379 U.S. 497
85 S.Ct. 577
13 L.Ed.2d 446
CITY OF EL PASO, Appellant,
Argued Nov. 17, 1964.
Decided Jan. 18, 1965.
Rehearing Denied March 1, 1965.
See 380 U.S. 926, 85 S.Ct. 879.
William J. Mounce, El Paso, Tex., for appellant.
Greenberry Simmons, Louisville, Ky., for appellee.
Mr. Justice WHITE delivered the opinion of the Court.
Under the applicable statutes existing in Texas in 1910, the year in which the contracts in this case were made, the State Land Board was authorized to sell the public lands allocated to the Permanent Free School Fund on long-term contracts calling for a down payment of oen-fortieth of the principal and annual payment of interest and principal. The time for payment of principal was extended periodically and the principal was never called due. In the event of nonpayment of interest, however, the statutes authorized the termination of the contract and the forfeiture of the lands to the State without the necessity of reentry or judicial proceedings, the land again to become a part of the public domain and to be resold for the account of the school fund. The provision chiefly in issue in this case provided:
'In any cases where lands have been forfeited to the State for the non-payment of interest, the purchasers or their vendees may have their claims reinstated on their written request, by paying into the treasury the full amount of interest due on such claim up to the date of reinstatement; provided, that no rights of third persons may have intervened. In all such cases the original obligations and penalties shall thereby become as binding as if no forfeiture had ever occurred.' Tex.Gen.Laws 1897, ch. 129, art. 4218f.
In 1941, the foregoing provisions were amended. Among other things, the offering of forfeited land for sale on a subsequent sale date was made permissive instead of mandatory and a provision was added stating that the right to reinstate lands forfeited thereafter 'must be exercised within five (5) years from the date of the forfeiture.' Tex.Gen. & Spec.Laws 1941, ch. 191, § 3, Vernon's Ann.Civ.Stat., art. 5326. In 1951, the right of reinstatement was limited to the last purchaser from the State and his vendees or heirs. Tex.Gen. & Spec.Laws 1951, ch. 59 § 2, Vernon's Ann.Civ.Stat., art. 5326.
In 1910, certain predecessors in title of Simmons, the appellee, executed their installment contracts to purchase school lands from the State of Texas. The original purchasers made a down payment of one-fortieth of the principal and made annual interest payments. The purchase contracts were assigned several times and interest payments fell into arrears during the forties. On July 21, 1947, after a notice f arrears and request for payment, the land was forfeited for nonpayment of interest. A notice of forfeiture and a copy of the 1941 Act allowing reinstatement within five years were sent to the last purchaser of record, but were returned unclaimed. Appellee Simmons, a citizen of Kentucky, thereafter took quitclaim deeds to the land in question and filed his applications for reinstatement, tendering the required payments. The applications were denied because they had not been made within five years of the forfeiture as required by the 1941 statute. In 1955, pursuant to special legislation, the land was sold by the State to the City of El Paso. Simmons then filed this suit in the Federal District Court to determine title to the land in question. In its answer the City relied upon the 1941 statute as barring Simmons' claim and also pleaded adverse possession and laches as additional defenses. The District Court granted the City's motion for summary judgment on the ground of the 1941 statute. The Court of Appeals reversed, 320 F.2d 541 (C.A.5th Cir.), ruling that the right to reinstate was a vested contractual right and that the prohibition against impairment of contracts contained in Art. I § 10, of the Constitution of the United States prohibited the application of the 1941 statute to the contract here in question. We noted probable jurisdiction. 377 U.S. 902, 84 S.Ct. 1165, 12 L.Ed.2d 174. We reverse.
Although neither party has raised the issue, we deal at the outset with a jurisdictional matter. The appeal in this case is here under 28 U.S.C. § 1254(2) (1958 ed.). The Court of Appeals, after holding the Texas statute unconstitutional, remanded the case to the District Court to determine the City's defenses of laches and adverse possession. Under a prior interpretation of § 240(b) of the Judicial Code, the predecessor provision of § 1254(2), a final judgment or decree of the Court of Appeals is necessary to the exercise of our jurisdiction over the case by way of appeal, Slaker v. O'Connor, 278 U.S. 188, 49 S.Ct. 158, 73 L.Ed. 258, which was followed without comment in South Carolina Electric & Gas Co. v. Flemming, 351 U.S. 901, 76 S.Ct. 692, 100 L.Ed. 1439 and questioned but not put to rest in Chicago v. Atchison, Topeka & Santa Fe R. Co., 357 U.S. 77, 78 S.Ct. 1063, 2 L.Ed.2d 1174, the judgment in that case being deemed a final one. These questions under § 1254(2) were neither briefed nor argued in this case and it is not appropriate to resolve them here.
In 1962 Congress expanded the scope of 28 U.S.C. § 2103 to apply to appeals from the United States courts of appeals. That section now provides that an appeal improvidently taken from a court of appeals as well as from a state court shall not be dismissed for that reason alone, but that the appeal papers shall be regarded and acted on as a petition for a writ of certiorari. The restriction in 28 U.S.C. § 1254(2) (1958 ed.) providing that an appeal from the court of appeals 'shall preclude review by writ of certiorari at the instance of such appellant' is no bar to our treating this case as here on a petition for certiorari. For this provision means only that if an appeal is proper and has been taken, certiorari will not thereafter be available; where the appeal is not proper, this Court will still consider a timely application for certiorari. Bradford Electric Light Co. v. Clapper, 284 U.S. 221, 52 S.Ct. 118, 76 L.Ed. 254. No timely application for certiorari has been filed in the instant case. But 28 U.S.C. § 2103 (1958 ed., Supp. V) now requires that we treat the papers whereon the appeal was taken as a petition for certiorari. Accordingly we dismiss the appeal and grant the writ of certiorari.
