Stone v. Mississippi, 101 U.S. 814; 25 L. Ed. 1079 (1880)

Facts—The legislature of Mississippi passed an act, approved February 16, 1867, entitled “An act incorporating the Mississippi Agricultural and Manufacturing Aid Society.” Actually it was nothing but a lottery enterprise. The constitution of the state, adopted in convention May 15, 1868, and ratified by the people December 1, 1869, forbade the legislature to authorize any lottery. Criminal suit was brought against the lottery “society,” which argued that it was operating under its charter.

Question—Did this state constitutional prohibition impair the obligation of contract?

Decision—No.

Reasons—C.J. Waite (8–0). Whether the contract existed depended on the authority of the legislature to bind the state and people of the state in this way in this case. A legislature cannot bargain away the police power of a state, which pertains to all matters affecting public health or morals. In their Constitution the people have expressed their wishes in this matter, so that no legislature can, by chartering a lottery company, defeat their wishes. The contracts protected by the Constitution are property rights, not governmental rights. Lotteries are a form of gambling, which can disturb a well-ordered community. The right to suppress them is governmental, and may be invoked at will. An arrangement like this “is a permit, good as against existing laws, but subject to future legislative and constitutional control or withdrawal.”

Note—In general the contract clause cannot circumscribe the police power of the state. The general welfare takes precedence over the rights of individuals. Therefore, proper state legislation affecting contracts between individuals is valid. The contract clause has lost some of its force today in as much as what formerly was covered by it is now covered by the due process clause. In United States Trust Company v. New Jersey, 431 U.S. 1 (1977) the Court said the contract clause was “not a dead letter” but neither is it in fighting shape.