The same doctrine is repeated in Central Land Co. v. Laidley," Hanford v. Davies, and Weber v. Rogan.

66

67

It would appear, however, that the Supreme Court has shown strong disposition to find, when possible, an impairing statute, and thus to justify its appellate jurisdiction for the protection of contracts in cases originating in the state courts. The cases of McCullough v. Virginia and Muhlker v. New York and Harlem Railroad Co. sufficiently illustrate this.

§ 513. McCullough v. Virginia.

McCullough v. Virginia was one of a number of cases coming before the Supreme Court of the United States growing out of the attempt of the State of Virginia to avoid the acceptance, in payment of certain dues to the State, of interest coupons to certain of its bonds, which coupons by the law providing for the issuance and sale of the bonds, it had agreed so to receive. After various devices, extending through a considerable period of years, had one after another been frustrated by the decisions of the Supreme Court of the United States declaring their unconstitutionality, during all of which time there had never been any question as to the constitutionality of the original law providing for the bonds and the acceptance by the State of the coupons in payment of public dues, and though the act had been repeatedly before the highest court of the State, that tribunal at last in McCullough v. Virginia declared that the coupon provision of the original act was in itself unconstitutional.

Inasmuch as the Virginia court in its decision did not consider the subsequent legislation of the State, but confined itself wholly to declaring the original act void, it was urged before the federal Supreme Court to which the case was brought on writ of error, that, by the decision of the state court, no subsequent legislative act had been applied, and, therefore, that the case was

65 159 U. S. 103; 16 Sup. Ct. Rep. 80; 40 L. ed. 91.

66 163 U. S. 273; 16 Sup. Ct. Rep. 1051; 41 L. ed. 157. 67 188 U. S. 10; 23 Sup. Ct. Rep. 263; 47 L. ed. 363. 68 172 U. S. 102; 19 Sup. Ct. Rep. 134; 43 L. ed. 382. 69 197 U. S. 544; 25 Sup. Ct. Rep. 522; 49 L. ed. 872.

not brought within the rule stated in New Orleans Waterworks Co. v. Louisiana Sugar Co. and Bacon v. Texas.

That court, however, upheld its jurisdiction, saying: "It is true that the [Virginia] court of appeals in its opinion only incidentally refers to statutes passed subsequent to the act of 1871, and places its decision distinctly on the ground that the act was void in so far as it related to the coupon contract, but at the same time it is equally clear that the judgment did give effect to the subsequent statutes, and it has been repeatedly held by this court that in reversing the judgment of the courts of a State we are not limited to a mere consideration of the language used in the opinion, but may examine and determine what is the real substance and effect of the decision."

Whatever may have been the equities of the case, and regarding this there can be little doubt, the above reasoning seems scarcely satisfactory. Had there never been any subsequent legislation on, the part of Virginia with reference to these coupons, the effect of the decision of the court of appeals of Virginia would have been exactly the same as that which in fact it did have, or rather would have had, had its judgment been affirmed. It is, therefore, difficult to see how its execution would have put subsequent legislation into force. To be sure, the same result was reached as that which would have been obtained had the later laws been enforced, but, certainly the result was not reached through their enforcement.70

S514. Muhlker v. N. Y. & H. Ry. Co.

In the Muhlker case, coming to the Supreme Court by writ of error from the supreme court of the State of New York, it was held that the owner of a piece of real property abutting on a street in New York who had acquired his title at a time when the state court had held that the owners of such abutting property had a right to easements of light, air and access, which could not be taken from them without compensation by an elevated railroad, was protected by the obligation clause from impairment of this right. An elevated railway, to be constructed, 70 See the dissenting opinion of Justice Peckham.

owned, and operated by a private company, had been authorized by a state law of 1892, but the denial in the state court that this contract right had been thereby impaired was based not upon the assertion that the construction of the railway did not impair the plaintiff's contract right, but upon the ground that the carlier doctrine that he had a contract right at all was incorrect. It is thus apparent that, speaking at all strictly, the validity of the act of 1892 was not in question, that act merely providing for the erection of the railroad, and containing no provision one way or the other regarding compensation to abutting propertyowners. The federal court, however, assumed jurisdiction on writ of error. After referring to the earlier state doctrine that there was a right to compensation, the court say: "When the plaintiff acquired his title those cases were the law of New York, and assured to him that his easements of light and air were secured by contract as expressed in those cases, and could not be taken from him without payment of compensation. And this is the ground of our decision. We are not called upon to discuss the power, or the limitations upon the power, of the courts of New York to declare rules of property or change or modify their decisions, but only to decide that such power cannot be exercised to take away rights which have been acquired by contract and have come under the protection of the Constitution of the United States. And we determine for ourselves the existence and extent of such contract. This is a truism; and when there is a diversity of state decisions the first in time may constitute the obligation of the contract and the measure of rights under it."

