City of El Paso v. Simmons/Opinion of the Court

Under the applicable statutes existing in Texas in 1910, the year in which the contracts in this case were made, the State Land Board was authorized to sell the public lands allocated to the Permanent Free School Fund on long-term contracts calling for a down payment of oen-fortieth of the principal and annual payment of interest and principal. The time for payment of principal was extended periodically and the principal was never called due. In the event of nonpayment of interest, however, the statutes authorized the termination of the contract and the forfeiture of the lands to the State without the necessity of reentry or judicial proceedings, the land again to become a part of the public domain and to be resold for the account of the school fund. The provision chiefly in issue in this case provided:

'In any cases where lands have been forfeited to the State     for the non-payment of interest, the purchasers or their vendees may have their claims reinstated on their      written request, by paying into the treasury the full amount      of interest due on such claim up to the date of      reinstatement; provided, that no rights of third persons may      have intervened. In all such cases the original obligations     and penalties shall thereby become as binding as if no      forfeiture had ever occurred.' Tex.Gen.Laws 1897, ch. 129,     art. 4218f.

In 1941, the foregoing provisions were amended. Among other things, the offering of forfeited land for sale on a subsequent sale date was made permissive instead of mandatory and a provision was added stating that the right to reinstate lands forfeited thereafter 'must be exercised within five (5) years from the date of the forfeiture.' Tex.Gen. & Spec.Laws 1941, ch. 191, § 3, Vernon's Ann.Civ.Stat., art. 5326. In 1951, the right of reinstatement was limited to the last purchaser from the State and his vendees or heirs. Tex.Gen. & Spec.Laws 1951, ch. 59 § 2, Vernon's Ann.Civ.Stat., art. 5326.

In 1910, certain predecessors in title of Simmons, the appellee, executed their installment contracts to purchase school lands from the State of Texas. The original purchasers made a down payment of one-fortieth of the principal and made annual interest payments. The purchase contracts were assigned several times and interest payments fell into arrears during the forties. On July 21, 1947, after a notice f arrears and request for payment, the land was forfeited for nonpayment of interest. A notice of forfeiture and a copy of the 1941 Act allowing reinstatement within five years were sent to the last purchaser of record, but were returned unclaimed. Appellee Simmons, a citizen of Kentucky, thereafter took quitclaim deeds to the land in question and filed his applications for reinstatement, tendering the required payments. The applications were denied because they had not been made within five years of the forfeiture as required by the 1941 statute. In 1955, pursuant to special legislation, the land was sold by the State to the City of El Paso. Simmons then filed this suit in the Federal District Court to determine title to the land in question. In its answer the City relied upon the 1941 statute as barring Simmons' claim and also pleaded adverse possession and laches as additional defenses. The District Court granted the City's motion for summary judgment on the ground of the 1941 statute. The Court of Appeals reversed, 320 F.2d 541 (C.A.5th Cir.), ruling that the right to reinstate was a vested contractual right and that the prohibition against impairment of contracts contained in Art. I § 10, of the Constitution of the United States prohibited the application of the 1941 statute to the contract here in question. We noted probable jurisdiction. 377 U.S. 902, 84 S.Ct. 1165, 12 L.Ed.2d 174. We reverse.

Although neither party has raised the issue, we deal at the outset with a jurisdictional matter. The appeal in this case is here under 28 U.S.C. § 1254(2) (1958 ed.). The Court of Appeals, after holding the Texas statute unconstitutional, remanded the case to the District Court to determine the City's defenses of laches and adverse possession. Under a prior interpretation of § 240(b) of the Judicial Code, the predecessor provision of § 1254(2), a final judgment or decree of the Court of Appeals is necessary to the exercise of our jurisdiction over the case by way of appeal, Slaker v. O'Connor, 278 U.S. 188, 49 S.Ct. 158, 73 L.Ed. 258, which was followed without comment in South Carolina Electric & Gas Co. v. Flemming, 351 U.S. 901, 76 S.Ct. 692, 100 L.Ed. 1439 and questioned but not put to rest in Chicago v. Atchison, Topeka & Santa Fe R. Co., 357 U.S. 77, 78 S.Ct. 1063, 2 L.Ed.2d 1174, the judgment in that case being deemed a final one. These questions under § 1254(2) were neither briefed nor argued in this case and it is not appropriate to resolve them here.

