El Paso v. Simmons

379 U.S. 497

Case Year: 1965

Case Ruling: 8-1, Reversed

Opinion Justice: White

FACTS

Upon entering the Union the state of Texas embarked on a policy of selling a large percentage of its public lands to finance a public education system and to encourage settlement. Some forty million acres were to be sold as quickly as possible. In order to facilitate the program, the law offered buyers very favorable terms. The purchaser was required to pay one-fortieth of the purchase price in cash and to make periodic interest payments of 3 percent of the unpaid balance thereafter, with no requirements for the timely payment of the remaining balance. If interest payments were not made, the land would be forfeited back to the state to be held for possible future sale to new purchasers. The original owner could regain title to the land by bringing the interest obligations up to date, providing no third party had purchased the property. The administration of this program created difficult and complex problems. In addition, the discovery of oil and gas reserves in Texas gave the state a major source of support for its education system, making the land-sale program less important. The discovery also introduced increased land speculation that created a degree of instability in the public lands program. In order to administer the program in a more businesslike fashion, Texas modified it in 1941 by providing, among other things, that an owner had only five years after forfeiture to reacquire property lost for failure to make interest payments.

The parcel of land under question in this case was sold by the state in 1910. Greenberry Simmons acquired the contractual rights to this property that had been forfeited to the state in 1947 for failure to pay interest. Five years and two days after the forfeiture, he paid all of the interest due. He requested that the state abide by the original sales contract and reinstate his claim to the land. The state refused to do so under the provisions of the 1941 law. Later the state moved to sell the land to the city of El Paso. Simmons filed suit at that time to have the courts determine the rightful owner of the land. He claimed that the state, by its 1941 statute, had impaired the obligation of the original sales contract in violation of the federal constitution. The district court ruled in favor of El Paso, but the court of appeals reversed.

 

MR. JUSTICE WHITE DELIVERED THE OPINION OF THE COURT.

... Assuming the provision for reinstatement after default to be part of the State’s obligation, we do not think its modification by a five-year statute of repose contravenes the Contract Clause.

The [Court’s] decisions “put it beyond question that the prohibition is not an absolute one and is not to be read with literal exactness like a mathematical formula,” as Chief Justice Hughes said in Home Building & Loan Assn. v. Blaisdell. The Blaisdellopinion, which amounted to a comprehensive restatement of the principles underlying the application of the Contract Clause, makes it quite clear that “[n]ot only is the constitutional provision qualified by the measure of control which the State retains over remedial processes, but the State also continues to possess authority to safeguard the vital interests of its people. It does not matter that legislation appropriate to that end ‘has the result of modifying or abrogating contracts already in effect.’ Stephenson v. Binford. Not only are existing laws read into contracts in order to fix obligations as between the parties, but the reservation of essential attributes of sovereign power is also read into contracts as a postulate of the legal order.... This principle of harmonizing the constitutional prohibition with the necessary residuum of state power has had progressive recognition in the decisions of this Court.” Moreover, the “economic interests of the State may justify the exercise of its continuing and dominant protective power notwithstanding interference with contracts.” The State has the “sovereign right ... to protect the ... general welfare of the people.... Once we are in this domain of the reserve power of a State we must respect the ‘wide discretion on the part of the legislature in determining what is and what is not necessary.’ “East New York Savings Bank v. Hahn....

Of course, the power of a State to modify or affect the obligation of contract is not without limit. “[W]hatever is reserved of state power must be consistent with the fair intent of the constitutional limitation of that power. The reserved power cannot be construed so as to destroy the limitation, nor is the limitation to be construed to destroy the reserved power in its essential aspects. They must be construed in harmony with each other. This principle precludes a construction which would permit the State to adopt as its policy the repudiation of debts or the destruction of contracts or the denial of means to enforce them.” Blaisdell. But we think the objects of the Texas statute make abundantly clear that it impairs no protected right under the Contract Clause....

