Chicago, B. & QR Co. v. McGuire, 219 U.S. 549 (1911)
Chicago, B. & QR Co. v. McGuire, 219 U.S. 549 (1911)
Chicago, B. & QR Co. v. McGuire, 219 U.S. 549 (1911)
549
31 S.Ct. 259
55 L.Ed. 328
The question presented is with respect to the validity of 2071 of the Code of
Iowa, as amended in the year 1898, which was held to preclude the railroad
company from making the defense that recovery was barred by the acceptance
of benefits under a contract of membership in its relief department.
'Every corporation operating a railway shall be liable for all damages sustained
by any person, including employees of such corporation, in consequence of the
neglect of the agents, or by any mismanagement of the engineers or other
employees thereof, and in consequence of the wilful wrongs, whether of
commission or omission, of such agents, engineers, or other employees, when
such wrongs are in any manner connected with the use and operation of any
railway on or about which they shall be employed, and no contract which
restricts such liability shall be legal or binding.'
'Nor Shall any contract of insurance relief, benefit or indemnity in case of injury
or death, entered into prior to the injury, between the person so injured and such
corporation, or any other person or association acting for such corporation, nor
shall the acceptance of any such insurance relief, benefit or indemnity by the
person injured, his widow, heirs, or legal representatives, after the injury, from
such corporation, person, or association, constitute any bar or defense to any
cause of action brought under the provisions of this section; but nothing
contained herein shall be construed to prevent or invalidate any settlement for
damages between the parties subsequent to injuries received.'
The question arose upon demurrer to the defense in the answer of the railroad
company, which asserted the bar denied by the statute. This defense, in
substance, alleged that in November, 1900, and prior to his injury, the
defendant in error had voluntarily become a member of the relief department of
the railroad company, and thereupon had agreed that the acceptance of benefits
payable to him in accordance with the regulations of the department should
discharge the company from all liability for damages; that after he had
sustained the injuries alleged in his petition, he had received benefits from the
relief fund of the department, amounting to $822; and that the payment and
acceptance of these benefits constituted, under the agreement, full satisfaction
of the claim in suit.
The facts with regard to the organization, purpose, and management of the
relief department, and the regulations governing it, were fully averred. The
department was organized in 1889, as a part of the service of the railroad
company, with the object of creating a fund out of which definite amounts of
money should be paid to contributing employees in the event of disability from
sickness or accident, or, in case of death, for their proper burial and the relief of
their families. The various companies forming the Burlington, system organized
similar departments, and by agreement these were associated in joint
administration.
10
The railroad company had general charge of the relief department, and
guaranteed the fulfilment of its obligations. It was responsible for the safekeeping of the moneys of the relief fund, paid into the fund interest at the rate
of 4 per centum per annum on monthly balances, supplied without expense to
the fund the necessary facilities for the business of the department, and
defrayed from the moneys of the company the operating expenses. It was
alleged that for these expenses the company had paid to December, 1900,
$621,572.44. This sum did not include office rent for the department or of
medical examiners or various sundry expenses; nor did it embrace the service
of officers and of clerks who were not wholly concerned with the work of the
department, and this service and incidental expenses were alleged to be worth
approximately $50,000 a year. In addition, during the period mentioned, the
railroad company paid to make up deficits in the fund the sum of $42,532.94,
for which it had no right to reimbursement.
11
Among the regulations by which the members of the relief department agreed
to be bound was the following:
12
13
'The acceptance by the member of benefits for injury shall operate as a release
and satisfaction of all claims against the company and all other companies
associated therewith, as aforesaid, for damages arising from or growing out of
such injury; and further, in the event of the death of a member, no part of the
death benefit or unpaid disability benefit shall be due or payable unless and
until good and sufficient releases shall be delivered to the superintendent, of all
claims against the relief department, as well as against the company and all
15
In support of the defense based upon this regulation, the railroad company
further asserted that the amended statute above quoted did not deprive it of the
right to plead the contract with the defendant in error, and its satisfaction, as a
discharge, for the reason that the statute was repugnant to the 14th Amendment
of the Constitution of the United States, (1) as an unwarranted interference with
liberty to make contracts, and (2) as a denial of the equal protection of the laws.