We turn to the merits. The City seeks to bring this case within the long line of cases recognizing a distinction between contract obligation and remedy and permitting a modification of the remedy as long as there is no substantial impairment of the value of the obligation. Sturges v. Crowninshield, 4 Wheat. 122, 200, 4 L.Ed. 529; Von Hoffman v. City of Quincy, 4 Wall, 535, 553 554, 18 L.Ed. 403; Honeyman v. Jacobs, 306 U.S. 539, 59 S.Ct. 702, 83 L.Ed. 972. More specifically, it invokes three cases in this Court, two from Texas, that held it constitutionally permissible to apply state statutes allowing forfeiture of land purchase rights to land contracts between private persons and the State made when the law did not provide for forfeiture or permitted it only upon court order. Wilson v. Standefer, 184 U.S. 399, 22 S.Ct. 384, 46 L.Ed. 612; Waggoner v. Flack, 188 U.S. 595, 23 S.Ct. 345, 47 L.Ed. 609; Aikins v. Kingsbury, 247 U.S. 484, 38 S.Ct. 558, 62 L.Ed. 1226. In those cases the Court reasoned that the state statutes existing when the contracts were made were not to be considered the exclusive remedies available in the event of the purchaser's default since there was no promise, express or implied, on the part of the State not to enlarge the remedy or grant another in case of breach.
The Court of Appeals rejected the City's contention. The Texas cases, according to the Court of Appeals, hold that the reinstatement provision confers a vested right which is not subject to legislative alteration. From this it concluded that under state law the five-year limitation on reinstatement was not a mere modification of remedy but a change in the obligation of a contract. Relying on the theory that it is state law that determines the obligations of the parties, the Court of Appeals found that the 1941 statute abrogated an obligation of the contract and thus violated the Contract Clause of the Constitution.
We do not pause to consider further whether the Court of Appeals correctly ascertained the Texas law at the time these contracts were made, or to chart again the dividing line under federal law between 'remedy' and 'obligation,' or to determine the extent to which this line is controlled by state court decisions, decisions often rendered in contexts not involving Contract Clause considerations. For it is not every modification of a contractual promise that impairs the obligation of contract under federal law, any more than it is every alteration of existing remedies that violates the Contract Clause. Stephenson v. Binford, 287 U.S. 251, 276, 53 S.Ct. 181, 188, 77 L.Ed. 288; Stone v. Mississippi, 101 U.S. 814, 819, 25 L.Ed. 1079; Manigault v. Springes, 199 U.S. 473, 26 S.Ct. 127, 50 L.ed. 274. Assuming the provision for reinstatement after default to be part of the State's obligation, we do not think its modification by a five-year statute of repose contravenes the Contract Clause.
The decisions 'put it beyond question that the prohibition is not an absolute one and is not to be read with literal exactness like a mathematical formula,' as Chief Justice Hughes said in Home Building & Loan Assn. v. Blaisdell, 290 U.S. 398, 428, 54 S.Ct. 231, 236. The Blaisdell opinion, which amounted to a comprehensive restatement of the principles underlying the application of the Contract Clause, makes it quite clear that '(n)ot only is the constitutional provision qualified by the measure of control which the state retains over remedial processes, but the state also continues to possess authority to safeguard the vital interests of its people. It does not matter that legislation appropriate to that end 'has the result of modifying or abrogating contracts already in effect.' Stephenson v. Binford, 287 U.S. 251, 276, 53 S.Ct. 181, 189, 77 L.Ed. 288. Not only are existing laws read into contracts in order to fix obligations as between the parties, but the reservation of essential attributes of sovereign power is also read into contracts as a postulate of the legal order. * * * This principle of harmonizing the constitutional prohibition with the necessary residuum of state power has had progressive recognition in the decisions of this Court.' 290 U.S., at 434—435, 54 S.Ct., at 238—239. Moreover, the 'economic interests of the state may justify the exercise of its continuing and dominant protective power notwithstanding interference with contracts.' Id., at 437, 54 S.Ct., at 239. The State has the 'sovereign right * * * to protect the * * * general welfare of the people * * *. Once we are in this domain of the reserve power of a State we must respect the 'wide discretion on the part of the legislature in determining what is and what is not necessary." East New York Savings Bank v. Hahn, 326 U.S. 230, 232—233, 66 S.Ct. 69, 71. As Mr. Justice Johnson said in Ogden v. Saunders, '(i)t is the motive, the policy, the object, that must characterize the legislative act, to affect it with the imputation of violating the obligation of contracts.' 12 Wheat. 213, 291, 6 L.Ed. 606.
Of course, the power of a State to modify or affect the obligation of contract is not without limit. '(W)hatever is reserved of state power must be consistent with the fair intent of the constitutional limitation of that power. The reserved power cannot be construed so as to destroy the limitation, nor is the limitation to be construed to destroy the reserved power in its essential aspects. They must be construed in harmony with each other. This principle precludes a construction which would permit the state to adopt as its policy the repudiation of debts or the destruction of contracts or the denial of means to enforce them.' Blaisdell, supra, at 439, 54 S.Ct. at 240. But we think the objects of the Texas statute make abundantly clear that it impairs no protected right under the Contract Clause.
