Restricting the freedom of contract: a fundamental prohibition.

AuthorWeber, David P.
PositionII. Contract as a Fundamental Right C. Status - To What Extent May the Right to Contract Be Lawfully Limited? 3. American Indians - Wards of the United States through IV. Conclusion, with footnotes, p. 77-103
  1. American Indians--Wards of the United States

    The U.S. government's attitude toward its contractual obligations with American Indians is perhaps the clearest example of government sponsored discrimination. Whereas slave ownership was only tolerated and not practiced by the U.S. government, it did actively participate in creating certain types of contractual limitations for American Indians that were designed to keep them permanently disadvantaged in their ability to manage their own affairs. For hundreds of years now American Indians have suffered significant legislative and judicial restrictions on their contractual rights. (175) As a leading treatise notes, "it seems clear that an unemancipated Indian has only a limited contractual capacity, subject to the control and approval of the United States, his guardian or trustee ..." (176) Once again, it is clear that limitations on the right to contract were integral in perpetuating a legal framework that discriminatorily disempowered a class of individuals based on an immutable characteristic.

    The reasons behind the tribes' limited contractual capacity are various, and at times entirely discriminatory. The distinction or status used to demarcate the group could be said to be predicated on race, national origin, or political subdivision, though their experience is unique given the centuries of open, ongoing hostilities between citizens of the United States and the tribes. Additionally, the law was forced to develop and settle the rights of the tribes that remained free as well as those who had been defeated and allotted reservations, groups that faced substantially different legal circumstances and who enjoyed considerably different rights. (177)

    From the outset, the United States abused the contractual relationship between the tribes and them, and many contracts or treaties were simply ignored almost from the moment of their execution. (178) Additionally, when American Indians sought legal recourse, they were forced to seek compensation in a forum belonging to the very party who had breached its legal obligations to them. (179) Given the unique relationship and the tribes' status as a domestic dependent nation, (180) the United State imposed the legal structure of guardianship on the American Indians, making themselves the guardians and trustee of the rights of its wards, the American Indians. (181) Not until 1879 was the American Indian Standing Bear of the Omaha tribe able to successfully argue in federal court that an American Indian was a "'person' within the meaning of the laws of the United States." (182) Yet, 130 years after Standing Bear's trial, the concept of the U.S. government as fiduciary of the tribes has endured.

    While American Indians have greater rights today and have enjoyed some judicial success enforcing those rights, (183) the tribes still have federally restricted contractual rights. (184) One consequence of their tribal land being held in trust by the United States (185) is that any contract entered into by an American Indian tribe that would encumber its land for more than seven years is invalid without the consent of the Secretary of the Interior. (186) Additionally, individual American Indians are also subject to restrictions when contracting for property held in trust, though they are able to freely contract for private property not subject to trust regulations. (187)

    Alternatively restrictions on tribes' right to contract, specifically through their status as ward of the United States, have been used to positively affect the tribes in their contractual relations and act as a paternalistic mechanism not unlike the doctrine of incapacity discussed above. (188) When the tribes have coupled the status of ward of the United Status with that of a "domestic dependent nation" with limited sovereign immunity, (189) they have been able to escape ostensibly legitimate contractual obligations. (190) While there are potential benefits, the history of this status-based restriction is not benign, (191) and perhaps more importantly, the rationale behind the implementation of this legal incapacity differs greatly from the purposes behind the adoption of the legal incapacities discussed in Section II.B above.

    The United States has made full use of its guardian role, including engaging in activities that directly conflict with treaty obligations. (192) In regard to the legal treatment of American Indians, the Ninth Circuit has noted the:

    numerous sanctimonious expressions to be found in the acts of Congress, the statements of public officials, and the opinions of courts respecting 'the generous and protective spirit which the United States properly feels toward its Indian wards,' and the 'high standards of fair dealing' required of the United States in controlling Indian affairs', are but demonstrations of a gross national hypocrisy. (193) Since the Indian Acts of the First Congress in 1789,194 the federal government has continually restricted the contract rights of American Indians individually and the tribes collectively through, inter alia, limitations on sale of land, (195) regulation of trade, (196) regulation of allotments, (197) and trusteeship

    teeship of tribal or individual resources. (198) Congressional power in this realm is so broad that it has been used to dissolve tribes and distribute remaining assets in the same fashion as if a company were to be dissolved. (199) While federal treatment of American Indians has been steadily improved from the late 1960s, (200) many of the contractual restrictions discussed above remain in place. The argument that these restrictions exist for the benefit of the American Indians is not dissimilar from earlier arguments regarding the faculties of blacks, slaves or women. (201) As with gender, race and servitude, the law has partially restricted a fundamental right to contract based on an involuntary characteristic of a group who has suffered substantial discrimination. In the case of American Indians it is fair to wonder, given the odd dichotomy of domestic-dependent nations, (202) how long their contractual incapacity will continue to exist.


    As mentioned previously, the genesis of this article was the Hammon-Beason Alabama Taxpayer and Citizenship Protection Act which attempted to declare void most contracts entered into by unauthorized immigrants, (203) though the analysis applies equally to any status-based restriction grounded on arbitrary or discriminatory grounds. This law provides a class of individuals upon whom to test theories of valid contract restriction versus improper status-based restrictions. The identity of this group, individuals subject to U.S. immigration law, adds the additional ground of preemption for invalidating the statute that may not be open to many other groups.

    It is useful to examine what the law in fact prohibited in its original form regarding contractual restrictions, especially for purposes of determining due process and/or civil rights violations. As mentioned above, on the civil side, the law prohibited the enforcement of any contract with an unauthorized immigrant if the other party, at the time of contracting, had direct or constructive knowledge of the party's unauthorized immigration status, and the contract either required the unauthorized immigrant to remain in the country more than twenty-four hours after execution of the contract or performance could not be expected to occur without the unauthorized immigrant remaining in the country. (204) Presumably, a contract between an unauthorized immigrant and his or her attorney in nearly any type of proceeding or legal matter would have run afoul of this prescription. (205)

    On the state side, the law prohibited an unauthorized immigrant for entering or attempting to enter into any business transaction (206) with the state or a political subdivision of the state, classifying this action as a Class C felony. (207) As the state of Alabama has public cooperatives for industries such as electricity and water, the statute, read broadly in its original form, could easily have been construed to invalidate any contract by the state or its agents for those necessary services, and that is the subject of our next section. (208)

    1. Contract Clause

      This Article initially envisioned a spirited discussion on the Hammon-Beason Act on Contract Clause grounds given the broad text of the initial law. (209) However, the law has now been amended several times due in no small party to vigorous challenges it has faced in the courts. (210) The result of those amendments and challenges is that key provisions of the law that attempted to invalidate executed contracts no longer exist. However, any article discussing the fundamentality of the right to contract must make at least passing mention of the relevance of the Contract Clause. The so-called Contract Clause does not provide an unqualified freedom to contract; rather it prohibits states from retroactively vitiating existing private contract rights. (211) The exact language of the clause is "No State shall ... pass any ... Law impairing the Obligation of Contracts ... " (212) While at one time a significant limit on state regulation, (213) it has since lost much of its prominence, (214) and its influence has waxed and waned even in more recent times. (215) By limiting the applicability of the clause to extant rather than prospective contracts and creating additional exceptions to coverage, the Court has greatly limited the scope of the Contract Clause and its power.

      The original provision of Alabama's law that restricted the right to contract between private parties likely would have been partially prohibited by the Contract Clause. The original language of the statute prohibited the enforcement of any contract if one party had direct or constructive knowledge of the other's unlawful presence (216) as...

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