THE OBLIGATION OF CONTRACTS

by Howard L. Bevis, LL.B., S.J.D.
William Zigler Professor of Government and Law,
Harvard University

Although the previously described "denial of corporate existence"
strategy seems to work, it's unclear why it works. So long as we don't
know why a strategy works, we can't know how long it's likely to keep
working. Without knowing the "why", our confidence in the strategy is
necessarily diminished. This article offers a clue to "why".

"The Obligation of Contracts" was originally published in 1939 in an
extraordinary, six volume collection of books entitled 'The National
Law Library'. This collection was written by three Harvard professors
(one former dean of the Harvard law school, another a former justice on
the Ohio state supreme court), a University of California professor of
law, a University of Pittsburgh professor of law, and a Depurty
Commissioner of the New York City Department of Investigation. These
six men are far more than mere amateurs. I believe they were top-notch
lawyers, professors and judges who truly understood the revolutionary
changes in our legal system imposed by Franklin D. Roosevelt's "New
Deal" in 1933. Moreover, I suspect this collection of books may have
been intended to explain those changes for the benefit of "knowing"
lawyers, judges, politicians and bureaucrats.

'The National Law Library's clear language and stunning insight into
how our government really works convinces me that it is the finest
collection of books on law and government that I've ever seen. I've
learned more by simply skimming these books than I've learned from
reading any other publication in years. Although my understanding of
the six volumes is far from complete, everything I've read so far
indicates that this collection offers an open, honest of how our
government really works since the 1933 "New Deal". It is a remarkable
find.

You have to read a little between the lines, but I believe that the
information in these books may be sufficient to understand, unwind,
challenge - and perhaps overcome - the existing system of corporate
government and show the way back to constitutional government.

I could sing praises to 'The National Law Library' for another page or
two, but there's no point since this article is largely a sales pitch.
I'm scanning the original text into my computer, reformatting the six
volume set into six annotated electronic books available for
distribution over the internet.

What follows is a one chapter sample of 'The National Law Library'
(plus my added comments). This isn't the best chapter in that
collection, but it seems relevant to the "denial of corporate
existence" strategy and (combined with a footnote from another chapter)
offers an excellent insight into the nature of our relationship to
corporate government. This article's implications are extraordinary.
But virtually every chapter I've read in 'The National Law Library'
offers similar insight and astonishing implications.

If you're interested in buying annotated copies of 'The National Law
Library', complete ordering info will appear at the end of this
article. If you're not interested in buying, read the article anyway. I
guarantee it will open your mind and make you think.

The key to understanding this article is in a footnote from another
chapter in 'The National Law Library'. Roughly speaking, that footnote
explained that the only way you can relate to a corporation is through
contract! When you think about it, the idea that we can only relate to
corporations (artificial entities, legal fictions) by contract is
obvious. Of course... after all, while I can "contract" with another
natural person (flesh and blood) with oral agreement and a handshake,
where is the hand to shake on a corporation? What color is a
corporation? What is its mass, gender and educational background?
Answer: Corporations have none of those attributes because they don't
really exist.

So how can I relate in law to a nonexistent entity (corporation)? By
contract.

And what is the essential feature of any contract with a corporation?
Your agreement that the corporation (a fictional entity that exists
only in our imagination) does in fact exist. You're lying, of course,
since the corporation does not exist in fact, but once you agree to
it's existence by contract, you are legally bound by that agreement.

For example, suppose I want to buy a new Ford. To do so, I must sign a
contract with the local Ford dealer in which, first and foremost, I
agree that FoMoCo is "real" and the party I'm doing business with. By
agreeing (contracting) that the Ford Corporation is real, I have
limited my remedy to suing only that artificial entity if my new Ford
is defective. Thus, by my contract, I effectively grant personal
immunity to the dealer from being sued for deceiving me or selling me a
defective product. How? By agreeing (contracting) that I bought the
Ford from the imaginary corporation rather than the real, flesh and
blood dealer.

The implications are extraordinary. It appears that the corporation is
not "real" in my life until I agree by contract that it does, in fact,
exist. Until I contract, the corporation does not exist - at least not
for me. In other words, the "pink elephants" that plague alcoholics
don't really exist - unless the alcoholic signs a contract with the
imaginary "pink elephants". Then, as a matter of law, the pink
elephants are real (at least relative to the particular drunk).

Let's apply this implication to the idea of corporate government. How
could we relate to a corporate government? Perhaps only by contract.