Texas, upon entering the Union, reserved its entire public domain, one-half of which was set aside under the 1876 Constitution to finance a universal system of free public education. These lands, over 42,000,000 acres, were to be sold as quickly as practicable in order to provide revenues for the public school system and to encourage the settlement of the vast public domain. The terms of sale were undemanding and designed to accomplish the widespread sale and development of the public domain. The State required a down payment of one-fortieth of the purchase price, an annual payment of one-fortieth of principal and an annual payment of interest. The terms were frequently modified in favor of purchasers. Periodically, during the course of almost a century, the time for payment of the nominal principal amount was extended. In 1919, the requirement that the purchaser settle on the land or adjoining land was lifted, provisions allowing forfeiting purchasers a first opportunity to repurchase forfeited land at a newly appraised value were thrice added, interest in arrears was forgiven under one of these acts, and reclassification of lands was held not to deprive forfeiting purchasers, upon reinstatement, of their mineral rights in the land. But eventually the evolution of a frontier society to a modern State, attended by the discovery of oil and gas deposits which led to speculation and exploitation of the changes in the use and value of the lands, called forth amendments to the Texas land laws modifying the conditions of sale in favor of the State. Beside increasing the required down payment from one-fortieth to one-fifth of the purchase price, the State restricted the right of reinstatement to the last purchaser from the State or his assigns and required that this right be exercised within five years from the date of forfeiture.
The circumstances behind the 1941 amendment are well described in the Reports of the Commissioner of the General Land Office. The general purpose of the legislation enacted in 1941 was to restore confidence in the stability and integrity of land titles and to enable the State to protect and administer its property in a businesslike manner. 1938—1940 Rep. 5. '(T)he records (of the land office) show that through the years many thousands of purchase contracts, covering, in the aggregate, millions of acres of school land, have been forfeited by failure of the purchasers to meet the small annual interest payments requisite to the maintenance of the contracts.' Id., at 11—12. In 1939, 15,000 sales contracts were found delinquent and subject to forfeiture and there were about 600,000 acres of unsold surveyed school lands, the major portion of which had produced no revenue for a decade. Ibid. This state of affairs was principally attributable to the opportunity for speculation to which unlimited reinstatement rights gave rise. Forfeited purchase contracts which had remained dormant for years could be reinstated if and when the land became potentially productive of gas and oil. Where forfeited lands were purchased without reservation of minerals to the State, as was the case in respect to early purchases before discovery of the extensive mineral wealth in the State, all of the mineral rights reverted to the owner of the reinstated claims, regardless of the State's later attempts in forfeited sales to share in the mineral interest. Gulf Production Co. v. State, 231 S.W. 124 (Tex.Civ.App.). Hence the Land Commissioner noted that the majority of sales and resales under the laws requiring sale to the highest bidder were to purchasers buying a 'speculative option,' 'taken for possible profits on the rights of the surface owners to lease the land for oil and gas.' Under such conditions lands were bid in at highly inflated prices such as no one who expected to keep the land could afford to offer.' 1940—1942 Rep. 5. The attempts to assure some stability in land sales through repurchase acts allowing delinquent owners a preferential right to buy forfeited land at a reappraised value, and, under one act, without payment of accumulated interest in arrears, proved unsuccessful, and expensive. In regard to one of the State's attempts to quiet titles through a repurchase act, the Land Commissioner in 1925 expressed the belief that the 'owners can realize such returns from (the lands) as will enable them to pay interest thereon instead of continuing the recurring annual forfeiture and resale and so on indefinitely.' 1924—1926 Rep. 5. In 1939, a new Commissioner noted that 1,872,326 acres had been forfeited and 1,195,993 acres repurchased under the three repurchase acts. The net loss to the School Fund from repurchases was said to be § 1,661,980 plus the loss in interest arrears of $418,000. 1938—1940 Rep. 12.
No less significant was the imbroglio over land titles in Texas. The long shadow cast by perpetual reinstatement gave rise to a spate of litigation between forfeiting purchasers and the State or between one or more forfeiting purchasers and other forfeiting purchasers. See, e.g., Weaver v. Robison, 114 Tex. 272, 268 S.W. 133; Anderson v. Neighbors, 94 Tex. 236, 59 S.W. 543; Mound Oil Co. v. Terrell, 99 Tex. 625, 92 S.W. 451. Where the same land had been sold and contracts forfeited several times, as was frequently the case, the right to reinstate could be exercised by any one of the forfeiting purchasers or his vendees. Hoefer v. Robison, 104 Tex. 159, 135 S.W. 371. Cf. Faulkner v. Lear, 258 S.W.2d 147 (Tex.Civ.App.). It was this situation to which the Texas Legislature addressed itself in 1941 and it is in light of this situation that we judge the validity of the amendment.