The circumstances behind the 1941 amendment are well described in the Reports of the Commissioner of the General Land Office. The general purpose of the legislation enacted in 1941 was to restore confidence in the stability and integrity of land titles and to enable the State to protect and administer its property in a businesslike manner. “[T]he records [of the land office] show that through the years many thousands of purchase contracts, covering, in the aggregate, millions of acres of school land, have been forfeited by failure of the purchasers to meet the small annual interest payments requisite to the maintenance of the contracts.” In 1939, 15,000 sales contracts were found delinquent and subject to forfeiture and there were about 600,000 acres of unsold surveyed school lands, the major portion of which had produced no revenue for a decade. This state of affairs was principally attributable to the opportunity for speculation to which unlimited reinstatement rights gave rise....

No less significant was the imbroglio over land titles in Texas. The long shadow cast by perpetual reinstatement gave rise to a spate of litigation between forfeiting purchasers and the State or between one or more forfeiting purchasers and other forfeiting purchasers. Where the same land had been sold and contracts forfeited several times, as was frequently the case, the right to reinstate could be exercised by any one of the forfeiting purchasers or his vendees. It was this situation to which the Texas Legislature addressed itself in 1941 and it is in light of this situation that we judge the validity of the amendment.

The Contract Clause of the Constitution does not render Texas powerless to take effective and necessary measures to deal with the above. We note at the outset that the promise of reinstatement, whether deemed remedial or substantive, was not the central undertaking of the seller nor the primary consideration for the buyer’s undertaking. Under this agreement the State promised to transfer title to the buyer upon his payment of the purchase price; in turn the buyer was obliged to make a nominal down payment of one-fortieth of the purchase price and to maintain annual interest payments. Where the buyer breached what was practically his only obligation under the contract, the land reverted back to the school fund, and a right of reinstatement arose, conditioned on the State’s refusal or failure to dispose of the land by sale or lease. We do not believe that it can seriously be contended that the buyer was substantially induced to enter into these contracts on the basis of a defeasible right to reinstatement in case of his failure to perform, or that he interpreted that right to be of everlasting effect. At the time the contract was entered into the State’s policy was to sell the land as quickly as possible, and the State took many steps to induce sales. Thus, for example, the Land Commissioner was required to reclassify forfeited lands by the next sale day and to publicize widely the forfeiture and sale. This policy clearly indicates that the right of reinstatement was not conceived to be an endless privilege conferred on a defaulting buyer. A contrary construction would render the buyer’s obligations under the contract quite illusory while obliging the State to transfer the land whenever the purchaser decided to comply with the contract, all this for a nominal down payment. We, like the Court in Faitoute Iron & Steel Co. v. City of Asbury Park, believe that “[t]he Constitution is ‘intended to preserve practical and substantial rights, not to maintain theories.’

The State’s policy of quick resale of forfeited lands did not prove entirely successful; forfeiting purchasers who repurchased the lands again defaulted and other purchasers bought without any intention of complying with their contracts unless mineral wealth was discovered. The market for land contracted during the depression. These developments hardly to be expected or foreseen, operated to confer considerable advantages on the purchaser and his successors and a costly and difficult burden on the State. This Court’s decisions have never given a law which imposes unforeseen advantages or burdens on a contracting party constitutional immunity against change. Laws which restrict a party to those gains reasonably to be expected from the contract are not subject to attack under the Contract Clause, notwithstanding that they technically alter an obligation of a contract. The five-year limitation allows defaulting purchasers with a bona fide interest in their lands a reasonable time to reinstate. It does not and need not allow defaulting purchasers with a speculative interest in the discovery of minerals to remain in endless default while retaining a cloud on title.

The clouds on title arising from reinstatement rights were not without significance to the State’s vital interest in administering its school lands to produce maximum revenue and in utilizing its properties in ways best suited to the needs of a growing population. The uncertainty of land titles, the massive litigation to which this gave rise, and the pattern of sale and forfeiture were quite costly to the school fund and to the development of land use. Timeless reinstatement rights prevented the State from maintaining an orderly system of land sales and the resultant confusion impeded the effective disposition of lands and utilization of mineral wealth within them. Where sales by the State were not feasible or desirable, the State was prevented from utilizing the lands or permitting its subdivisions to utilize them by the possibility that some one of several purchasers might at some unknowable future date assert the right to reinstatement. In this very case, the legislature authorized by special act the transfer of this land to the City of El Paso, reserving the minerals to the State, in recognition of “[t]he fact that the City of El Paso is in urgent need of expanding its sources of water and of protecting water wells previously drilled.” This transfer would have been invalid absent the 1941 Act.

