Remedy a Part of the Private Obligation

Private Contracts.—The term “private contract” is, naturally, not all-inclusive. A judgment, though granted in favor of a creditor, is not a contract in the sense of the Constitution,2047 nor is marriage.2048 And whether a particular agreement is a valid contract is a question for the courts, and finally for the Supreme Court, when the protection of the contract clause is invoked.2049

The question of the nature and source of the obligation of a contract, which went by default in Fletcher v. Peck and the Dartmouth College case, with such vastly important consequences, had eventually to be met and answered by the Court in connection with private contracts. The first case involving such a contract to reach the Supreme Court was Sturges v. Crowninshield,2050 in which a debtor sought escape behind a state insolvency act of later date than his note. The act was held inoperative, but whether this was because of its retroactivity in this particular case or for the broader reason that it assumed to excuse debtors from their promises was not at the time made clear. As noted earlier, Chief Justice Marshall’s definition on this occasion of the obligation of a contract as the law which binds the parties to perform their undertakings was not free from ambiguity, owing to the uncertain connotation of the term law.

2047 Morley v. Lake Shore Ry., 146 U.S. 162 (1892); New Orleans v. New Orleans Water-Works Co., 142 U.S. 79 (1891); Missouri & Ark. L. & M. Co. v. Sebastian County, 249 U.S. 170 (1919). But cf. Livingston’s Lessee v. Moore, 32 U.S. (7 Pet.) 469, 549 (1833); and Garrison v. New York, 88 U.S. (21 Wall.) 196, 203 (1875), suggesting that a different view was earlier entertained in the case of judgments in actions of debt.

2048 Maynard v. Hill, 125 U.S. 190 (1888); Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518, 629 (1819). Cf. Andrews v. Andrews, 188 U.S. 14 (1903). The question whether a wife’s rights in the community property under the laws of California were of a contractual nature was raised but not determined in Moffit v. Kelly, 218 U.S. 400 (1910).

2049 New Orleans v. N.O. Water Works Co., 142 U.S. 79 (1891); Zane v. Hamilton County, 189 U.S. 370, 381 (1903).

2050 17 U.S. (4 Wheat.) 122 (1819).

These obscurities were finally cleared up for most cases in Ogden v. Saunders,2051 in which the temporal relation of the statute and the contract involved was exactly reversed—the former antedating the latter. Marshall contended, but unsuccessfully, that the statute was void, inasmuch as it purported to release the debtor from that original, intrinsic obligation which always attaches under natural law to the acts of free agents. “When,” he wrote, “we advert to the course of reading generally pursued by American statesmen in early life, we must suppose that the framers of our Constitution were intimately acquainted with the writings of those wise and learned men whose treatises on the laws of nature and nations have guided public opinion on the subjects of obligation and contracts,” and that they took their views on these subjects from those sources. He also posed the question of what would happen to the obligation of contracts clause if States might pass acts declaring that all contracts made subsequently thereto should be subject to legislative control.2052

For the first and only time, a majority of the Court abandoned the Chief Justice’s leadership. Speaking by Justice Washington, it held that the obligation of private contracts is derived from the municipal law—state statutes and judicial decisions—and that the inhibition of Article I, § 10, is confined to legislative acts made after the contracts affected by them, subject to the following exception. By a curiously complicated line of reasoning, it was also held in the same case that when the creditor is a nonresident, then a State by an insolvency law may not alter the former’s rights under a contract, albeit one of later date.

With the proposition established that the obligation of a private contract comes from the municipal law in existence when the contract is made, a further question presents itself, namely, what part of the municipal law is referred to? No doubt, the law which determines the validity of the contract itself is a part of such law. Also part of such law is the law which interprets the terms used in the contract, or which supplies certain terms when others are used, as for instance, constitutional provisions or statutes which determine what is “legal tender” for the payment of debts, or judicial decisions which construe the term “for value received” as used in a promissory note, and so on. In short, any law which at the time of the making of a contract goes to measure the rights and duties of the parties to it in relation to each other enters into its obligation.

2051 25 U.S. (12 Wheat.) 213 (1827).

2052 25 U.S. at 353–54.