The Contract Clause of the Constitution does not render Texas powerless to take effective and necessary measures to deal with the above. We note at the outset that the promise of reinstatement, whether deemed remedial or substantive, was not the central undertaking of the seller nor the primary consideration for the buyer's undertaking. See Wilson v. Standefer, 184 U.S. 399, 22 S.Ct. 384, 46 L.Ed. 612; Waggoner v. Flack, 188 U.S. 595, 23 S.Ct. 345, 47 L.Ed. 609; Aikins v. Kingsbury, 247 U.S. 484, 38 S.Ct. 558, 62 L.Ed. 1226. Under this agreement the State promised to transfer title to the buyer upon his payment of the purchase price; in turn the buyer was obliged to make a nominal down payment of one-fortieth of the purchase price and to maintain annual interest payments. Where the buyer breached what was practically his only obligation under the contract, the land reverted back to the school fund, Boykin v. Southwest Texas Oil & Gas Co., Tex.Com.App., 256 S.W. 581, and a right of reinstatement arose, conditioned on the State's refusal or failure to dispose of the land by sale or lease. Hoefer v. Robison, 104 Tex. 159, 135 S.W. 371. We do not believe that it can seriously be contended that the buyer was substantially induced to enter into these contracts on the basis of a defeasible right to reinstatement in case of his failure to perform, or that he interpreted that right to be of everlasting effect. At the time the contract was entered into the State's policy was to sell the land as quickly as possible, and the State took many steps to induce sales. See Becton v. Dublin, 163 S.W.2d 907, 910 (Tex.Civ.App.). Thus, for example, the Land Commissioner was required to reclassify forfeited lands by the next sale day and to publicize widely the forfeiture and sale. Weaver v. Robison, 114 Tex. 272, 268 S.W. 133. This policy clearly indicates that the right of reinstatement was not conceived to be an endless privilege conferred on a defaulting buyer. A contrary construction would render the buyer's obligations under the contract quite illusory while obliging the State to transfer the land whenever the purchaser decided to comply with the contract, all this for a nominal down payment. We, like the Court in Faitoute Iron & Steel Co. v. City of Asbury Park, 316 U.S. 502, 514, 62 S.Ct. 1129, 1135, 86 L.Ed. 1629, believe that '(t) he Constitution is 'intended to preserve practical and substantial rights, not to maintain theories.' Davis v. Mills, 194 U.S. 451, 457, 24 S.Ct. 692, 695, 48 L.Ed. 1067.'
The State's policy of quick resale of forfeited lands did not prove entirely successful; forfeiting purchasers who repurchased the lands again defaulted and other purchasers bought without any intention of complying with their contracts unless mineral wealth was discovered. The market for land contracted during the depression. 1938—1940 Rep. 12. These developments hardly to be expected or foreseen, operated to confer considerable advantages on the purchaser and his successors and a costly and difficult burden on the State. This Court's decisions have never given a law which imposes unforeseen advantages or burdens on a contracting party constitutional immunity against change. Honeyman v. Jacobs, 306 U.S. 539, 59 S.Ct. 702, 83 L.Ed. 972; Gelfert v. National City Bank, 313 U.S. 221, 61 S.Ct. 898, 85 L.Ed. 1299; East New York Savings Bank v. Hahn, 326 U.S. 230, 66 S.Ct. 69, 90 L.Ed. 34. Laws which restrict a party to those gains reasonably to be expected from the contract are not subject to attack under the Contract Clause, notwithstanding that they technically alter an obligation of a contract. The five-year limitation allows defaulting purchasers with a bona fide interest in their lands a reasonable time to reinstate. It does not and need not allow defaulting purchasers with a speculative interest in the discovery of minerals to remain in endless default while retaining a cloud on title.
The clouds on title arising from reinstatement rights were not without significance to the State's vital interest in administering its school lands to produce maximum revenue and in utilizing its properties in ways best suited to the needs of a growing population. The uncertainty of land titles, the massive litigation to which this gave rise, and the pattern of sale and forfeiture were quite costly to the school fund and to the development of land use. Timeless reinstatement rights prevented the State from maintaining an orderly system of land sales and the resultant confusion impeded the effective disposition of lands and utilization of mineral wealth within them. Where sales by the State were not feasible or desirable, the State was prevented from utilizing the lands or permitting its subdivisions to utilize them by the possibility that some one of several purchasers might at some unknowable future date assert the right to reinstatement. In this very case, the legislature authorized by special act the transfer of this land to the City of El Paso, reserving the minerals to the State, in recognition of '(t)he fact that the City of El Paso is in urgent need of expanding its sources of water and of protecting water wells previously drilled,' Tex.Gen. & Spec.Laws 1955, ch. 278. This transfer would have been invalid absent the 1941 Act.
The program adopted at the turn of the century for the sale, settlement, forfeiture, and reinstatement of land was not wholly effectual to serve the objectives of the State's land program many decades later. Settlement was no longer the objective, but revenues for the school fund, efficient utilization of public lands, and compliance with contracts of sale remained viable and important goals, as did the policy of relieving purchasers from the hardships of temporary adversity. Given these objectives and the impediments posed to their fulfillment by timeless reinstatement rights, a statute of repose was quite clearly necessary. The measure taken to induce defaulting purchasers to comply with their contracts, requiring payment of interest in arrears within five years, was a mild one indeed, hardly burdensome to the purchaser who wanted to adhere to his contract of purchase, but nonetheless an important one to the State's interest. The Contract Clause does not forbid such a measure.
The judgment is reversed.
Mr. Justice BLACK, dissenting.
I have previously had a number of occasions to dissent from judgments of this Court balancing away the First Amendment's unequivocally guaranteed rights of free speech, press, assembly and petition. In this case I am compelled to dissent from the Court's balancing away the plain guarantee of Art. 1, § 10, that
'No State shall * * * pass any * * * Law impairing the Obligation of Contracts * * *,'
a balancing which results in the State of Texas' taking a man's private property for public use without compensation in violation of the equally plain guarantee of the Fifth Amendment, made applicable to the States by the Fourteenth, that
'* * * private property (shall not) be taken for public use, without just compensation.'