If so, then we might also ask "How do we relate to constitutional
government? By law..?

In other words, if contracts are the "medium" through which we related
to corporate government, are laws the medium through which we relate to
the organic, constitutional government?

I suspect the answer is Yesss. If so, the implications are
extraordinary.

For example, unless there were a contract in which we individually
agreed to "pretend" that the fictional corporate government did in fact
exist, that corporate government would not be "real" in our individual
lives... it would not have jurisdiction over those of us who had not
contractually "agreed" to be bound by the legal fiction (lie) that the
imaginary corporation was real. If so, we could argue that we have not
knowingly contracted with the corporate state (or if we could identify
and cancel such contracts as we signed unknowingly), we might be able
to avoid the corporate state's jurisdiction.

To illustrate, what would happen if you were stopped for speeding (no
one harmed) by a police officer representing an incorporated
municipality and you put him on notice that you have no contractual
relationship with his corporate employer? If my hypothesis is valid,
your failure to contract with the corporate municipality would deprive
the corporation and its officers of authority over you and leave the
police officer (and later prosecutor and judge) without jurisdiction or
without personal immunities.

For years, I've heard anecdotes about defendants who kept demanding
"Where's the contract? Where's the contract? until the courts finally
dismissed the case. Until now, I had no idea why that strategy
reportedly worked. But thanks to 'The National Law Library', I'm
beginning to understand. If there's no contract, the corporate
government may not "exist" - at least relative to the particular
defendant. Unless there was evidence (not presumption) that I first
agreed (contracted) to recognize the imaginary government corporation
as real, its individual agents may be personally liable for intruding
in my life. If so, rather than risk exposing themselves to personal
liability, government agents might choose to drop the case.

This might also explain the mysterious success behind the "denial of
corporate existence" strategy. Perhaps the issue is not precisely
whether any of the various governmental corporations actually "exist,"
but whether a particular defendant has a contractual relationship in
which he agreed to recognize to those imaginary governmental
corporations.

I.e., by denying that various corporations exist (at least relative to
the particular defendant), the defendant forces government to produce
the contract(s) in which the defendant first agreed to "recognize" the
imaginary corporate government and be legally bound by that
recognition. Perhaps government, lacking such contracts or unwilling to
identify them publicly, declines to prosecute.

Get it? If we can't relate to corporations without contracts corporate
governments may be unable to relate to us. If so, no contract means no
relationship and thus no corporate government jurisdiction.

I suspect the corporate government has bypassed the lack of express
contract with specific individuals with contracts "implied in law" or
otherwise presumed to exist and "quasi-contracts" (see below). But once
the validity of those implied, presumed and "quasi-" contracts is
called into question, government may be unable to produce or proceed.

The contractual recognition of nonexistent entities also raises
intriguing spiritual issues. If the essence of our contracts with
corporations is our willingness to agree that the nonexistent
corporations actually exist, then the contract (your agreement) is
inevitably based on a legal fiction - a lie. Does God want you to
engage in lies? Does God want you to agree (contract) that lies (legal
fictions) are true (real)? Does God want you to live your life and
conduct your business based on lies (limited liability corporations)
rather than the truth of natural persons who are created by God and
personally liable for their acts? And what can you say for a government
that encourages us to agree that lies are true?

Thus, the possibility that we only relate to corporations through
contracts offers important political and spiritual insights.

The following footnotes identified by black numbers are the original
author's. The footnotes identified by blue letters refer to my own
added comments along side of the author's original text.

Among the commercial troubles which led to the formation of the
Constitution were State bankruptcy and insolvent laws designed to
alleviate the prevalently bad situation of those in debt, and State
acts of repudiation, or other measures impairing the public credit.
Article I, Section 10, clause 1 of the Constitution was made,
therefore, to carry the provision: "No State shall ... pass any ... law
impairing the obligation of contracts."

1. Contracts and the Due Process Clause

No similar stricture was imposed upon the Federal Government. The Fifth
Amendment, however, adopted almost immediately after the adoption of
the Constitution contained the "due process" clause (See Chapter XIII,
Due Process of Law) which has been so interpreted as largely to prevent
Congressional action amounting to the impairment of contractual
obligations, except where a specific grant of power, e.g., the
bankruptcy power or the money power, authorizes such action.[A] Until
the passage of the Fourteenth Amendment, on the other hand, the States
were not subject to a "due process" clause, and the chief instrument of
Federal control over state legislation was found in the clause
forbidding the impairment of the obligation of contracts.