16
The district court overruled the demurrer, but its judgment was reversed by the
supreme court of the state, which held the statute to be valid, and, in
consequence, that the demurrer should have been sustained. McGuire v.
Chicago B. & Q. R. Co. 131 Iowa, 340, L.R.A.(N.S.) , 108 N. W. 902.
This ruling was adhered to when the question was again raised on the appeal to
that court from the final judgment. 138 Iowa, 664, 116 N. W. 801. And to
review this decision as to the constitutionality of the statute, the case has been
brought here.
17
We pass without comment the criticisms which are made of certain details of
the relief plan, for neither the suggested excellence nor the alleged defects of a
particular scheme may be permitted to determine the validity of the statute,
which is general in its application. The question with which we are concerned
is nor whether the regulations set forth in the answer are just or unjust, but
whether the amended statute transcends the limits of power as defined by the
Federal Constitution.
18
The first ground of attack is that the statute violates the 14th Amendment by
reason of the restraint it lays upon liberty of contract. This section of the Code
of Iowa ( 2071), as originally enacted, imposed liability upon railroad
corporations for injuries to employees, although caused by the negligence or
mismanagement of fellow servants. And it was held by this court that it was
clearly within the competency of the legislature to prescribe this measure of
responsibility. Minneapolis & St. L. R. Co. v. Herrick, 127 U. S. 210, 32 L. ed.
109, 8 Sup. Ct. Rep. 1176, following Missouri P. R. Co. v. Mackey, 127 U. S.
205, 32 L. ed. 107, 8 Sup. Ct. Rep. 1161. The statute in its original form also
provided that 'no contract which restricts such liability shall be legal or
binding.'
19
20
Manifestly, the decision that the existing statute was not broad enough to
embrace the inhibition did not prevent the legislature from enlarging its scope
so that it should be included. Nor was the holding of the court final upon the
point of public policy, so far as the power of the legislature is concerned. The
legislature, provided it acts within its constitutional authority, is the arbiter of
the public policy of the state. While the court, unaided by legislative
declaration, and applying the principles of the common law, may uphold or
condemn contracts in the light of what is conceived to be public policy, its
determination as a rule for future action must yield to the legislative will when
expressed in accordance with the organic law. If the legislature had the power
to incorporate a similar provision in the statute when it was passed originally, it
had the same power with regard to future transactions to enact the amendment.
21
It may also be observed that the statute, as amended, does not affect contracts
of settlement or compromise, made after the injury, and the question of the
extent of the legislative power with respect to such contracts is not presented.
The amendment provides: 'But nothing contained herein shall be construed to
prevent or invalidate any settlement for damages between the parties
subsequent to injuries received.' As was said by the state court in construing the
act (131 Iowa, p. 377): 'The legislature does not in this act forbid or place any
obstacle in the way of such insurance, nor does it forbid or prevent any
settlement of the matter of damages with an injured employee, fairly made after
the injury is received. On the contrary, the right to make such settlement is
expressly provided for in the amendment to Code, 2071. The one thing which
that amendment was intended to prevent was the use of this msurance or relief
for which the employee has himself paid in whole or in part, as a bar to the right
which the statute has given him to recover damages from the corporation.' It is
urged, however, that the amendatory act prohibits the making of a contract for
settlement 'by acts done after the liability had become fixed.' The acceptance of
benefits is, of course, an act done after the injury, but the legal consequences
sought to be attached to that act are derived from the provision in the contract
of membership. The stipulation which the statute nullifies is one made in
advance of the injury, that the subsequent acceptance of benefits shall constitute
full satisfaction of the claim for damages. It is in this aspect that the question
arises as to the restriction of liberty of contract.
