Article 1, Section 10, Clause 1
Joseph Story, Commentaries on the Constitution 3:§§ 1351, 1353--57, 1365--66, 1370--941833
§ 1351. The next prohibition is to coin money. We have already seen, that the power to coin money, and regulate the value thereof, is confided to the general government. Under the confederation a concurrent power was left in the states, with a restriction, that congress should have the exclusive power to regulate the alloy and value of the coin struck by the states. In this, as in many other cases, the constitution has made a great improvement upon the existing system. Whilst the alloy and value depended on the general government, a right of coinage in the several states could have no other effect, than to multiply expensive mints, and diversify the forms and weights of the circulating coins. The latter inconvenience would defeat one main purpose, for which the power is given to the general government, viz. uniformity of the currency; and the former might be as well accomplished by local mints established by the national government, if it should ever be found inconvenient to send bullion, or old coin for re-coinage to the central mint. Such an event could scarcely occur, since the common course of commerce throughout the United States is so rapid and so free, that bullion can with a very slight expense be transported from one extremity of the Union to another. A single mint only has been established, which has hitherto been found quite adequate to all our wants. The truth is, that the prohibition had a higher motive, the danger of the circulation of base and spurious coin connived at for local purposes, or easily accomplished by the ingenuity of artificers, where the coins are very various in value and denomination, and issued from so many independent and unaccountable authorities. This subject has, however, been already enlarged on in another place.
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§ 1353. The evils attendant upon the issue of paper money by the states after the peace of 1783, here spoken of, are equally applicable, and perhaps apply with even increased force to the paper issues of the states and the Union during the revolutionary war. Public, as well as private credit, was utterly prostrated. The fortunes of many individuals were destroyed; and those of all persons were greatly impaired by the rapid and unparalleled depreciation of the paper currency during this period. In truth, the history of the paper currency, which during the revolution was issued by congress alone, is full of melancholy instruction. It is at once humiliating to our pride, and disreputable to our national justice. Congress at an early period (November, 1775,) directed an emission of bills of credit to the amount of three millions of dollars; and declared on the face of them, that "this bill entitles the bearer to receive ------ Spanish milled dollars, or the value thereof in gold or silver, according to a resolution of congress, passed at Philadelphia, November 29th, 1775." And they apportioned a tax of three millions on the states, in order to pay these bills, to be raised by the states according to their quotas at future designated periods. The bills were directed to be receivable in payment of the taxes; and the thirteen colonies were pledged for their redemption. Other emissions were subsequently made. The depreciation was a natural, and indeed a necessary consequence of the fact, that there was no fund to redeem them. Congress endeavoured to give them additional credit by declaring, that they ought to be a tender in payment of all private and public debts; and that a refusal to receive the tender ought to be an extinguishment of the debt, and recommending the states to pass such tender laws. They went even farther, and thought proper to declare, that whoever should refuse to receive this paper in exchange for any property, as gold and silver, should be deemed "an enemy to the liberties of these United States." This course of violence and terror, so far from aiding the circulation of the paper, led on to still farther depreciation. New issues continued to be made, until in September, 1779, the whole emission exceeded one hundred and sixty millions of dollars. At this time congress thought it necessary to declare, that the issues on no account should exceed two hundred millions; and still held out to the public the delusive hope of an ultimate redemption of the whole at par. They indignantly repelled the idea, in a circular address, that there could be any violation of the public faith, pledged for their redemption; or that there did not exist ample funds to redeem them. They indulged in still more extraordinary delusions, and ventured to recommend paper money, as of peculiar value. "Let it be remembered," said they, "that paper money is the only kind of money, which cannot make to itself wings and fly away."
§ 1354. The states still continued to fail in complying with the requisitions of congress to pay taxes; and congress, notwithstanding their solemn declaration to the contrary, increased the issue of paper money, until it amounted to the enormous sum of upwards of three hundred millions. The idea was then abandoned of any redemption at par. In March, 1780, the states were required to bring in the bills at forty for one; and new bills were then to be issued in lieu of them, bearing an interest of five per cent., redeemable in six years, to be issued on the credit of the individual states, and guaranteed by the United States. This new scheme of finance was equally unavailing. Few of the old bills were brought in; and of course few of the new were issued. At last the continental bills became of so little value, that they ceased to circulate; and in the course of the year 1780, they quietly died in the hands of their possessors. Thus were redeemed the solemn pledges of the national government! Thus, was a paper currency, which was declared to be equal to gold and silver, suffered to perish in the hands of persons compelled to take it; and the very enormity of the wrong made the ground of an abandonment of every attempt to redress it!
§ 1355. Without doubt the melancholy shades of this picture were deepened by the urgent distresses of the revolutionary war, and the reluctance of the states to perform their proper duty. And some apology, if not some justification of the proceedings, may be found in the eventful transactions and sufferings of those times. But the history of paper money, without any adequate funds pledged to redeem it, and resting merely upon the pledge of the national faith, has been in all ages and in all nations the same. It has constantly become more and more depreciated; and in some instances has ceased from this cause to have any circulation whatsoever, whether issued by the irresistible edict of a despot, or by the more alluring order of a republican congress. There is an abundance of illustrative facts scattered over the history of those of the American colonies, who ventured upon this pernicious scheme of raising money to supply the public wants, during their subjection to the British crown; and in the several states, from the declaration of independence down to the present times. Even the United States, with almost inexhaustible resources, and with a population of 9,000,000 of inhabitants, exhibited during the late war with Great-Britain the humiliating spectacle of treasury notes, issued and payable in a year, remaining unredeemed, and sunk by depreciation to about half of their nominal value!
