is otherwise often phrased, "nothing passes by implication in a public grant."

The Charles River Bridge Case.—The leading case is that of the Charles River Bridge Company v. Warren Bridge Company,[1660] which was decided shortly after Chief Justice Marshall's death by a substantially new Court. The question at issue was whether the charter of the complaining company, which authorized it to operate a toll bridge, stood in the way of the State's permitting another company of later date to operate a free bridge in the immediate vicinity. Inasmuch as the first company could point to no clause in its charter which specifically vested it with an exclusive right, the Court held the charter of the second company to be valid on the principle just stated. Justice Story, who remained from the old Bench, presented a vigorous dissent, in which he argued cogently, but unavailingly, that the monopoly claimed by the Charles River Bridge Company was fully as reasonable an implication from the terms of its charter and the circumstances surrounding its concession as perpetuity had been from the terms of the Dartmouth College charter and the environing transaction.

The Court was in fact making new law, because it was looking at things from a new point of view. This was the period when judicial recognition of the Police Power began to take on a doctrinal character. It was also the period when the railroad business was just beginning. Chief Justice Taney's opinion evinces the influence of both these developments. The power of the State to provide for its own internal happiness and prosperity was not, he asserted, to be pared away by mere legal intendments; nor was its ability to avail itself of the lights of modern science to be frustrated by obsolete interests such as those of the old turnpike companies, the charter privileges of which, he apprehended, might easily become a bar to the development of transportation along new lines.[1661]

Applications of the Strict Construction Rule.—The rule of strict construction has been reiterated by the Court many times. A good illustration is afforded by the following passage from its opinion in Blair v. Chicago,[1662] decided nearly seventy years after the Charles River Bridge Case: "Legislative grants of this character should be in such unequivocal form of expression that the legislative mind may be distinctly impressed with their character and import, in order that the privileges may be intelligently granted or purposely withheld. It is a matter of common knowledge that grants of this character are usually prepared by those interested in them, and submitted to the legislature with a view to obtain from such bodies the most liberal grant of privileges which they are willing to give. This is one among many reasons why they are to be strictly construed. * * * 'The principle is this, that all rights which are asserted against the State must be clearly defined, and not raised by inference or presumption; and if the charter is silent about a power, it does not exist. If, on a fair reading of the instrument, reasonable doubts arise as to the proper interpretation to be given to it, those doubts are to be solved in favor of the State; and where it is susceptible of two meanings, the one restricting and the other extending the powers of the corporation, that construction is to be adopted which works the least harm to the State.'"[1663]

Strict Construction of Tax Exemptions.—An excellent illustration of the operation of the rule in relation to tax exemptions is furnished by the derivative doctrine that an immunity of this character must be deemed as intended solely for the benefit of the corporation receiving it and hence may not, in the absence of express permission by the State, be passed on to a successor.[1664] Thus, where two companies, each exempt from taxation, were permitted by the legislature to consolidate the new corporation was held to be subject to taxation.[1665] Again, a statute which granted a corporation all "the rights and privileges" of an earlier corporation was held not to confer the latter's "immunity" from taxation.[1666] Yet again, a legislative authorization of the transfer by one corporation to another of the former's "estate, property, right, privileges, and franchises" was held not to clothe the later company with the earlier one's exemption from taxation.[1667]

Furthermore, an exemption from taxation is to be strictly construed even in the hands of one clearly entitled to it. So the exemption conferred by its charter on a railway company was held not to extend to branch roads constructed by it under a later statute.[1668] Also, a general exemption of the property of a corporation from taxation was held to refer only to the property actually employed in its business.[1669] Also, the charter exemption of the capital stock of a railroad from taxation "for ten years after completion of the said road" was held not to become operative until the completion of the road.[1670] So also the exemption of the campus and endowment fund of a college was held to leave other lands of the college, though a part of its endowment, subject to taxation.[1671] Likewise, provisions in a statute that bonds of the State and its political subdivisions are not to be taxed and shall not be taxed were held not to exempt interest on them from taxation as income of the owners.[1672]

Strict Construction and the Police Power.—The police power, too, has frequently benefited from the doctrine of strict construction, although, for a reason pointed out below, this recourse is today seldom, if ever, necessary in this connection. Some of the more striking cases may be briefly summarized. The provision in the charter of a railway company permitting it to set reasonable charges still left the legislature free to determine what charges were reasonable.[1673] On the other hand, when a railway agreed to accept certain rates for a specified period, it thereby foreclosed the question of the reasonableness of such rates.[1674] The grant to a company of the right to supply a city with water for twenty-five years was held not to prevent a similar concession to another company by the same city.[1675] The promise by a city in the charter of a water company not to make a similar grant to any other person or corporation was held not to prevent the city itself from engaging in the business.[1676] A municipal concession to a water company which was to run for thirty years and which was accompanied by the provision that the "said company shall charge the following rates," was held not to prevent the city from reducing such rates.[1677] But more broadly, the grant to a municipality of the power to regulate the charges of public service companies was held not to bestow the right to contract away this power.[1678] Indeed, any claim by a private corporation that it received the rate-making power from a municipality must survive a two-fold challenge: first, as to the right of the municipality under its charter to make such a grant; secondly, as to whether it has actually done so; and in both respects an affirmative answer must be based on express words and not on implication.[1679]

The Doctrine of Inalienable State Powers

The second of the doctrines mentioned above whereby the principle of the subordination of all persons, corporate and individual alike, to the legislative power of the State has been fortified, is the doctrine that certain of the State's powers are inalienable, and that any attempt by a State to alienate them, upon any consideration whatsoever, is ipso facto void, and hence incapable of producing a "contract" within the meaning of article I, section 10. One of the earliest cases to assert this principle occurred in New York in 1826. The corporation of the City of New York, having conveyed certain lands for the purposes of a church and cemetery together with a covenant for quiet enjoyment, later passed a by-law forbidding their use as a cemetery. In denying an action against the city for breach of covenant, the State court said the defendants "had no power as a party, [to the covenant] to make a contract which should control or embarrass their legislative powers and duties."[1680]

The Eminent Domain Power Inalienable.—The Supreme Court first applied similar doctrine in 1848 in a case involving a grant of exclusive right to construct a bridge at a specified locality. Sustaining the right of the State of Vermont to make a new grant to a competing company, the Court held that the obligation of the earlier exclusive grant was sufficiently recognized in making just compensation for it; and that corporate franchises, like all other forms of property, are subject to the overruling power of eminent domain.[1681] This reasoning was reinforced by an appeal to the theory of State sovereignty, which was held to involve the corollary of the inalienability of all the principal powers of a State.

