tract to that effect is held to exist between it and the State, the obligation of which the latter may not impair. Thus in American Smelting, etc., Co. v. Colorado" it was held that "a contract right to do business in the State during the corporate lifetime of domestic corporations without being subject to any greater liabilities than were or might be imposed upon domestic corporations was acquired by a foreign corporation by virtue of its admission into the State of Colorado with the right to do business therein under the then-existing laws of that State, which, inter alia, subjected foreign corporations coming into the State to the liabilities restrictions, and duties which then were or might thereafter be imposed upon domestic corporations of like character, and that such right was unconstitutionally impaired by an act of the State, exacting from such corporation an annual tax or license fee in double the amount of that imposed upon domestic corporations."

§ 495. Charters of Public Corporations.

The charters of public corporations, investing them with subordinate legislative and other governmental powers are not contracts within the meaning of the obligation clause, and, so far as the federal Constitution is concerned, the state legislature has, with reference to them, unlimited powers of amendment or repeal. "It is settled law that the legislature in granting it [a municipal charter] does not divest itself of any power over the inhabitants of the district which it possessed before the charter was granted. Unless the Constitution otherwise provides, the legislature still has authority to amend the charter of such a corporation, enlarge or diminish its powers, extend or limit its boundaries, divide the same into two or more, consolidate two or more into one, overrule its action whenever it is deemed unwise, impolitic or unjust, and even abolish the municipality altogether, in the legislative discretion." 12

11 204 U. S. 103; 27 Sup. Ct. Rep. 198; 51 L. ed. 393.

12 Laramie Co. v. Albany Co., 92 U. S. 307; 23 L. ed. 552. See also New Orleans v. New Orleans Waterworks Co., 142 U. S. 79; 12 Sup. Ct. Rep. 142; 35 L. ed. 943.

§ 496. Contracts by Municipal Corporations.

Where, however, municipalities or other subordinate political corporations have, in the exercise of their charter powers, entered into contracts, those contracts are protected from subsequent impairment by state law.13 Such corporations, as holders of state securities and other contract obligations, are secured against their impairment.11

Generally speaking, also, franchises granted by municipal corporations, if authorized by their charters, are contracts which, under the authority of the Dartmouth College case, presently to be considered, are protected against impairment.

So also, a state law limiting the powers of taxation of a municipal corporation, whereby its ability to pay its debts is materially lessened, is void as to debts created prior thereto, the creditors relying upon the taxing powers of the corporation to provide the funds for the payment of their claims.15

In Louisiana v. New Orleans16 the court declare it to be settled law that "where a municipal corporation is authorized to contract, and to exercise the power of local taxation to meet its contractual engagements, this power must continue until the contracts are satisfied; and that it is an impairment of an obligation of the contract to destroy or lessen the means by which it can be enforced."

So also, generally, it is held to be an impairment of the obligation of contracts entered into by municipal corporations to deprive them by subsequent state legislation of any authority whatsoever, whereby they may be rendered less able to perform their agreements, or whereby the enforcement of their claims by creditors is rendered more difficult or less certain. "That obligation is 13 New Orleans v. New Orleans Waterworks Co., 142 U. S. 79; 12 Sup. Ct. Rep. 142; 35 L. ed. 943.

14 Mobile v. Watson, 116 U. S. 289; 6 Sup. Ct. Rep. 398; 29 L. ed. 620; Louisiana v. Pillsbury, 105 U. S. 278; 26 L. ed. 1090.

15 United States v. Port of Mobile, 12 Fed. 768; Seibert v. Lewis, 122 U. S. 284; 7 Sup. Ct. Rep. 1190; 30 L. ed. 1161; Sawyer v. Concordia, 12 Fed. 754; Wolff v. New Orleans, 103 U. S. 358; 26 L. ed. 395; Ralls Co. v. United States, 105 U. S. 733; 26 L. ed. 1220.

16 30 Sup. Ct. Rep. 40.

impaired, in the sense of the Constitution, when the means by which a contract, at the time of its execution, could be enforced, that is, by which the parties could be obliged to perform it, are rendered less efficacious by legislation operating directly upon those means." 17

"A by-law or ordinance of a municipal corporation may be such an exercise of legislative power delegated by the legislature to the corporation as a political subdivision of the State, having all the force of law within the limits of the municipality, that it may properly be considered as a law, within the meaning of this article of the Constitution of the United States." 18

§ 497. Charters of Private Corporations Are Contracts: The Dartmouth College Case.

In 1819 in the Dartmouth College case19 a charter of a private corporation was held to be contract between the State granting it and the corporation, which the former might not impair by subsequent legislation. Prior to this decision, it had been held in Fletcher v. Peck,20 decided in 1810, that the obligation clause applied to executed as well as to executory contracts, and to contracts entered into by the States as well as to those between private individuals. In New Jersey v. Wilson21 it had also been held that a State might contract away its right of taxation as to certain specified persons and things, which contract could not be rescinded by a subsequent legislative act, and in Terrett v. Taylor that the constitutional prohibition was applicable to contracts entered into by the States. In this last case a State was not permitted to divest title to certain lands, the title to which rested upon an earlier legislative grant.