§ 1356. It has been stated by a very intelligent historian, that the first case of any issue of bills of credit in any of the American colonies, as a substitute for money, was by Massachusetts to pay the soldiers, who returned unexpectedly from an unsuccessful expedition against Canada, in 1690. The debt, thus due to the soldiers, was paid by paper notes from two shillings to ten pounds denomination, which notes were to be received for payment of the tax, which was to be levied, and all other payments into the treasury. It is added, that they had better credit than King James's leather money in Ireland about the same time. But the notes could not command money, nor any commodities at money price. Being of small amount, they were soon absorbed in the discharge of taxes. At subsequent periods the government resorted to similar expedients. In 1714, there being a cry of a scarcity of money, the government caused £50,000 to be issued in bills of credit, and in 1716, £100,000 to be lent to the inhabitants for a limited period, upon lands mortgaged by them, as security, and in the mean time to pass as money. These bills were receivable into the treasury in discharge of taxes, and also of the mortgage debts so contracted. Other bills were afterwards issued; and, indeed, we are informed, that, for about forty years, the currency of the province was in much the same state, as if £100,000 sterling had been stamped on pieces of leather or paper, of various denominations, and declared to be the money of the government, receivable in payment of taxes, and in discharge of private debts. The consequence was a very great depreciation, so that an ounce of silver, which, in 1702, was worth six shillings and eight pence, was, in 1749, equal to fifty shillings of this paper currency. It seems, that all the other colonies, except Nova Scotia, at different times and for various purposes, authorized the issue of paper money. There was a uniform tendency to depreciation, wherever it was persisted in.
§ 1357. It would seem to be obvious, that, as the states are expressly prohibited from coining money, the prohibition would be wholly ineffectual, if they might create a paper currency, and circulate it as money. But, as it might become necessary for the states to borrow money, the prohibition could not be intended to prevent such an exercise of power, on giving to the lender a certificate of the amount borrowed, and a promise to repay it.
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§ 1365. The next prohibition is, that no state shall "make any thing but gold and silver coin, a tender in payment of debts." This clause was manifestly founded in the same general policy, which procured the adoption of the preceding clause. The history, indeed, of the various laws, which were passed by the states in their colonial and independent character upon this subject, is startling at once to our morals, to our patriotism, and to our sense of justice. Not only was paper money issued, and declared to be a tender in payment of debts; but laws of another character, well known under the appellation of tender laws, appraisement laws, instalment laws, and suspension laws, were from time to time enacted, which prostrated all private credit, and all private morals. By some of these laws, the due payment of debts was suspended; debts were, in violation of the very terms of the contract, authorized to be paid by instalments at different periods; property of any sort, however worthless, either real or personal, might be tendered by the debtor in payment of his debts; and the creditor was compelled to take the property of the debtor, which he might seize on execution, at an appraisement wholly disproportionate to its known value. Such grievances, and oppressions, and others of a like nature, were the ordinary results of legislation during the revolutionary war, and the intermediate period down to the formation of the constitution. They entailed the most enormous evils on the country; and introduced a system of fraud, chicanery, and profligacy, which destroyed all private confidence, and all industry and enterprise.
§ 1366. It is manifest, that all these prohibitory clauses, as to coining money, emitting bills of credit, and tendering any thing, but gold and silver, in payment of debts, are founded upon the same general policy, and result from the same general considerations. The policy is, to provide a fixed and uniform value throughout the United States, by which commercial and other dealings of the citizens, as well as the monied transactions of the government, might be regulated. For it may well be asked, why vest in congress the power to establish a uniform standard of value, if the states might use the same means, and thus defeat the uniformity of the standard, and consequently the standard itself? And why establish a standard at all for the government of the various contracts, which might be entered into, if those contracts might afterwards be discharged by a different standard, or by that, which is not money, under the authority of state tender laws? All these prohibitions are, therefore, entirely homogeneous, and are essential to the establishment of a uniform standard of value in the formation and discharge of contracts. For this reason, as well as others derived from the phraseology employed, the prohibition of state tender laws will admit of no construction confining it to state laws, which have a retrospective operation. Accordingly, it has been uniformly held, that the prohibition applies to all future laws on the subject of tender; and therefore no state legislature can provide, that future pecuniary contracts may be discharged by any thing, but gold and silver coin.
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§ 1370. In the first place, what is to be deemed a contract, in the constitutional sense of this clause? A contract is an agreement to do, or not to do, a particular thing; or (as was said on another occasion) a contract is a compact between two or more persons. A contract is either executory, or executed. An executory contract is one, in which a party binds himself to do, or not to do a particular thing. An executed contract is one, in which the object of the contract is performed. This differs in nothing from a grant; for a contract executed conveys a chose in possession; a contract executory conveys only a chose in action. Since, then, a grant is in fact a contract executed, the obligation of which 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 former, as well as the latter. A state law, therefore, annulling conveyances between individuals, and declaring, that the grantors should stand seized of their former estates, notwithstanding those grants, would be as repugnant to the constitution, as a state law discharging the vendors from the obligation of executing their contracts of sale by conveyances. It would be strange, indeed, if a contract to convey were secured by the constitution, while an absolute conveyance remained unprotected. That the contract, while executory, was obligatory; but when executed, might be avoided.
