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]