971

71 In Sauer v. City of New York (206 U. S. 536; 27 Sup. Ct. Rep. 686; 51 L. ed. 1176) the facts were similar to those in the Muhlker case, except that the elevated structure was a viaduct for a purely public use, and the federal court held that the abutting property-owners had no contract right to compensation as against such a purely public use of the street, inasmuch as the earlier doctrine of the state courts had not been to that effect.

Commenting upon the McCullough and Muhlker cases, Professor W. F. Dodd in the Illinois Law Review (December, 1909) says: "They seem to warrant the statement that the federal Supreme Court will, in practically any case, be able to find a state statute to serve as a 'lay figure' in order to jus

§ 515. Refusal of Federal Courts to Follow State Decisions Holding State Laws Void.

The cases which have been considered in the paragraphs which have gone immediately before have been ones in which there has been state legislation impairing contracts created by or resting upon prior statutes. In these cases the federal court has sought to determine for itself whether these earlier laws were constitutional as tested by the state constitutions of the States whose legislatures enacted them. We have now to turn to a class of cases in which the federal Supreme Court, without considering as an independent proposition the constitutionality of state laws, has refused to follow the decisions of the highest state courts holding them to be void, when to do so would be to render null contracts which have been entered into, the parties thereto relying in good faith upon the validity of such laws. Here, it is to be observed, the federal tribunal has not said that the state laws in question are to be treated as continuously constitutional and valid, that is, valid in futuro, the decisions of the state courts to the contrary notwithstanding, but only that, contracts which have been entered into in reliance upon them are not to be affected by their unconstitutionality. Thus, in effect, the position is taken that laws which are unconstitutional as judged by the state constitutions, and, therefore, void, may have a de facto character that will furnish a legal basis for contracts founded upon them.

tify its taking jurisdiction over cases from state courts where contract rights are impaired by the reversal or modification of rules of law previously established by such courts. This practice may easily be extended to state cases passing upon for the first time and holding unconstitutional laws acted upon as valid, and under which contract rights had arisen before they were declared invalid; in just this manner was the rule of Gelpeke v. Dubuque extended so as to cover such cases as Hotel Co. v. Jones [see infra, Section 520] A more logical view would be for the court to hold a judicial decision to be a law' in the technical sense, but the present attitude is better for the court, because it permits the Supreme Court to take or refuse jurisdiction as it pleases, while the holding of a decision to be a 'law' would operate to give an appeal to the Supreme Court as a matter of right from state decisions impairing the obligation of contracts."

§ 516. Distinction Between Cases Coming to the Supreme Court by Writs of Error to State Courts and Those

Originating in Lower Federal Courts.

In passing upon decisions of state courts overruling their prior decisions and thereby invalidating contracts entered into in reliance upon such prior decisions, there is a sharp distinction. drawn between those cases in which the cause comes before the federal courts because of the citizenship of the parties thereto, and thence by appeal to the Supreme Court and those coming to the Supreme Court by writs of error to the highest state courts.

In the latter class of cases the only ground of federal jurisdiction is that the obligation of a contract has been impaired; that, in other words, a right guaranteed by the federal Constitution has been violated. In McCullough v. Virginia, as in an unbroken line of previous cases, the members of the Supreme Court all agreed that federal jurisdiction exists only in case the decision of the state court appealed from has given effect to a state legislative act impairing a contract previously entered into. Their only disagreement in that case was as to whether, in fact, the decision of the Virginia court had given effect to legislation. of this character.

§ 517. Cases Based on Diversity of Citizenship.

In those cases coming to the federal Supreme Court by way of appeal from a lower federal court there is no question of federal jurisdiction, and in them, the federal courts determine for themselves which, if any, of the decisions of the state courts dealing with the state laws or with principles involved they will follow.

In this class of cases, the federal jurisdiction over which is based upon the diversity of citizenship of the parties thereto, the doctrine is well established that where a state court has reversed its ruling as to the state law governing a case, the federal courts will not follow the later decision, when to do so will make it necessary to hold void or to impair the obligation of contracts previously entered into. In other words the first construction is treated as though it becomes a part of the law or constitutional