§ 1371. Contracts, too, are express, or implied. Express contracts are, where the terms of the agreement are openly avowed, and uttered at the time of the making of it. Implied contracts are such, as reason and justice dictate from the nature of the transaction, and which therefore the law presumes, that every man undertakes to perform. The constitution makes no distinction between the one class of contracts and the other. It then equally embraces, and applies to both. Indeed, as by far the largest class of contracts in civil society, in the ordinary transactions of life, are implied, there would be very little object in securing the inviolability of express contracts, if those, which are implied, might be impaired by state legislation. The constitution is not chargeable with such folly, or inconsistency. Every grant in its own nature amounts to an extinguishment of the right of the grantor, and implies a contract not to re-assert it. A party is, therefore, always estopped by his own grant. How absurd would it be to provide, that an express covenant by him, as a muniment attendant upon the estate, should bind him for ever, because executory, and resting in action; and yet, that he might re-assert his title to the estate, and dispossess his grantee, because there was only an implied covenant not to re-assert it.
§ 1372. In the next place, what is the obligation of a contract? It would seem difficult to substitute words more intelligible, or less liable to misconstruction, than these. And yet they have given rise to much acute disquisition, as to their real meaning in the constitution. It has been said, that right and obligation are correlative terms. Whatever I, by my contract, give another a right to require of me, I, by that act, lay myself under an obligation to yield or bestow. The obligation of every contract, then, will consist of that right, or power over my will or actions, which I, by my contract, confer on another. And that right and power will be found to be measured, neither by moral law alone, nor by universal law alone, nor by the laws of society alone; but by a combination of the three; an operation, in which the moral law is explained, and applied by the law of nature, and both modified and adapted to the exigencies of society by positive law. In an advanced state of society, all contracts of men receive a relative, and not a positive interpretation. The state construes them, the state applies them, the state controls them, and the state decides, how far the social exercise of the rights, they give over each other, can be justly asserted. Again, it has been said, that the constitution distinguishes between a contract, and the obligation of a contract. The latter is the law, which binds the parties to perform their agreement. The law, then, which has this binding obligation, must govern and control the contract in every shape, in which it is intended to bear upon it. Again, it has been said, that the obligation of a contract consists in the power and efficacy of the law, which applies to, and enforces performance of it, or an equivalent for non-performance. The obligation does not inhere, and subsist in the contract itself, proprio vigore, but in the law applicable to the contract. And again, it has been said, that a contract is an agreement of the parties; and if it be not illegal, it binds them to the extent of their stipulations. Thus, if a party contracts to pay a certain sum on a certain day, the contract binds him to perform it on that day, and this is its obligation.
§ 1373. Without attempting to enter into a minute examination of these various definitions, and explanations of the obligation of contracts, or of the reasoning, by which they are supported and illustrated; there are some considerations, which are pre-supposed by all of them; and others, which enter into some, and are excluded in others.
§ 1374. It seems agreed, that, when the obligation of contracts is spoken of in the constitution, we are to understand, not the mere moral, but the legal obligation of contracts. The moral obligation of contracts is, so far as human society is concerned, of an imperfect kind, which the parties are left free to obey or not, as they please. It is addressed to the conscience of the parties, under the solemn admonitions of accountability to the Supreme Being. No human lawgiver can either impair, or reach it. The constitution has not in contemplation any such obligations, but such only, as might be impaired by a state, if not prohibited. It is the civil obligation of contracts, which it is designed to reach, that is, the obligation, which is recognized by, and results from the law of the state, in which it is made. If, therefore, a contract, when made, is by the law of the place declared to be illegal, or deemed to be a nullity, or a nude pact, it has no civil obligation, because the law in such cases forbids its having any binding efficacy, or force. It confers no legal right on the one party, and no correspondent legal duty on the other. There is no means allowed, or recognised to enforce it; for the maxim is, ex nudo pacto non oritur actio. But when it does not fall within the predicament of being either illegal, or void, its obligatory force is coextensive with its stipulations.
§ 1375. Nor is this obligatory force so much the result of the positive declarations of the municipal law, as of the general principles of natural, or (as it is sometimes called) universal law. In a state of nature, independent of the obligations of positive law; contracts may be formed, and their obligatory force be complete. Between independent nations, treaties and compacts are formed, which are deemed universally obligatory; and yet in no just sense can they be deemed dependent on municipal law. Nay, there may exist (abstractly speaking) a perfect obligation in contracts, where there is no known and adequate means to enforce them. As, for instance, between independent nations, where their relative strength and power preclude the possibility, on the side of the weaker party, of enforcing them. So in the same government, where a contract is made by a state with one of its own citizens, which yet its laws do not permit to be enforced by any action or suit. In this predicament are the United States, who are not suable on any contracts made by themselves; but no one doubts, that these are still obligatory on the United States. Yet their obligation is not recognised by any positive municipal law in a great variety of cases. It depends altogether upon principles of public or universal law. Still, in these cases there is a right in the one party to have the contract performed, and a duty on the other side to perform it. But, generally speaking, when we speak of the obligation of a contract, we include in the idea some known means acknowledged by the municipal law to enforce it. Where all such means are absolutely denied, the obligation of the contract is understood to be impaired, though it may not be completely annihilated. Rights may, indeed, exist without any present adequate correspondent remedies between private persons. Thus, a state may refuse to allow imprisonment for debt; and the debtor may have no property. But still the right of the creditor remains; and he may enforce it against the future property of the debtor. So a debtor may die without leaving any known estate, or without any known representative. In such cases we should not say, that the right of the creditor was gone; but only, that there was nothing, on which it could presently operate. But suppose an administrator should be appointed, and property in contingency should fall in, the right might then be enforced to the extent of the existing means.
