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6: The Sanctity Of Contracts

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Marshall's work was one of conservation in so far as it was concerned with interpreting the Constitution in accord with the intention which its framers had of establishing an efficient National Government. But he found a task of restoration awaiting him in that great field of Constitutional Law which defines state powers in relation to private rights.

To provide adequate safeguards for property and contracts against state legislative power was one of the most important objects of the framers, if indeed it was not the most important. Consider, for instance, a colloquy which occurred early in the Convention between Madison and Sherman of Connecticut. The latter had enumerated "the objects of Union" as follows: "First, defense against foreign danger; secondly, against internal disputes and a resort to force; thirdly, treaties with foreign nations; fourthly, regulating foreign commerce and drawing revenue from it." To this statement Madison demurred. The objects mentioned were important, he admitted, but he "combined with them the necessity of providing more effectually for the securing of private rights and the steady dispensation of justice. Interferences with these were evils which had, more perhaps than anything else, produced this Convention."

Marshall's sympathy with this point of view we have already noted.1 Nor was Madison's reference solely to the then recent activity of state Legislatures in behalf of the much embarrassed but politically dominant small farmer class. He had also in mind that other and more ancient practice of Legislatures of enacting so-called "special legislation," that is, legislation altering under the standing law the rights of designated parties, and not infrequently to their serious detriment. Usually such legislation took the form of an intervention by the Legislature in private controversies pending in, or already decided by, the ordinary courts, with the result that judgments were set aside, executions canceled, new hearings granted, new rules of evidence introduced, void wills validated, valid contracts voided, forfeitures pronounced—all by legislative mandate. Since that day the courts have developed an interpretation of the principle of the separation of powers and have enunciated a theory of "due process of law," which renders this sort of legislative abuse quite impossible; but in 1787, though the principle of the separation of powers had received verbal recognition in several of the state Constitutions, no one as yet knew precisely what the term "legislative power" signified, and at that time judicial review did not exist.2 Hence those who wished to see this nuisance of special legislation abated felt not unnaturally that the relief must come from some source external to the local governments, and they welcomed the movement for a new national Constitution as affording them their opportunity.

The Constitution, in Article I, Section X, forbids the States to "emit bills of credit, make anything but gold and silver a legal tender in payment of debts, pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts." Until 1798, the provision generally regarded as offering the most promising weapon against special legislation was the ex post facto clause. In that year, however, in its decision in Calder vs. Bull the Court held that this clause "was not inserted to secure the citizen in his private rights of either property or contracts," but only against certain kinds of penal legislation. The decision roused sharp criticism and the judges themselves seemed fairly to repent of it even in handing it down. Justice Chase, indeed, even went so far as to suggest, as a sort of stop-gap to the breach they were thus creating in the Constitution, the idea that, even in the absence of written constitutional restrictions, the Social Compact as well as "the principles of our free republican governments" afforded judicially enforcible limitations upon legislative power in favor of private rights. Then, in the years immediately following, several state courts, building upon this dictum, had definitely announced their intention of treating as void all legislation which they found unduly to disturb vested rights, especially if it was confined in its operation to specified parties.3

Such was still the situation when the case of Fletcher vs. Peck4 in 1810 raised before the Supreme Court the question whether the Georgia Legislature had the right to rescind a land grant made by a preceding Legislature. On any of three grounds Marshall might easily have disposed of this case before coming to the principal question. In the first place, it was palpably a moot case; that is to say, it was to the interest of the opposing parties to have the rescinding act set aside. The Court would not today take jurisdiction of such a case, but Marshall does not even suggest such a solution of the question, though Justice Johnson does in his concurring opinion. In the second place, Georgia's own claim to the lands had been most questionable, and consequently her right to grant them to others was equally dubious; but this, too, is an issue which Marshall avoids. Finally, the grant had been procured by corrupt means, but Marshall ruled that this was not a subject the Court might enter upon; and for the ordinary run of cases in which undue influence is alleged to have induced the enactment of a law, the ruling is clearly sound. But this was no ordinary case. The fraud asserted against the grant was a matter of universal notoriety; it was, indeed, the most resounding scandal of the generation; and surely judges may assume to know what is known to all and may act upon their knowledge.