The respondent, Simmons, is the loser and the treasury of the State of Texas the ultimate beneficiary of the Court's action.
In 1910 Texas obligated itself by contract to sell the land here involved, the purchasers to pay one-fortieth of the price in cash, the balance due at unnamed dates, with annual interest at 3% of the unpaid balance to be paid each succeeding year. The contracts of sale approved on behalf of the State by the Texas Land Commissioner provided that the land was sold 'in accordance with the provisions of' two Texas statutes. The provisions of these statutes relating to the sale were thus incorporated in and became a part of the obligation assumed by Texas and the purchasers, just as if they had been spelled out word for word in the contracts. One of these incorporated statutes provided that upon failure to pay any interest due, a purchaser's rights under his contract should be 'forfeited to the State,' but that even after such forfeiture the purchaser could have his claim under the original contract
're-instated on * * * written request by paying into the treasury the full amount of interest due on such claim up to the date of reinstatement; provided, that no rights of third persons may have intervened.'
Some 37 years after execution of the contracts involved in this case, interest payments fell into arrears and the State declared the contracts forfeited. Five years and two days later Simmons, having become the owner of the contracts by valid sale and assignment, tendered payment of all interest due and asked the State to carry out its contractual obligation to reinstate his claim to the land. Since the State still owned the land and admittedly no rights of third persons had intervened, Simmons was unquestionably entitled to reinstatement of his claim under the terms of the State's original obligation. The State nevertheless refused to honor its contracts providing for reinstatement on tender of interest, and several years later sold the land, less mineral rights, to the City of El Paso for a price much higher than it would have received by honoring the contract and selling to Simmons at the contract price. Simmons brought an action in federal court to establish his title. The Court of Appeals, reversing the District Court, held that the Contract Clause of the Constitution, Art. I, § 10, prevented Texas from thus repudiating the obligation it had assumed in its 1910 contracts.
This Court now reverses the Court of Appeals and holds that Texas was justified in dishonoring its contractual obligation because of a state law passed in 1941 which attempted to change the obligation of this contract and the many others like it from one unconditionally allowing reinstatement, provided no rights of third parties had intervened, to one which cast off that right unless 'exercised within five (5) years from the date of the forfeiture.' The Court says that the State, after making a contractual obligation voluntarily and eagerly when the property was a drug on the market, was nevertheless free to enact the 1941 statute which not only impaired but flatly repudiated its former obligation after the land had greatly increased in value. And strange as it sounds, one of the reasons the Court gives as justification for Texas' repudiation of its obligation to Simmons and many others is that these contracts had turned out to be a bad bargain and Texas had lost millions of dollars by honoring them in the past. If the hope and realization of profit to a contract breaker are hereafter to be given either partial or sufficient weight to cancel out the unequivocal constitutional command against impairing the obligations of contracts, that command will be nullified by what is the most common cause for breaking contracts. I cannot subscribe to such a devitalizing constitutional doctrine.
The Court does not deny that under Texas law the State's contractual promise to permit reinstatement gave the purchaser a right which the State under its law was bound by the contract to honor. The Court carefully does not deny that this promise by Texas is the kind of 'obligation' which the Contract Clause was written to protect. The Court does not, unless by a most oblique reference in its footnote 9, nor could it in my judgment, allow Texas to escape its obligation by treating this as a mere change in court remedies for enforcement. Instead of relying on such grounds, the Court says that since the State acts out of what this Court thinks are good motives, and has not repudiated its contract except in a way which this Court thinks is 'reasonable,' therefore the State will be allowed to ignore the Contract Clause of the Constitution. There follow citation of one or two dicta from past cases and a bit of skillful 'balancing,' and the Court arrives at its conclusion: although the obligation of the contract has been impaired here, this impairment does not seem to the Court to be very serious or evil, and so therefore 'The Contract Clause does not forbid such a measure.'
In its opinion the Court's discussion of the Contract Clause and this Court's past decisions applying it is brief. For the most part the Court instead discusses the difficulties and regret which the Government of Texas has experienced on account of the contracts it entered. I therefore think that the first thing it is important to point out is that there is no support whatever in history or in this Court's prior holdings for the decision reached in this case. Indeed, I believe that the relevant precedents all point the opposite way.
The Contract Clause was included in the same section of the Constitution which forbids States to pass bills of attainder or ex post facto laws. All three of these provisions reflect the strong belief of the Framers of the Constitution that men should not have to act at their peril, fearing always that the State might change its mind and alter the legal consequences of their past acts so as to take away their lives, their liberty or their property. James Madison explained that the people were 'weary of the fluctuating policy' of state legislatures and wanted it made clear that under the new Government men could safely rely on States to keep faith with those who justifiably relied on their promises. The Federalist, No. 44, at 301 (Cooke ed. 1961).