§ 1376. The civil obligation of a contract, then, though it can never arise, or exist contrary to positive law, may arise or exist independently of it; and it may be, exist, not-withstanding there may be no present adequate remedy to enforce it. Wherever the municipal law recognises an absolute duty to perform a contract, there the obligation to perform it is complete, although there may not be a perfect remedy.
§ 1377. But much diversity of opinion has been exhibited upon another point; how far the existing law enters into, and forms a part of the contract. It has been contended by some learned minds, that the municipal law of the place, where a contract is made, forms a part of it, and travels with it, wherever the parties to it may be found. If this were admitted to be true, the consequence would be, that all the existing laws of a state, being incorporated into the contract, would constitute a part of its stipulations, so that a legislative repeal of such laws would not in any manner affect it. Thus, if there existed at the time a statute of limitations, operating on such contracts, or an insolvent act, under which they might be discharged, no subsequent repeal of either could vary the rights of the parties, as to using them, as a bar to a suit upon such contracts. If, therefore, the legislature should provide by a law, that all contracts thereafter made should be subject to the entire control of the legislature, as to their obligation, validity, and execution, whatever might be their terms, they would be completely within the legislative power, and might be impaired, or extinguished by future laws; thus having a complete ex post facto operation. Nay, if the legislature should pass a law declaring, that all future contracts might be discharged by a tender of any thing, or things, besides gold and silver, there would be great difficulty in affirming them to be unconstitutional; since it would become a part of the stipulations of the contract. And yet it is obvious, that it would annihilate the whole prohibition of the constitution upon the subject of tender laws.
§ 1378. It has, therefore, been judicially held by a majority of the Supreme Court, that such a doctrine is untenable. Although the law of the place acts upon a contract, and governs its construction, validity, and obligation, it constitutes no part of it. The effect of such a principle would be a mischievous abridgment of legislative power over subjects within the proper jurisdiction of states, by arresting their power to repeal, or modify such laws with respect to existing contracts. The law necessarily steps in to explain, and construe the stipulations of parties, but never to supersede, or vary them. A great mass of human transactions depends upon implied contracts, upon contracts, not written, which grow out of the acts of the parties. In such cases the parties are supposed to have made those stipulations, which, as honest, fair, and just men, they ought to have made. When the law assumes, that the parties have made these stipulations, it does not vary their contract, or introduce new terms into it; but it declares, that certain acts, unexplained by compact, impose certain duties, and that the parties had stipulated for their performance. The difference is obvious between this, and the introduction of a new condition into a contract drawn out in writing, in which the parties have expressed every thing, that is to be done by either. So, if there be a written contract, which does not include every term, which is ordinarily and fairly to be implied, as accompanying what is stated, the law performs the office only of expressing, what is thus tacitly admitted by the parties to be a part of their intention. To such an extent the law acts upon contracts. It performs the office of interpretation. But this is very different from supposing, that every law, applicable to the subject matter, as a statute of limitations, or a statute of insolvency, enters into the contract, and becomes a part of the contract. Such a supposition is neither called for by the terms of the contract, nor can be fairly presumed to be contemplated by the parties, as matters ex contractu. The parties know, that they must obey the laws; and that the laws act upon their contracts, whatever may be their intention.
§ 1379. In the next place, what may properly be deemed impairing the obligation of contracts in the sense of the constitution? It is perfectly clear, that any law, which enlarges, abridges, or in any manner changes the intention of the parties, resulting from the stipulations in the contract, necessarily impairs it. The manner or degree, in which this change is effected, can in no respect influence the conclusion; for whether the law affect the validity, the construction, the duration, the discharge, or the evidence of the contract, it impairs its obligation, though it may not do so to the same extent in all the supposed cases. Any deviation from its terms by postponing, or accelerating the period of performance, which it prescribes; imposing conditions not expressed in the contract; or dispensing with the performance of those, which are a part of the contract; however minute or apparently immaterial in their effect upon it, impair its obligation. A fortiori, a law, which makes the contract wholly invalid, or extinguishes, or releases it, is a law impairing it. Nor is this all. Although there is a distinction between the obligation of a contract, and a remedy upon it; yet if there are certain remedies existing at the time, when it is made, all of which are afterwards wholly extinguished by new laws, so that there remain no means of enforcing its obligation, and no redress; such an abolition of all remedies, operating in presenti, is also an impairing of the obligation of such contract. But every change and modification of the remedy does not involve such a consequence. No one will doubt, that the legislature may vary the nature and extent of remedies, so always, that some substantive remedy be in fact left. Nor can it be doubted, that the legislature may prescribe the times and modes, in which remedies may be pursued; and bar suits not brought within such periods, and not pursued in such modes. Statutes of limitations are of this nature; and have never been supposed to destroy the obligation of contracts, but to prescribe the times, within which that obligation shall be enforced by a suit; and in default to deem it either satisfied, or abandoned. The obligation to perform a contract is coeval with the undertaking to perform it. It originates with the contract itself, and operates anterior to the time of performance. The remedy acts upon the broken contract, and enforces a pre-existing obligation. And a state legislature may discharge a party from imprisonment upon a judgment in a civil case of contract, without infringing the constitution; for this is but a modification of the remedy, and does not impair the obligation of the contract. So, if a party should be in gaol, and give a bond for the prison liberties, and to remain a true prisoner, until lawfully discharged, a subsequent discharge by an act of the legislature would not impair the contract; for it would be a lawful discharge in the sense of the bond.