The subordination of all charter rights and privileges to the power of eminent domain has been maintained by the Court ever since; not even an explicit agreement by the State to forego the exercise of the power will avail against it.[1682] Conversely, the State may revoke an improvident grant of the public petitionary without recourse to the power of eminent domain, such a grant being inherently beyond the power of the State to make. So when the legislature of Illinois in 1869 devised to the Illinois Central Railroad Company, its successors and assigns, the State's right and title to nearly a thousand acres of submerged land under Lake Michigan along the harbor front of Chicago, and four years later sought to repeal the grant, the Court, in a four-to-three decision, sustained an action by the State to recover the lands in question. Said Justice Field, speaking for the majority: "Such abdication is not consistent with the exercise of that trust which requires the government of the State to preserve such waters for the use of public. The trust devolving upon the State for the public, and which can only be discharged by the management and control of property in which the public has an interest, cannot be relinquished by a transfer of the property. * * * Any grant of the kind is necessarily revocable, and the exercise of the trust by which the property was held by the State can be resumed at any time."[1683] The case affords an interesting commentary on Fletcher v. Peck.[1684]

The Taxing Power Not Inalienable.—On the other hand, repeated endeavors to subject tax exemptions to the doctrine of inalienability though at times supported by powerful minorities on the Bench, have always failed.[1685] As recently as January, 1952, the Court ruled that the Georgia Railway Company was entitled to seek an injunction in the federal courts against an attempt by Georgia's Revenue Commission to compel it to pay ad valorem taxes contrary to the terms of its special charter issued in 1833. To the argument that this was a suit contrary to the Eleventh Amendment it returned the answer that the immunity from Federal jurisdiction created by the Amendment "does not extend to individuals who act as officers without constitutional authority."[1686]

The Police Power; When Inalienable.—The leading case involving the police power is Stone v. Mississippi, 101 U.S. 814, decided in 1880. In 1867 the legislature of Mississippi chartered a company to which it expressly granted the power to conduct a lottery. Two years later the State adopted a new Constitution which contained a provision forbidding lotteries; and a year later the legislature passed an act to put this provision into effect. In upholding this act and the constitutional provision on which it was based, the Court said: "The power of governing is a trust committed by the people to the government, no part of which can be granted away. The people, in their sovereign capacity, have established their agencies for the preservation of the public health and the public morals, and the protection of public and private rights," and these agencies can neither give away nor sell their discretion. All that one can get by a charter permitting the business of conducting a lottery "is suspension of certain governmental rights in his favor, subject to withdrawal at will."[1687]

The Court shortly afterward applied the same reasoning in a case in which was challenged the right of Louisiana to invade the exclusive privilege of a corporation engaged in the slaughter of cattle in New Orleans by granting another company the right to engage in the same business. Although the State did not offer to compensate the older company for the lost monopoly, its action was sustained on the ground that it had been taken in the interest of the public health.[1688] When, however, the City of New Orleans, in reliance on this precedent, sought to repeal an exclusive franchise which it had granted a company for fifty years to supply gas to its inhabitants, the Court interposed its veto, explaining that in this instance neither the public health, the public morals, nor the public safety was involved.[1689]

Later decisions, nonetheless, apply the principle of inalienability broadly. To quote from one: "It is settled that neither the 'contract' clause nor the 'due process' clause has the effect of overriding the power to the State to establish all regulations that are reasonably necessary to secure the health, safety, good order, comfort, or general welfare of the community; that this power can neither be abdicated nor bargained away, and is inalienable even by express grant; and all contract and property rights are held subject to its fair exercise."[1690] Today, indeed, it scarcely pays a company to rely upon its charter privileges or upon special concessions from a State in resisting the application to it of measures claiming to have been enacted by the police power thereof. For if this claim is sustained by the Court, the obligation of the contract clause will not avail; while if it is not, the due process of law clause of the Fourteenth Amendment will furnish a sufficient reliance. That is to say, the discrepancy which once existed between the Court's theory of an overriding police power in these two adjoining fields of Constitutional Law is today apparently at an end. Indeed, there is usually no sound reason why rights based on public grant should be regarded as more sacrosanct than rights which involve the same subject matter but are of different provenience.

Private Contracts

Scope of the Term.—The term "private contracts" is, naturally, not all-inclusive. A judgment, though granted in favor of a creditor, is not a contract in the sense of the Constitution;[1691] nor is marriage.[1692] And whether a particular agreement is a valid contract is a question for the courts, and finally for the Supreme Court, when the protection of the contract clause is invoked.[1693]

Source of the Obligation.—The question of the nature and source of the obligation of a contract, which went by default in Fletcher v. Peck and the Dartmouth College case, with such vastly important consequences, had eventually to be met and answered by the Court in connection with private contracts. The first case involving such a contract to reach the Supreme Court was Sturges v. Crowninshield[1694] in which a debtor sought escape behind a State insolvency act of later date than his note. The act was held inoperative; but whether this was because of its retroaction in this particular case or for the broader reason that it assumed to excuse debtors from their promises, was not at the time made clear. As noted earlier, Chief Justice Marshall's definition on this occasion of the obligation of a contract as the law which binds the parties to perform their undertakings was not free from ambiguity, owing to the uncertain connotation of the term law.

Ogden v. Saunders.—These obscurities were finally cleared up for most cases in Ogden v. Saunders,[1695] in which the temporal relation of the statute and the contract involved was exactly reversed—the former antedating the latter. Marshall contended, but unsuccessfully, that the statute was void, inasmuch as it purported to release the debtor from that original, intrinsic obligation which always attaches under natural law to the acts of free agents. "When," he wrote, "we advert to the course of reading generally pursued by American statesmen in early life, we must suppose that the framers of our Constitution were intimately acquainted with the writings of those wise and learned men whose treatises on the laws of nature and nations have guided public opinion on the subjects of obligation and contract," and that they took their views on these subjects from those sources. He also posed the question of what would happen to the obligation of contracts clause if States might pass acts declaring that all contracts made subsequently thereto should be subject to legislative control.[1696]

For the first and only time majority of the Court abandoned the Chief Justice's leadership. Speaking by Justice Washington it held that the obligation of private contracts is derived from the municipal law—State statutes and judicial decisions—and that the inhibition of article I, section 10, is confined to legislative acts made after the contracts affected by them, with one exception. For by a curiously complicated line of reasoning it was also held in this same case that when the creditor is a nonresident, then a State may not by an insolvent law rights under a contract, albeit one of later date.