Remedy a Part of the Private Obligation.—Suppose, however, that one of the parties to a contract fails to live up to his obligation as thus determined. The contract itself may now be regarded as at an end, but the injured party, nevertheless, has a new set of rights in its stead, those which are furnished him by the remedial law, including the law of procedure. In the case of a mortgage, he may foreclose; in the case of a promissory note, he may sue; and in certain cases, he may demand specific performance. Hence the further question arises, whether this remedial law is to be considered a part of the law supplying the obligation of contracts. Originally, the predominating opinion was negative, since as we have just seen, this law does not really come into operation until the contract has been broken. Yet it is obvious that the sanction which this law lends to contracts is extremely important—indeed, indispensable. In due course it became the accepted doctrine that that part of the law which supplies one party to a contract with a remedy if the other party does not live up to his agreement, as authoritatively interpreted, entered into the “obligation of contracts” in the constitutional sense of this term, and so might not be altered to the material weakening of existing contracts. In the Court’s own words: “Nothing can be more material to the obligation than the means of enforcement. Without the remedy the contract may, indeed, in the sense of the law, be said not to exist, and its obligation to fall within the class of those moral and social duties which depend for their fulfillment wholly upon the will of the individual. The ideas of validity and remedy are inseparable . . .”2053

This rule was first definitely announced in 1843 in the case of Bronson v. Kinzie.2054 Here, an Illinois mortgage giving the mortgagee an unrestricted power of sale in case of the mortgagor’s default was involved, along with a later act of the legislature that required mortgaged premises to be sold for not less than two-thirds of the appraised value and allowed the mortgagor a year after the sale to redeem them. It was held that the statute, in altering the preexisting remedies to such an extent, violated the constitutional prohibition and hence was void. The year following a like ruling was made in the case of McCracken v. Hayward,2055 as to a statutory provision that personal property should not be sold under execution for less than two-thirds of its appraised value.

2053 United States ex rel. Von Hoffman v. Quincy, 71 U.S. (4 Wall.) 535, 552 (1867).

2054 42 U.S. (1 How.) 311 (1843).

But the rule illustrated by these cases does not signify that a State may make no changes in its remedial or procedural law that affect existing contracts. “Provided,” the Court has said, “a substantial or efficacious remedy remains or is given, by means of which a party can enforce his rights under the contract, the Legislature may modify or change existing remedies or prescribe new modes of procedure.”2056 Thus, States are constantly remodelling their judicial systems and modes of practice unembarrassed by the obligation of contracts clause.2057 The right of a State to abolish imprisonment for debt was early asserted.2058 Again, the right of a State to shorten the time for the bringing of actions has been affirmed even as to existing causes of action, but with the proviso added that a reasonable time must be left for the bringing of such actions.2059 On the other hand, a statute which withdrew the judicial power to enforce satisfaction of a certain class of judgments by mandamus was held invalid.2060 In the words of the Court: “Every case must be determined upon its own circumstances;”2061 and it later added: “In all such cases the question becomes . . . one of reasonableness, and of that the legislature is primarily the judge.”2062

2055 43 U.S. (2 How.) 608 (1844).

2056 Oshkosh Waterworks Co. v. Oshkosh, 187 U.S. 437, 439 (1903); City & Lake R.R. v. New Orleans, 157 U.S. 219 (1895).

2057 Antoni v. Greenhow, 107 U.S. 769 (1883).

2058 The right was upheld in Mason v. Haile, 25 U.S. (12 Wheat.) 370 (1827), and again in Penniman’s Case, 103 U.S. 714 (1881).

2059 McGahey v. Virginia, 135 U.S. 662 (1890).

2060 Louisiana v. New Orleans, 102 U.S. 203 (1880).

2061 United States ex rel. Von Hoffman v. Quincy, 71 U.S. (4 Wall.) 535, 554 (1867).

2062 Antoni v. Greenhow, 107 U.S. 769, 775 (1883). Illustrations of changes in remedies, which have been sustained, may be seen in the following cases: Jackson v. Lamphire, 28 U.S. (3 Pet.) 280 (1830); Hawkins v. Barney’s Lessee, 30 U.S. (5 Pet.) 457 (1831); Crawford v. Branch Bank of Mobile, 48 U.S. (7 How.) 279 (1849); Curtis v. Whitney, 80 U.S. (13 Wall.) 68 (1872); Railroad Co. v. Hecht, 95 U.S. 168 (1877); Terry v. Anderson, 95 U.S. 628 (1877); Tennessee v. Sneed, 96 U.S. 69 (1877); South Carolina v. Gaillard, 101 U.S. 433 (1880); Louisiana v. New Orleans, 102 U.S. 203 (1880); Connecticut Mut. Life Ins. Co. v. Cushman, 108 U.S. 51 (1883); Vance v. Vance, 108 U.S. 514 (1883); Gilfillan v. Union Canal Co., 109 U.S. 401 (1883); Hill v. Merchant’s Ins. Co., 134 U.S. 515 (1890); City & Lake R.R. v. New Orleans, 157 U.S. 219 (1895); Red River Valley Bank v. Craig, 181 U.S. 548 (1901); Wilson v. Standefer, 184 U.S. 399 (1902); Oshkosh Waterworks Co. v. Oshkosh, 187 U.S. 437 (1903); Waggoner v. Flack, 188 U.S. 595 (1903); Bernheimer v. Converse, 206 U.S. 516 (1907); Henley v. Myers, 215 U.S. 373 (1910); Selig v. Hamilton, 234 U.S. 652 (1914); Security Bank v. California, 263 U.S. 282 (1923); United States Mortgage Co. v. Matthews, 293 U.S. 232 (1934); McGee v. International Life Ins. Co., 355 U.S. 220 (1957).

