subsequently impair. It does not need to be said, however, that this agreement upon the part of the State not to exercise its regulative power is one that must be explicitly stated. A general grant to the corporation of the power to fix, or alter its charges or tolls as it may think proper, is not an abdication by the State of its power of control.48 Nor does a grant to the corporation of a power to fix its own rates, provided they are not unreasonable, have this effect;49 nor does a grant of power to fix the charges, provided they be not in excess of a specified rate, prevent the State from later fixing a lower rate.50 And, generally, the reservation by the State of a power to amend or revoke the charter, carries with it a power to regulate the charges that may be made.51

§ 507. Eminent Domain and the Obligation of Contracts.

52

That property of incorporated companies, like other species of property, are subject to the State's power of eminent domain, is not questioned. In Long Island Water Supply Co. v. Brooklyn" it is declared: "A contract is property, and, like any other property, may be taken under condemnation proceedings for public use. Its condemnation is of course subject to the rule of just compensation. The true view is that the condemnation proceedings do not impair the contract, do not break its obligations, but appropriate it, as they do the tangible property of the company, to the public uses.'

" 53

47 Los Angeles v. Los Angeles City Water Co., 177 U. S. 558; 20 Sup. Ct. Rep. 736; 44 L. ed. 886.

48 Stone v. Ill. Cent. Ry. Co., 116 U. S. 347; Sup. Ct. Rep. 348; 29 L. ed.

650.

49 Chicago, etc., Ry. Co. v. Minn., 134 U. S. 418; 10 Sup. Ct. Rep. 462; 33 L. ed. 970.

50 Georgia R. & Bkg. Co. v. Smith, 128 U. S. 174; 9 Sup. Ct. Rep. 47; 32 L. ed. 377.

51 Peik v. Chicago, etc., R. R. Co., 94 U. S. 164; 24 L. ed. 97.

52 166 U. S. 685; 17 Sup. Ct. Rep. 718; 41 L. ed. 1165.

or

53 Into all contracts, whether made between States and individuals between individuals only, there enter conditions which arise, not out of the literal terms of the contract itself; they are superinduced by the preëxisting and higher authority of the laws of nature, or nations, or of the community to which the parties belong; they are always presumed, and must be presumed, to be known and recognized by all, are binding upon all, and need

508. The Construction of Contracts.

54

Under the obligation clause no general power is given to the federal Supreme Court to review the decisions of state courts as to the proper construction to be given to the terms of a subsisting contract. In Lehigh Water Co. v. Easton the court say: "The argument in behalf of the company seems to rest upon the general idea that this court, under the statutes defining its appellate jurisdiction, may re-examine the judgment of the state court in every case involving the enforcement of contracts. But this view is unsound. The state court may erroneously determine questions arising under a contract which constitutes the basis of the suit before it; it may hold a contract void which in our opinion is valid; it may judge a contract to be valid which in our opinion is void; or its interpretation of the contract may in our opinion be radically wrong; but in neither of such cases would the judgment be reviewable by this court under the clause of the Constitution protecting the obligation of contracts against impairment by state legislation, and under the existing statutes defining and regulating its jurisdiction, unless that judgment, in terms or by its necessary operation, gives effect to some provision of the state Constitution, or some legislative enactment of the State, which is claimed by the unsuccessful party to impair the obligation of the particular contract in question."

never therefore be carried into express stipulation, for this could add nothing to their force. Every contract is made in subordination to them, and must yield to their control, as conditions inherent and paramount, wherever a necessity for their execution shall occur. Such a condition is the right of eminent domain. This right does not operate to impair the contract effected by it, but recognizes its obligation in the fullest extent, claiming only the fulfilment of an essential and inseparable condition. A distinction has

been attempted, in argument, between the power of a government to appropriate for public uses property which is corporeal, or may be said to be in being, and the like power in the government to resume or extinguish a franchise. The distinction, thus attempted, we regard as a refinement which has no foundation in reason, and one that, in truth, avoids the true legal or constitutional question in these causes; namely, that of the right of private persons, in the use or enjoyment of their private property, to control, and actually to prohibit the power and duty of the government to advance and protect the general good. We are aware of nothing peculiar to a franchise which can class it higher, or render it more sacred, than other property."

The meaning to be given to a state law is primarily to be determined by the state courts, and, so long as only a question of state constitutional law is concerned, the meaning thus given is conclusive upon the federal courts. Thus, when a state statute is alleged to impair the obligation of a contract it is not the duty of the federal Supreme Court itself to construe the act and then to determine whether, as thus construed, it impairs the obligation of a contract; rather, its duty is to take the act as construed and applied by the courts of the State, and, upon that basis, to determine whether or not the obligation of contracts is impaired. The logic of this doctrine is apparent. Whatever may be the literal terms of a state law, if, in fact, it is not so construed by the state authorities as to work an impairment of contracts the inhibition of the obligation clause cannot be said to be violated.