§ 1380. These general considerations naturally conduct us to some more difficult inquiries growing out of them; and upon which there has been a very great diversity of judicial opinion. The great object of the framers of the constitution undoubtedly was, to secure the inviolability of contracts. This principle was to be protected in whatever form it might be assailed. No enumeration was attempted to be made of the modes, by which contracts might be impaired. It would have been unwise to have made such an enumeration, since it might have been defective; and the intention was to prohibit every mode or device for such purpose. The prohibition was universal.
§ 1381. The question has arisen, and has been most elaborately discussed, how far the states may constitutionally pass an insolvent law, which shall discharge the obligation of contracts. It is not doubted, that the states may pass insolvent laws, which shall discharge the person, or operate in the nature of a cessio bonorum, provided such laws do not discharge, or intermeddle with the obligation of contracts. Nor is it denied, that insolvent laws, which discharge the obligation of contracts, made antecedently to their passage, are unconstitutional. But the question is, how far the states may constitutionally pass insolvent laws, which shall operate upon, and discharge contracts, which are made subsequently to their passage. After the most ample argument it has at length been settled by a majority of the Supreme Court, that the states may constitutionally pass such laws operating upon future contracts.
§ 1382. The learned judges, who held the affirmative, were not all agreed, as to the grounds of their opinions. But their judgment rests on some one of the following grounds: (1.) Some of the judges held, that the law of the place, where a contract is made, not only regulates, and governs it, but constitutes a part of the contract itself; and, consequently, that an insolvent law, which, in the event of insolvency of the party, authorizes a discharge of the contract is obligatory as a part [of] the contract. (2.) Others held, that, though the law of the place formed no part of the contract, yet the latter derived its whole obligation from that law, and was controlled by its provisions; and, consequently, that its obligation could extend no further, than the law, which caused the obligation; and if it was subject to be discharged in case of insolvency, the law so far controlled, and limited its obligation. (3.) That the connexion with the other parts of the clause, (bills of attainder and ex post facto laws,) as they applied to retrospective legislation, fortified the conclusion, that the intention in this part was only to prohibit the like legislation. (4.) That the known history of the country, as to insolvent laws, and their having constituted a part of the acknowledged jurisprudence of several of the states for a long period, forbade the supposition, that under such a general phrase, as laws impairing the obligation of contracts, insolvent laws, in the ordinary administration of justice, could have been intentionally included. (5.) That, whenever any person enters into a contract, his assent may be properly inferred to abide by those rules in the administration of justice, which belong to the jurisprudence of the country of the contract. And, when he is compelled to pursue his debtor in other states, he is equally bound to acquiesce in the law of the latter, to which he subjects himself. (6.) That the law of the contract remains the same every where, and will be the same in every tribunal. But the remedy necessarily varies, and with it the effect of the constitutional pledge, which can only have relation to the laws of distributive justice, known to the policy of each state severally. These and other auxiliary grounds, which were illustrated by a great variety of arguments, which scarcely admit of abridgment, were deemed satisfactory to the majority of the court.
§ 1383. The minority of the judges maintained their opinions upon the following grounds: (1.) That the words of the clause in the constitution, taken in their natural and obvious sense, admit of a prospective, as well as of a retrospective operation. (2.) That an act of the legislature does not enter into the contract, and become one of the conditions stipulated by the parties; nor does it act externally on the agreement, unless it have the full force of law. (3.) That contracts derive their obligation from the act of the parties, and not from the grant of the government. And the right of the government to regulate the manner, in which they shall be formed, or to prohibit such as may be against the policy of the state, is entirely consistent with their inviolability, after they have been formed. (4.) That the obligation of a contract is not identified with the means, which government may furnish to enforce it. And that a prohibition to pass any law impairing it does not imply a prohibition to vary the remedy. Nor does a power to vary the remedy imply a power to impair the obligation derived from the act of the parties. (5.) That the history of the times justified this interpretation of the clause. The power of changing the relative situation of debtor and creditor, and of interfering with contracts, had been carried to such an excess by the state legislature, as to break in upon all the ordinary intercourse of society, and to destroy all private confidence. It was a great object to prevent for the future such mischievous measures. (6.) That the clause, in its terms, purports to be perpetual; and the principle, to be of any value, must be perpetual. It is expressed in terms sufficiently broad to operate in all future times; and the just inference, therefore, is, that it was so intended. But if the other interpretation of it be adopted, the clause will become of little effect; and the constitution will have imposed a restriction, in language indicating perpetuity, which every state in the Union may elude at pleasure. The obligation of contracts in force at any given time is but of short duration; and if the prohibition be of retrospective laws only, a very short lapse of time will remove every subject, upon which state laws are forbidden to operate, and make this provision of the constitution so far useless. Instead of introducing a great principle, prohibiting all laws of this noxious character, the constitution will suspend their operation only for a moment, or except preexisting cases from it. The nature of the provision is thus essentially changed. Instead of being a prohibition to pass laws impairing the obligation of contracts, it is only a prohibition to pass retrospective laws. (7.) That there is the less reason for adopting such a construction, since the state laws, which produced the mischief, were prospective, as well as retrospective.
