provision, and the later and differing construction as a law in amendment or appeal thereof. Thus in Burgess v. Seligman72 the court say. "When contracts and transactions have been entered into, and rights have accrued thereon under a particular state of the decisions, . the federal courts properly claim the right to adopt their own interpretation of the law applicable to the case, although a different interpretation may be adopted by the state courts after such rights have accrued."

Originally the Supreme Court went only so far as to protect a contract entered into under a law which had previously been held valid by the state courts, as against a later decision holding the law unconstitutional and void. Of late, however, as we shall see, the court has taken the further step of protecting contracts entered into under a law before its constitutionality has been upheld in the highest courts of the State; the argument necessarily being that a state legislative act is, even in advance of judicial affirmation, presumptively valid, and, therefore, that a later ruling of the courts to the effect that the law is invalid, operates to impair or destroy the obligation of the contracts which those entering into them have a right, at the time, to believe are legally enforceable agreements.

In these cases it is to be observed that the doctrine of the Supreme Court is not only to hold that the obligation clause warrants a refusal upon the part of the federal courts to follow the constructions given by state courts to their own state laws, but also to hold that a judicial decision is a "law" within the meaning of the provision of the federal Constitution that no State shall "pass any law impairing the obligation of contracts."

§ 518. Gelpcke v. Dubuque.

73

Disregarding the earlier case of Rowan v. Runnels in which, though the point was involved and passed upon, the argument was not elaborated, the first important case in which the doctrine was clearly laid down that the federal courts need not follow the latest

72 107 U. S. 20; 2 Sup. Ct. Rep. 10; 27 L. ed. 359.

73 5 How. 134; 12 L. ed. 85.

74

decisions of the state courts construing state laws or constitutional provisions when to do so will be to impair the obligation of contracts entered into in reliance upon earlier decisions holding them void, was that of Gelpcke v. Dubuque, decided in 1863. This case came up on appeal from a federal district court, and was a suit to recover upon certain bonds issued by the city of Dubuque, Iowa, which bonds had been issued under authority of an act of the state legislature. The constitutionality of this act had been upheld by the highest court of Iowa at the time the bonds were issued, but later decisions of that court had held the act unconstitutional, and, therefore, the bonds invalid. In its refusal to accept this last judgment of the Iowa supreme court, the federal Supreme Court did not base its refusal upon the ground that the construction was unsettled,75 for in its opinion, after quoting from Leffingwell v. Warren76 that it would follow the latest "settled " adjudications, the court say: "Whether the judgment in question can, under the circumstances, be deemed to come within that category, it is not now necessary to determine." The earlier decisions of the Iowa supreme court, the federal Supreme Court say, were reasonable ones, "sustained by reason and authority," and "in harmony with the adjudications of sixteen of the States of the Union." But not upon this ground, also, is the construction of the later decisions repudiated. The refusal to follow them is based explicitly upon the doctrine that, relying upon the earlier decision, contracts had been entered into which would be impaired should the later decisions be followed. "However we may regard the late case in Iowa as affecting the future," say the court, "it can have no effect upon the past. 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 departments of the government, and administered in its courts of justice, the validity and obligation cannot be impaired by any subsequent action of legislation, or

74 1 Wall. 175; 17 L. ed. 520.

75 As to the rule regarding this see Section 595. 76 2 Black, 599; 17 L. ed. 261.

decision of the courts altering the construction of the law.'

The same principle applies where there is a change of judicial decision as to the constitutional power of the legislature to enact the law."

It will be observed that in this case, though the earlier holding of the state supreme court as to the constitutionality of the act authorizing the bond was declared a reasonable one, it is not upon this ground that the later decision as to its unconstitutionality is repudiated. The relative merits of the earlier and the latest holding of the state court, as an abstract proposition, is not passed upon. It is not asserted that, except as to contracts entered into prior thereto, the state law declared void by the latest decision of the state court is to be treated as a nullity.

