CHAPTER VI

THE LAW OF CONTRACTS AND PROPERTY

70. The supreme law of the land provides that no State shall pass any law impairing the obligation of contracts.[184] A contract is an agreement between competent persons to do or not to do a certain thing; the law is part of the contract.[185] An unlawful contract cannot be made, for the so-called contract, being unlawful, has never existed as a contract. The limitation as to contracts in the Constitution is on the States. Thus a State can no more impair its own contracts, by legislation, than it can impair the obligation of the contracts of individuals.[186] A sovereign State is supposed to have a more scrupulous regard to justice, and a higher morality than belongs to the ordinary transactions of individuals.

71. A State may incorporate a bank which, by its charter, is empowered to issue, and does issue, stock, bills, or notes. These are contracts. By its police power the State may repeal that section of the bank’s charter authorizing issues of notes, but legislation affecting the stock, or notes, so as to impair their obligation is unconstitutional.[187] The question is not one of currency but of impairing the obligation of a contract. A legislature may make a contract binding upon later legislatures,—as a law existing at the time contracts under it are made, it becomes part of them, but a municipal act levying a tax upon city bonds held by non-residents diminishes the value of the bonds and therefore impairs the obligation of a contract.[188] For the bonds call for a certain interest payment at a certain time, and a tax upon them, and retaining the same from payment, make an entirely different contract from the original. The constitutional provision against impairing contract obligations is a limitation on the taxing power as well as on all legislation—whatever its form.[189]

72. But such limitation must not be confused with legitimate exercise of the police powers of the State. Thus an arrangement determinable at the will of either party is not a contract beyond control, change, or cessation under the police power. For example, a bounty law, as for killing destructive animals, or for the encouragement of manufactures (the boring of salt wells and pumping of water from them for making salt), does not involve the State in a contract. It is a matter purely voluntary on the part of those who avail themselves of the opportunity, and the Legislature may or may not continue the law at discretion, as a matter of public policy.[190]

73. The execution of an office to which a person has been lawfully elected, or appointed, by the performance, by him, of its duties, is a completed contract, with perfect obligation to pay for services rendered at the rate of compensation fixed by the contract, and this obligation can no more be impaired by a law of the State than that arising on a promissory note.[191]

74. The charters of private charitable institutions are contracts within the letter of the Constitution, and their obligation cannot be impaired without violating it.[192] But if a charter to a corporation, for example a railroad, or a college, provides for possible alteration or amendment by the Legislature of the State, such power of alteration duly exercised by a later Legislature is not unconstitutional as impairing the obligation of a contract.[193]

75. The police power of the State extends to the protection of the lives, health, and property of citizens, and to the preservation of good order and the public morals, nor can the Legislature, by any contract, divest itself of the power to provide for these objects.

They belong emphatically to that class of objects which demand the application of the maxim, _salus populi suprema lex_; and they are to be attained and provided for by such appropriate means as the legislative discretion may devise. That discretion can no more be bargained away than the power itself.[194]

In exercise of this police power the Legislature prohibits the manufacture and sale of malt liquor. Such manufacture or sale is not an exercise of a right by contract, and prohibition of the business is not legislation impairing the obligation of a contract.[195] So too, a provision in a State constitution forbidding lotteries and gift enterprises within a commonwealth, and revoking lottery charters theretofore granted, is not a law impairing the obligation of a contract.[196] The principle followed here is expressed by the Chief Justice (Waite): “No legislature can bargain away the public health or the public morals.” Thus it may be accepted as settled constitutional law that the people in their sovereign capacity and through their properly constituted agencies may exercise powers as the public good may require.[197] But corporations and private persons possessing and exercising rights and franchises vested in them by law and possessing property rights by contract are entitled to compensation when, under the State power of eminent domain, such vested rights are taken away.[198]

76. Whether property or employment possesses the qualities or attributes of a public use will largely determine the character of legislative control for the purpose of safe-guarding the public against “danger, injustice, and oppression”; the police power of the State is here paramount.[199]

77. The principle involved in the obligation of contracts is clearly set forth by the Supreme Court:

In placing the obligation of contracts under the protection of the Constitution, its framers looked to the essentials of the contract more than to the forms and modes of proceeding by which it was to be carried out into execution; annulling State legislation which impaired the obligation, it was left to the States to prescribe and shape the remedy to enforce it. The obligation of a contract consists in its binding force on the party who makes it. This depends on the laws in existence when it is made; these are necessarily referred to in all contracts and forming a part of them as the measure of the obligation to perform them by the one party, and the right acquired by the other. There can be no other standard by which to ascertain the extent of either, than that which the terms of the contract indicate according to their settled legal meaning; when it becomes consummated, the law defines the duty and the right, compels one party to perform the thing contracted for, and gives the other a right to enforce the performance by the remedies then in force. If any subsequent law affect to diminish the duty, or to impair the right, it necessarily bears on the obligation of the contract, in favor of one party, to the injury of the other; hence, any law which, in its operation, amounts to a denial, or obstruction, of the rights accruing by a contract, though professing to act only on the remedy, is directly obnoxious to the prohibition of the Constitution.[200]