Furthermore, when one turns to the part of Marshall's opinion which deals with the constitutional issue, one finds not a little evidence of personal predilection on the part of the Chief Justice. He starts out by declaring the rescinding act void as a violation of vested rights, of the underlying principles of society and government, and of the doctrine of the separation of powers. Then he apparently realizes that a decision based on such grounds must be far less secure and much less generally available than one based on the words of the Constitution; whereupon he brings forward the obligation of contracts clause. At once, however, he is confronted with the difficulty that the obligation of a contract is the obligation of a contract still to be fulfilled, and that a grant is an executed contract over and done with—functus officio. This difficulty he meets by asserting that every grant is attended by an implied contract on the part of the grantor not to reassert his right to the thing granted. This, of course, is a palpable fiction on Marshall's part, though certainly not an unreasonable one. For undoubtedly when a grant is made without stipulation to the contrary, both parties assume that it will be permanent.

The greater difficulty arose from the fact that, whether implied or explicit, the contract before the Court was a public one. In the case of private contracts it is easy enough to distinguish the contract, as the agreement between the parties, from the obligation of the contract which comes from the law and holds the parties to their engagements. But what law was there to hold Georgia to her supposed agreement not to rescind the grant she had made? Not the Constitution of the United States unattended by any other law, since it protects the obligation only after it has come into existence. Not the Constitution of Georgia as construed by her own courts, since they had sustained the rescinding act. Only one possibility remained; the State Constitution must be the source of the obligation—yes; but the State Constitution as it was construed by the United States Supreme Court in this very case, in the light of the "general principles of our political institutions." In short the obligation is a moral one; and this moral obligation is treated by Marshall as having been converted into a legal one by the United States Constitution.

However, Marshall apparently fails to find entire satisfaction in this argument, for he next turns to the prohibition against bills of attainder and ex post facto laws with a question which manifests disapproval of the decision in Calder vs. Bull. Yet he hesitates to overrule Calder vs. Bull, and, indeed, even at the very end of his opinion he still declines to indicate clearly the basis of his decision. The State of Georgia, he says, "was restrained" from the passing of the rescinding act "either by general principles which are common to our free institutions, or by particular provisions of the Constitution of the United States." It was not until nine years after Fletcher vs. Peck that this ambiguity was cleared up in the Dartmouth College case in 1819.

The case of the Trustees of Dartmouth College vs. Woodward5 was a New England product and redolent of the soil from which it sprang. In 1754 the Reverend Eleazar Wheelock of Connecticut had established at his own expense a charity school for instructing Indians in the Christian religion; and so great was his success that he felt encouraged to extend the undertaking and to solicit donations in England. Again success rewarded his efforts; and in 1769 Governor Wentworth of New Hampshire, George III's representative granted the new institution, which was now located at Hanover, New Hampshire, a charter incorporating twelve named persons as "The Trustees of Dartmouth College" with the power to govern the institution, appoint its officers, and fill all vacancies in their own body "forever."

For many years after the Revolution, the Trustees of Dartmouth College, several of whom were ministers, reflected the spirit of Congregationalism. Though this form of worship occupied almost the position of a state religion in New Hampshire, early in this period difficulties arose in the midst of the church at Hanover. A certain Samuel Hayes, or Haze, told a woman named Rachel Murch that her character was "as black as Hell," and upon Rachel's complaint to the session, he was "churched" for "breach of the Ninth Commandment and also for a violation of his covenant agreement." This incident caused a rift which gradually developed into something very like a schism in the local congregation, and this internal disagreement finally produced a split between Eleazar's son, Dr. John Wheelock, who was now president of Dartmouth College, and the Trustees of the institution. The result was that in August, 1815, the Trustees ousted Wheelock.