The first great case construing the Contract Clause involved, much like the present case, an attempt by a State to relieve itself of the duty of honoring land grants which it regretted having made. In Fletcher v. Peck, 6 Cranch 87, 3 L.Ed. 162, decided in 1810, this Court speaking through Chief Justice John Marshall held that a law of the State of Georgia which attempted to terminate grants of land made by the State under authority of a prior state law was invalid as a violation of the Contract Clause. Later in Sturges v. Crowninshield, 4 Wheat. 122, 4 L.Ed. 529, decided in 1819, Chief Justice Marshall again speaking for the Court went on to say that 'Without impairing the obligation of the contract, the remedy may certainly be modified as the wisdom of the nation shall direct,' thus drawing a distinction between state action deemed to be a mere change of remedy, that is, the method for enforcing the contract, and state impairment of a contractual obligation. As to the latter he emphasized that a thing promised to be done by a party to a contract is
'of course, the obligation of his contract. * * * Any law which releases a part of this obligation, must, in the literal sense of the word, impair it. * * *
'The words of the constitution, then, are express, and incapable of being misunderstood.'
On other occasions this Court held that the Contract Clause prohibits a State from repudiating a tax exemption included by the State in a grant of land. Gordon v. Appeal Tax Court, 3 How. 133, 11 L.Ed. 529; New Jersey v. Wilson, 7 Cranch 164, 3 L.Ed. 303.
The Court does not purport to overrule any of these past cases, but I think unless overruled they require a holding that the Texas statute violates the Contract Clause. It is therefore at least a little surprising that the Court does not find it necessary to discuss them. Instead the Court quotes a few abstract statements from some other cases, hardly a solid and persuasive basis for devitalizing one of the few provisions which the Framers deemed of sufficient importance to place in the original Constitution along with companion clauses forbidding States to pass bills of attainder and ex post facto laws.
The cases the Court mentions do not support its reasoning. Home Building & Loan Assn. v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413, which the Court seems to think practically read the Contract Clause out of the Constitution, actually did no such thing, as the Blaisdell opinion read in its entirety shows and as subsequent decisions of this Court were careful to point out. Blaisdell without resort to 'balancing' simply held that a State could constitutionally pass a law extending the period of redemption of a mortgage for two years where it provided for compensation to the mortgagee for the resulting delay in enforcement. In so holding the Blaisdell Court relied on and approved the established distinction between an invalid impairment of a contract's obligation and a valid change in the remedy to enforce it. Viewed this way the Court in Blaisdell found no contractual promise or 'obligation' by the State to keep the old law as to remedy static. It could and did treat the challenged state law as a general one which did no more than change the remedy to enforce contracts, a change which had carefully provided that parties entitled under the old law to foreclose mortgages should during those two years be paid the fair rental value of the property just as if the foreclosure had taken place. In so holding the Court recognized that contracts are subject to the right of partial or total eminent domain. West River Bridge Co. v. Dix, 6 How. 507, 12 L.Ed. 535, so long as compensation is paid, and it held that since there was provision that the mortgagees would be paid the Contract Clause would permit such 'limited and temporary interpositions' designed to give 'temporary relief' through a 'temporary and conditional restraint' on the remedy. The Court noted that the mortgage contract was one between private persons rather than one between a private person and the State itself, and relied on past decisions which had held that 'One whose rights, such as they are, are subject to state restriction, cannot remove them from the power of the state by making a contract about them.' Hudson County Water Co. v. McCarter, 209 U.S. 349, 357, 28 S.Ct. 529, 531, 52 L.Ed. 828. See also, e.g., Dillingham v. McLaughlin, 264 U.S. 370, 374, 44 S.Ct. 362, 364, 68 L.Ed. 742; Marcus Brown Holding Co. v. Feldman, 256 U.S. 170, 198, 41 S.Ct. 465, 466, 65 L.Ed. 877; Manigault v. Springs, 199 U.S. 473, 480, 26 S.Ct. 127, 130, 50 L.Ed. 274. The contract Clause, said the Court in Blaisdell, would not be construed to 'permit the state to adopt as its policy the repudiation of debts or the destruction of contracts or the denial of means to enforce them.' 290 U.S., at 439, 54 S.Ct. at 240. That, the Court held, would impair the contract instead of merely delaying enforcement while compensating the creditor for the delay. No such thing can be said about this Texas law, as the Court implicitly recognizes by placing no reliance upon the distinction between the obligation and the remedy, preferring instead its 'balancing' technique. Chief Justice Hughes, the author of Blaisdell, later reiterated and emphasized that that case had upheld only a temporary restraint which provided for compensation, when four months later he spoke for the Court in striking down a law which did not. W. B. Worthen Co. v. Thomas, 292 U.S. 426, 54 S.Ct. 816, 78 L.Ed. 1344. Other state laws which did not meet the constitutional standard applied in Blaisdell were subsequently struck down. See, e.g., W. B. Worthen Co. v. Kavanaugh, 295 U.S. 56, 55 S.Ct. 240, 79 L.Ed. 1298; Treigle v. Acme Homestead Assn., 297 U.S. 189, 56 S.Ct. 48, 80 L.Ed. 575; Wood v. Lovett, 313 U.S. 362, 61 S.Ct. 983, 85 L.Ed. 1404.
None of the other cases which the Court quotes or mentions in passing altered in any way the rule established in Fletcher v. Peck, supra, and adhered to in Blaisdell and thereafter, that a State may not pass a law repudiating contractual obligations without compensating the injured parties. Especially should this be true when, as in the case before us, the contractual obligation repudiated is the State's own. Compare Perry v. United States, 294 U.S. 330, 55 S.Ct. 432, 79 L.Ed. 912, with Norman v. Baltimore & O.R. Co., 294 U.S. 240, 55 S.Ct. 407, 79 L.Ed. 885.