With the proposition established that the obligation of a private contract comes from the municipal law in existence when the contract is made, a further question presents itself, namely, what part of the municipal law is referred to? No doubt, the law which determines the validity of the contract itself is a part of such law. Also, the law which interprets the terms used in the contract, or which supplies certain terms when others are used; as for instance, constitutional provisions or statutes which determine what is "legal tender" for the payment of debts; or judicial decisions which construe the term "for value received" as used in a promissory note, and so on. In short, any law which at the time of the making of a contract goes to measure the rights and duties of the parties to it in relation to each other enters into its obligation.

Remedy a Part of the Obligation

Suppose, however, that one of the parties to a contract fails to live up to his obligation as thus determined. The contract itself may now be regarded as at an end; but the injured party, nevertheless, has a new set of rights in its stead, those which are furnished him by the remedial law, including the law of procedure. In the case of a mortgage, he may foreclose; in the case of a promissory note, he may sue; in certain cases, he may demand specific performance. Hence the further question arises, whether this remedial law is to be considered a part of the law supplying the obligation of contracts. Originally, the predominating opinion was negative, since as we have just seen, this law does not really come into operation until the contract has been broken. Yet it is obvious that the sanction which this law lends to contracts is extremely important—indeed, indispensable. In due course it became the accepted doctrine that that part of the law which supplies one party to a contract with a remedy if the other party does not live up to his agreement, as authoritatively interpreted, entered into the "obligation of contracts" in the constitutional sense of this term, and so might not be altered to the material weakening of existing contracts. In the court's own words, "Nothing can be more material to the obligation than the means of enforcement. Without the remedy the contract may, indeed, in the sense of the law, be said not to exist, and its obligation to fall within the class of those moral and social duties which depend for their fulfillment wholly upon the will of the individual. The ideas of validity and remedy are inseparable, * * *"[1697]

Establishment Of The Rules.—This rule was first definitely announced in 1843 in the case of Bronson v. Kinzie.[1698] Here an Illinois mortgage giving the mortgagee an unrestricted power of sale in case of the mortgagor's fault was involved, along with a later act of the legislature which required mortgaged premises to be sold for not less than two-thirds of the appraised value, and allowed the mortgagor a year after the sale to redeem them. It was held that the statute, in altering the preexisting remedies to such an extent, violated the constitutional prohibition, and hence was void. The year following a like ruling was made in the case of McCracken v. Hayward[1699] as to a statutory provision that personal property should not be sold under execution for less than two-thirds of its appraised value.

Qualifications Of The Rule.—But the rule illustrated by these cases does not signify that a State may make no changes in its remedial or procedural law which affect existing contracts. "Provided," the Court has said, "a substantial or efficacious remedy remains or is given, by means of which a party can enforce his rights under the contract, the Legislature may modify or change existing remedies or prescribe new modes of procedure."[1700] Thus States are constantly remodelling their judicial systems and modes of practice unembarrassed by the obligation of contracts clause.[1701] The right of a State to abolish imprisonment for debt was early asserted.[1702] Again the right of a State to shorten the time for the bringing of actions has been affirmed even as to existing causes of action, but with the proviso added that a reasonable time must be left for the bringing of such actions.[1703] On the other hand, a statute which withdrew the judicial power to enforce satisfaction of a certain class of judgments by mandamus was held invalid.[1704] In the words of the Court: "Every case must be determined upon its own circumstances;"[1705] and it later added: "In all such cases the question becomes, * * *, one of reasonableness, and of that the legislature is primarily the judge."[1706]

The Municipal Bond Cases.—There is one class of cases resulting from the doctrine that the law of remedy constitutes a part of the obligation of a contract to which a special word is due. This comprises cases in which the contracts involved were municipal bonds. While a city is from one point of view but an emanation from the government's sovereignty and an agent thereof, when it borrows money it is held to be acting in a corporate or private capacity, and so to be suable on its contracts. Furthermore, as was held in the leading case of Von Hoffman v. Quincy,[1707] "where a State has authorized a municipal corporation to contract and to exercise the power of local taxation to the extent necessary to meet its engagements, the power thus given cannot be withdrawn until the contract is satisfied." In this case the Court issued a mandamus compelling the city officials to levy taxes for the satisfaction of a judgment on its bonds in accordance with the law as it stood when the bonds were issued.[1708] Nor may a State by dividing an indebted municipality among others enable it to escape its obligations. In such a case the debt follows the territory, and the duty of assessing and collecting taxes to satisfy it devolves upon the succeeding corporations and their officers.[1709] But where a municipal organization has ceased practically to exist through the vacation of its offices, and the government's function is exercised once more by the State directly, the Court has thus far found itself powerless to frustrate a program of repudiation.[1710] However, there is no reason why the State should enact the role of particeps criminis in an attempt to relieve its municipalities of the obligation to meet their honest debts. Thus in 1931, during the Great Depression, New Jersey created a Municipal Finance Commission with power to assume control over its insolvent municipalities. To the complaint of certain bondholders that this legislation impaired the contract obligations of their debtors, the Court, speaking by Justice Frankfurter, pointed out that the practical value of an unsecured claim against a city is "the effectiveness of the city's taxing power," which the legislation under review was designed to conserve.[1711]

Private Contracts and the Police Power

The increasing subjection of public grants to the State's police power has been previously pointed out. That purely private contracts should be in any stronger situation in this respect would obviously be anomalous in the extreme. In point of fact, the ability of private parties to curtail governmental authority by the easy devise of contracting with one another is, with an exception to be noted, even less than that of the State to tie its own hands by contracting away its own powers. So, when it was contended in an early Pennsylvania case, than an act prohibiting the issuance of notes by unincorporated banking associations was violative of the obligation of contracts clause because of its effect upon certain existing contracts of members of such associations, the State Supreme Court answered: "But it is said, that the members had formed a contract between themselves, which would be dissolved by the stoppage of their business; and what then? Is that such a violation of contracts as is prohibited by the Constitution of the United States? Consider to what such a construction would lead. Let us suppose, that in one of the States there is no law against gaming, cock-fighting, horse-racing or public masquerades, and that companies should be formed for the purpose of carrying on these practices; * * *" Would the legislature then be powerless to prohibit them? The answer returned, of course, was no.[1712]

