In 1795, the Georgia legislature sold a large amount of state land to private companies. In 1796, the legislature passed an act aimed at rescinding the previous sale. Peck (Defendant) deeded a portion of this land to Fletcher (Plaintiff).
When a state passes a law that operates as a contract, it cannot later repeal the law in an effort to divest the rights that flowed from the contract.
In 1795, a majority of the Georgia state legislature accepted bribes to pass a law allowing the discounted sale of 35,000,000 acres of state land to private companies. This became known as the Yazoo land-grant scandal. The companies resold most of the land before a new law was passed in 1796 attempting to rescind the sale. One of the parcels of land had been deeded by Defendant to Plaintiff, who sued for breach of warranty of title. Plaintiff argued that the state could not rescind its contract to sell the land.
When a state passes a law that operates as a contract, may it later repeal the law and divest the rights that flowed from the contract?
(Marshall, C.J.) No. When a state passes a law that operates as a contract, it cannot later repeal the law in an effort to divest the rights that flowed from the contract. This holding is supported by the constitutional provision that prohibits states from passing laws impairing the obligation of contracts as well as by the principles common to our free institutions. By granting property, the grantor extinguishes his own rights in the property and contracts not to reassert that right. The obligation under that contract continues and cannot be impaired by the state legislature. The statute is invalid.
(Johnson, J.) The state cannot revoke its own grants. However, the 1796 law does not violate the Contract Clause because a land grant carries with it no obligation beyond the execution of the conveyance.
After the Revolutionary War, there was a depression and many states passed debtor relief laws. These laws altered existing contracts or changed the way they could be enforced. When the Constitution was written, the Contracts Clause was included to prevent future legislative interference with existing contracts.