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

"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 case1 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. Wilson" 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State might contract away its right of taxation as to certain specified persons and things, which contract could not be rescinded by a subsequent legislative act, and in Terrett v. Taylor22 that the constitutional prohibition was applicable to contracts entered into by the States.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 "no longer open to question."

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.

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 Park 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.

granted to that corporation have been revoked by the Legislatare; and its right to take the tolls granted by the charter remains un altered. In short, all the franchises and rights of property enumerated in the charter, and there mentioned to have been granted to it, remain unimpaired. But its income is destroyed by the Warren Bridge; which, being free, draws off the passengers and property which would have gone over it, and renders their franchise of no value. This is the gist of the complaint. For it is not pretended that the erection of the Warren Bridge would have done them any injury, or in any degree affected their right of property, if it had not diminished the amount of their tolls. In order, then, to entitle themselves to relief, it is necessary to show that the legislature contracted not to do the act of which they complain; and that they impaired, or in other words, violated, that contract, by the erection of the Warren Bridge. The inquiry then is, does the charter contain such a contract on the part of the State? Is there any such stipulation to be found in that instrument? It must be admitted on all hands, that there is none,— no words that even relate to another bridge, or to the diminution of their tolls, or to the line of travel. If a contract on that subject can be gathered from the charter, it must be by implication, and cannot be found in the words used. Can such an agreement be implied? The rule of construction before stated is an answer to the question."

§ 500. Other Cases.

In Wheeling & Belmont Bridge Co. v. Wheeling Bridge Co. it was held that the existence of a state law prohibiting the courts of the counties from licensing a ferry within a mile from an established ferry, did not constitute a contract with such an established ferry which might not constitutionally be impaired. This law, the court declared, "was a gratuitous proceeding on the part of the legislature by which a certain benefit was conferred upon existing ferries, but not accompanied by any conditions that made the act take the character of a contract It was a matter of

29 138 U. S. 287; 11 Sup. Ct. Rep. 301; 34 L. ed. 967.

ordinary legislation, subject to be repealed at any time when, in the judgment of the legislature, the public interest should require the repeal."

In C., M. & St. P. Railway Co. v. Minn.30 it was held that a charter to a railway company, empowering it to make needful rules and regulations touching the rates of toll and the manner of collecting the same, did not deprive the State of its general authority to regulate the charges that might be collected by the

company.

§ 501. Regulation of Charges of Public Service Corporations. In the Railway Commission Cases was involved the question as to the power of the States to bind themselves by charter contracts with reference to the control of the rates legally chargeable by public service corporations, and the circumstances under which they might be held so to have bound themselves. In these cases it was held that the grant of power by the State to directors of a railroad company to make by-laws, rules, and regulations for the management of its affairs did not exempt the company from subsequent statutory regulation of its business, and that the grant to the company of power "from time to time to fix, regulate, and receive the toll and charges" to be received by it for transportation, conferred only the power to fix reasonable charges, leaving the State free to declare what rates should be deemed reasonable. After stating that it was well settled that a State had the general power to limit the charges that might be exacted by railroad companies for the transportation of persons and property within its jurisdiction, the court say: "This power of regulation is a power of government, continuing in its nature, and if it can be bargained away at all, it can only be by words of positive grant or something which is in law equivalent. If there is any reasonable doubt it must be resolved in favor of the existence of the power."

With reference to the power granted to the company in its charter, "from time to time to fix, regulate and receive the toll

30 134 U. S. 418; 10 Sup. Ct. Rep. 462; 33 L. ed. 970. 31 116 U. S. 307; 6 Sup. Ct. Rep. 334; 29 L. ed. 636.