22
It has been held that the right to make contracts is embraced in the conception
of liberty as guaranteed by the Constitution. Allgeyer v. Louisiana, 165 U. S.
578, 41 L. ed. 832, 17 Sup. Ct. Rep. 427; Lochner v. New York, 198 U. S. 45,
49 L. ed. 937, 25 Sup. Ct. Rep. 539, 3 A. & E. Ann. Cas. 1133; Adair v. United
States, 208 U. S. 161, 52 L. ed. 436, 28 Sup. Ct. Rep. 277, 13 A. & E. Ann.
Cas. 764. In Allgeyer v. Louisiana, supra, the court, in referring to the 14th
Amendment, said (p. 589): 'The liberty mentioned in that Amendment means
not only the right of the citizen to be free from the mere physical restraint of his
person, as by incarceration, but the term is deemed to embrace the right of the
citizen to be free in the enjoyment of all his faculties; to be free to use them in
all lawful ways; to live and work where he will; to earn his livelihood by any
lawful calling; to pursue any livelihood or avocation, and for that purpose to
enter into all contracts which may be proper, necessary, and essential to his
carrying out to a successful conclusion the purposes above mentioned.' But it
was recognized in the cases cited, as in many others, that freedom of contract is
a qualified, and not an absolute, right. There is no absolute freedom to do as one
wills or to contract as one chooses. The guaranty of liberty does not withdraw
from legislative supervision that wide department of activity which consists of
the making of contracts, or deny to government the power to provide restrictive
safeguards. Liberty implies the absence of arbitrary restraint, not immunity
The right to make contracts is subject to the exercise of the powers granted to
Congress for the suitable conduct of matters of national concern; as, for
example, the regulation of commerce with foreign nations and among the
several states. Addyston Pipe & Steel Co. v. United States, 175 U. S. 228-231,
44 L. ed. 142-144, 20 Sup. Ct. Rep. 96; Patterson v. The Eudora, 190 U. S.
174-176, 47 L. ed. 1006, 1007, 23 Sup. Ct. Rep. 821; Atlantic Coast Line R.
Co. v. Riverside Mills, 219 U. S. 186, 55 L. ed. , 31 Sup. Ct. Rep. 164;
Louisville & N. R. Co. v. Mottley (decided this day) 219 U. S. 467, 55 L. ed.
, 31 Sup. Ct. Rep. 265.
24
smelters and other institutions for the reduction or refining of ores or metals, to
eight hours a day, except in cases of emergency (Holden v. Hardy, 169 U. S.
366, 42 L. ed. 780, 18 Sup. Ct. Rep. 383); in prohibiting the sale of cigarettes
without license (Gundling v. Chicago, 177 U. S. 183, 44 L. ed. 725, 20 Sup. Ct.
Rep. 633); in requiring the redemption in cash of store orders or other
evidences of indebtedness issued in payment of wages (Knoxville Iron Co. v.
Harbison, 183 U. S. 13, 46 L. ed. 55, 22 Sup. Ct. Rep. 1); in prohibiting
contracts for options to sell or buy grain or other commodity at a future time
(Booth v. Illinois, 184 U. S. 425, 46 L. ed. 623, 22 Sup. Ct. Rep. 425); in
prohibiting the employment of women in laundries more than ten hours a day
(Muller v. Oregon, 208 U. S. 412, 52 L. ed. 551, 28 Sup. Ct. Rep. 324, 13 A. &
E. Ann. Cas. 957); and in making it unlawful to contract to pay miners
employed at quantity rates upon the basis of screened coal, instead of the
weight of the coal as originally produced in the mine. (McLean v. Arkansas,
211 U. S. 539, 53 L. ed. 315, 29 Sup. Ct. Rep. 206.
25
The principle involved in these decisions is that where the legislative action is
arbitrary and has no reasonable relation to a purpose which it is competent for
government to effect, the legislature transcends the limits of its power in
interfering with liberty of contract; but where there is reasonable relation to an
object within the governmental authority, the exercise of the legislative
discretion is not subject to judicial review. The scope of judicial inquiry in
deciding the question of power is not to be confused with the scope of
legislative considerations in dealing with the matter of policy. Whether the
enactment is wise or unwise, whether it is based on sound economic theory,
whether it is the best means to achieve the desired result, whether, in short, the
legislative discretion within its prescribed limits should be exercised in a
particular manner, are matters for the judgment of the legislature, and the
earnest conflict of serious opinion does not suffice to bring them within the
range of judicial cognizance.