The prevailing doctrine is stated by the Supreme Court of the United States in the following words: "It is the settled law of this court that the interdiction of statutes impairing the obligation of contracts does not prevent the State from exercising such powers as are vested in it for the promotion of the common weal, or are necessary for the general good of the public, though contracts previously entered into between individuals may thereby be affected. * * * In other words, that parties by entering into contracts may not estop the legislature from enacting laws intended for the public good."[1713]

So, in an early case we find a State recording act upheld as applying to deeds dated before the passage of the act.[1714] Later cases have brought the police power in its more customary phases into contact with private, as well as with public contracts. Lottery tickets, valid when issued, were necessarily invalidated by legislation prohibiting the lottery business;[1715] contracts for the sale of beer, valid when entered into, were similarly nullified by a State prohibition law;[1716] and contracts of employment were modified by later laws regarding the liability of employers and workmen's compensation.[1717] Likewise a contract between plaintiff and defendant did not prevent the State from making the latter a concession which rendered the contract worthless;[1718] nor did a contract as to rates between two railway companies prevent the State from imposing different rates;[1719] nor did a contract between a public utility company and a customer protect the rates agreed upon from being superseded by those fixed by the State.[1720] Similarly, a contract for the conveyance of water beyond the limits of a State did not prevent the State from prohibiting such conveyance.[1721]

Emergency Legislation.—But the most striking exertions of the police power touching private contracts, as well as other private interests, within recent years have been evoked by war and economic depression. Thus in World War I the State of New York enacted a statute which, declaring that a public emergency existed, forbade the enforcement of covenants for the surrender of the possession of premises on the expiration of leases, and wholly deprived for a period owners of dwellings, including apartment and tenement houses, within the City of New York and contiguous counties of possessory remedies for the eviction from their premises of tenants in possession when the law took effect, providing the latter were able and willing to pay a reasonable rent. In answer to objections leveled against this legislation on the basis of the obligation of contracts clause, the Court said: "But contracts are made subject to this exercise of the power of the State when otherwise justified, as we have held this to be."[1722] In a subsequent case, however, the Court added that, while the declaration by the legislature of a justifying emergency was entitled to great respect, it was not conclusive; that a law "depending upon the existence of an emergency or other certain state of facts to uphold it may cease to operate if the emergency ceases or the facts change," and that whether they have changed was always open to judicial inquiry.[1723]

Individual Rights Versus Public Welfare.—Summing up the result of the cases above referred to, Chief Justice Hughes, speaking for the Court in Home Building and Loan Association v. Blaisdell,[1724] remarked in 1934: "It is manifest from this review of our decisions that there has been a growing appreciation of public needs and of the necessity of finding ground for a rational compromise between individual rights and public welfare. The settlement and consequent contraction of the public domain, the pressure of a constantly increasing density of population, the interrelation of the activities of our people and the complexity of our economic interests, have inevitably led to an increased use of the organization of society in order to protect the very bases of individual opportunity. Where, in earlier days, it was thought that only the concerns of individuals or of classes were involved, and that those of the State itself were touched only remotely, it has later been found that the fundamental interests of the State are directly affected; and that the question is no longer merely that of one party to a contract as against another, but of the use of reasonable means to safeguard the economic structure upon which the good of all depends. * * * The principle of this development is, * * * [he added] that the reservation of the reasonable exercise of the protective power of the States is read into all contracts * * *."[1725]

Evaluation of the Clause Today

Yet it should not be inferred that the obligation of contracts clause is today totally moribund even in times of stress. As we have just seen it still furnishes the basis for some degree of judicial review as to the substantiality of the factual justification of a professed exercise by a State legislature of its police power; and in the case of legislation affecting the remedial rights of creditors, it still affords a solid and palpable barrier against legislative erosion. Nor is this surprising in view of the fact that, as we have seen, such rights were foremost in the minds of the framers of the clause. The court's attitude toward insolvency laws, redemption laws, exemption laws, appraisement laws and the like has always been that they may not be given retroactive operation;[1726] and the general lesson of these earlier cases is confirmed by the court's decisions between 1934 and 1945 in certain cases involving State moratorium statutes. In Home Building and Loan Association v. Blaisdell,[1727] the leading case, a closely divided Court sustained the Minnesota Moratorium Act of April 18, 1933, which, reciting the existence of a severe financial and economic depression for several years and the frequent occurrence of mortgage foreclosure sales for inadequate prices, and asserting that these conditions had created an economic emergency calling for the exercise of the State's police power, authorized its courts to extend the period for redemption from foreclosure sales for such additional time as they might deem just and equitable, although in no event beyond May 1, 1935. The act also left the mortgagor in possession during the period of extension, subject to the requirement that he pay a reasonable rental for the property as fixed by the Court, at such time and in such manner as should be determined by the Court. Contemporaneously, however, less carefully drawn statutes from Missouri and Arkansas, acts which were less considerate of creditor's rights, were set aside as violative of the contracts clause.[1728] "A State is free to regulate the procedure in its courts even with reference to contracts already made," said Justice Cardozo for the Court, "and moderate extensions of the time for pleading or for trial will ordinarily fall within the power so reserved. A different situation is presented when extensions are so piled up as to make the remedy a shadow. * * * What controls our judgment at such times is the underlying reality rather than the form or label. The changes of remedy now challenged as invalid are to be viewed in combination, with the cumulative significance that each imparts to all. So viewed they are seen to be an oppressive and unnecessary destruction of nearly all the incidents that give attractiveness and value to collateral security."[1729] On the other hand, in the most recent of this category of cases, the Court gave its approval to an extension by the State of New York of its moratorium legislation. While recognizing that business conditions had improved, the Court was of the opinion that there was reason to believe that "'the sudden termination of the legislation which has damned up normal liquidation of these mortgages for more than eight years might well result in an emergency more acute than that which the original legislation was intended to alleviate.'"[1730]

And meantime the Court had sustained legislation of the State of New York under which a mortgagee of real property was denied a deficiency judgment in a foreclosure suit where the State court found that the value of the property purchased by the mortgagee at the foreclosure sale was equal to the debt secured by the mortgage.[1731] "Mortgagees," the Court said, "are constitutionally entitled to no more than payment in full. * * * To hold that mortgagees are entitled under the contract clause to retain the advantages of a forced sale would be to dignify into a constitutionally protected property right their chance to get more than the amount of their contracts. * * * The contract clause does not protect such a strategical, procedural advantage."[1732]

