SINKING FUND CASES Union Pacific Railroad Co. v. United States 99 U.S. 700 (1879) Central Pacific Railroad Co. v. Gallatin 99 U.S. 727 (1879)

Congress authorized the construction of transcontinental railroads and made massive grants and loans to them. Following the exposure of enormous corruption in the management of the roads, Congress enacted a statute requiring that twenty-five percent of the annual net earnings of the corporations be paid into a sinking fund to guarantee payment of the debts owed to the federal treasury. The Supreme Court sustained the second statute on ground that Congress had reserved the power to alter or amend its original grant. However, Chief Justice morrison r. waite, for a 6–3 Court, said in an obiter dictum that the United States binds itself by its contracts and that, although the contract clause applied only to the states, the Fifth Amendment's due process clause effectuated the binding by preventing the deprivation of property. Three Justices, william strong, joseph p. bradley, and stephen j. field, wrote dissenting opinions based on Waite's dictum; they believed that the sinking-fund statute violated the Fifth Amendment. The decision is significant, therefore, because of the strong boost it gave to the emerging concept of substantive due process. In effect, too, the Court incorporated contract clause reasoning into the due process clause as a means of protecting property when Congress "improperly interferes with vested rights." This strange doctrine operated, though infrequently, as late as 1936.

(See louisville joint stock land bank v. radford.)

Leonard W. Levy
(1986)