ArtI.S10.C1.6.6 Public Grants That Are Not Contracts

Article I, Section 10, Clause 1:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

Not all grants by a state constitute contracts within the sense of Article I, § 10. In his Dartmouth College decision, Chief Justice Marshall conceded that if the act of incorporation be a grant of political power, if it creates a civil institution, to be employed in the administration of the government . . . the subject is one in which the legislature of the State may act according to its own judgment, unrestrained by the Constitution 1 – thereby drawing a line between public and private corporations that remained undisturbed for more than half a century. 2

It has been subsequently held many times that municipal corporations are mere instrumentalities of the state for the more convenient administration of local governments, whose powers may be enlarged, abridged, or entirely withdrawn at the pleasure of the legislature. 3 The same principle applies, moreover, to the property rights that the municipality derives either directly or indirectly from the state. This was first held as to the grant of a franchise to a municipality to operate a ferry and has since then been recognized as the universal rule. 4 It was stated in a case decided in 1923 that the distinction between the municipality as an agent of the state for governmental purposes and as an organization to care for local needs in a private or proprietary capacity, though it limited the legal liability of municipalities for the negligent acts or omissions of its officers or agents, did not, however, furnish ground for the application of constitutional restraints against the state in favor of its own municipalities. 5 Thus, no contract rights were impaired by a statute relocating a county seat, even though the former location was by law to be permanent and the citizens of the community had donated land and furnished bonds for the erection of public buildings. 6 Similarly, a statute changing the boundaries of a school district, giving to the new district the property within its limits that had belonged to the former district, and requiring the new district to assume the debts of the old district, did not impair the obligation of contracts. 7 Nor was the Contract Clause violated by state legislation authorizing state control over insolvent communities through a Municipal Finance Commission. 8

On the same ground of public agency, neither appointment nor election to public office creates a contract in the sense of Article I, § 10, whether as to tenure, or salary, or duties, all of which remain, so far as the Constitution of the United States is concerned, subject to legislative modification or outright repeal. 9 Indeed, there can be no such thing in this country as property in office, although the common law sustained a different view sometimes reflected in early cases. 10 When, however, services have once been rendered, there arises an implied contract that they shall be compensated at the rate in force at the time they were rendered. 11 Also, an express contract between the state and an individual for the performance of specific services falls within the protection of the Constitution. Thus, a contract made by the governor pursuant to a statute authorizing the appointment of a commissioner to conduct, over a period of years, a geological, mineralogical, and agricultural survey of the state, for which a definite sum had been authorized, was held to have been impaired by repeal of the statute. 12 But a resolution of a local board of education reducing teachers' salaries for the school year 1933-1934, pursuant to an act of the legislature authorizing such action, was held not to impair the contract of a teacher who, having served three years, was by earlier legislation exempt from having his salary reduced except for inefficiency or misconduct. 13 Similarly, the Court held that an Illinois statute that reduced the annuity payable to retired teachers under an earlier act did not violate the Contract Clause, because it had not been the intention of the earlier act to propose a contract but only to put into effect a general policy. 14 On the other hand, the right a teacher whose position had becomepermanent under the Indiana Teachers Tenure Act of 1927, to continued employment was held to be contractual and to have been impaired by the repeal in 1933 of the earlier act. 15

Footnotes

  1.  Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518, 629 (1819).
  2.  In Munn v. Illinois, 94 U.S. 113 (1877), a category of business affected with a public interest and whose property is impressed with a public use was recognized. A corporation engaged in such a business becomes a quasi-public corporation, and the power of the state to regulate it is larger than in the case of a purely private corporation. Because most corporations receiving public franchises are of this character, the final result of Munn was to enlarge the police power of the state in the case of the most important beneficiaries of the Dartmouth College decision.
  3.  Meriwether v. Garrett, 102 U.S. 472 (1880); Covington v. Kentucky, 173 U.S. 231 (1899); Hunter v. Pittsburgh, 207 U.S. 161 (1907).
  4.  East Hartford v. Hartford Bridge Co., 51 U.S. (10 How.) 511 (1851); Hunter v. Pittsburgh, 207 U.S. 161 (1907).
  5.  City of Trenton v. New Jersey, 262 U.S. 182, 191 (1923).
  6.  Newton v. Commissioners, 100 U.S. 548 (1880).
  7.  Michigan ex rel. Kies v. Lowrey, 199 U.S. 233 (1905).
  8.  Faitoute Co. v. City of Asbury Park, 316 U.S. 502 (1942).
  9.  Butler v. Pennsylvania, 51 U.S. (10 How.) 402 (1850); Fisk v. Jefferson Police Jury, 116 U.S. 131 (1885); Dodge v. Board of Education, 302 U.S. 74 (1937); Mississippi ex rel. Robertson v. Miller, 276 U.S. 174 (1928).
  10.  Butler v. Pennsylvania, 51 U.S. (10 How.) 420 (1850). Cf. Marbury v. Madison, 5 U.S. (1 Cr.) 137 (1803) Hoke v. Henderson, 154 N.C. (4 Dev.) 1 (1833). See also United States v. Fisher, 109 U.S. 143 (1883); United States v. Mitchell, 109 U.S. 146 (1883); Crenshaw v. United States, 134 U.S. 99 (1890).
  11.  Fisk v. Jefferson Police Jury, 116 U.S. 131 (1885); Mississippi ex rel. Robertson v. Miller, 276 U.S. 174 (1928).
  12.  Hall v. Wisconsin, 103 U.S. 5 (1880). Cf. Higginbotham v. City of Baton Rouge, 306 U.S. 535 (1930).
  13.  Phelps v. Board of Education, 300 U.S. 319 (1937).
  14.  Dodge v. Board of Education, 302 U.S. 74 (1937).
  15.  Indiana ex rel. Anderson v. Brand, 303 U.S. 95 (1938).