The quarrel had thus far involved only Calvinists and Federalists, but in 1816 a new element was brought in by the interference of the Governor of New Hampshire, William Plumer, formerly a Federalist but now, since 1812, the leader of the Jeffersonian party in the State. In a message to the Legislature dated June 6, 1816, Plumer drew the attention of that body to Dartmouth College. "All literary establishments," said he, "like everything human, if not duly attended to, are subject to decay.... As it [the charter of the College] emanated from royalty, it contained, as was natural it should, principles congenial to monarchy," and he cited particularly the power of the Board of Trustees to perpetuate itself. "This last principle," he continued, "is hostile to the spirit and genius of a free government. Sound policy therefore requires that the mode of election should be changed and that Trustees in future should be elected by some other body of men.... The College was formed for the public good, not for the benefit or emolument of its Trustees; and the right to amend and improve acts of incorporation of this nature has been exercised by all governments, both monarchical and republican."

Plumer sent a copy of his message to Jefferson and received a characteristic answer in reply "It is replete," said the Republican sage, "with sound principles.... The idea that institutions established for the use of the nation cannot be touched nor modified, even to make them answer their most absurd.... Yet our lawyers and priests generally inculcate this doctrine, and suppose that preceding generations held the earth more freely than we do; had a right to impose laws on us, unalterable by ourselves; fine, that the earth belongs to the dead and not to the living." And so, too, apparently the majority of the Legislature believed; for by the measure which it promptly passed, in response to Plumer's message, the College was made Dartmouth University, the number of its trustees was increased to twenty-one, the appointment of the additional members being given to the Governor, and a board of overseers, also largely of gubernatorial appointment, was created to supervise all important acts of the trustees.

The friends of the College at once denounced the measure as void under both the State and the United States Constitution and soon made up a test case. In order to obtain the college seal, charter, and records, a mandate was issued early in 1817 by a local court to attach goods, to the value of $50,000, belonging to William H. Woodward, the Secretary and Treasurer of the "University." This was served by attaching a chair "valued at one dollar." The story is also related that authorities of the College, apprehending an argument that the institution had already forfeited its charter on account of having ceased to minister to Indians, sent across into Canada for some of the aborigines, and that three were brought down the river to receive matriculation, but becoming panic-stricken as they neared the town, leaped into the water, swam ashore, and disappeared in the forest. Unfortunately this interesting tale has been seriously questioned.

The attorneys of the College before the Superior Court were Jeremiah Mason, one of the best lawyers of the day, Jeremiah Smith, a former Chief Justice of New Hampshire, and Daniel Webster. These three able lawyers argued that the amending act exceeded "the rightful ends of legislative power," violated the principle of the separation of powers, and deprived the trustees of their "privileges and immunities" contrary to the "law of the land" clause of the State Constitution, and impaired the obligation of contracts. The last contention stirred Woodward's attorneys, Bartlett and Sullivan, to ridicule. "By the same reasoning," said the latter, "every law must be considered in the nature of a contract, until the Legislature would find themselves in such a labyrinth of contracts, with the United States Constitution over their heads, that not a subject would be left within their jurisdiction"; the argument was an expedient of desperation, he said, a "last straw." The principal contention advanced in behalf of the Act was that the College was "a public corporation," whose "various powers, capacities, and franchises all...were to be exercised for the benefit of the public," and were therefore subject to public control. And the Court, in sustaining the Act, rested its decision on the same ground. Chief Justice Richardson conceded the doctrine of Fletcher vs. Peck, that the obligation of contracts clause "embraced all contracts relating to private property, whether executed or executory, and whether between individuals, between States, or between States and individuals," but, he urged, "a distinction is to be taken between particular grants by the Legislature of property or privileges to individuals for their own benefit, and grants of power and authority to be exercised for public purposes." Its public character, in short, left the College and its holdings at the disposal of the Legislature.

Of the later proceedings, involving the appeal to Washington and the argument before Marshall, early in March, 1818, tradition has made Webster the central and compelling figure, and to the words which it assigns him in closing his address before the Court has largely been attributed the great legal triumph which presently followed. The story is, at least, so well found that the chronicler of Dartmouth College vs. Woodward who should venture to omit it must be a bold man indeed.