Statistical Data Pertinent to the Clause

The obligation of contracts clause attained the high point of its importance in our Constitutional Law in the years immediately following the Civil War.[1733] Between 1865 and 1873 there were twenty cases in which State acts were held invalid under the clause, of which twelve involved public contracts. During the next fifteen years, which was the period of Waite's chief justiceship, twenty-nine cases reached the Court in which State legislation was set aside under the clause. Twenty-four of these involved public contracts. The decline of the importance of the clause as a title in Constitutional Law began under Chief Justice Fuller (1888 to 1910). During this period less than 25% of the cases involving the validity of State legislation involved this rubric. In twenty-eight of these cases, of which only two involved private contracts, the statute involved was set aside. During Chief Justice White's term (1910 to 1921) the proportion of contract cases shrank to 15%, and in that of Chief Justice Taft, to 9%.[1734]

In recent years the clause has appeared to undergo something of a revival, not however as a protection of public grants, but as a protection of private credits. During the Depression, which began in 1929 and deepened in 1932, State legislatures enacted numerous moratorium statutes, and beginning with Home Loan Association v. Blaisdell, which was decided in 1934, the Court was required to pass upon several of these. At the same time the clause was, in effect, treated by the Court in two important cases as interpretive of the due process clause, Amendment V, and thus applied indirectly as a restriction on the power of Congress.[1735] But this emergence of the clause into prominence was a flash in the pan. During the last decade hardly a case a term involving the clause has reached the Court, counting even those in which it is treated as a tail to the due process of law kite.[1736] The reason for this declension has been twofold: first, the subordination of public grants to the police power; secondly, the expansion of the due process clause, which has largely rendered it a fifth wheel to the Constitutional Law coach.

Clause 2. No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Controul of the Congress.

DUTIES ON EXPORTS AND IMPORTS

Scope

Only articles imported from or exported to a foreign country, or "a place over which the Constitution has not extended its commands with respect to imports and their taxation," e.g., the Philippine Islands, are comprehended by the terms "imports" and "exports,"[1737] goods brought from another State are not affected by this section.[1738] To determine how long imported wares remain under the protection of this clause, the Supreme Court enunciated the original package doctrine in the leading case of Brown v. Maryland.[1739] "When the importer has so acted upon the thing imported," wrote Chief Justice Marshall, "that it has become incorporated and mixed up with the mass of property in the country, it has, perhaps, lost its distinctive character as an import, and has become subject to the taxing power of the State; but while remaining the property of the importer, in his warehouse, in the original form or package in which it was imported, a tax upon it is too plainly a duty on imports, to escape the prohibition in the Constitution."[1740] A box, case or bale in which separate parcels of goods have been placed by the foreign seller is regarded as the original package, and upon the opening of such container for the purpose of using the separate parcels, or of exposing them for sale, each parcel loses its character as an import and becomes subject to taxation as a part of the general mass of property in the State.[1741] Imports for manufacture cease to be such when the intended processing takes place,[1742] or when the original packages are broken.[1743] Where a manufacturer imports merchandise and stores it in his warehouse in the original packages, that merchandise does not lose its quality as an import, at least so long as it is not required to meet such immediate needs.[1744] The purchaser of imported goods is deemed to be the importer if he was the efficient cause of the importation, whether the title to the goods vested in him at the time of shipment, or after its arrival in this country.[1745] A State franchise tax measured by properly apportioned gross receipts may be imposed upon a railroad company in respect of the company's receipts for services in handling imports and exports at its marine terminal.[1746]

Privilege Taxes

A State law requiring importers to take out a license to sell imported goods amounts to an indirect tax on imports and hence is unconstitutional.[1747] Likewise, a franchise tax upon foreign corporations engaged in importing nitrate and selling it in the original packages,[1748] a tax on sales by brokers[1749] and auctioneers[1750] of imported merchandise in original packages, and a tax on the sale of goods in foreign commerce consisting of an annual license fee plus a percentage of gross sales,[1751] have been held invalid. On the other hand, pilotage fees,[1752] a tax upon the gross sales of a purchaser from the importer,[1753] a license tax upon dealing in fish which, through processing, handling, and sale, have lost their distinctive character as imports,[1754] an annual license fee imposed on persons engaged in buying and selling foreign bills of exchange,[1755] and a tax upon the right of an alien to receive property as heir, legatee, or donee of a deceased person[1756] have been held not to be duties on imports or exports.

Property Taxes

Property brought into the United States from without is immune from ad valorem taxation so long as it retains its character as an import,[1757] but the proceeds of the sale of imports, whether in the form of money or notes, may be taxed by a State.[1758] A property tax levied on warehouse receipts for whiskey exported to Germany was held unconstitutional as a tax on exports.[1759]

Inspection Laws

Inspection laws "are confined to such particulars as, in the estimation of the legislature and according to the customs of trade, are deemed necessary to fit the inspected article for the market, by giving the purchaser public assurance that the article is in that condition, and of that quality, which makes it merchantable and fit for use or consumption."[1760] In Turner v. Maryland[1761] the Supreme Court listed as recognized elements of inspection laws, the "quality of the article, form, capacity, dimensions, and weight of package, mode of putting up, and marking and branding of various kinds, * * *" .[1762] It sustained as an inspection law a charge for storage and inspection imposed upon every hogshead of tobacco grown in the State and intended for export, which the law required to be brought to a State warehouse to be inspected and branded. The Court has cited this section as a recognition of a general right of the States to pass inspection laws, and to bring, within their reach articles of interstate, as well as of foreign, commerce.[1763] But on the ground that, "it has never been regarded as within the legitimate scope of inspection laws to forbid trade in respect to any known article of commerce, irrespective of its condition and quality, merely on account of its intrinsic nature and the injurious consequences of its use or abuse," it held that a State law forbidding the importation of intoxicating liquors into the State could not be sustained as an inspection law.[1764] Since the adoption of the Twenty-first Amendment, such State legislation is valid whether classified as an inspection law or not.

Clause 3. No State shall, without the Consent of Congress, lay any Duty of Tonnage, keep Troops, or Ships of War in time of Peace, enter into any Agreement or Compact with another State, or with a foreign Power, or engage in War, unless actually invaded, or in such imminent Danger as will not admit of delay.