26
The principle was thus stated in McLean v. Arkansas, supra, pp. 547, 548: 'The
legislature, being familiar with local conditions, is, primarily, the judge of the
necessity of such enactments. The mere fact that a court may differ with the
legislature in its views of public policy, or that judges may hold views
inconsistent with the propriety of the legislation in question, affords no ground
for judicial interference, unless the act in question is unmistakably and palpably
in excess of legislative power [Cases cited.] . . . If there existed a condition of
affairs concerning which the legislature of the state, exercising its conceded
right to enact laws for the protection of the health, safety, or welfare of the
people, might pass the law, it must be sustained; if such action was arbitrary
interference with the right to contract or carry on business, and having no just
relation to the protection of the public within the scope of legislative power, the
act must fail.'
27
In dealing with the relation of employer and employed, the legislature has
necessarily a wide field of discretion in order that there may be suitable
protection of health and safety, and that peace and good order may be promoted
through regulations designed to insure wholesome conditions of work and
freedom from oppression. What differences, as to the extent of this power, may
exist with respect to particular employments, and how far that which may be
authorized as to one department of activity may appear to be arbitrary in
another must be determined as cases are presented for decision. But it is well
established that, so far as its regulations are valid, not being arbitrary or
unrelated to a proper purpose, the legislature undoubtedly may prevent them
from being nullified by prohibiting contracts which, by modification or waiver,
would alter or impair the obligation imposed. If the legislature may require the
use of safety devices, it may prohibit agreements to dispense with them. If it
may restrict employment in mines and smelters to eight hours a day, it may
make contracts for longer service unlawful. In such case the interference with
the right to contract is incidental to the main object of the regulation, and if the
power exists to accomplish the latter, the interference is justified as an aid to its
exercise. As was pointed out in Holden v. Hardy, supra, on page 397: 'The
legislature has also recognized the fact, which the experience of legislators in
many states has corroborated, that the proprietors of these establishments and
their operatives do not stand upon an equality, and that their interests are, to a
certain extent, conflicting. The former naturally desire to obtain as much labor
as possible from their employees, while the latter are often induced by the fear
of discharge to conform to regulations which their judgment, fairly exercised,
would pronounce to be detrimental to their health or strength. In other words,
the proprietors lay down the rules and the laborers are practically constrained
to obey them. In such cases selfinterest is often an unsafe guide, and the
legislature may properly interpose its authority. . . . But the fact that both
parties are of full age and competent to contract does not necessarily deprive
the state of the power to interfere where the parties do not stand upon an
equality, or where the public health demands that one party to the contract shall
be protected against himself. 'The state still retains an interest in his welfare,
however reckless he may be. The whole is no greater than the sum of all the
parts, and when the individual health, safety, and welfare are sacrificed or
neglected, the state must suffer."
28
the case of railroad corporations. It defined the liability of such corporations for
injuries resulting from negligence and mismanagement in the use and operation
of their railways. In the cases within its purview it extended the liability of the
common law by abolishing the fellow-servant rule. Having authority to
establish this regulation, it is manifiest that the legislature was also entitled to
insure its efficacy by prohibiting contracts in derogation of its provisions. In the
exercise of this power, the legislature was not limited with respect either to the
form of the contract, or the nature of the consideration, or the absolute or
conditional character of the engagement. It was as competent to prohibit
contracts which, on a specified event, or in a given contingency, should operate
to relieve the corporation from the statutory liability which would otherwise
exist, as it was to deny validity to agreements of absolute waiver.
