Fletcher v. Peck 6 Cranch 87 (1810)

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FLETCHER v. PECK 6 Cranch 87 (1810)

Fletcher was the Court's point of departure for converting the contract clause into the chief link between the Constitution and capitalism. The case arose from the Yazoo land scandal, the greatest corrupt real estate deal in American history. Georgia claimed the territory within her latitude lines westward to the Mississippi, and in 1795 the state legislature passed a bill selling about two-thirds of that so-called Yazoo territory, some 35,000,000 acres of remote wilderness comprising a good part of the present states of Alabama and Mississippi. Four land companies, having bribed every voting member of the state legislature but one, bought the Yazoo territory at a penny and a half an acre. Speculation in land values was a leading form of capitalist enterprise at that time, provoking an English visitor to characterize the United States as "the land of speculation." Respectable citizens engaged in the practice; the piratical companies that bought the Yazoo included two United States senators, some governors and congressmen, and Justice james wilson. In a year, one of the four companies sold its Yazoo holdings at a 650 percent profit, and the buyers, in the frenzy of speculation that followed, resold at a profit. But in 1796 the voters of Georgia elected a "clean" legislature which voided the bill of sale and publicly burned all records of it but did not return the $500,000 purchase price. In 1802 Georgia sold its western territories to the United States for $1,250,000. In 1814 a Yazooist lobby finally succeeded in persuading Congress to pass a $5,000,000 compensation bill, indemnifying holders of Yazoo land titles.

Fletcher v. Peck was part of a twenty-year process of legal and political shenanigans related to the Yazoo land scandal. Georgia's nullification of the original sale imperiled the entire chain of Yazoo land speculations, but the eleventh amendment made Georgia immune to a suit. A feigned case was arranged. Peck of Massachusetts sold 15,000 acres of Yazoo land to Fletcher of New Hampshire. Fletcher promptly sued Peck for recovery of his $3,000, claiming that Georgia's nullification of the sale had destroyed Peck's title: the acreage was not his to sell. Actually, both parties shared the same interest in seeking a judicial decision against Georgia's nullification of the land titles—the repeal act of 1796. Thus, by a collusive suit based on diversity of citizenship, a case involving the repeal act got into the federal courts and ultimately reached the Supreme Court. The Court's opinion, by Chief Justice john marshall, followed the contours of Justice william paterson's charge in van horne ' slesseev. dorrance (1795). Although the fraud that infected the original land grants was the greatest scandal of the time, the Court refused to make an exception to the principle that the judiciary could not properly investigate the motives of a legislative body. (See legislation.) The Court also justifiably held that "innocent" third parties should not suffer an annihilation of their property rights as a result of the original fraud. The importance of the case derives from the Court's resolution of the constitutionality of the repeal act.

Alternating in his reasoning between extraconstitutional or higher law principles and constitutional or textual ones, Marshall said that the repealer was invalid. Before reaching the question whether a contract existed that the Constitution protected, he announced this doctrine: "When, then, a law is in its nature a contract, when absolute rights have been vested under that contract, a repeal of the law cannot devest those rights.…" In the next sentence he asserted that "the nature of society and of government" limits legislative power. This higher law doctrine of judicially inferred limitations protecting vested rights was the sole basis of Justice william johnson's concurring opinion. A state has no power to revoke its grants, he declared, resting his case "on a general principle, on the reason and nature of things: a principle which will impose laws even on the Deity." Explicitly Johnson stated that his opinion was not founded on the Constitution's provision against state impairment of the obligation of contracts. The difficulty, he thought, arose from the word "obligation," which ceased once a grant of lands had been executed.

The difficulty with Marshall's contract clause theory was greater than even Johnson made out. The clause was intended to prevent state impairment of executory contracts between private individuals; it had been modeled on the provision of the northwest ordinance, which had referred to "private contracts, or engagements bona fide, and without fraud previously formed." What was the contract in this case? If there was one, did its obligation still exist at the time of the repeal bill? Was it a contract protected by the contract clause, given that it was a land grant to which the state was a party? If the land grant was a contract, it was a public executed one, not a private executory one. The duties that the parties had assumed toward each other had been fulfilled, the deal consummated. That is why Johnson could find no continuing obligation. Moreover, the obligation of a contract is a creature of state law, and the state in this instance, sustained by its courts, had recognized no obligation.

Marshall overcame all difficulties by employing slippery reasoning. A contract, he observed, is either executory or executed; if executed, its object has been performed. The contract between the state and the Yazoo land buyers had been executed by the grant. But, he added, an executed contract, as well as an executory one, "contains obligations binding on the parties." The grant had extinguished the right of the grantor in the title to the lands and "implies a contract not to reassert that right." Moreover, the Constitution uses only the term "contract, without distinguishing between those which are executory and those which are executed." Having inferred from the higher law that a grant carried a continuing obligation not to repossess, he declined to make a distinction that, he said, the Constitution had not made. Similarly he concluded that the language of the contract clause, referring generally to "contracts," protected public as well as private contracts. Marshall apparently realized that the disembodied or abstract higher law doctrine on which Johnson relied would provide an insecure bastion for property holders and a nebulous precedent for courts to follow. So he found a home for the vested rights doctrine in the text of the Constitution.

Marshall seemed, however, to be unsure of the text, because he flirted with the bans on bills of attainder and ex post facto laws, giving the impression that Georgia's repeal act somehow ran afoul of those bans, too, although the suit was a civil one. Marshall's uncertainty emerged in his conclusion. He had no doubt that the repeal act was invalid, but his ambiguous summation referred to both extraconstitutional principles and the text: Georgia "was restrained, either by general principles which are common to our free institutions, or by the particular provisions of the Constitution.…" He did not, in the end, specify the particular provisions.

In the first contract clause decision by the Court, that clause became a repository of the higher law doctrine of vested rights and operated to cover even public, executed contracts. The Court had found a constitutional shield for vested rights. And, by expanding the protection offered by the contract clause, the Court invited more cases to be brought before the judiciary, expanding opportunities for judicial review against state legislation.

Leonard W. Levy
(1986)