TONNAGE DUTIES

The prohibition against tonnage duties embraces all taxes and duties, regardless of their name or form, whether measured by the tonnage of the vessel or not, which are in effect charges for the privilege of entering, trading in, or lying in a port.[1765] But it does not extend to charges made by State authority, even if graduated according to tonnage,[1766] for services rendered to the vessel, such as pilotage, towage, charges for loading and unloading cargoes, wharfage, or storage.[1767] For the purpose of determining wharfage charges, it is immaterial whether the wharf was built by the State, a municipal corporation or an individual; where the wharf is owned by a city, the fact that the city realized a profit beyond the amount expended does not render the toll objectionable.[1768] The services of harbor masters for which fees are allowed must be actually rendered, and a law permitting harbor masters or port wardens to impose a fee in all cases is void.[1769] A State may not levy a tonnage duty to defray the expenses of its quarantine system,[1770] but it may exact a fixed fee for examination of all vessels passing quarantine.[1771] A State license fee for ferrying on a navigable river is not a tonnage tax, but rather is a proper exercise of the police power, and the fact that a vessel is enrolled under federal law does not exempt it.[1772] In the State Tonnage Tax Cases,[1773] an annual tax on steamboats measured by their registered tonnage was held invalid despite the contention that it was a valid tax on the steamboat as property.

KEEPING TROOPS

This provision contemplates the use of the State's military power to put down an armed insurrection too strong to be controlled by civil authority;[1774] and the organization and maintenance of an active State militia is not a keeping of troops in time of peace within the prohibition of this clause.[1775]

INTERSTATE COMPACTS

Background of Clause

Except for the single limitation that the consent of Congress must be obtained, the original inherent sovereign rights of the States to make compacts with each other was not surrendered under the Constitution.[1776] "The compact," as the Supreme Court has put it, "adapts to our Union of sovereign States the age-old treaty-making power of independent sovereign nations."[1777] In American history the compact technique can be traced back to the numerous controversies which arose over the ill-defined boundaries of the original colonies. These disputes were usually resolved by negotiation, with the resulting agreement subject to approval by the Crown.[1778] When the political ties with Britain were broken the Articles of Confederation provided for appeal to Congress in all disputes between two or more States over boundaries or "any cause whatever"[1779] and required the approval of Congress for any "treaty confederation or alliance" to which a State should be a party.[1780] The framers of the Constitution went further. By the first clause of this section they laid down an unqualified prohibition against "any treaty, alliance or confederation"; and by the third clause they required the consent of Congress for "any agreement or compact." The significance of this distinction was pointed out by Chief Justice Taney in Holmes v. Jennison.[1781] "As these words ('agreement or compact') could not have been idly or superfluously used by the framers of the Constitution, they cannot be construed to mean the same thing with the word treaty. They evidently mean something more, and were designed to make the prohibition more comprehensive. * * * The word 'agreement,' does not necessarily import and direct any express stipulation; nor is it necessary that it should be in writing. If there is a verbal understanding, to which both parties have assented, and upon which both are acting, it is an 'agreement.' And the use of all of these terms, 'treaty,' 'agreement,' 'compact,' show that it was the intention of the framers of the Constitution to use the broadest and most comprehensive terms; and that they anxiously desired to cut off all connection or communication between a State and a foreign power; and we shall fail to execute that evident intention, unless we give to the word 'agreement' its most extended signification; and so apply it as to prohibit every agreement, written or verbal, formal or informal, positive or implied, by the mutual understanding of the parties."[1782] But in Virginia v. Tennessee,[1783] decided more than a half century later, the Court shifted position, holding that the unqualified prohibition of compacts and agreements between States without the consent of Congress did not apply to agreements concerning such minor matters as adjustments of boundaries, which have no tendency to increase the political powers of the contractant States or to encroach upon the just supremacy of the United States. This divergence of doctrine may conceivably have interesting consequences.[1784]

Subject Matter of Interstate Compacts

For many years after the Constitution was adopted, boundary disputes continued to predominate as the subject matter of agreements among the States. Since the turn of the twentieth century, however, the interstate compact has been used to an increasing extent as an instrument for State cooperation in carrying out affirmative programs for solving common problems. The execution of vast public undertakings, such as the development of the Port of New York by the Port Authority created by compact between New York and New Jersey, flood control, the prevention of pollution, and the conservation and allocation of water supplied by interstate streams, are among the objectives accomplished by this means.[1785] Another important use of this device was recognized by Congress in the act of June 6, 1934,[1786] whereby it consented in advance to agreements for the control of crime. The first response to this stimulus was the Crime Compact of 1934, providing for the supervision of parolees and probationers, to which forty-five States had given adherence by 1949.[1787] Subsequently Congress has authorized, on varying conditions, compacts touching the production of tobacco, the conservation of natural gas, the regulation of fishing in inland waters, the furtherance of flood and pollution control, and other matters. Moreover, since 1935 at least thirty-six States, beginning with New Jersey, have set up permanent commissions for interstate cooperation, which have led to the formation of a Council of State Governments ("Cosgo" for short), the creation of special commissions for the study of the crime problem, the problem of highway safety, the trailer problem, problems created by social security legislation, etc., and the framing of uniform State legislation for dealing with some of these.[1788]

Consent of Congress

The Constitution makes no provision as to the time when the consent of Congress shall be given or the mode or form by which it shall be signified.[1789] While the consent will usually precede the compact or agreement, it may be given subsequently where the agreement relates to a matter which could not be well considered until its nature is fully developed.[1790] The required consent is not necessarily an expressed consent; it may be inferred from circumstances.[1791] It is sufficiently indicated, when not necessary to be made in advance, by the approval of proceedings taken under it.[1792] The consent of Congress may be granted conditionally "upon terms appropriate to the subject and transgressing no constitutional limitations."[1793] And in a recent instance it has not been forthcoming at all. In Sipuel v. Board of Regents,[1794] decided in 1948, the Supreme Court ruled that the equal protection clause of Amendment XIV requires a State maintaining a law school for white students to provide legal education for a Negro applicant, and to do so as soon as it does for applicants of any other group. Shortly thereafter the governors of 12 Southern States convened to canvass methods for meeting the demands of the Court. There resulted a compact to which 13 State legislatures have consented and by which a Board of Control for Southern Regional Education is set up. Although some early steps were taken toward obtaining Congress's consent to the agreement, the effort was soon abandoned, but without affecting the cooperative educational program, which to date has not been extended to the question of racial segregation.[1795] Finally, Congress does not, by giving its consent to a compact, relinquish or restrict its own powers, as for example, its power to regulate interstate commerce.[1796]