"The argument ended [runs the tale], Mr. Webster stood for some moments silent before the Court, while every eye was fixed intently upon him. At length, addressing the Chief Justice, he proceeded thus: 'This, sir, is my case. It is the case...of every college in our land.... Sir, you may destroy this little institution.... You may put it out. But if you do so, you must carry through your work! You must extinguish, one after another, all those greater lights of science, which, for more than a century have thrown their radiance over our land. It is, Sir, as I have said, a small college. And yet there are those who love it—'

"Here, the feelings which he had thus far succeeded in keeping down, broke forth, his lips quivered; his firm cheeks trembled with emotion, his eyes filled with tears.... The court-room during these two or three minutes presented an extraordinary spectacle. Chief Justice Marshall, with his tall and gaunt figure bent over, as if to catch the slightest whisper, the deep furrows of his cheek expanded with emotion, and his eyes suffused with tears; Mr. Justice Washington at his side, with small and emaciated frame, and countenance more like marble than I ever saw on any other human being.... There was not one among the strong-minded men of that assembly who could think it unmanly to weep, when he saw standing before him the man who had made such an argument, melted into the tenderness of a child.

"Mr. Webster had now recovered his composure, and, fixing his keen eyes on Chief Justice Marshall, said in that deep tone with which he sometimes thrilled the heart of an audience: 'Sir, I know not how others may feel...but for myself, when I see my Alma Mater surrounded, like Caesar in the Senate house, by those who are reiterating stab after stab, I would not, for my right hand, have her turn to me and say, Et tu quoque mi fili! And thou, too, my son!'

Whether this extraordinary scene, first described thirty-four years afterward by a putative witness of it, ever really occurred or not, it is today impossible to say.6 But at least it would be an error to attribute to it great importance. From the same source we have it that at Exeter, too, Webster had made the judges weep—yet they had gone out and decided against him. Judges do not always decide the way they weep!

Of the strictly legal part of his argument Webster himself has left us a synopsis. Fully three-quarters of it dealt with the questions which had been discussed by Mason before the State Supreme Court under the New Hampshire Constitution and was largely irrelevant to the great point at issue at Washington. Joseph Hopkinson, who was now associated with Webster, contributed far more to the content of Marshall's opinion; yet he, too, left one important question entirely to the Chief Justice's ingenuity, as will be indicated shortly. Fortunately for the College its opponents were ill prepared to take advantage of the vulnerable points of its defense. For some unknown reason, Bartlett and Sullivan, who had carried the day at Exeter, had now given place to William Wirt and John Holmes. Of these the former had just been made Attorney-General of the United States and had no time to give to the case—indeed he admitted that "he had hardly thought of it till it was called on." As for Holmes, he was a "kaleidoscopic politician" and barroom wit, best known to contemporaries as "the noisy eulogist and reputed protege of Jefferson." A remarkable strategy that, which stood such a person up before John Marshall to plead the right of state Legislatures to dictate the fortunes of liberal institutions!

The arguments were concluded on Thursday, the 12th of March. The next morning the Chief Justice announced that the Court had conferred, that there were different opinions, that some of the judges had not arrived at a conclusion, and that consequently the cause must be continued. Webster, however, who was apt to be much in "the know" of such matters, ventured to place the different judges thus: "The Chief and Washington," he wrote his former colleague Smith, "I have no doubt, are with us. Duvall and Todd perhaps against us; the other three holding up—I cannot much doubt but that Story will be with us in the end, and I think we have much more than an even chance for one of the others."

The friends of the College set promptly to work to bring over the wavering judges. To their dismay they learned that Chancellor James Kent of New York, whose views were known to have great weight with Justices Johnson and Livingston, had expressed himself as convinced by Chief Justice Richardson's opinion that Dartmouth College was a public corporation. Fortunately, however, a little ransacking of the records brought to light an opinion which Kent and Livingston had both signed as early as 1803, when they were members of the New York Council of Revision, and which took the ground that a then pending measure in the New York Legislature for altering the Charter of New York City violated "due process of law." At the same time, Charles Marsh, a friend of both Kent and Webster, brought to the attention of the former Webster's argument before Marshall at Washington in March, 1818. Then came a series of conferences at Albany in which Chancellor Kent, Justice Johnson, President Brown of Dartmouth College, Governor Clinton, and others participated. As a result, the Chancellor owned himself converted to the idea that the College was a private institution.