2. Prohibitions Directed at Governments

Like the "due process" clause, the clause prohibiting the impairment of
contractual obligation is directed at governments, not at private
persons. It offers no remedy for breaches of contract nor for erroneous
judicial findings in contract cases. Even where the party defaulting on
its contract is a State or city, the "contract clause" furnishes no
ground of relief. The clause, however, binds States and their
governmental subdivisions, including citizes, not to exercise their law
making power in the proscribed manner.[B]

---------
A. The "money power" is "exception" to the impairment of contracts,
prohibition is vital to the use of paper (inflatable) currency. With
lawful money (gold or silver coin), a contract for $10,000 in 1930 when
gold was $20 per ounce would inevitably require payment (in a fixed
amount of gold (500 ounces) no matter when the contract was finally
executed - even a decade later. But, since Congress can "impair the
obligation of contracts" in regards to money, Congress can give us a
paper currency which will inevitably suffer a loss of value (inflation)
over time. With a 3% annual inflation rate, a man who contracts in 1995
to later receive $10,000 will really only receive the equivalent of
$7,000 if he waits ten years to be paid. Thus, inflation and paper
money (Federal Reserve Notes) have effectively "impaired" the
obligation of contracts since a debtor who resists paying promptly can
still technically repay his debt at a later date, but will in fact
deprive his creditor of full value of the agreed price.

B. N.B. "no remedy for erroneous judicial findings in contract cases"
and "no ground for relief"? Note that the prohibition against
"impairing the obligation of contracts" applies only to the "law making
power" of the legilsative branch of government - not to the judicial or
executive branches. Thus, judges and administrators might be free to
"impair" certain contractual relationships to favor government over
private parties. If so, the private person might have "no remedy" or
"relief".

---------

3. Judgments As Well As Statutes Included

By the indulgence of a fiction [C] the judgments of courts, as well as
the enactments of legislatures, have sometimes been brought under the
"contract clause." Departing from the general rule, that Federal courts
will follow the decisions of State courts in construing the State's
statues, the Federal courts have held that where a State court has
reversed an earlier decision upholding the validity of a State law,
contracts entered into in reliance upon such earlier decision will be
protected by the "contract clause." So far as such contracts are
concerned the later decision is of no avail.

---------
C. What "fiction"? Corporate government? If we can only relate to
corporations through contracts, it follows that this "fictional"
reliance on previous "legislative" enactments and "judicial" decisions
might be based on the government's shift from an organic,
constitutional basis to a corporate conglomerate.
---------

4. Meaning of the Term "Contracts"

Before the provision in question can be brought into play a contract
must exist. If the transaction whose obligation is claimed to be
impaired is not in law a contract, there is nothing for the provision
to act upon. In determining whether there be in reality a contract the
Federal courts will follow their own judgment rather than that of the
State courts.

While the law of contracts as now known to the courts has largely been
developed since the Constitution was framed, it has generally been held
that the "contract clause" refers to contracts in the ordinary legal
sense. It applies both to executed and executory, to implied and
express, contracts. It does not, however, apply to "quasi-contracts,"
situations in the borderland between contracts and torts [D] which the
courts treat as if (qua si) [E] there were real contracts between the
parties. Such situations are not contracts and the courts have properly
excluded them from the operation of the clause.
---------
D. According to Black's Law Dictionary (7th), a "tort" is a "civil
wrong ..; a breach of a duty that the law imposes..." The relationship
to "duty" suggests that "tort" is the common law term used to describe
a violation of one's unalienable Rights by a government official or
agent.

E. The elusive meaning of the term "quasi" is revealed as derived from
two Latin words: "qua" and "si". Together they mean "as if". Thus a
"quasi-contract" is some sort of agreement that is not a true contract,
but will be treated "as if" it were. I suspect these "quasi-contracts"
create the presumptions necessary to bind us to the corporate
government. If so, they should be easily defeated since, by their name
along, they are admittedly not true contracts. But if no contract, then
no recognition, no jurisdiction.

Since the courts have "properly excluded" quasi-contracts from the
operation of the "impairment of contracts" clause, and since (as
previously read) the "impairment" clause only prohibits State
legislatures from making laws that impair the obligation of contracts,
it appears that the State legilsature CAN make laws which impair the
obligations of quasi-contracts. 