Grants of Franchise to Corporation by Two States

It is competent for a railroad corporation organized under the laws of one State, when authorized so to do by the consent of the State which created it, to accept authority from another State to extend its railroad into such State and to receive a grant of powers to own and control, by lease or purchase, railroads therein, and to subject itself to such rules and regulations as may be prescribed by the second State. Such legislation on the part of two or more States is not, in the absence of inhibitory legislation by Congress, regarded as within the constitutional prohibition of agreements or compacts between States.[1797]

Legal Effect of Interstate Compacts

Whenever, by the agreement of the States concerned and the consent of Congress, an interstate compact comes into operation, it has the same effect as a treaty between sovereign powers. Boundaries established by such compacts become binding upon all citizens of the signatory States and are conclusive as to their rights.[1798] Private rights may be affected by agreements for the equitable apportionment of the water of an interstate stream, without a judicial determination of existing rights.[1799] Valid interstate compacts are within the protection of the obligation of contracts clause and specific enforcement of them is within the original jurisdiction of the Supreme Court.[1800] Congress also has authority to compel compliance with such a compact.[1801]

ADDENDUM

Nor may a State read herself out of a compact which she has ratified and to which Congress has consented by pleading that under the State's constitution as interpreted by the highest State court she had lacked power to enter into such an agreement and was without power to meet certain obligations thereunder. The final construction of the State constitution in such a case rests with the Supreme Court.[1802]

Notes

[1] 4 Wheat. 316, 405 (1819).

[2] See pp. 378-379.

[3] 206 U.S. 46, 82 (1907).

[4] 4 Wheat. at 407.

[5] Ibid. 411.

[6] Ibid. 421.

[7] 2 Story, Commentaries, Sec. 1256. See also ibid. Sec. 1286 and 1330.

[8] 1 Pet. 511 (1828).

[9] Ibid. at 542.

[10] Ibid. 543.

[11] Prigg v. Pennsylvania, 16 Pet. 539, 616, 618-619 (1842).

[12] Juilliard v. Greenman, 110 U.S. 421, 449-450 (1884). See also Justice Bradley's concurring opinion in Knox v. Lee, 12 Wall. 457, 565 (1871).

[13] United States v. Jones, 109 U.S. 513 (1883).

[14] United States v. Kagama, 118 U.S. 375 (1886).

[15] Fong Yue Ting v. United States, 149 U.S. 698 (1893).

[16] Hines v. Davidowitz et al., 312 U.S. 52 (1941).

[17] 299 U.S. 304 (1936).

[18] Ibid. 315, 316-317, 318 passim. For anticipations of this conception of the powers of the National Government in the field of foreign relations, see Penhallow v. Doane, 3 Dall. 54, 80, 81 (1795); also ibid. 74 and 76 (argument of counsel); also Chief Justice Taney's opinion in Holmes v. Jennison, 14 Pet. 540, 575-576 (1840).

[19] Locke, Second Treatise on Government, Chapter XI Sec. 141 (1691).

[20] 276 U.S. 394 (1928).

[21] Ibid. 405, 406.

[22] Wayman v. Southard, 10 Wheat. 1 (1825).

[23] The Brig Aurora, 7 Cr. 382 (1813).

[24] Wayman v. Southard, 10 Wheat. 1, 42 (1825).

[25] Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 398 (1940); United States v. Rock Royal Co-operative, 307 U.S. 533, 577 (1939).

[26] United States v. Rock Royal Co-operative, 307 U.S. 533, 576 (1939).

[27] Schechter Poultry Corp. v. United States, 295 U.S. 495, 539 (1935); Opp Cotton Mills v. Administrator, 312 U.S. 126, 144 (1941); American Power & Light Co. v. Securities & Exchange Comm., 329 U.S. 90, 107, 108 (1946). Cf. Wichita R. & L. Co. v. Public Utilities Comm., 260 U.S. 48, 59 (1922).

[28] New York Cent. Securities Corp. v. United States, 287 U.S. 12, 24 (1932).

[29] Federal Radio Commission v. Nelson Bros. Bond & Mortgage Co., 289 U.S. 266, 285 (1933); National Broadcasting Co. v. United States, 319 U.S. 190, 225 (1943); Federal Communications Commission v. Pottsville Broadcasting Co., 309 U.S. 134, 138 (1940).

[30] Lichter v. United States, 334 U.S. 742, 783 (1948).

[31] Panama Refining Co. v. Ryan, 293 U.S. 388 (1935); Schechter Poultry Corp. v. United States, 295 U.S. 495 (1985).

[32] United States v. Rock Royal Co-operative, 307 U.S. 533 (1939); Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381 (1940); Bowles v. Willingham, 321 U.S. 503, 514 (1944); Yakus v. United States, 321 U.S. 414, 424 (1944).

[33] Fahey v. Mallonee, 332 U.S. 245 (1947).

[34] Ibid. 250.

[35] Ex parte Kollock, 165 U.S. 526 (1897).

[36] Buttfield v. Stranahan, 192 U.S. 470 (1904).

[37] United States v. Grimaud, 220 U.S. 506 (1911).

[38] United States v. Shreveport Grain & Elevator Co., 287 U.S. 77, 85 (1932).

[39] Currin v. Wallace, 306 U.S. 1 (1939).

[40] Avent v. United States, 266 U.S. 127 (1924).

[41] United States v. Rock Royal Co-operative, 307 U.S. 533 (1939).

[42] Yakus v. United States, 321 U.S. 414 (1944).

[43] Bowles v. Willingham, 321 U.S. 503 (1944).

[44] Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 397 (1940).

[45] Hirabayashi v. United States, 320 U.S. 81, 104 (1943); Korematsu v. United States, 323 U.S. 214 (1944).

[46] Fahey v. Mallonee, 332 U.S. 245 (1947).

[47] Mulford v. Smith, 307 U.S. 38 (1939).

[48] Interstate Commerce Comm'n. v. Goodrich Transit Co., 224 U.S. 194, 214 (1912).

[49] Although reversing the decision of the State supreme court that rates fixed by the commission were not subject to judicial review, the Supreme Court implicitly sanctioned the exercise of rate-making power by such bodies. Chicago, M. & St. P.R. Co. v. Minnesota, 134 U.S. 418 (1890).