In 1962 Congress expanded the scope of 28 U.S.C. § 2103 to apply to appeals from the United States courts of appeals. That section now provides that an appeal improvidently taken from a court of appeals as well as from a state court shall not be dismissed for that reason alone, but that the appeal papers shall be regarded and acted on as a petition for a writ of certiorari. The restriction in 28 U.S.C. § 1254(2) (1958 ed.) providing that an appeal from the court of appeals 'shall preclude review by writ of certiorari at the instance of such appellant' is no bar to our treating this case as here on a petition for certiorari. For this provision means only that if an appeal is proper and has been taken, certiorari will not thereafter be available; where the appeal is not proper, this Court will still consider a timely application for certiorari. Bradford Electric Light Co. v. Clapper, 284 U.S. 221, 52 S.Ct. 118, 76 L.Ed. 254. No timely application for certiorari has been filed in the instant case. But 28 U.S.C. § 2103 (1958 ed., Supp. V) now requires that we treat the papers whereon the appeal was taken as a petition for certiorari. Accordingly we dismiss the appeal and grant the writ of certiorari.

We turn to the merits. The City seeks to bring this case within the long line of cases recognizing a distinction between contract obligation and remedy and permitting a modification of the remedy as long as there is no substantial impairment of the value of the obligation. Sturges v. Crowninshield, 4 Wheat. 122, 200, 4 L.Ed. 529; Von Hoffman v. City of Quincy, 4 Wall, 535, 553 554, 18 L.Ed. 403; Honeyman v. Jacobs, 306 U.S. 539, 59 S.Ct. 702, 83 L.Ed. 972. More specifically, it invokes three cases in this Court, two from Texas, that held it constitutionally permissible to apply state statutes allowing forfeiture of land purchase rights to land contracts between private persons and the State made when the law did not provide for forfeiture or permitted it only upon court order. Wilson v. Standefer, 184 U.S. 399, 22 S.Ct. 384, 46 L.Ed. 612; Waggoner v. Flack, 188 U.S. 595, 23 S.Ct. 345, 47 L.Ed. 609; Aikins v. Kingsbury, 247 U.S. 484, 38 S.Ct. 558, 62 L.Ed. 1226. In those cases the Court reasoned that the state statutes existing when the contracts were made were not to be considered the exclusive remedies available in the event of the purchaser's default since there was no promise, express or implied, on the part of the State not to enlarge the remedy or grant another in case of breach.

The Court of Appeals rejected the City's contention. The Texas cases, according to the Court of Appeals, hold that the reinstatement provision confers a vested right which is not subject to legislative alteration. From this it concluded that under state law the five-year limitation on reinstatement was not a mere modification of remedy but a change in the obligation of a contract. Relying on the theory that it is state law that determines the obligations of the parties, the Court of Appeals found that the 1941 statute abrogated an obligation of the contract and thus violated the Contract Clause of the Constitution.

We do not pause to consider further whether the Court of Appeals correctly ascertained the Texas law at the time these contracts were made, or to chart again the dividing line under federal law between 'remedy' and 'obligation,' or to determine the extent to which this line is controlled by state court decisions, decisions often rendered in contexts not involving Contract Clause considerations. For it is not every modification of a contractual promise that impairs the obligation of contract under federal law, any more than it is every alteration of existing remedies that violates the Contract Clause. Stephenson v. Binford, 287 U.S. 251, 276, 53 S.Ct. 181, 188, 77 L.Ed. 288; Stone v. Mississippi, 101 U.S. 814, 819, 25 L.Ed. 1079; Manigault v. Springes, 199 U.S. 473, 26 S.Ct. 127, 50 L.ed. 274. 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 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, 290 U.S. 398, 428, 54 S.Ct. 231, 236. The Blaisdell opinion, 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, 287 U.S. 251, 276, 53 S.Ct. 181, 189, 77 L.Ed. 288. 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.' 290 U.S., at 434-435, 54 S.Ct., at 238-239. Moreover, the 'economic interests of the state may justify the exercise of its continuing and dominant protective power notwithstanding interference with contracts.' Id., at 437, 54 S.Ct., at 239. 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, 326 U.S. 230, 232-233, 66 S.Ct. 69, 71. As Mr. Justice Johnson said in Ogden v. Saunders, '(i)t is the motive, the policy, the object, that must characterize the legislative act, to affect it with the imputation of violating the obligation of contracts.' 12 Wheat. 213, 291, 6 L.Ed. 606.

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, supra, at 439, 54 S.Ct. at 240. But we think the objects of the Texas statute make abundantly clear that it impairs no protected right under the Contract Clause.