Thus, if you entered into a quasi-contract today, the State legislature
could conceivably modify the terms of that contract next year in a way
that impaired your rights or obligations under that "quasi-contract".
---------

5. Public Contracts Included

The contracts of public bodies, States, cities, the United States,
itself, are protected as well as those of private persons. A
distinction must be noted, however, between the legal validity of a
governmental agreement and the enforcement of it. Governments are
continually making contracts (See herein The Law of Public Contracts,
Part VI, Ch. 1) but neither the states nor their subdivisions nor the
Federal Government can be sued unless they have consented; consequently
the remedy may be lacking even though the right exist. [G] The
"contract clause" does not operate to give such a remedy where
otherwise there is none. [1]
---------
G. Another chapter of 'The National Law Library' explains that a ture
contract must be "actionable". That is, if your "contract" can't be
adjudicated in court, it's not really a contract. Insofar as a
government can't be sued for breach of contract unless it agrees to be
sued, a refusal to agree to be sued (provide "actionable" remedy) would
seem to refute the presumption that the original agreement was a lawful
contract in the first place. Thus government must either admit there is
no contract or allow itself to be sued.
---------

6. Dartmouth College Case

The most famous instance of the application of the "contract clause" to
a public contract is that of the Dartmouth College case.[2] The
legislature of New Hampshire had passed an act changing the government
of Dartmouth College from private to public hands. The school had long
operated under a charter and under that scharter had received gifts.
The Supreme Court held that the charter was a contract between the
State and the College which was protected by the Constitution against
impairment by the state. [H] The decision of this case has been much
criticized by legal scholars, but it has stood in the courts and has
become a landmark in the law of corporations.
---------
H. If charters are protected from impairment by the "contract clause,"
what does this say about the Declaration of Independence, Articles of
Confederation or the organic Constitution adopted in 1789? Do these
charters also qualify as "contracts" entitled to protection against
"impairment"? If so, might we argue that modern gun control laws are
unlawful because they impair the previous contractual relationship? Can
Lawmakers pass laws that impair our previous contracts which were
written in reliance on the terms of those original instruments? If
state legislatures can't pass laws which impair the obligation of
contracts, can they pass laws that allow judges or administrators to
(indirectly) impair those obligations?
---------
One of its results has been the moulding of corporation law to protect
against its operation. Corporate charters now almost universally carry
provisions for their own amendment or even cancellation, at the will of
the state. [I] Such provisions, of course, cannot operate
retroactively. Another effect has been to give impetus to the
development of the doctrine that corporate charters and similar
agreements are to be strictly construed against the corporation. Grants
of immunity from taxation and agreements exempting utility companies
from rare regulation will be subject to the rule of strict construction.
---------
I. Apparently, the modern states now only grant characters which
expressly allow the states to later "impair" the charter's original
contractual relationships. This implies that if states can today
expressly include amendment provisions to allow later "impairment" of
their charter-contracts, there must've been a time when those charters
could not ever be modified. It might be interesting to see how many of
those old "un-impairable" charters are still in existence and see if
they still have legal relevance.
---------
7. Municipal Charters

The charters granted by States to municipal and other public
corporations are not subject to the "contracts clause." Such
corporations are, in essence, arms of the state itself, government
subdivisions, and hence not really separate parties with whom contracts
can be made. [J]
---------
J. Fascinating. Not only municipal corporations like cities, etc., but
all corporations are "arms of the state... government subdivisions, and
.. not really separate parties with whom contracts can be made.

Also scary, if all corporations are "government subdivisions," then
whenever you enter into any contract with any corporation, you may have
effectively "recognized" the fictional corporate government as real and
thereby become subject to corporate jurisdiction.

[This article if full of inaccuracies. Look up 'corporation' both
public and private in Black's Law Dict. -- gene karl]
---------
8. Bankruptcy Laws, Federal and State

Although the Constitution confers upon Congress the power to pass
"uniform laws on the subject of bankruptcies throughout the United
States" (Article I, Section 8, clause 4), the power has been deemed not
exclusive in the Federal Government. In the absence of Congressional
action the filed is open to the States, and upon several occasions,
when there were no Federal bankruptcy acts, state laws were in
operation. The States, however, unlike the United States, are subject
to the "contracts clause," and cannot, therefore, pass laws for the
impairment of pre-existing contracts. 4[K] As to contracts made
subsequently to the enactment of the laws, the situation is different;
the law, itself, is deemed as implied condition in each contract, hence
there is no impairment.
---------
K. Thus, State laws which impair the obligation of contracts previously
established under organic documents (like the Declaration of
Independence. Articles of Confederation and Constitution) might be
challenged as unconstitutional. "Impairment of contract" might offer an
uncommon ground for a constitutional challenge.
---------
As has been said, the Federal Government has been held subject to
limitations growing out of the "due process clause" of the Fifth
Amendment roughly equivalent to the "contracts clause." But the Federal
Government, under the specific grant of the bankruptcy power, is
relieved of inhibition in this field.5