§ 509. Existence of a Contract a Federal Question.

The rule is well established that the federal Supreme Court will determine for itself, that is, by its own independent judgment, whether or not that which is alleged to be a contract and to have been impaired by a state law is in truth a contract. That is to say, the federal tribunal does not hold itself bound by the decision of a state court which escapes from the application of the obligation clause by holding that the contract, the impairment of which is alleged, is not, in fact, a contract.

In Jefferson Branch Bank v. Skelly the court say: "It has never been denied, nor is it now, that the Supreme Court of the United States has an appellate power to revise the judgment of the supreme court of a State, whenever such a court shall adjudge that not to be a contract which has been alleged, in the forms of legal proceedings, by a litigant, to be one, within the meaning of that clause of the Constitution of the United States which inhibits the States from passing any law impairing the obligation of contracts. Of what use would the appellate power be to the litigant who feels himself aggrieved by some particular state legislation, if this court could not decide, independently of all adjudication of

54 121 U. S. 388; 7 Sup. Ct. Rep. 916; 30 L. ed. 1059.

551 Black, 436; 17 L. ed. 173.

the supreme court of a State, whether or not the phraseology of the instrument in controversy was expressive of a contract within the protection of the Constitution of the United States, and that the obligation should be enforced, notwithstanding a contrary conclusion by the supreme court of a State." 56

This doctrine is, of course, applicable not only to the construction of instruments which, it is claimed, constitute contracts between individuals, but also to state laws which, it is alleged, amount to contracts on the part of the States. There has been no serious denial of this from the time of the early case of Fletcher v. Peck, in which it was held that the inhibition of the obligation clause applies as well to contracts on the part of the States as to those between private individuals.

§ 510. Constitutionality of State Laws Alleged to Impair Contracts a Federal Question.

Generally speaking, as is well known, the federal Supreme Court holds itself bound by the decisions of the state courts as to the constitutionality of state laws as determined by their respective state constitutions. This rule is, however, departed from in those cases in which it is conceived that it is necessary to do so in order to prevent the impairment of the obligation of contracts.

This refusal of the federal Supreme Court to follow the judg ment of state courts takes the form: First, where the federal court refuses to hold itself bound by the opinion of the state tribunal as to the constitutionality of state laws which support or constitute essential elements of the contracts which, it is alleged, have been impaired by later legislation; and, Second, where the federal tribunal refuses to follow the decisions of state courts as to the constitutionality of state laws which in themselves constitute contracts upon the part of the States enacting them, and which contracts, it is alleged, have been impaired by subsequent enactments.

56 In McCullough v. Virginia (172 U. S. 102; 19 Sup. Ct. Rep. 134; 43 L. ed. 382), it is declared that "the doctrine thus announced has been uniformly followed." City Bridge Proprietors v. Hoboken Land and Improvement Co., 1 Wall. 116; 17 L. ed. 571; Wright v. Nagle, 101 U. S. 791; 25 L. ed. 921; McGahey v. Virginia, 135 U. S. 662; 10 Sup. Ct. Rep. 972; 34 L. ed. 304.

§ 511. Decisions of State Courts: How Far Controlling in Federal Courts.

In State Bank of Ohio v. Knoop," a case brought up by writ of error to the state court, the federal Supreme Court reversed a decision of the state court which held that a state law of 1845, providing for the payment to the State of a certain percentage of their profits by banking institutions in lieu of profits, had not created a contract upon the part of a State to exempt companies organized under that law from future taxation, and that, therefore, a law of 1851 imposing such taxes was not an impairment of any contract rights of the companies. The state court held that the Ohio Constitution, as it existed in 1845, did not permit the legislature to pass the law, and also that, even were that law held valid, it did. not operate to create a contract with the companies organized under it. The Supreme Court of the United States, reversing this decision, asserted that the act of 1845 did in fact create a contract, and that the law of 1851 impaired its obligation, and, therefore, need not be obeyed by the corporations sought to be affected by it.

It is evident that in arriving at this decision the Supreme Court necessarily held that the original act of 1845 was constitutional as tested by the state Constitution, although the state court held it to be invalid.

So also, in Ohio Life Insurance Co. v. Debolt,58 though the court did not find it necessary to reverse the state court, a similar doctrine is declared.

In these cases there had been earlier decisions of the state courts recognizing the validity of the contracts in question. Taney, in his opinion in the Debolt case, which he uses as his opinion in the Knoop case, says: "When the Constitution of a State, for nearly half a century, has received one uniform and unquestioned construction by all the departments of the government, legislative, executive, and judicial, I think it must be regarded as the true one. It is true that this court always follows the decision of the state courts in the construction of their own constitution and laws.

57 16 How. 369; 14 L. ed. 977. 58 16 How. 416; 14 L. ed. 997.