Texas, upon entering the Union, reserved its entire public domain, one-half of which was set aside under the 1876 Constitution to finance a universal system of free public education. These lands, over 42,000,000 acres, were to be sold as quickly as practicable in order to provide revenues for the public school system and to encourage the settlement of the vast public domain. The terms of sale were undemanding and designed to accomplish the widespread sale and development of the public domain. The State required a down payment of one-fortieth of the purchase price, an annual payment of one-fortieth of principal and an annual payment of interest. The terms were frequently modified in favor of purchasers. Periodically, during the course of almost a century, the time for payment of the nominal principal amount was extended. In 1919, the requirement that the purchaser settle on the land or adjoining land was lifted, provisions allowing forfeiting purchasers a first opportunity to repurchase forfeited land at a newly appraised value were thrice added, interest in arrears was forgiven under one of these acts, and reclassification of lands was held not to deprive forfeiting purchasers, upon reinstatement, of their mineral rights in the land. But eventually the evolution of a frontier society to a modern State, attended by the discovery of oil and gas deposits which led to speculation and exploitation of the changes in the use and value of the lands, called forth amendments to the Texas land laws modifying the conditions of sale in favor of the State. Beside increasing the required down payment from one-fortieth to one-fifth of the purchase price, the State restricted the right of reinstatement to the last purchaser from the State or his assigns and required that this right be exercised within five years from the date of forfeiture.

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. 1938-1940 Rep. 5. '(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.' Id., at 11-12. 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. Ibid. This state of affairs was principally attributable to the opportunity for speculation to which unlimited reinstatement rights gave rise. Forfeited purchase contracts which had remained dormant for years could be reinstated if and when the land became potentially productive of gas and oil. Where forfeited lands were purchased without reservation of minerals to the State, as was the case in respect to early purchases before discovery of the extensive mineral wealth in the State, all of the mineral rights reverted to the owner of the reinstated claims, regardless of the State's later attempts in forfeited sales to share in the mineral interest. Gulf Production Co. v. State, 231 S.W. 124 (Tex.Civ.App.). Hence the Land Commissioner noted that the majority of sales and resales under the laws requiring sale to the highest bidder were to purchasers buying a 'speculative option,' 'taken for possible profits on the rights of the surface owners to lease the land for oil and gas.' Under such conditions lands were bid in at highly inflated prices such as no one who expected to keep the land could afford to offer.' 1940-1942 Rep. 5. The attempts to assure some stability in land sales through repurchase acts allowing delinquent owners a preferential right to buy forfeited land at a reappraised value, and, under one act, without payment of accumulated interest in arrears, proved unsuccessful, and expensive. In regard to one of the State's attempts to quiet titles through a repurchase act, the Land Commissioner in 1925 expressed the belief that the 'owners can realize such returns from (the lands) as will enable them to pay interest thereon instead of continuing the recurring annual forfeiture and resale and so on indefinitely.' 1924-1926 Rep. 5. In 1939, a new Commissioner noted that 1,872,326 acres had been forfeited and 1,195,993 acres repurchased under the three repurchase acts. The net loss to the School Fund from repurchases was said to be § 1,661,980 plus the loss in interest arrears of $418,000. 1938-1940 Rep. 12.

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. See, e.g., Weaver v. Robison, 114 Tex. 272, 268 S.W. 133; Anderson v. Neighbors, 94 Tex. 236, 59 S.W. 543; Mound Oil Co. v. Terrell, 99 Tex. 625, 92 S.W. 451. 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. Hoefer v. Robison, 104 Tex. 159, 135 S.W. 371. Cf. Faulkner v. Lear, 258 S.W.2d 147 (Tex.Civ.App.). 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. See Wilson v. Standefer, 184 U.S. 399, 22 S.Ct. 384, 46 L.Ed. 612; Waggoner v. Flack, 188 U.S. 595, 23 S.Ct. 345, 47 L.Ed. 609; Aikins v. Kingsbury, 247 U.S. 484, 38 S.Ct. 558, 62 L.Ed. 1226. 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, Boykin v. Southwest Texas Oil & Gas Co., Tex.Com.App., 256 S.W. 581, and a right of reinstatement arose, conditioned on the State's refusal or failure to dispose of the land by sale or lease. Hoefer v. Robison, 104 Tex. 159, 135 S.W. 371. 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. See Becton v. Dublin, 163 S.W.2d 907, 910 (Tex.Civ.App.). 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. Weaver v. Robison, 114 Tex. 272, 268 S.W. 133. 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, 316 U.S. 502, 514, 62 S.Ct. 1129, 1135, 86 L.Ed. 1629, believe that '(t) he Constitution is 'intended to preserve practical and substantial rights, not to maintain theories.' Davis v. Mills, 194 U.S. 451, 457, 24 S.Ct. 692, 695, 48 L.Ed. 1067.'

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. 1938-1940 Rep. 12. 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. Honeyman v. Jacobs, 306 U.S. 539, 59 S.Ct. 702, 83 L.Ed. 972; Gelfert v. National City Bank, 313 U.S. 221, 61 S.Ct. 898, 85 L.Ed. 1299; East New York Savings Bank v. Hahn, 326 U.S. 230, 66 S.Ct. 69, 90 L.Ed. 34. 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,' Tex.Gen. & Spec.Laws 1955, ch. 278. 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.

Reversed.

Mr. Justice BLACK, dissenting.