The program adopted at the turn of the century for the sale, settlement, forfeiture, and reinstatement of land was not wholly effectual to serve the objectives of the State’s land program many decades later. Settlement was no longer the objective, but revenues for the school fund, efficient utilization of public lands, and compliance with contracts of sale remained viable and important goals, as did the policy of relieving purchasers from the hardships of temporary adversity. Given these objectives and the impediments posed to their fulfillment by timeless reinstatement rights, a statute of repose was quite clearly necessary. The measure taken to induce defaulting purchasers to comply with their contracts, requiring payment of interest in arrears within five years, was a mild one indeed, hardly burdensome to the purchaser who wanted to adhere to his contract of purchase, but nonetheless an important one to the State’s interest. The Contract Clause does not forbid such a measure.

The judgment is Reversed.

MR.JUSTICE BLACK, DISSENTING.

I have previously had a number of occasions to dissent from judgments of this Court balancing away the First Amendment’s unequivocally guaranteed rights of free speech, press, assembly and petition. In this case I am compelled to dissent from the Court’s balancing away the plain guarantee of Art. I, 10, that

“ ... private property [shall not] be taken for public use, without just compensation.”

The respondent, Simmons, is the loser and the treasury of the State of Texas the ultimate beneficiary of the Court’s action....

The Contract Clause was included in the same section of the Constitution which forbids States to pass bills of attainder or ex post facto laws. All three of these provisions reflect the strong belief of the Framers of the Constitution that men should not have to act at their peril, fearing always that the State might change its mind and alter the legal consequences of their past acts so as to take away their lives, their liberty or their property. James Madison explained that the people were “weary of the fluctuating policy” of state legislatures and wanted it made clear that under the new Government men could safely rely on States to keep faith with those who justifiably relied on their promises. The Federalist, No. 44....

None of the ... cases which the Court quotes or mentions in passing altered in any way the rule established in Fletcher v. Peck, and adhered to in Blaisdell and thereafter, that a State may not pass a law repudiating contractual obligations without compensating the injured parties. Especially should this be true when, as in the case before us, the contractual obligation repudiated is the State’s own....

In spite of all the Court’s discussion of clouds on land titles and need for “efficient utilization” of land, the real issue in this case is not whether Texas has constitutional power to pass legislation to correct these problems, by limiting reinstatements to five years following forfeiture. I think that there was and is a constitutional way for Texas to do this. But I think the Fifth Amendment forbids Texas to do so without compensating the holders of contractual rights for the interests it wants to destroy. Contractual rights, this Court has held, are property, and the Fifth Amendment requires that property shall not be taken for public use without just compensation. This constitutional requirement is made applicable to the States by the Fourteenth Amendment. The need to clear titles and stabilize the market in land would certainly be a valid public purpose to sustain exercise of the State’s power of eminent domain, and while the Contract Clause protects the value of the property right in contracts, it does not stand in the way of a State’s taking those property rights as it would any other property, provided it is willing to pay for what it has taken.... The Texas statute which the Court upholds, however, took away Simmons’ contract rights without any compensation.

The Court seems to say that because it was “necessary” to raise money and clear titles, Texas was not obligated to pay for rights which it took. I suppose that if Texas were building a highway and a man’s house stood in the way, it would be “necessary” to tear it down. Until today I had thought there could be no doubt that he would be entitled to just compensation. Yet the Fifth and Fourteenth Amendments protect his rights no more nor less than they do those of people to whom Texas was contractually obligated. Texas’ “necessity” as seen by this Court is the mother of a regrettable judicial invention which I think has no place in our constitutional law. Our Constitution provides that property needed for public use, whether for schools or highways or any other public purpose, shall be paid for out of tax-raised funds fairly contributed by all the taxpayers, not just by a few purchasers of land who trusted the State not wisely but too well. It is not the happiest of days for me when one of our wealthiest States is permitted to enforce a law that breaks faith with those who contracted with it.

I would affirm the judgment of the Court of Appeals.