264. Constitutional Provisions as to Contracts.

In state constitutions there is usually a provision that no law shall be passed impairing the obligation of contracts; and in the federal constitution (Art. I, § 10, T1) this prohibition is expressly imposed on the states. There is nothing in the federal constitution, however, prohibiting the enactment of laws by the federal government impairing the obligation of contracts save that in Article VI is found the provision that " All debts contracted and engagements entered into before the adoption of this constitution shall be as valid against the United States under this constitution as under the Confederation." The object of this provision was undoubtedly to guard against any repudiation by the federal government, organized under the constitution, of treaties made or debts contracted by the government under the Articles of Confederation; but as the United States cannot be sued (see above, § 149) there could be no legal redress for the violation of this provision. As likewise the states cannot be sued by individuals (see above, § 151) there is no direct legal remedy against a state for the impairment of its own obligations. Thus, if a state should provide for the issuance of bonds and direct their payment when due out of the state treasury, a subsequent repeal of the statute authorizing their payment would be an impairment of the obligation of the contract, but the creditor would be without redress as against the state (Hans v. Louisiana). However, if the statute providing for the issuance of the bonds should also provide that such bonds and the interest coupons thereon were receivable in payment of state taxes, no subsequent statute could take away from the bonds or coupons their value or availability for that purpose; and the holder would be entitled to tender them in payment of his taxes, and the officers of the state would be bound to receive them, notwithstanding the repeal. And if a tax payer had tendered such bonds in payment of his taxes he might by proceedings restrain the officers of the state from any attempt to enforce such taxes against his property (McGahey v. Virginia). Likewise if a state charters a bank

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Constitutional Provisions.

357 with the provision that the notes of such bank shall be receivable in payment of debts to the state, it cannot afterwards by legislation deprive such notes of their value for such purpose (Woodruff v. Trapnall).

It is, however, with reference to private contracts that the constitutional guaranty is usually applied, and the prohibition is construed as preventing the state from passing any law impairing the force or obligation as between individuals of contracts already made. What is prohibited with reference to the impairment of private contracts is a retroactive law having the effect to render any valid contract previously made invalid, or to interfere with the assertion of substantial rights acquired under such contract, or to take away the substantial remedies for their enforcement.

265. Bankruptcy and Legal Tender Statutes.

The fact that states are prohibited from impairing contracts while no such provision is imposed on the federal government is significant when there is occasion to consider the validity of state statutes as to discharge in bankruptcy or payment in legal tender currency. It is a common provision in laws relating to bankruptcy that after the application of all his property to the payment of his debts the bankrupt is discharged from further liability (see above, § 101), but a state bankruptcy statute with these provisions could not be made applicable to debts already created by contract, for to do so would be to deprive the creditor of legal redress for the violation of such contract by one who should subsequently be declared a bankrupt and discharged (Sturges v. Crowninshield and Ogden v. Saunders). There is no such limitation on the federal government, and as Congress is expressly given authority to pass general laws on the subject of bankruptcy (Art. I, § 8, ¶ 4) a discharge under a federal bankruptcy law will relieve the bankrupt from further liability on debts created prior to the passage of such a statute as well as on those contracted subsequently. For similar reasons, although a state may perhaps

declare what currency shall be receivable as a legal tender in the absence of any federal statute on the subject, it cannot provide for the extinguishment of indebtedness by payment in some form of money not recognized by the law of the state as a legal tender when the contract was made; but Congress may pass legal tender statutes applicable to debts already contracted as well as those subsequently contracted (Legal Tender Case).

266. What Kind of Contracts are Protected from

Impairment.