9. Rules of Procedure Not Affected

It is a principle familiar to the lawyer that there are no vested
rights in remedies. Changes in procedure, in the length of statutes of
limitation, in the rules of evidence, in the means of enforcing
judgments and in many other matters are within the power of states,
regardless of private rights which may be affected. The "contracts
clause" has no effect to prevent such procedural changes. [L]
---------
L. While the contracts clause has no effect on procedural changes, it
might still be used to challenge substantive changes.
---------
It has been held, however, that the total abolition of a remedy such as
would render a contract right null, may not be accomplished. [M]
---------
M. Again, if there is no remedy, the alleged "contract" is not
"actionable" and is therefore not truly a contract.
---------
10. Contract and Property Rights

In this connection a distinction must be observed between contract
rights and property rights. Contracts create, primarily, rights in
personam, i.e., state-protected interests enforceable against the other
contracting party out of any property he then has or may acquire. [N]
Property rights attach to particular things. Even the bankruptcy power
may not annul vested rights in property; it may only cancel rights in
personam. 6[O]
---------
N. Whoa! A contract with any corporation (especially corporate
government) allows government to enforce against the contracting party
(you or me) by taking any property he has at the time of contract or
may later acquire! That's a fantastic, almost unlimited power of
enforcement based on nothing more than contracting with the government.

O. The distinction between contract rights and property rights is so
important that bankruptcy courts (the most powerful in the country) are
free to meddle endlessly with contract/in personam rights, but
apparently can't touch true property rights.

"Property rights in things" sound suspiciously dependent on legal title
to those things. The "in personam" rights, on the other hand, sound
like those of beneficiaries who have only an equitable interest in
trust property. This adds the faint scent of trusts to our
consideration of contracts.
---------
Thus, when the Supreme Court came to consider the moratoria legislation
passed in various states and by Congress during the Depression of
1930-34, it held void the Frazier-Lemke Act which purported virtually
to destroy the liens of mortgages (property rights) while upholding
laws which postponed foreclosures for a limited time. The latter
effect, indeed, as a matter of procedure, was probably within the
equity powers of the courts without enabling legislation.7
---------
1. The Federal Government and most States have set up courts of claims
or equivalent tribunals or have authorized suits on contracts in the
ordinary courts, in which contract claims may be adjudicated.

2. Dartmouth College v. Woodward, Wheaton 518 (1819).

3. Such agreements for limited

4. Sturges v. Crowninshield, Wheaton 122 (1819).

5. In similar manner the Federal Government, under the "money power,"
may devalue the currency and perform other acts which amount taking of
property or the impairment of contract rights.

6. See, however, herein the state's capacity to deal with property
under the Police Power (pages 143-144).

7. The "contracts clause" of the Federal Constitution has been
uniformly held not to apply to divorces. While the status of matrimony
is created by contract, marriage, itself, is not a contract; it is a
true status, in which rights and duties are fixed by law. As such it
has never been regarded as within the scope of the Constitutional
prohibition. Obviously it was never intended to divest the state of
jurisdiction over divorce.
---------
Well, what do you think? Was 'The National Law Library''s original text
as easy to read as I promised? As clear? Concise? Sure, it's not "See
Spot Run", but this is law. And as law goes, 'The National Law Library'
is more clearly written than any other legal books I've yet seen.

And what about the insights and implications? Have you ever before even
imagined that contracts may be the only method to relate to
corporations - especially corporate government? Have you read any other
books on law that offered so much understanding in so few pages? Page
for page, 'The National Law Library' offers more insight and
implication than any other legal text I've ever seen.

Yes, yes, yes - I'm trying to sell something and make a buck, but this
is no bull, 'The National Law Library' offers strong, strong material.
If you're interested in law and goverment, you need 'The National Law
Library'. 

If you agree, read the ads attached to this article. Give us a call for
credit card order or place a check in the mail. If nothing else, risk
just $5 and see if I'm not telling the truth.