§ 1384. The question is now understood to be finally at rest; and state insolvent laws, discharging the obligation of future contracts, are to be deemed constitutional. Still a very important point remains to be examined; and that is, to what contracts such laws can rightfully apply. The result of the various decisions on this subject is, (1.) That they apply to all contracts made within the state between citizens of the state. (2.) That they do not apply to contracts made within the state between a citizen of a state, and a citizen of another state. (3.) That they do not apply to contracts not made within the state. In all these cases it is considered, that the state does not possess a jurisdiction, coextensive with the contract, over the parties; and therefore, that the constitution of the United States protects them from prospective, as well as retrospective legislation. Still, however, if a creditor voluntarily makes himself a party to the proceedings under an insolvent law of a state, which discharges the contract, and accepts a dividend declared under such law, he will be bound by his own act, and be deemed to have abandoned his extra-territorial immunity. Of course, the constitutional prohibition does not apply to insolvent, or other laws passed before the adoption of the constitution, operating upon contracts and rights of property vested, and in esse before that time. And it may be added, that state insolvent laws have no operation whatsoever on contracts made with the United States; for such contracts are in no manner whatsoever subject to state jurisdiction.
§ 1385. It has been already stated, that a grant is a contract within the meaning of the constitution, as much as an unexecuted agreement. The prohibition, therefore, equally reaches all interferences with private grants and private conveyances, of whatever nature they may be. But it has been made a question, whether it applies, in the same extent, to contracts and grants of a state created directly by a law, or made by some authorized agent in pursuance of a law. It has been suggested, that, in such cases, it is to be deemed an act of the legislative power; and that all laws are repealable by the same authority, which enacted them. But it has been decided upon solemn argument, that contracts and grants made by a state are not less within the reach of the prohibition, than contracts and grants of private persons; that the question is not, whether such contracts or grants are made directly by law in the form of legislation, or in any other form, but whether they exist at all. The legislature may, by a law, directly make a grant; and such grant, when once made, becomes irrevocable, and cannot be constitutionally impaired. So the legislature may make a contract with individuals directly by a law, pledging the state to a performance of it; and then, when it is accepted, it is equally under the protection of the constitution. Thus, where a state authorized a sale of its public lands, and the sale was accordingly made, and conveyances given, it was held, that those conveyances could not be rescinded, or revoked by the state. So where a state, by a law, entered into a contract with certain Indians to exempt their lands from taxation for a valuable consideration, it was held, that the exemption could not be revoked. And grants of land, once voluntarily made by a state, by a special law, or under general laws, when once perfected, are equally as incapable of being resumed by a subsequent law, as those founded on a valuable consideration. Thus, if a state grant glebe lands, or other lands to parishes, towns, or private persons gratuitously, they constitute irrevocable executed contracts. And it may be laid down, as a general principle, that, whenever a law is in its own nature a contract, and absolute rights have vested under it, a repeal of that law cannot divest those rights, or annihilate or impair the title so acquired. A grant (as has been already stated) amounts to an extinguishment of the right of the grantor, and implies a contract not to reassert it.
§ 1386. The cases above spoken of are cases, in which rights of property are concerned, and are, manifestly, within the scope of the prohibition. But a question, of a more nice and delicate nature, has been also litigated; and that is, how far charters, granted by a state, are contracts within the meaning of the constitution. That the framers of the constitution did not intend to restrain the states in the regulation of their civil institutions, adopted for internal government, is admitted; and it has never been so construed. It has always been understood, that the contracts spoken of in the constitution were those, which respected property, or some other object of value, and which conferred rights capable of being asserted in a court of justice. A charter is certainly in form and substance a contract; it is a grant of powers, rights, and privileges; and it usually gives a capacity to take and to hold property. Where a charter creates a corporation, it emphatically confers this capacity; for it is an incident to a corporation, (unless prohibited,) to take and to hold property. A charter granted to private persons, for private purposes, is within the terms, and the reason of the prohibition. It confers rights and privileges, upon the faith of which it is accepted. It imparts obligations and duties on their part, which they are not at liberty to disregard; and it implies a contract on the part of the legislature, that the rights and privileges, so granted, shall be enjoyed. It is wholly immaterial, in such cases, whether the corporation take for their own private benefit, or for the benefit of other persons. A grant to a private trustee, for the benefit of a particular cestui que trust, is not less a contract, than if the trustee should take for his own benefit. A charter to a bank, or insurance, or turnpike company, is certainly a contract, founded in a valuable consideration. But it is not more so, than a charter incorporating persons for the erection and support of a hospital for the aged, the sick, or the infirm, which is to be supported by private contributions, or is founded upon private charity. It the state should make a grant of funds, in aid of such a corporation, it has never been supposed, that it could revoke them at its pleasure. It would have no remaining authority over the corporation, but that, which is judicial, to enforce the proper administration of the trust. Neither is a grant less a contract, though no beneficial interest accrues to the possessor. Many a purchase, whether corporate or not, may, in point of fact, be of no exchangeable value to the owners; and yet the grants confirming them are not less within the protection of the constitution. All incorporeal hereditaments, such as immunities, dignities, offices, and franchises, are in law deemed valuable rights, and wherever they are subjects of a contract or grant, they are just as much within the reach of the constitution, as any other grants; for the constitution makes no account of the greater, or less value of any thing granted. All corporate franchises are legal estates. They are powers coupled with an interest; and the corporators have vested rights in their character as corporators.