To subvert the protection of the Contract Clause here, as well as the Fifth and Fourteenth Amendments' prohibition against taking private property for public use without just compensation, the Court has, as I said, imported into this constitutional field what I believe to be a constitutionally insupportable due process 'balancing' technique to which I have objected in cases arising under the Due Process Clauses of the Fifth and Fourteenth Amendments, and which has done so much to water down the safeguards of First Amendment freedoms. See note 1, supra. The Court says, 'Laws which restrict a party to those gains reasonably to be expected from the contract are not subject to attack under the Contract Clause, notwithstanding that they technically alter an obligation of a contract.' Otherwise stated, a person can make a good deal with a State but if it turns out to be a very good deal for him or a very bad deal for the State, the State is free to renege at any time. And whether gains can 'reasonably be expected from the contract' is of course, in the Court's view, for this Court to decide. Thus this Court's judgment as to 'reasonableness' of a law impairing or even repudiating a valid contract becomes the measure of the Contract Clause's protection.
The Court in its due process 'reasonableness' formula, true to the principle of that indefinable standard, weighs what it considers to be the advantages and disadvantages to Texas of enforcing the contract provision, against the advantages and disadvantages to the purchasers. The Court then concludes that in its judgment the scales tip on the side of Texas and therefore refuses to give full faith to the constitutional provision. On the side of the purchasers the Court finds nothing that weighs much: the promise to reinstate was not 'central' or 'primary'; the contracts as viewed today seem to have been very generous to the buyers; buyers were probably not substantially induced to enter into these contracts by the 'defeasible right to reinstatement.' The Court tries to downgrade the importance of the reinstatement obligation in the contract by volunteering the opinion that this obligation 'was not the central undertaking of the seller (Texas) nor the primary consideration for the buyer's undertaking.' Why the Court guesses this we are not told. My guess is different. This particular provision was bound, I think, to have been a great inducement to prospective purchasers of lots and blocks of land that the State of Texas was understandably eager to sell for many reasons. It took purchasers to build up the population of Texas and thereby improve its business and increase its land values. It is not surprising, therefore, that the State was willing to sell its oversupply of land on liberal terms, nor should it be surprising to suggest that Texas knew that its land could be sold for more, and more quickly, by promising purchasers that so long as Texas kept the property the right of these first purchasers and their assigns to buy at the original prices should never be forfeited. To my way of thinking it demonstrates a striking lack of knowledge of credit buying and selling even to imply that these express contractual provisions safeguarding credit purchasers against forfeitures were not one of the greatest, if not the greatest, selling arguments Texas had to promote purchase of its great surfeit of lands. The Court's factual inference is all the more puzzling since its opinion emphasizes that many people entered these contracts for speculative purposes which without the redemption provision would not have been nearly so attractive.
The Court observes that it believes '(t)he Constitution is 'intended to preserve practical and substantial rights, not to maintain theories." Of course I agree with that. But while deprivation of Simmons' right to have Texas carry out its obligation to permit him to reinstate his claim and purchase the land may seem no more than a 'theory' to the Court, it very likely seems more than that to Texas, which by repudiating its contract has undoubtedly gained millions of dollars, and to purchasers who have concededly, and I think unconstitutionally, lost those millions. It appears odd to me also to have the Court support its holding on what is nothing more than the Court's theory that all Texas has done is 'technically alter an obligation of a contract.' Much as has been said about the wealth of Texas, I was unaware until now that a multi-million dollar windfall for that State could be dismissed as a mere technicality; it sounds like more than a technicality to me, and perhaps to the purchasers whose rights Texas took away from them.
Let us now look at some of the weights the Court throws on the scales on the side of Texas: thousands of purchase contracts were forfeited from time to time by failure of purchasers to pay interest; forfeited claims under many of these contracts could be reinstated by purchasers 'if and when the land became potentially productive of gas and oil'; some of the purchases were made for speculative purposes; purchasers thwarted efforts of Texas to repurchase the lands in order to resell them at a higher value; the lands went up in value as the years rolled by, which caused Texas to 'lose' millions of dollars; much litigation arose between the State and contract purchasers; the State's policy of quick resale of forfeited lands, in order to cause rights of third parties to intervene, did not prove successful; the market for land contracted during the depression; clouds on titles arose because of reinstatement rights on land which Texas had resold; 'interest' and 'necessity' prompted Texas to pass the 1941 law repudiating its contractual reinstatement rights; carrying out the obligations would have been 'quite costly to the school fund and to the development of land use'; when the land here involved ws sold to El Paso in breach of the State's obligation to Simmons, El Paso was "in urgent need of expanding its sources of water"; the State needed more money for its school fund and for efficient utilization of its public lands, money which it could get painlessly if it was allowed to repudiate these obligations, which were 'impediments' to the State's desire to raise money by reselling these lands for a higher price.