There is a legal distinction between the obligation of an executory contract, that is, one not yet performed or carried out on one side at least, and an executed contract, that is, one which has been fully carried out on both sides; and it has been held that the constitutional guaranty extends to contracts fully executed as well as to those which are in whole or in any part still executory. This conclusion was reached in a case in which a state attempted to impair the effect of a conveyance of land made by it to an individual, and it was held that as a conveyance was in this sense a contract, the title acquired thereby could not be impaired or affected by the state action (Fletcher v. Peck). This decision was made, however, before the adoption of Amendment XIV which prohibits any state from depriving any person of his property without due process of law. Under that amendment any attempt on the part of the state by statute to impair a property right would be invalid, and since the adoption of that amendment the decision that a state cannot impair the rights acquired under an executed contract is probably of little significance, for such rights would now be protected as property rights.

There is also a legal distinction between express and implied contracts, an express contract being one which is definitely entered into between parties intending to contract and bind themselves with reference to each other, while an implied contract is nothing more than an obligation arising by law from the acts of the parties without any expressed intention to as

§ 267]

What Kind of Contracts.

359 sume such obligations. An implied contract in the proper sense of the term is one the obligation of which a party is presumed to have assented to by reason of his conduct and his relations to the other party, although such assent is not indicated by any specific words or acts, and the constitutional guaranty applies to such implied contracts as fully and effectively as to expressed contracts. The term "implied contract" is sometimes, though inaccurately, used to cover any legal obligation, such as, for instance, the obligation to pay damages for a wrong done although such wrong is not a violation of any duty specifically assumed, but only of a duty generally imposed by law. The obligations arising from implied contracts when the term. is used in the sense last above indicated are not obligations which are within the guaranty of the constitutional provision as to impairing obligation of contracts (Louisiana v. Mayor of New Orleans).

267. Are Judicial Decisions Contracts?

The judgment of a court is sometimes spoken of as an implied contract and if the judgment is for the performance of a duty arising by contract no doubt its obligations are protected as against subsequent legislation by the constitutional provision ; a judgment, however, may also be for the enforcement of an obligation not arising out of contract but by general law, and in such cases the judgment itself cannot be said to be a contract (Morley v. Lake Shore, etc. R. Co.). In applying the constitutional provision as to impairment of obligation of contracts it will be safe, therefore, to say that so far as contract obligations have been embodied in a judgment they are still protected as against subsequent legislation, but that the effect and enforcement of a judgment rendered with reference to obligations not arising out of contract may be regulated by subsequent legislation.

A rule or principle of law established by judicial decision is for some purposes as much a part of the law as a rule established by statute; but the decision of a court is primarily the law only as between the parties to the case decided, and with

reference to the rights involved (see above, ch. xxiv) and while such a decision is a precedent, and will usually be followed in other cases in the same jurisdiction, it is not binding on the court in other cases in the same sense that a statute is binding upon the court. Therefore, the change of a rule of law established by a judicial decision is not the impairment of the obligation of a contract (Mobile Trans. Co. v. Mobile), although it may be that the parties making the contract have assumed that the first decision would be followed in other cases and therefore are prejudiced by the subsequent refusal of the court to follow the former decision.

268. Statutory Privileges or Exemptions.

A state may make contracts with individuals, and such contracts when made cannot be impaired, although as already indicated (see above, § 264) there may be no remedy afforded for the violation of the contract by the state. But a general statute does not constitute a contract, and one who relies upon such statute must do so with the understanding that the legislature which made it may repeal it at discretion. A state cannot contract away or impose limitations upon its general power to legislate for the public benefit. Thus if, while a state statute is in force providing that members of voluntary fire companies or militia organizations shall not be required to pay poll taxes, a person becomes a member of such organization, he cannot afterwards complain if the general statute in this respect is changed and the privilege is withdrawn. Statutory exemptions from taxation are therefore repealable (Salt Company v. East Saginaw).

Where an office is created by statute it may be abolished, and the incumbent thereby deprived of the privileges and emoluments of such office without the violation of any contract right. But the state cannot take away the right to recover compensation already earned by performing the duties of the office, for here the right is already accrued and has become complete as a property right of which the officer cannot be deprived without due process of law (Fisk v. Jefferson Police Jury).