§ 1387. A charter, then, being a contract within the scope of the constitution, the next consideration, which has arisen upon this important subject, is, whether the principle applies to all charters, public as well as private. Corporations are divisible into two sorts, such as are strictly public, and such as are private. Within the former denomination are included all corporations, created for public purposes only, such as cities, towns, parishes, and other public bodies. Within the latter denomination all corporations are included, which do not strictly belong to the former. There is no doubt, as to public corporations, which exist only for public purposes, that the legislature may change, modify, enlarge, and restrain them; with this limitation, however, that property, held by such corporation, shall still be secured for the use of those, for whom, and at whose expense it has been acquired. The principle may be stated in a more general form. If a charter be a mere grant of political power, if it create a civil institution, to be employed in the administration of the government, or, if the funds be public property alone, and the government alone be interested in the management of them, the legislative power over such charter is not restrained by the constitution, but remains unlimited. The reason is, that it is only a mode of exercising public rights and public powers, for the promotion of the general interest; and, therefore, it must, from its very nature, remain subject to the legislative will, so always that private rights are not infringed, or trenched upon.
§ 1388. But an attempt has been made to press this principle much farther, and to exempt from the constitutional prohibition all charters, which, though granted to private persons, are in reality trusts for purposes and objects, which may, in a certain sense, be deemed public and general. The first great case, in which this doctrine became the subject of judicial examination and decision, was the case of Dartmouth College. The legislature of New-Hampshire had, without the consent of the corporation, passed an act changing the organization of the original provincial charter of the college, and transferring all the rights, privileges, and franchises from the old charter trustees to new trustees, appointed under the act. The constitutionality of the act was contested, and after solemn argument, it was deliberately held by the Supreme Court, that the provincial charter was a contract within the meaning of the constitution, and that the amendatory act was utterly void, as impairing the obligation of that charter. The college was deemed, like other colleges of private foundation, to be a private eleemosynary institution, endowed, by its charter, with a capacity to take property unconnected with the government. Its funds were bestowed upon the faith of the charter, and those funds consisted entirely of private donations. It is true, that the uses were in some sense public; that is, for the general benefit, and not for the mere benefit of the corporators; but this did not make the corporation a public corporation. It was a private institution for general charity. It was not distinguishable in principle from a private donation, vested in private trustees, for a public charity, or for a particular purpose of beneficence. And the state itself, if it had bestowed funds upon a charity of the same nature, could not resume those funds. In short, the charter was deemed a contract, to which the government, and the donors, and the trustees of the corporation, were all parties. It was for a valuable consideration, for the security and disposition of property, which was entrusted to the corporation upon the faith of its terms; and the trustees acquired rights under it, which could not be taken away; for they came to them clothed with trusts, which they were obliged to perform, and could not constitutionally disregard. The reasoning in the case, of which this is a very faint and imperfect outline, should receive a diligent perusal; and it is difficult to present it in an abridged form, without impairing its force, or breaking its connexion. The doctrine is held to be equally applicable to grants of additional rights and privileges to an existing corporation, and to the original charter, by which a corporation is first brought into existence, and established. As soon as the latter become organized and in esse, the charter becomes a contract with the corporators.
§ 1389. It has not been thought any objection to this interpretation, that the preservation of charters, and other corporate rights, might not have been primarily, or even secondarily, within the contemplation of the framers of the constitution, when this clause was introduced. It is probable, that the other great evils, already alluded to, constituted the main inducement to insert it, where the temptations were more strong, and the interest more immediate and striking, to induce a violation of contracts. But though the motive may thus have been to reach other more pressing mischiefs, the prohibition itself is made general. It is applicable to all contracts, and not confined to the forms then most known, and most divided. Although a rare or particular case may not of itself be of sufficient magnitude to induce the establishment of a constitutional rule; yet it must be governed by that rule, when established, unless some plain and strong reason for excluding it can be given. It is not sufficient to show, that it may not have been foreseen, or intentionally provided for. To exclude it, it is necessary to go farther, and show, that if the case had been suggested, the language of the convention would have been varied so as to exclude and except it. Where a case falls within the words of a rule or prohibition, it must be held within its operation, unless there is something obviously absurd, or mischievous, or repugnant to the general spirit of the instrument, arising from such a construction. No such absurdity, mischief, or repugnancy, can be pretended in the present case. On the contrary, every reason of justice, convenience, and policy unite to prove the wisdom of embracing it in the prohibition. An impregnable barrier is thus thrown around all rights and franchises derived from the states, and solidity and inviolability are given to the literary, charitable, religious, and commercial institutions of the country.