The new term of court opened on Monday, February 1, 1819. William Pinkney, who in vacation had accepted a retainer from the backers of Woodward, that is, of the State, took his stand on the second day near the Chief Justice, expecting to move for a reargument. Marshall, "turning his blind eye" to the distinguished Marylander, announced that the Court had reached a decision, plucked from his sleeve an eighteen folio manuscript opinion, and began reading it. He held that the College was a "private eleemosynary institution"; that its charter was the outgrowth of a contract between the original donors and the Crown, that the trustees represented the interest of the donors, and that the terms of the Constitution were broad enough to cover and protect this representative interest. The last was the only point on which he confessed a real difficulty. The primary purpose of the constitutional clause, he owned, was to protect "contracts the parties to which have a vested beneficial interest" in them, whereas the trustees had no such interest at stake. But, said he, the case is within the words of the rule, and "must be within its operation likewise, unless there be something in the literal construction" obviously at war with the spirit of the Constitution, which was far from the fact. For, he continued, "it requires no very critical examination of the human mind to enable us to determine that one great inducement to these gifts is the conviction felt by the giver that the disposition he makes of them is immutable. All such gifts are made in the pleasing, perhaps delusive hope, that the charity will flow forever in the channel which the givers have marked out for it. If every man finds in his own bosom strong evidence of the universality of this sentiment, there can be but little reason to imagine that the framers of our Constitution were strangers to it, and that, feeling the necessity and policy of giving permanence and security to contracts" generally, they yet deemed it desirable to leave this sort of contract subject to legislative interference. Such is Marshall's answer to Jefferson's outburst against "the dead hand."

Characteristically, Marshall nowhere cites Fletcher vs. Peck in his opinion, but he builds on the construction there made of the "obligation of contracts" clause as clearly as do his associates, Story and Washington, who cite it again and again in their concurring opinion. Thus he concedes that the British Parliament, in consequence of its unlimited power, might at any time before the Revolution have annulled the charter of the College and so have disappointed the hopes of the donors; but, he adds, "The perfidy of the transaction would have been universally acknowledged." Later on, he further admits that at the time of the Revolution the people of New Hampshire succeeded to "the transcendent power of Parliament," as well as to that of the King, with the result that a repeal of the charter before 1789 could have been contested only under the State Constitution. "But the Constitution of the United States," he continues, "has imposed this additional limitation, that the Legislature of a State shall pass no act 'impairing the obligation of contracts.'" In short, as in Fletcher vs. Peck, what was originally a moral obligation is regarded as having been lifted by the Constitution into the full status of a legal one, and this time without any assistance from "the general principles of our free institutions."

How is the decision of the Supreme Court in the case of Dartmouth College vs. Woodward to be assessed today? Logically the basis of it was repudiated by the Court itself within a decade, albeit the rule it lays down remained unaffected. Historically it is equally without basis, for the intention of the obligation of contracts clause, as the evidence amply shows, was to protect private executory contracts, and especially contracts of debt.7 In actual practice, on the other hand, the decision produced one considerable benefit: in the words of a contemporary critic, it put private institutions of learning and charity out of the reach of "legislative despotism and party violence."

But doubtless, the critic will urge, by the same sign this decision also put profit-seeking corporations beyond wholesome legislative control. But is this a fact? To begin with, such a criticism is clearly misdirected. As we have just seen, the New Hampshire Superior Court itself would have felt that Fletcher vs. Peck left it no option but to declare the amending act void, had Dartmouth College been, say, a gas company; and this was in all probability the universal view of bench and bar in 1819. Whatever blame there is should therefore be awarded the earlier decision. But, in the second place, there does not appear after all to be so great measure of blame to be awarded. The opinion in Dartmouth College vs. Woodward leaves it perfectly clear that legislatures may reserve the right to alter or repeal at will the charters they grant. If therefore alterations and repeals have not been as frequent as public policy has demanded, whose fault is it?