The doctrine declared in Gelpeke v. Dubuque has been much criticized upon the double ground that it treats a decision of a state court as a "law" impairing the obligation of contracts, and that it implies an assumption upon the part of the federal courts of a right not simply to apply impartially as between citizens of different States the state law as it finds it (this, it is claimed, being the sole reason for which federal jurisdiction in suits between citizens of different States is given), but to determine what that law is.

But however open to technical criticism, the doctrine has since been repeatedly affirmed and may now be considered beyond dispute.

78

77 Quoted from Ohio Life Insurance & Trust Co. v. Debolt, 16 How. 416; 14 L. ed. 997.

78 In Township of Pine Grove v. Talcott (19 Wall. 666; 22 L. ed. 227) the court say: "The national Constitution forbids the State to pass laws impairing the obligation of contracts. In cases properly brought before us that end can be accomplished unwarrantably no more by judicial decision than by legislation."

In Douglass v. County of Pike (101 U. S. 677; 25 L. ed. 968) the court say: "The true rule is to give a change of judicial construction in respect to a statute the same effect in its operation on contracts and existing contract rights that would be given to a legislative amendment; that is to say, make it prospective not retrospective." See also Green Co. v. Conness, 109 U. S. 104; 3 Sup. Ct. Rep. 69; 27 L. ed. 872; Los Angeles v. Los Angeles Water Co., 177 E. S. 558; 20 Sup. Ct. Rep. 736; 44 L. ed. 8S6.

§ 519. Extension of the Doctrine of Gelpcke v. Dubuque.

According to the doctrine declared in the Gelpcke case, contract rights acquired under a law which has been held constitutional by the state courts will be protected by the federal courts from impairment by a later decision or decisions of those courts, in cases originating or brought into the lower federal courts because of the diversity of the citizenship of the parties litigant. In later cases this rule has been extended to cover cases where contract rights have been acquired under a state law, presumably valid, which have not had their constitutionality affirmed by the state courts.79

§ 520. Great Southern Fireproof Hotel Co. v. Jones.

In Great Southern Fireproof Hotel Co. v. Joness the authorities are carefully reviewed, and the doctrine definitely stated that the federal courts will not hold themselves concluded by the decisions of state courts holding, though for the first time, state laws unconstitutional, in cases involving contract rights based upon such laws. That is to say, they will determine upon their own independent judgment whether the laws in question are to be held valid as tested by the state constitutions, and if, when so tested, the laws are not in their opinion valid, the contract rights based upon them fall to the ground. The situation is thus quite different from that of the cases arising under the Gelpcke v. Dubuque rule where there have been diverse opinions upon the part of the state courts. There the contract entered in reliance upon the first decisions upholding the laws concerned are protected without

79 Havemeyer v. Iowa County, 3 Wall. 294; 18 L. ed. 38; Butz v. Muscatine, 8 Wall, 575; 19 L. ed. 490; Township of Pine Grove v. Talcott, 19 Wall. 666; 22 L. ed. 227; Pleasant Township v. Ætna Life Insurance Co., 138 U. S. 67; 11 Sup. Ct. Rep. 215; 34 L. ed. 864; Folsom v. Township, 159 U. S. 611; 16 Sup. Ct. Rep. 174; 40 L. ed. 278; Stanly County v. Coler, 190 U. S. 437; 23 Sup. Ct. Rep. 811; 47 L. ed. 1126; Great Southern Fireproof Hotel Co. v. Jones, 193 U. S. 532; 24 Sup. Ct. Rep. 576; 48 L. ed. 778.

so 193 U. S. 532; 24 Sup. Ct. Rep. 576; 48 L. ed. 778.

reference to the correctness of the earlier decisions as compared with the later.81

81 In Hotel Co. v. Jones (193 U. S. 532; 24 Sup. Ct. Rep. 576; 48 L. ed. 778) the court say with reference to the general doctrine declared "the only exception to the general rule announced in the above cases arises when the question is whether a particular statute was passed by the legislature in the manner prescribed by the state construction, so as to become a law of the State." It is difficult to see why this exception is made, and, indeed, the authorities which are cited in its support are not appropriate, as in each case previously to the time when the contracts were entered into there had been state decisions with reference to similar laws, holding them void, and the parties thus advised of the doubtful validity of the laws upon which they relied.