This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
5 Palmer v. Tingle, 55 O. S. 423; 45 N. E. 313. See Sec. 1782.
6 Great Southern, etc., Co. v. Jones. 193 U. S. 532; affirming 116 Fed. 793; 54 C. C. A. 165.
7 National, etc., Association v. Brahan. 193 U. S. 635; affirming 80 Miss. 407; 57 L. R. A. 793; 31 So. 840; Bacon v. Texas, 163 U. S. 207; Central Land Co. v. Laidley, 159 TJ. S. 103; New Orleans, etc., Co. v. Refining Co., 125 U. S. 18; Lehigh Water Co. v. Easton. 121 U. S. 388; Brown v. Smart, 145 U. S. 454; R. R. v. McClure, 10 Wall. (U. S.)
511. This rule applies to error to the Supreme Court of a territory. Hanford v. Davies, 163 U. S. 273. "Where the Federal question upon which the jurisdiction of this court is based grows out of an alleged impairment of the obligation of a contract, it is now definitely settled that the contract can only be impaired within the meaning of this clause in the constitution, so as to give this court jurisdiction on a writ of error to a state court by some subsequent statute of the state which has been upheld or effect given to it by the state court." Bacon v. Texas, 163 U. S. 207, 216; quoted in National, etc., Association v. Brahan, 193 U. S. 635, 647.
8 Central Land Co. v. Laidley, 159 U. S. 103.
9 159 U. S. 103.
10 Gelpcke v. Dubuque, 1 Wall. (U. S.) 175.
11 R. .R. v. McClure, 10 Wall. (U. S.) 511.
12 Storrie v. Cortes, 90 Tex. 283; 35 L. R. A. 666; 38 S. W. 154.
13 I. Error to a court of the United States. (1) Where the validity of the statute on which the contract depends was recognized by the State Supreme Court when the contract was made. Pine Grove Township v. Talcott, 19 Wall. (U. S.) 666; Ohio Life Ins. Co. v. De-bolt. 16 Wall. (U. S.) 432; Olcott v. Supervisors, 16 Wall. (U. S.) 678. (2) Where prior decisions of a state court have been relied on in making a contract, and subsequently a statute impairs the obligation of such contract. Ralls County v. Douglass, 105 U. S. 720; The City (of Kenosha) v. Lamson, 9 Wall. (U. S.) 477; Gelpcke v. Dubuque, 1 Wall. (U. S.) 175. (3) Where there has been a conflict in State decisions and the United States Supreme Court is free to follow which it pleases.
II. Error to a state court, when a change in judicial decision is not a law impairing the obligation of contracts. Central Land Co. v. Laidley, 159 U. S. 103; Lehigh Water Co. v. Easton, 121 U. S. 388; Knox v. Exchange Bank, 12 Wall. (U. S.) 379; R. R. v. McClure, 10 Wall. (U. S.) 511.
They are merely the evidence of what the law is.14 A change in judicial decision is not in theory the promulgation of a new rule, but is the abandonment of a rule erroneously thought to be law in favor of a rule which is law. Accordingly this clause of the constitution ip held not to apply to decisions of the courts nor to the acts of boards or officers construing the law.15 Thus an adjudication of insolvency16 or a decree ordering an executor to sell realty to pay taxes17 does not impair the obligation of contracts if decided under statutes in force when the contractual right arose, even if the Supreme Court of the United States may think such decree erroneous.
If any other theory were adopted the Supreme Court of the United States could review every judgment of a state court holding a contract invalid; and if the state court had reached its conclusion from principles of Common Law which had not been recognized before in that state by judicial decision, could reverse the judgment of the state court. This, of course, is not the law. The Supreme Court of the United States has no power to reverse the judgment of a state court merely because such judgment holds a contract to be invalid and the Supreme Court of the United States thinks that such judgment is erroneous and inconsistent with the pre-existing law of such state.18 The result of the doctrine last enunciated is that if state courts change their minds on questions either of constitutional construction,19 as of the conclusive effect of the signature of a bill by the presiding officers of the legislature20 or of the constitutionality of statutes,21 or of statutory construction,22 or of Common Law,23 they may apply the new rule to contracts made in reliance upon earlier decisions, before the new rule was enunciated24 without danger of reversal by the Supreme Court of the United States.25
14"A decision of a court is not in fact a law and if erroneously made cannot make a law; it is sim-ply the declaration of a court as to what the law is in the opinion of the judges." Storrie v. Cortes, 90 Tex. 283, 291; 35 L. R. A. 666; 38 S. W. 154. "Laws are not made by judicial decisions. The court simply determines the rights of the parties to the action in that particular controversy. It is no part of its purpose even to declare the law. It simply applies to the controversy the law as it exists when the alleged rights or liabilities accrued. The decision has never been thought to have the force and effect of law except in that special controversy. In other suits it is authority more or less persuasive, according to its reasonableness. Courts have never thought themselves bound by it, as they are by a valid statute. And if it is manifestly wrong, the community does not act upon it. A lawyer who would have advised a client to rely upon the Berson case in making a loan would show his incapacity." Alferitz v. Borgwardt, 126 Cal. 201, 208; 58 Pac. 460.
15" The prohibition is aimed at the legislative power of the state, and not at the decisions of its courts or the acts of administrative or executive boards, or officers, or the doings of corporations or individuals." New Orleans Water Works Co. v. La. Sugar Co., 125 U. S. 18, 30; quoted in Ray v. Gas. Co., 138 Pa. St. 576. 591; 21 Am. St. Rep. 922, 12 L. R. A. 290; 20 Atl. 1065.
16 Brown v. Smart, 145 U. S. 454.
17 Hanford v. Davies. 163 U. S. 273; affirming 51 Fed. 258.
As is indicated by the cases cited in the preceding notes, some of the state courts have taken the same view of this question as the Supreme Court of the United States. Thus the supreme court of Texas held that a homestead could be sold for assessments.26 Subsequently this decision was overruled.27 It was held that assessment made and taken by a contractor in the interval between these two decisions must be governed by the rule ultimately held to be correct.28 While the same result has been reached in Indiana, special stress has been placed there on the fact that the change in judicial decision affected the relative rights of a school corporation and a school township to the surplus of a dog-tax fund, the court holding that the control of the legislature over public corporations was not limited by this clause of the Constitution.29