This section is from the book "The Constitutional Law Of The United States", by Westel Woodbury Willoughby. Also available from Amazon: Constitutional Law.
In State Bank of Ohio v. Knoop,57 a case brought up by writ of error to the state court, the federal Supreme Court reversed a decision of the state court which held that a state law of 1845, providing for the payment to the State of a certain percentage of their profits by banking institutions in lieu of profits, had not created a contract upon the part of a State to exempt companies organized under that law from future taxation, and that, therefore, a law of 1851 imposing such taxes was not an impairment of any contract rights of the companies. The state court held that the Ohio Constitution, as it existed in 1845, did not permit the legislature to pass the law, and also that, even were that law held valid, it did not operate to create a contract with the companies organized under it. The Supreme Court of the United States, reversing this decision, asserted that the act of 1845 did in fact create a contract, and that the law of 1851 impaired its obligation, and, therefore, need not be obeyed by the corporations sought to be affected by it.
It is evident that in arriving at this decision the Supreme Court necessarily held that the original act of 1845 was constitutional as tested by the state Constitution, although the state court held it to be invalid.
So also, in Ohio Life Insurance Co. v. Debolt,58 though the court did not find it necessary to reverse the state court, a similar doctrine is declared.
In these cases there had been earlier decisions of the state courts recognizing the validity of the contracts in question. Taney, in his opinion in the Debolt case, which he uses as his opinion in the Knoop case, says: "When the Constitution of a State, for nearly half a century, has received one uniform and unquestioned construction by all the departments of the government, legislative, executive, and judicial, I think it must be regarded as the true one. It is true that this court always follows the decision of the state courts in the construction of their own constitution and laws.
67 16 How. 369; 14 L. ed. 977.
68 16 How. 416; 14 L. ed. 997.
But where these decisions are in conflict, this court must determine between them. And certainly a Constitution acted on as undisputed for nearly fifty years by every department of the government, and supported by judicial decision, ought to be regarded as sufficient to give to the instrument a fixed and definite meaning. Contracts with the state authorities were made under it And upon a question as to the validity of such a contract, the court, upon the soundest principles of justice, is bound to accept the construction it received from the state authorities at the time the contract was made." And, later, referring to the case of Rowan v. Runnels,59 he says: "The court then said, that it would always feel itself bound to respect the decisions of the state courts, and from time to time as they were made, would regard them as conclusive in all cases upon the construction of their own Constitution and laws; but that it ought not to give them a retroactive effect, and allow them to render invalid contracts entered into with citizens of other States which, in the judgment of this court, were lawful at the time they were made. It is true, the language of the court is confined to contracts with citizens of other States, because it was a case of that description which was then before it. But the principle applies with equal force to all contracts which were within its jurisdiction. . . . The sound and true rule is, that if the contract, when made, was valid by the laws of the State, as then expounded by all the departments of its governments, and administered in the courts of justice, its validity and obligation cannot be impaired by any subsequent act of the legislature of the State, or decision of its courts, altering the construction of the law." 60
In later cases, coming to the Supreme Court by writ of error from the state courts, the same doctrine is declared and applied.61
59 5 How. 134; 12 L. ed. 85.
60 The last clause states a broader doctrine than has since been upheld with reference to cases coming to the federal Supreme Court by writ of error to the state courts. See infra.
61 Jefferson Branch Bank v. Skelly. 1 Black, 436; 17 L. ed. 173; Louisiana v. Pillsbury, 105 U. S. 278; 26 L. ed. 1090; McGahey v. Virginia, 135 U. S. 662; 10 Sup. Ct. Rep. 972; 34 L. ed. 304; Mobile & Ohio R. R. Co. v. Tennessee, 153 U. S. 486; 14 Sup. Ct, Rep. 968; 38 L. ed. 793; Bacon v. Texas, 163 U. S. 207; 16 Sup. Ct. Rep. 1023; 41 L. ed. 132: McCullough v. Virginia, 172 U. S. 102; 19 Sup. Ct. Rep. 134; 43 L. ed. 382; Boyd v. Alabama, 94 U. S. 645; 24 L. ed. 302, it would seem to be contra.