17 Wolff v. New Orleans, 103 U. S. 358; 26 L. ed. 395.

18 New Orleans Waterworks v. Louisiana Sugar Ref. Co., 125 U. S. 18; 8 Sup. Ct. Rep. 741; 31 L. ed. 607. In St. Paul Gaslight Co. v. St. Paul (181 U. S. 142; 21 Sup. Ct. Rep. 575; 45 L. ed. 788) this is declared to be longer open to question."

66

19 Trustees of Dartmouth College v. Woodward, 4 Wh. 518; 4 L. ed. 629. 20 6 Cr. 87; 3 L. ed. 162.

217 Cr. 164; 3 L. ed. 303.

no

22 9 Cr. 43; 3 L. ed. 650.

This fundamental doctrine that the charter of a private corporation is a contract which, under the obligation clause, a State may not impair by legislation, though it has been much criticized, has never been departed from by the Supreme Court. In practical operation, however, its force has been much weakened not only by a very general practice upon the part of the States, when granting charters, to reserve the right to amend or revoke them,23 but by later decisions of the courts with reference to the strictness with which the contractual elements of corporate charters are construed, and to the power of the States in the exercise of their police powers, their power of eminent domain, and their authority to control public service corporations, or corporate concerns affected with a public interest, to disregard even those charter rights which a strict construction shows to have been granted.

§ 498. Charter Grants Strictly Construed.

With reference to the strictness with which charter grants are to be construed the courts have laid down the doctrine that the State is to be held to have granted only such powers or immunities as are specifically or unequivocally stated, or as are necessarily and unavoidably implied therein. In Northwestern Fertilizing Co. v. Hyde Park24 the court say: "The rule of construction in this class of cases is that it shall be most strongly against the corporation. Every reasonable doubt is to be resolved adversely. Nothing is to be taken as conceded but what is given in unmistakable terms, or by an implication equally clear. The affirmative must be shown. Silence is negation, and doubt is fatal to the claim."

25

23 In some States the legislatures are without constitutional power to grant irrepealable or unamendable charters. This right of amendment or revocation however, may not be so exercised as to deprive the corporation of property without due process of law.

24 97 U. S. 659; 24 L. ed. 1036.

25 See also Charles River Bridge Co. v. Warren Bridge, 11 Pet. 420; & L. ed. 773; St. Clair County Turnpike Co. v. Illinois, 96 U. S. 63; 24 L. ed. 651; Oregon R. & Nav. Co. v. Oregonian R. Co., 130 U. S. 1; 9 Sup. Ct. Rep. 409; 32 L. ed. 837; Coosaw Mining Co. v. S. Carolina, 144 U. S. 550, 12 Sup. Ct. Rep. 689; 36 L. ed. 537; Knoxville Water Co. v. Knoxville, 200 U. S. 22; 26 Sup. Ct. Rep. 224; 50 L. ed. 353.

A few instances will sufficiently illustrate the strictness with which this doctrine is applied.

In a series of cases, property of corporations expressly exempted from taxation has nevertheless been held subject to taxation, where the original exemption did not unequivocally appear to be in the nature of a contract on the part of the State. Where this did not appear, the promised forbearance was held to be a mere gratuity, which might be withdrawn.26

In Knoxville Water Co. v. Knoxville27 the court held that an agreement by a municipality to give to a water company an exclusive franchise for thirty years as against "any other person or corporation," did not prevent the corporation itself establishing, under subsequent legislative authority, its own independent system of waterworks.

§ 499. Charles River Bridge Co. v. Warren Bridge Co.

The Charles River Bridge Co. v. Warren Bridge Co.28 case is another case in point. The facts of this famous case were these: The plaintiff company, under charter authority, had at great expense erected a bridge across the Charles River, over which it was authorized to charge tolls. The public interest seeming to demand it, the construction nearby of a second bridge was authorized, the immediate effect of which would, of course, be to divide the business of the first company and diminish its profits. The Supreme Court, by adopting the principle that all such charter grants are to be most strictly construed against the grantees, was able to hold that the charter to the first company not having expressly guaranteed an exclusive privilege, none was to be presumed. Chief Justice Taney, in his opinion, said: "The relative position of the Warren Bridge has already been described. It does not interrupt the passage over the Charles River Bridge, nor make the way to it or from it less convenient. None of the faculties or franchises

26 Rector of Christ Church v. Philadelphia Co., 24 How. 300; 16 L. ed. 602; Tucker v. Ferguson, 22 Wall. 527; 22 L. ed. 805; R. R. Co. v. Board of Supervisors, 93 U. S. 595; 23 L. ed. 814.

27 200 U. S. 22; 26 Sup. Ct. Rep. 224; 50 L. ed. 353.

28 11 Pet. 420; 9 L. ed. 773.