There is one class of cases resulting from the doctrine that the law of remedy constitutes a part of the obligation of a contract to which a special word is due. This comprises cases in which the contracts involved were municipal bonds. While a city is from one point of view but an emanation from the government’s sovereignty and an agent thereof, when it borrows money it is held to be acting in a corporate or private capacity and so to be suable on its contracts. Furthermore, as was held in the leading case of United States ex rel. Von Hoffman v. Quincy,2063 “where a State has authorized a municipal corporation to contract and to exercise the power of local taxation to the extent necessary to meet its engagements, the power thus given cannot be withdrawn until the contract is satisfied.” In this case the Court issued a mandamus compelling the city officials to levy taxes for the satisfaction of a judgment on its bonds in accordance with the law as it stood when the bonds were issued.2064 Nor may a State by dividing an indebted municipality among others enable it to escape its obligations. The debt follows the territory and the duty of assessing and collecting taxes to satisfy it devolves upon the succeeding corporations and their officers.2065 But where a municipal organization has ceased practically to exist through the vacation of its offices, and the government’s function is exercised once more by the State directly, the Court has thus far found itself powerless to frustrate a program of repudiation.2066 However, there is no reason why the State should enact the role of particeps criminis in an attempt to relieve its municipalities of the obligation to meet their honest debts. Thus, in 1931, during the Great Depression, New Jersey created a Municipal Finance Commission with power to assume control over its insolvent municipalities. To the complaint of certain bondholders that this legislation impaired the contract obligations of their debtors, the Court, speaking by Justice Frankfurter, pointed out that the practical value of an unsecured claim against a city is “the effectiveness of the city’s taxing power,” which the legislation under review was designed to conserve.2067

Compare the following cases, where changes in remedies were deemed to be of such character as to interfere with substantial rights: Wilmington & Weldon R.R. v. King, 91 U.S. 3 (1875); Memphis v. United States, 97 U.S. 293 (1878); Virginia Coupon Cases (Poindexter v. Greenhow), 114 U.S. 269, 270, 298, 299 (1885); Effinger v. Kenney, 115 U.S. 566 (1885); Fisk v. Jefferson Police Jury, 116 U.S. 131 (1885); Bradley v. Lightcap, 195 U.S. 1 (1904); Bank of Minden v. Clement, 256 U.S. 126 (1921).

2063 71 U.S. (4 Wall.) 535, 554–555 (1867).

2064 See also Nelson v. St. Martin’s Parish, 111 U.S. 716 (1884).

2065 Mobile v. Watson, 116 U.S. 289 (1886); Graham v. Folsom, 200 U.S. 248 (1906).

2066 Heine v. Levee Commissioners, 86 U.S. (19 Wall.) 655 (1874). Cf., Virginia v. West Virginia, 246 U.S. 565 (1918).

2067 Faitoute Co. v. City of Asbury Park, 316 U.S. 502, 510 (1942). Alluding to the ineffectiveness of purely judicial remedies against defaulting municipalities, Justice Frankfurter says: “For there is no remedy when resort is had to ‘devices and contrivances’ to nullify the taxing power which can be carried out only through authorized officials.” See Rees v. City of Watertown, 86 U.S. (19 Wall.) 107, 124 (1874). And so we have had the spectacle of taxing officials resigning from office in order to frustrate tax levies through mandamus, and officials running on a platform of willingness to go to jail rather than to enforce a tax levy (see Raymond, State and Municipal Bonds, 342–343), and evasion of service by tax collectors, thus making impotent a court’s mandate. Yost v. Dallas County, 236 U.S. 50, 57 (1915).″ Id. at 511.

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