§ 1390. It has also been made a question, whether a compact between two states, is within the scope of the prohibition. And this also has been decided in the affirmative. The terms, compact and contract, are synonymous; and, when propositions are offered by one state, and agreed to and accepted by another, they necessarily constitute a contract between them. There is no difference, in reason or in law, to distinguish between contracts made by a state with individuals, and contracts made between states. Each ought to be equally inviolable. Thus, where, upon the separation of Kentucky from Virginia, it was agreed by compact between them, that all private rights and interests in lands in Kentucky, derived from the laws of Virginia, should remain valid and secure under the laws of Kentucky, and should be determined by the laws then existing in Virginia; it was held by the Supreme Court, that certain laws of Kentucky, (commonly called the occupying claimant laws,) which varied and restricted the rights and remedies of the owners of such lands, were void, because they impaired the obligation of the contract. Nothing (said the court) can be more clear upon principles of law and reason, than that a law, which denies to the owner of the land a remedy to secure the possession of it, when withheld by any person, however innocently he may have obtained it; or to recover the profits received from it by the occupant; or which clogs his recovery of such possession and profits, by conditions and restrictions, tending to diminish the value and amount of the thing recovered; impairs his right to, and interest in, the property. If there be no remedy to recover the possession, the law necessarily presumes a want of right to it. If the remedy afforded be qualified and restrained by conditions of any kind, the right of the owner may indeed subsist, and be acknowledged; but it is impaired, and rendered insecure, according to the nature and extent of such restrictions. But statutes and limitations, which are mere regulations of the remedy, for the purposes of general repose and quieting titles, are not supposed to impair the right; but merely to provide for the prosecution of it within a reasonable period; and to deem the non-prosecution within the period an abandonment of it.
§ 1391. Whether a state legislature has authority to pass a law declaring a marriage void, or to award a divorce, has, incidentally, been made a question, but has never yet come directly in judgment. Marriage, though it be a civil institution, is understood to constitute a solemn, obligatory contract between the parties. And it has been, arguendo, denied, that a state legislature constitutionally possesses authority to dissolve that contract against the will, and without the default of either party. This point, however, may well be left for more exact consideration, until it becomes the very ground of the lis mota.
§ 1392. Before quitting this subject it may be proper to remark, that as the prohibition, respecting ex post facto laws, applies only to criminal cases; and the other is confined to impairing the obligation of contracts; there are many laws of a retrospective character, which may yet be constitutionally passed by the state legislatures, however unjust, oppressive, or impolitic they may be. Retrospective laws are, indeed, generally unjust; and, as has been forcibly said, neither accord with sound legislation, nor with the fundamental principles of the social compact. Still they are, with the exceptions above stated, left open to the states, according to their own constitutions of government; and become obligatory, if not prohibited by the latter. Thus, for instance, where the legislature of Connecticut, in 1795, passed a resolve, setting aside a decree of a court of probate disapproving of a will, and granted a new hearing; it was held, that the resolve, not being against any constitutional principle in that state, was valid; and that the will, which was approved upon the new hearing, was conclusive, as to the rights obtained under it. There is nothing in the constitution of the United States, which forbids a state legislature from exercising judicial functions; nor from divesting rights, vested by law in an individual; provided its effect be not to impair the obligation of a contract. If such a law be void, it is upon principles derived from the general nature of free governments, and the necessary limitations created thereby, or from the state restrictions upon the legislative authority, and not from the prohibitions of the constitution of the United States. If a state statute should, contrary to the general principles of law, declare, that contracts founded upon an illegal or immoral consideration, or otherwise void, should nevertheless be valid, and binding between the parties; its retrospective character could not be denied; for the effect would be to create a contract between the parties, where none had previously existed. Yet it would not be reached by the constitution of the United States; for to create a contract, and to impair or destroy one, can never be construed to mean the same thing. It may be within the same mischief, and equally unjust, and ruinous; but it does not fall within the terms of the prohibition. So, if a state court should decide, that the relation of landlord and tenant did not legally subsist between certain persons; and the legislature should pass a declaratory act; declaring, that it did subsist; the act, so far as the constitution of the United States is concerned, would be valid. So, if a state legislature should confirm a void sale, if it did not divest the settled rights of property, it would be valid. Nor (as has been already seen) would a state law, discharging a party from imprisonment under a judgment upon a contract, though passed subsequently to the imprisonment, be an unconstitutional exercise of power; for it would leave the obligation of the contract undisturbed. The states still possess the rightful authority to abolish imprisonment for debt; and may apply it to present, as well as to future imprisonment.
§ 1393. Whether, indeed, independently of the constitution of the United States, the nature of republican and free governments does not necessarily impose some restraints upon the legislative power, has been much discussed. It seems to be the general opinion, fortified by a strong current of judicial opinion, that since the American revolution no state government can be presumed to possess the transcendental sovereignty, to take away vested rights of property; to take the property of A. and transfer it to B. by a mere legislative act. That government can scarcely be deemed to be free, where the rights of property are left solely dependent upon a legislative body, without any restraint. The fundamental maxims of a free government seem to require, that the rights of personal liberty, and private property, should be held sacred. At least, no court of justice, in this country, would be warranted in assuming, that any state legislature possessed a power to violate and disregard them; or that such a power, so repugnant to the common principles of justice and civil liberty, lurked under any general grant of legislative authority, or ought to be implied from any general expression of the will of the people, in the usual forms of the constitutional delegation of power. The people ought not to be presumed to part with rights, so vital to their security and well-being, without very strong, and positive declarations to that effect.
§ 1394. The remaining prohibition in this clause is, that no state shall "grant any title of nobility." The reason of this prohibition is the same, as that, upon which the like prohibition to the government of the nation is founded. Indeed, it would be almost absurd to provide sedulously against such a power in the latter, if the states were still left free to exercise it. It has been emphatically said, that this is the corner-stone of a republican government; for there can be little danger, while a nobility is excluded, that the government will ever cease to be that of the people.
The Founders' Constitution
Volume 3, Article 1, Section 10, Clause 1, Document 23
The University of Chicago Press
Story, Joseph. Commentaries on the Constitution of the United States. 3 vols. Boston, 1833.
Easy to print version.