101 U.S. 814 (1880), argued 4–5 Mar. 1880, decided 10 May 1880 by vote of 8 to 0; Waite for the Court; Hunt not participating. Chief Justice John Marshall and the early Supreme Court brought both public and private contracts within the scope of the Contract Clause. The dilemma posed by the undifferentiated inclusion of all contracts, public or private, within the clause came before the Court in Stone. In 1867, the provisional, post-Civil War government of Mississippi had granted to a corporation, with which John B. Stone was associated, a twenty-five year charter to conduct a lottery. The following year, the state adopted a new Constitution that prospectively and retrospectively prohibited all lottery activity. Stone ignored the new state constitutional provision and the state attorney general obtained an order precluding the lottery, which the Mississippi Supreme Court upheld.
Affirming the judgment, the U.S. Supreme Court stated that it was “too late” to contend that public contracts were not within the prohibition of contractual impairments (p. 816). Instead, the Court held that the state legislature could not bargain away by contract the inalienable police power. Admitting difficulty defining the extent of this reservation the Court concluded that the police power included the prohibition of a lottery that presented a grave injury to public morals. The Court further ruled that persons who ran lotteries pursuant to a state charter had merely a license or privilege, not a contract. Thus, the effect of Stone was a narrowing, but not an abandonment, of the application of the clause to public contracts.