[50] Hampton & Co. v. United States, 276 U.S. 394, 408 (1928).

[51] State of Minnesota v. Chicago, M. & St. P.R. Co. 38 Minn. 281, 301 (1888).

[52] Interstate Commerce Commission v. Louisville & N.R. Co., 227 U.S. 88 (1913); New York v. United States, 331 U.S. 284, 340-350 (1947) and cases cited therein. See also New York et al. v. United States, 342 U.S. 882 (1951).

[53] Union Bridge Co. v. United States, 204 U.S. 364 (1907).

[54] First Nat. Bank v. Fellows, ex rel. Union Trust Co., 244 U.S. 416 (1917).

[55] Mahler v. Eby, 264 U.S. 32 (1924); United States ex rel. Tisi v. Tod, 264 U.S. 131 (1924).

[56] New York Central Securities Corp. v. United States, 287 U.S. 12, 25 (1932).

[57] Federal Radio Comm'n. v. Nelson Bros. Bond & Mortgage Co., 289 U.S. 266 (1933).

[58] National Broadcasting Co. v. United States, 319 U.S. 190 (1943).

[59] 50 Stat. 246, as amended, 7 U.S.C. Sec. 601 et seq.

[60] Brannan v. Stark, 342 U.S. 451 (1952). Justice Black, with whom Justices Reed and Douglas concurred, dissented, saying: "In striking down these provisions of the Secretary's order, the Court has departed from many principles it has previously announced in connection with its supervision over administrative agents. Under these principles, the Court would refrain from setting aside administrative findings of fact when supported by substantial evidence; we would give weight to the interpretation of a statute by its administrators; when, administrators have interpreted broad statutory terms, such, as here involved, we would recognize that it is our duty to accept this interpretation even though it was not 'the only reasonable one' or the one 'we would have reached had the question arisen in the first instance in judicial proceedings.' Unemployment Comm'n v. Aragon, 329 U.S. 143, 153 (1946)." Ibid. 484.

[61] Jackson v. Roby, 109 U.S. 440 (1883); Erhardt v. Boaro, 113 U.S. 527 (1885); Butte City Water Co. v. Baker, 196 U.S. 119 (1905).

[62] St. Louis, I.M. & S.R. Co. v. Taylor, 210 U.S. 281, 286 (1908).

[63] 295 U.S. 495, 537 (1935).

[64] 298 U.S. 238, 311 (1936).

[65] Currin v. Wallace, 306 U.S. 1 (1939); United States v. Rock Royal Co-operative, 307 U.S. 533, 577 (1939).

[66] Currin v. Wallace, 306 U.S. 1, 15, 16 (1939).

[67] 7 Cr. 382 (1813).

[68] Ibid. 388.

[69] 143 U.S. 649 (1892).

[70] Ibid. 691.

[71] Ibid. 692, 693.

[72] Hampton Jr. & Co. v. United States, 276 U.S. 394 (1928).

[73] 299 U.S. 304, 312 (1936).

[74] Ibid. 319-322.—United States v. Chemical Foundation, 272 U.S. 1 (1926) presented the anomalous situation of the United States suing to set aside a sale of alien property sold by one of its agents, the Alien Property Custodian, by authority of the President. The government contended that statute under which the sale was made was unconstitutional because, in giving the President full power of disposition of the property, it delegated legislative power to the President. Declaring that "It was peculiarly within the province of the Commander-in-Chief to know the facts and to determine what disposition should be made of enemy properties in order effectively to carry on the war," the Court affirmed a decree dismissing the suit. Ibid. 12.

[75] 293 U.S. 388 (1935).

[76] 312 U.S. 126 (1941).

[77] Ibid. 144, 145.

[78] White House Digest of Provisions of Law Which Would Become Operative upon Proclamation of a National Emergency by the President. The Digest is dated December 11, 1950. It was released to the press on December 16th. 15 F.R. 9029.

[79] United States v. Grimaud, 220 U.S. 506 (1911).

[80] Steuart & Bros. Inc. v. Bowles, 322 U.S. 398, 404 (1944).

[81] United States v. Eaton, 144 U.S. 677 (1892).

[82] Steuart & Bros. Inc. v. Bowles, 322 U.S. 398 (1944).

[83] Kraus & Bros. v. United States, 327 U.S. 614 (1946).

[84] Landis, Constitutional Limitations on the Congressional Power of Investigation, 40 Harvard Law Review, 153, 159-166 (1926).

[85] 3 Annals of Congress, 493 (1792).

[86] In 1800, Secretary of the Treasury, Oliver Wolcott, Jr., addressed a letter to the House of Representatives advising them of his resignation from office and inviting an investigation of his office. Such an inquiry was made. 10 Annals of Congress 786-788 (1800).

[87] 8 Cong. Deb. 2160 (1832).

[88] 13 Cong. Deb. 1057 (1836).

[89] H.R. Rep. No. 194, 24th Cong., 2d sess., Ser. No. 307, 1, 12, 31 (1837).

[90] Cong. Globe, 36th Cong. 1st sess. 1100-1109 (1860).

[91] 103 U.S. 168 (1881).

[92] 273 U.S. 135, 177, 178 (1927).

[93] 4 Cong. Deb. 862, 868, 888, 889 (1827).

[94] 103 U.S. 168 (1881).

[95] 154 U.S. 447 (1894).

[96] Ibid. 478. See also Harriman v. Interstate Commerce Commission, 211 U.S. 407 (1908); Smith v. Interstate Commerce Commission, 245 U.S. 33 (1917).

[97] 273 U.S. 135 (1927).

[98] Ibid. 154, 175.

[99] 103 U.S. 168, 192-196 (1881).

[100] 166 U.S. 661 (1897).

[101] Ibid. 670.

[102] 273 U.S. 135, 178 (1927).

[103] 279 U.S. 263 (1929).

[104] Ibid. 295.

[105] In re Chapman, 166 U.S. 661 (1897).

[106] 279 U.S. 597 (1929).

[107] 6 Wheat. 204 (1821).

[108] 243 U.S. 521 (1917).

[109] Ibid. 542.

[110] 294 U.S. 125 (1935).

[111] Ibid. 147, 150.

[112] 6 Wheat. 204, 231 (1821).

[113] In re Chapman, 166 U.S. 661, 671-672 (1897).

[114] United States v. Bryan, 339 U.S. 323, 330 (1950); United States v. Fleischman, 339 U.S. 349 (1950).