Perhaps, however, it will be argued that the real mischief of the decision has consisted in its effect upon the state Legislatures themselves, the idea being that large business interests, when offered the opportunity of obtaining irrepealable charters, have frequently found it worth their while to assail frail legislative virtue with irresistible temptation. The answer to this charge is a "confession in avoidance"; the facts alleged are true enough but hardly to the point. Yet even if they were, what is to be said of that other not uncommon incident of legislative history, the legislative "strike," whereby corporations not protected by irrepealable charters are blandly confronted with the alternative of having their franchises mutilated or of paying handsomely for their immunity? So the issue seems to resolve itself into a question of taste regarding two species of legislative "honesty." Does one prefer that species which, in the words of the late Speaker Reed, manifests itself in "staying bought," or that species which flowers in legislative blackmail? The truth of the matter is that Marshall's decision has been condemned by ill-informed or ill-intentioned critics for evils which are much more simply and much more adequately explained by general human cupidity and by the power inherent in capital. These are evils which have been experienced quite as fully in other countries which never heard of the "obligation of contracts" clause.

The decisions reached in Fletcher vs. Peck and Dartmouth College vs. Woodward are important episodes in a significant phase of American constitutional history. Partly on account of the lack of distinction between legislative and judicial power and partly on account of the influence of the notion of parliamentary sovereignty, legislative bodies at the close of the eighteenth century were the sources of much anonymous and corporate despotism. Even in England as well as in this country the value, and indeed the possibility, of representative institutions had been frankly challenged in the name of liberty. For the United States the problem of making legislative power livable and tolerable—a problem made the more acute by the multiplicity of legislative bodies—was partly solved by the establishment of judicial review. But this was only the first step: legislative power had still to be defined and confined. Marshall's audacity in invoking generally recognized moral principles against legislative sovereignty in his interpretation of the "obligation of contracts" clause pointed the way to the American judiciaries for the discharge of their task of defining legislative power. The final result is to be seen today in the Supreme Court's concept of the police power of a State as a power not of arbitrary but of reasonable legislation.

While Marshall was performing this service in behalf of representative government, he was also aiding the cause of nationalism by accustoming certain types of property to look upon the National Government as their natural champion against the power of the States. In this connection it should also be recalled that Gibbons vs. Ogden and Brown vs. Maryland had advanced the principle of the exclusiveness of Congress's power over foreign and interstate commerce. Under the shelter of this interpretation there developed, in the railroad and transportation business of the country before the Civil War, a property interest almost as extensive as that which supported the doctrine of State Rights. Nor can it be well doubted that Marshall designed some such result or that he aimed to prompt the reflection voiced by King of Massachusetts on the floor of the Federal Convention. "He was filled with astonishment that, if we were convinced that every man in America was secured in all his rights, we should be ready to sacrifice this substantial good to the phantom of state sovereignty."

Lastly, these decisions brought a certain theoretical support to the Union. Marshall himself did not regard the Constitution as a compact between the States; if a compact at all, it was a compact among individuals, a social compact. But a great and increasing number of his countrymen took the other view. How unsafe, then, it would have been from the standpoint of one concerned for the integrity of the Union, to distinguish public contracts from private on the ground that the former, in the view of the Constitution, had less obligation!


1 See supra, Chapter II.

2 On special legislation, see the writer's Doctrine of Judicial Review (Princeton, 1914), pp. 36-37, 69-71.

3In connection with this paragraph, see the writer's article entitled "The Basic Doctrine of American Constitutional Law," in the Michigan Law Review, February, 1914. Marshall once wrote Story regarding his attitude toward Section X in 1787, as follows: "The questions which were perpetually recurring in the State legislatures and which brought annually into doubt principles which I thought most sacred, which proved that everything was afloat, and that we had no safe anchorage ground, gave a high value in my estimation to that article of the Constitution which imposes restrictions on the States." Discourse.

46 Cranch, 87.

5The following account of this case is based on J. M. Shirley's Dartmouth College Causes (St. Louis, 1879) and on the official report, 4 Wheaton, 518.

6Professor Goodrich of Yale, who is responsible for the story, communicated it to Rufus Choate in 1853. It next appears on Goodrich's authority in Curtis's Webster, vol. II, pp. 169-71.

7Much of the evidence is readily traceable through the Index to Max Farrand's Records of the Federal Convention.

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