I do not believe that any or all of the things set out above on which the Court relies are reasons for relieving Texas of the unconditional duty of keeping its contractual obligations as required by the Contract Clause. At most the Court's reasons boil down to the fact that Texas' contracts, perhaps very wisely made a long time ago, turned out when land soared in value, and particularly after oil was discovered, to be costly to the State. As the Court euphemistically puts it, the contracts were 'not wholly effectual to serve the objectives of the State's land program many decades later. Settlement was no longer the objective, but revenues * * *' among other things were. In plainer language, the State decided it had made a bad deal and wanted out. There is nothing unusual in this. It is a commonplace that land values steadily rise when population increases and rise sharply when valuable minerals are discovered, and that many sellers would be much richer and happier if when lands go up in value they were able to welch on their sales. No plethora of words about state school funds can conceal the fact that to get money easily without having to tax the whole public Texas took the easy way out and violated the Contract Clause of the Constitution as written and as applied up to now. If the values of these lands and of valid contracts to buy them have increased, that increase belongs in equity as well as in sound constitutional interpretation not to Texas, but to the many people who agreed to these contracts under what now turns out to have been a mistaken belief that Texas would keep the obligations it gave to those who dealt with it.
All this for me is just another example of the delusiveness of calling 'balancing' a 'test.' With its deprecatory view of the equities on the side of Simmons and other claimants and its remarkable sympathy for the State, the Court through its balancing process states the case in a way inevitably destined to bypass the Contract Clause and let Texas break its solemn obligation. As the Court's opinion demonstrates, constitutional adjudication under the balancing method becomes simply a matter of this Court's deciding for itself which result in a particular case seems in the circumstances the more acceptable governmental policy and then stating the facts in such a way that the considerations in the balance lead to the result. Even if I believed that we as Justices of this Court had the authority to rely on our judgment of what is best for the country instead of trying to interpret the language and purpose of our written Constitution, I would not agree that Texas should be permitted to do what it has done here. But more importantly, I most certainly cannot agree that constitutional law is simply a matter of what the Justices of this Court decide is not harmful for the country, and therefore is 'reasonable.' Cf. Ferguson v. Skrupa, 372 U.S. 726, 83 S.Ct. 1028, 10 L.Ed.2d 93; Federal Power Comm'n v. Natural Gas Pipeline Co., 315 U.S. 575, 599, 62 S.Ct. 736, 749, 86 L.Ed. 1037 (concurring opinion). James Madison said that the Contract Clause was intended to protect people from the 'fluctuating policy' of the legislature. The Federalist, No. 44, at 301 (Cooke ed. 1961). Today's majority holds that people are not protected from the fluctuating policy of the legislature, so long as the legislature acts in accordance with the fluctuating policy of this Court.
In spite of all the Court's discussion of clouds on land titles and need for 'efficient utilization' of land, the real issue in this case is not whether Texas has constitutional power to pass legislation to correct these problems, by limiting reinstatements to five years following forfeiture. I think that there was and is a constitutional way for Texas to do this. But I think the Fifth Amendment forbids Texas to do so without compensating the holders of contractual rights for the interests it wants to destory. Contractual rights, this Court has held, are property, and the Fifth Amendment requires that property shall not be taken for public use without just compensation. Lynch v. United States, 292 U.S. 571, 54 S.Ct. 840, 78 L.Ed. 1434; see also Perry v. United States, 294 U.S. 330, 55 S.Ct. 432, 79 L.Ed. 912; cf. United States v. General Motors Corp., 323 U.S. 373, 65 S.Ct. 357, 89 L.Ed. 311. This constitutional requirement is made applicable to the States by the Fourteenth Amendment. See Griggs v. Allegheny County, 369 U.S. 84, 85, 82 S.Ct. 531, 7 L.Ed.2d 585; Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415, 43 S.Ct. 158, 160, 67 L.Ed. 322; Chicago, B. & Q.R. Co. v. Chicago, 166 U.S. 226, 241, 17 S.Ct. 581, 586, 41 L.Ed. 979. The need to clear titles and stabilize the market in land would certainly be a valid public purpose to sustain exercise of the State's power of eminent domain, and while the Contract Clause protects the value of the property right in contracts, it does not stand in the way of a State's taking those property rights as it would any other property, provided it is willing to pay for what it has taken. Contributors to the Pennsylvania Hospital v. City of Philadelphia, 245 U.S. 20, 38 ,S.Ct. 35, 62 L.Ed. 124; City of Cincinnati v. Louisville & N.R. Co., 223 U.S. 390, 32 S.Ct. 267, 56 L.Ed. 481; Long Island Water Supply Co. v. Brooklyn, 166 U.S. 685, 17 S.Ct. 718, 41 L.Ed. 1165; West River Bridge Co. v. Dix, 6 How. 507, 12 L.Ed. 535. The Texas statute which the Court upholds, however, took away Simmons' contract rights without any compensation.
The Court seems to say that because it was 'necessary' to raise money and clear titles, Texas was not obligated to pay for rights which it took. I suppose that if Texas were building a highway and a man's house stood in the way, it would be 'necessary' to tear it down. Until today I had thought there could be no doubt that he would be entitled to just compensation. Yet the Fifth and Fourteenth Amendments protect his rights no more nor less than they do those of people to whom Texas was contractually obligated. Texas' 'necessity' as seen by this Court is the mother of a regrettable judicial invention which I think has no place in our constitutional law. Our Constitution provides that property needed for public use, whether for schools or highways or any other public purpose, shall be paid for out of tax-raised funds fairly contributed by all the taxpayers, not just by a few purchasers of land who trusted the State not wisely but too well. It is not the happiest of days for me when one of our wealthiest States is permitted to enforce a law that breaks faith with those who contracted with it. Cf. Federal Power Comm'n v. Tuscarora Indian Nation, 362 U.S. 99, 124, 80 S.Ct. 543, 557, 4 L.Ed.2d 584 (dissenting opinion).
I would affirm the judgment of the Court of Appeals.