78. The prohibition of legislation impairing the obligation of contracts does not extend to the United States as it does to the States. Thus in the Legal Tender Cases[201] and in sundry bankruptcy cases.[202] the Supreme Court has decided that the exercise of the power of Congress “does not depend upon the incidental effect of its exercise on contracts, but on the existence of the power itself.” This means that the United States possesses a police power, _salus populi suprema lex_, in exercise of which at the discretion of Congress, the obligation of contracts must yield to the higher obligation of the general welfare.[203]

79. It is a fundamental of government in America that no person shall be deprived of life, liberty, or property without due process of law, nor shall private property be taken for public use without compensation.[204] The prohibition and protection as to due process of law extends both to the United States and to the States. The taking by a State of the private property of a person,—and a corporation is legally a person,—without the owner’s consent, for the private use of another is not due process of law,[205] and it violates the Fourteenth Amendment. A State possesses exclusive jurisdiction and sovereignty over persons and property within its territory and consequently may determine for itself the civil status and capacities of its inhabitants; may prescribe the subjects upon which they may contract, and regulate the manner and conditions upon which property situated within its territory—or jurisdiction—may be acquired, enjoyed, and transferred; but no State can exercise direct jurisdiction and authority over persons or property without its jurisdiction. The laws of a State have no operation outside its territory “except so far as is allowed by comity; any exertion of authority by a State beyond its territory is a nullity.” The sovereign power of the State over property within its jurisdiction, belonging to non-residents is exercisable as over the property of residents. But the property right of the non-resident cannot be invalidated save by due process of law, which means, _inter alia_, the right of the non-resident to appear personally, or by representative, in the courts of the State to protect his own interests. A State law under which a nonresident’s property should be taken without such notice would be unconstitutional by the Fourteenth Amendment.[206]

But the Fourteenth Amendment does not deprive the States of their police power over “subjects within their jurisdiction.”[207]

80. The right of eminent domain is essentially of the police power, and for State purposes is exclusively within the State. Each State in the Union regulates its domestic commerce, contracts, the transmission of estates,—real and personal—and acts upon all internal matters which relate to its moral and political welfare. Over these subjects the federal government has no power. The acknowledged police power of a State extends often to the destruction of property. A nuisance may be abated.[208] Thus a State constitution, or a statute under it, prohibiting the manufacture and sale of intoxicating liquors, except for medicinal, scientific, and mechanical purposes, does not conflict with the clause of the Fourteenth Amendment which provides that “no State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States, nor shall any State deprive any person of life, liberty, or property, without due process of law.” The so-called “right” to manufacture or sell such articles is not a right growing out of citizenship of the United States.[209] Such manufacture or sale, or its prohibition is wholly within the power of the State to control.[210]

Such control is of wholly internal affairs. The right to manufacture or sell such articles is not a right under a contract as the word _contract_ is used in the Constitution.[211] Prohibition of the manufacture and sale of such articles, save as excepted, does not deprive the citizen of his constitutional rights. Such prohibition is the policy of the supreme power in the State and is an exercise of a function within its jurisdiction.

The exercise of the police power of the State by the destruction of property which is itself a public nuisance, or the prohibition of its use in a particular way whereby its value becomes depreciated, is very different from taking property for public use, or from depriving a person of his property without due process of law. In one case, a nuisance only is abated; in the other, unoffending property is taken away from an innocent owner.[212]

81. The provision of the Constitution that private property shall not be taken for public use without compensation is a limitation on the power of the federal government, and not on the States,[213] but the State constitutions usually include the limitation in their Bills of Rights: the principle is “essentially a part of American constitutional law.”[214]

82. For consequential injury resulting from the exercise of the power of eminent domain there is no redress,[215] but where such exercise of power works effectual destruction of land so as to impair its usefulness, it is a taking of property for public use and the owner is entitled to compensation.[216] The principle here is that,

If in such cases suitable and adequate provision is made by the Legislature for the compensation of those whose property or franchise is injured or taken away, there is no violation of public faith or private right.

It is also a well-established principle that no construction of the clause in the Bill of Rights (in any constitution) providing compensation for property taken for a public use shall so extend the benefits of the clause as to give indirect or consequential damages to a person when the public already has a rightful use of the property.[217]

83. Though the right of eminent domain and its exercise are not enumerated in the Constitution, the power being inseparable from sovereignty and the right being the offspring of political necessity, must be recognized as existing. The right is one of these which is not denied, and being essential, is implied. Were the right to acquire property, and for other purposes, denied the United States, the unwillingness of property-holders to sell, or legislation by a State prohibiting a sale to the federal government would make nugatory the government itself, and its existence would thus depend upon the will of a State, or even upon that of a private citizen.[218] The essential matter here is of sovereignty, or jurisdiction. The two sovereignties, the several States and the United States, possess, each, this right commensurable with their respective jurisdictions.

The proper view of the right of eminent domain seems to be, that it is a right belonging to a sovereignty to take private property for its own public uses, and not alone for those of another. Beyond that, there exists no necessity; which alone is the foundation of the right. If the United States have the power, it must be complete in itself. It can neither be enlarged nor diminished by a State.[219]