165 U.S. 578 (1897), submitted 6 Jan. 1897, decided 1 Mar. 1897 by vote of 9 to o; Peckham for the Court. In Allgeyer v. Louisiana the Supreme Court for the first time ruled a state law unconstitutional for depriving a person of the right to make contracts. The case arose in Louisiana, which like other states prohibited businesses from operating within its jurisdiction unless they met certain conditions. To enforce this policy, Louisiana made it illegal for Louisianans to enter into certain insurance contracts by mail with companies operating outside the state. Allgeyer & Co. was prosecuted for entering into such an insurance contract with a New York company.
The Court had earlier held that insurance was not interstate commerce and so could not rule the Louisiana law unconstitutional for invading national jurisdiction. Instead, the Court held that the contract was effected in New York and lawful under New York. The Court then held that the Due Process Clause of the Fourteenth Amendment guaranteed the right to enter into lawful contracts.
Allgeyer v. Louisiana became the key case establishing the doctrine of “liberty of contract.” Although the opinion itself only declared that the right to make lawful contracts was a liberty protected by the Due Process Clause, the courts developed the principle that freedom of contract was the rule and restraint the exception, the reasonability of which states had to justify. Employers regularly cited this principle to challenge legislation regulating terms of employment—setting maximum working hours or minimum wages, for example. Until the mid-1930s such challenges often were successful.
Michael Les Benedict