In interpreting the Constitution’s Contract Clause, Charles River Bridge v. Warren Bridge stands for a narrow and literal interpretation of contracts between private entities and the state legislature. Any contractual rights must be explicitly granted by the legislature, and any ambiguities favor the legislature, with the body acting in the public interest.
The Proprietors of the Charles River Bridge Company were granted a charter by the colonial Massachusetts state legislature to build and operate a toll bridge across the Charles River. According to the charter, the bridge would operate and collect tolls for 70 years, after which the bridge would become Massachusetts state property.
During the effective period of the Charles River Bridge Company’s charter, the Massachusetts state legislature granted a charter to the Warren Bridge Company to build a bridge within hundreds of feet of the first bridge. Within the lifetime of the Proprietors’ charter, the Warren bridge would become toll-free, thus making the crossing more accessible to the public.
The Charles River Bridge Proprietors argued that their charter included an implied promise not to build a bridge that would directly compete with theirs. The Warren Bridge Company argued that Massachusetts had the right to promote public welfare and economic development by providing what would eventually become free access to this crossing. The Supreme Court agreed with the Warren Bridge Company.
The Court posited that the state power to promote the public good is not relinquished for the benefit of corporations, thus any ambiguities should be in favor of the public as represented by the state legislature.
The dissent disagreed with interpreting the contract in favor of the legislature. The legislature promised a profit in consideration for the construction of the bridge. Thus, the agreement should be interpreted against the grantor, the Massachusetts state legislature, in line with traditional contract interpretation principles.
Authorities Cited:
United States v. Arredondo (1832)
Citation(s): 31 U.S. 691 (6 Peters 691)
The River Bridge Court cited Arredondo to reiterate that when it comes to grants by the public, nothing passes by implication. [1]
During Florida’s Spanish colonial era, Fernando and Joseph de La Maza Arredondo, favorites of King Fernando of Spain, were granted 289,640 acres in the area that now includes Gainesville, Florida. In 1819, the United States acquired Florida under the Onís-Adams Treaty, which resulted from the rebellion of white American settlers against Spanish rule and General Andrew Jackson’s raids and fort seizures in Spanish West Florida. [2] Even though the treaty generally upheld the validity of land grants made by the Spanish, the United States brought suit to invalidate Arredondo’s land grant, arguing that the land grant did not furnish good title, since the Arredondos did not meet the conditions imposed by the Spanish grant. [3] Ultimately, the Arredondo court upheld the validity of the land grant on equitable principles, Indian law principles, and careful examination of the treaty. [4]
Interestingly, the Jackson administration claimed the translated copies of this and other charters procured by the Spanish were forged and soon sent diplomats to collect the original contracts and records from Havana. [5] Delays in obtaining the papers and the ensuing land surveys set back the final resolution of the Spanish land grants and their subdivisions until 1900, almost 70 years after this case started. [6] Even the Arredondo court acknowledged that it was possible to read the English and Spanish versions differently; however, the court stuck to ordinary principles of construction and construed the provisions in light of the treaty’s intent.
Proprietors of the Stourbridge Canal v. Wheely (1831)
Citation(s): 109 English Reports 1336; 2 Barnewall & Adolphus' King's Bench Reports 793
An Act of the English Parliament authorized the construction and upkeep of the Stourbridge Canal. The upper level of the canal had no locks, while the lower level required boats to pass through a system of locks. Wheeley and his associates, carriers of coal and other goods, had been paying the proprietors of the canal without passing through a lock, until just before the suit when Wheely began to refuse to pay, at which time the proprietors brought suit for compensation regarding the unpaid tolls.
The court ultimately held that unless the boats passed through the locks, the proprietors of the Stourbridge Canal were not entitled to the passage tolls. Examining different sections of the Act, they reasoned that there were two possible interpretations: (1) those who pay the toll are free to navigate throughout any part of the canal, or (2) everyone is entitled to navigate through any part of the canal and must pay the toll when they “become due” at the lock. The first interpretation would favor the proprietors, while the second would favor the passengers. Construing the relevant provision narrowly, without inferences, the Stourbridge Court opted for the second interpretation, favoring public accessibility to the canal.
The Charles River Bridge Court imported the principles of contract construction from the English case of Stourbridge into their analysis. When one party to the contract is the legislature, any ambiguities should be construed in favor of the legislature – the representative of the public. The outcome: private companies are strictly confined to the explicitly and unambiguously stated terms of their contracts with public entities.
Providence Bank v. Billings & Pittmann (1830)
Citation(s): 29 U.S. 514 (4 Peters 514)
In 1791, the Rhode Island legislature granted a charter of incorporation for what would become the privately-owned Providence Bank. About thirty years later, Rhode Island imposed a tax on all the banks within the state. Providence Bank refused to pay. Eventually, a warrant to collect was issued, compelling County Sheriff Billings and State Treasurer Pittman to collect the tax. The Providence Court affirmed their right to collect the tax because it did not impair Rhode Island’s contractual obligations as stated in the charter.
Similar to the conclusion in Charles River Bridge, the Providence Court ruled that only the explicit terms and provisions could create the legislature’s obligations. There were not any terms in the contract that said Providence Bank was exempt from taxes, and the Providence Court went a step further to state that none of the provisions even implied this exception. The charter could not impose obligations that would indirectly destroy the profits of the bank, which would effectively destroy the charter itself. Further justifying their reasoning, the Providence Court explained that neither the Court nor the Constitution was capable of “furnish[ing] the corrective for every abuse of power which may be committed by the state governments.” Without an express agreement saying otherwise, the Rhode Island representatives only needed to protect their constituents against “unjust and excessive” taxation. Ultimately, the Providence Court found that the Rhode Island tax did not burden Providence Bank to such an extreme extent; the legislature did not enact a law that was inconsistent with their contractual obligations to Providence Bank.
The Charles River Bridge dissent argued that Providence Bank and the proprietors of the Charles River Bridge were presenting the same argument, but the Charles River Bridge majority was giving an inconsistent response.
Fletcher v. Peck (1810)
Citation(s): 10 U.S. 87 (6 Cranch 87)
Land speculation in the late eighteenth and early nineteenth century was a financially risky business venture. Some land speculators alleviated their risk by engaging in bribery. In 1795, knowing that the Spanish would soon relinquish their title to the land, [7] the Yazoo Land Company bribed Georgia state legislators to grant them 35 million acres at the remarkably low price of two cents an acre, in exchange for an interest in the land. [8]
Outrage ensued when the allegations of bribery and corruption were brought to public attention, ultimately resulting in the corrupt incumbents being voted out of office. [9] The new Georgia state legislature swiftly repealed the law and rescinded the grants in 1796.
In 1800, Peck sold Fletcher 15,000 acres of the initial tract, after a few links in the chain of title were established. Fletcher brought suit against Peck, claiming that Peck did not have title to the land because the initial conveyance was voided. [10] In reality, Peck and Fletcher colluded together to ensure Peck’s victory: if the original conveyance was upheld, their monetary interests in the land would be upheld as well.
The Fletcher court held that the initial land grant was a valid contract, and the attempt to void the land grants through legislation was unconstitutional under the Constitution’s Contract Clause. The state of Georgia was left to reckon with its obligations – even if they were tainted by corruption. For the first time in America’s short history, a state statute was invalidated.
The Charles River Bridge Court cited Fletcher to support their holding that the state legislature could not back out of their contractual obligations as explicitly written, regardless of any subsequent contracts or statutes. Although the dissent in Charles River Bridge agreed that Massachusetts could not revoke its contract, it is implicit, just as it is in private contracts, that they could not take actions that would actively harm the value of the contract.