therefore, is necessary of the relations between the state and federal courts in cases of this kind, and the respect paid by the federal courts to the decisions of the state courts. The obligation of a contract is, of course, chiefly determined by the language of the particular contract in question, and the courts must necessarily interpret this language for themselves, so that, in many cases, perhaps in the greater part of those here reviewed, the court is engaged simply in construing the language of particular contracts. It is doing what any state court might have to do, under the ordinary law or under provisions in the state constitution, and which the Supreme Court itself might have had to do under the "due process clause" of the federal Constitution, as well as under the "contracts clause." As one of the parties to these contracts is a State, however, a new aspect is put upon the question; the contract is no longer construed by the ordinary rules; it is interpreted in the light of a special canon of construction that has been adopted by the courts, namely, that all such contracts are to be construed strictly against the grantee and in favor of the State. The general nature of this doctrine of strict construction must therefore be considered, and this will be followed by chapters upon charters, special franchises, rate privileges and tax exemptions, all of which will be chiefly taken up with tracing the application of this doctrine to the facts of particular cases. The effect of mortgage foreclosures, consolidations, mergers, sales and reorganizations of corporations is included in the study, first, because no opinion can be given upon the question whether a corporation has or has not the privileges which belonged to its predecessor corporation unless one is familiar with the peculiar rules of law applicable to these transactions; secondly, because these rules very largely result from an application of the doctrine of strict construction. The subject of the effect of the reserved right to alter, amend or repeal charters, franchises and immunities is also treated, inasmuch as this is now one of the most important phases of the law dealing with these special privileges. It may probably be said, also, that the cases on this subject involve, theoretically at any rate, an application of the prohibition of the contracts clause." It was intended to add chapters dealing with the police power as affecting franchise and immunities, with the question what is an "impairment," and the question what is a "law," but these, owing to lack of time to complete them, have been omitted. CHAPTER II THE MEANING OF "OBLIGATION OF CONTRACTS' CONSIDERED It was stated in the preceding chapter that the questions arising out of the "contracts clause" might be analyzed, in a general and abstract way, into: what is a "contract"? what is its "obligation"? what is a "law"? and what constitutes an "impairment"? Within the first two of these inquiries have fallen the most important particular questions which have arisen over the "contracts clause "-the questions which have aroused the most discussion and have given rise to the most celebrated cases. These are: whether a grant or executed contract is a contract" and gives rise to an "obligation"; whether a state can "contract" and be under an "obligation" thereby; whether a charter of incorporation can be said to be a "contract"; whether the “obligation of contracts" is derived from natural or from positive law-a pertinent question in determining whether the “obligation" of a "contract" can be prospectively impaired, or only retrospectively; finally, whether the remedy for the enforcement of a contract," which is in force at the time of its making, is a part of the "obligation.” The last of these questions falls rather within the domain of private contracts, or contracts between individuals, than within the domain of state contracts, and so does not especially concern us, but the first four are all involved in a consideration of the contracts of states, and therefore demand our attention. Of course, these questions have long since been answered in leading cases that settle the law upon the points involved. A review of the first eight cases decided by the court, wherein the "contracts clause" was applied, will give the answers to the questions which we have put. கட They are taken in their chronological order so as to show the way in which the law actually developed. In 1810 in Fletcher v. Peck,1 it was held that a grant of land was a contract, and that a State was as much obligated by its grant of land as an individual by his. A statute repealing the grant was, therefore, held to impair the obligation of a contract. In 1812 in New Jersey v. Wilson,2 it was held that an agreement providing for exemption from taxation, made with the Indians by the State of New Jersey in connection with a tract of land granted them in consideration of a surrender by them of their claims to other tracts of land, was a contract protected by the "contracts clause." In 1819 in the case of Sturges v. Crowninshield, it was held that a state bankruptcy law impaired the obligation of contracts which had been made prior to its enactment. It was not necessary to determine whether the obligation of the contract was created by positive or by natural law. In the very next case, however, McMillan v. McNeill,* Marshall, speaking for the court, did hold an insolvent law to constitute an impairment of the obligation of a contract made subsequent to its enactment, stating that the case could not be distinguished from that of Sturges v. Crowninshield. This holding of Marshall's was later explained away, upon the ground that the insolvent law there involved was that of Louisiana, while the contract was made in South Carolina, and hence was not subject to the law of Louisiana in so far as its essential validity and its obligation were concerned. In the same year, 1819, the case of Trustees of Dartmouth College v. Woodward" was decided. This case held that the charter incorporating Dartmouth College, granted by the Crown in the year 1769, constituted a contract with 16 Cranch, 87. 27 Cranch, 164. the English state the obligation of which passed to the State of New Hampshire upon her severance from England, and came under the protection of the United States Constitution when she became a member of the Union. The case has always been regarded as establishing the doctrine that all charters of private corporations are contracts. In Owings v. Speed it was held that the "contracts clause' " did not operate to invalidate a law passed prior to the going into effect of the Constitution. In Farmers' and Mechanics' Bank v. Smith' the principle of Sturges v. Crowninshield was reaffirmed. In 1823 in Green v. Biddle it was held that a contract between two of the States of the Union was within the protection of the contracts clause" equally with a contract between two individuals, or a State and an individual. 66 In 1827 in Ogden v. Saunders' it was held that a state insolvency law could not be considered as operating as an impairment of the obligation of contracts entered into subsequently to its enactment. The majority judges delivered separate opinions, the reasoning of which-each judge looking at the question from a slightly different point of viewis difficult to harmonize. It is probably true, however, that they all essentially agreed on the proposition that the obligation of a contract made within a sovereign state, must be precisely that allowed by the law of the state and none other. This case contains the best discussion to be found in the reports as to what is the meaning of the words "obligation" and "contracts as found in the Constitution. In the light of these adjudications it might seem that further discussion of these questions would be useless. However, the first and fifth of these decisions, particularly, have been very much criticised. It has been said that Chief Justice Marshall was wrong both in the decision that a grant was a contract and in holding that a charter of 6 5 Wheat. 420-1820. 9 12 Wheat. 213. |