29
The policy of the amendatory act was the same as that of the original statute. Its
provision that contracts of insurance relief, benefit or indemnity, and the
acceptance of such benefits, should not defeat recovery under the statute, was
incidental to the regulation it was intended to enforce. Assuming the right of
enforcement, the authority to enact this inhibition cannot be denied. If the
legislature had the power to prohibit contracts limiting the liability imposed, it
certainly could include in the prohibition stipulations of that sort in contracts of
insurance relief, benefit or indemnity, as well as in other agreements. But if the
legislature could specifically provide that no contract for insurance relief
should limit the liability for damages, upon what ground can it be said that it
was beyond the legislative authority to deny that effect to the payment of
benefits, or the acceptance of such payment, under the contract?
30
The asserted distinction is sought to be based upon the fact that under the
contract of membership, the employee has an election after the injury. But this
circumstance, however appropriate it may be for legislative consideration,
cannot be regarded as defining a limitation of legislative power. The power to
prohibit contracts, in any case where it exists, necessarily implies legislative
control over the transaction, despite the action of the parties. Whether this
control may be exercised in a particular case depends upon the relation of the
transaction to the execution of a policy which the state is competent to
establish. It does not aid the argument to describe the defense as one of accord
and satisfaction. The payment of benefits is the performance of the promise to
pay, contained in the contract of membership. If the legislature may prohibit
the acceptance of the promise as a substitution for the statutory liability, it
should also be able to prevent the like substitution of its performance.
31
For the reasons we have stated, the considerations which properly bear upon
the wisdom of the legislation need not be discussed. On the one hand it is said
that the relief department is in the control of the corporation; that by reason of
their exigency the employees may readily be constrained to become members;
that the relief fund consists in larger part of contributions made from wages;
that the acceptance of benefits takes place at a time when the employee is
suffering from the consequences of his injury, and, being seriously in need of
aid, he may easily be induced to accept payment from the fund in which, by
reason of his contributions, he feels that he is entitled to share; and that such a
plan, if were permitted, through the payment of benefits, to result in a discharge
of the liability for negligence, would operate to transfer from the corporation to
its employees a burden which, in the interest of their protection and the safety
of the public, the corporation should be compelled to bear. On the other hand,
it is urged that the relief plan is a beneficent scheme, avoiding the waste of
litigation, securing prompt relief in case of need due to sickness or injury,
making equitable provision for deserving cases, and hence tends in an
important way to promote the good of the service and the security of the
employment. Even a partial statement of these various considerations shows
clearly that they are of a character to invoke the judgment of the legislature in
deciding, within the limits of its power, upon the policy of the p*265 state. And
whether the policy declared by the statute in question is approved or
disapproved, it cannot be said that the legislative power has been exceeded,
either in defining the liability or in the means taken to prevent the legislative
will, with respect to it, from being thwarted.
32
The second ground upon which the statute, as amended, is assailed, is that it
constitutes a denial of the equal protection of the laws.
33
It is urged that the prohibition of the amendatory act applies only to those
employees of railroad corporations who were embraced within the provision of
the original statute, and to the enforcement of the particular liabilities which
that statute defined. The limitation to a particular class of employees of railroad
corporations is based upon the decisions of the state court that the benefits of
the original statute were confined to those who were engaged in the hazardous
business of operating railroads. Deppe v. Chicago, R. I. & P. R. Co. 36 Iowa,
52; Malone v. Burlington, C. R. & N. R. Co. 65 Iowa, 417, 54 Am. Rep. 11, 21
N. W. 456; Akeson v. Chicago, B. & Q. R. Co. 106 Iowa, 54, 75 N. W. 676. It
is said that all employees of the plaintiffs in error may become members of the
relief department, and that the limited application of the amendment, as to the
effect of the acceptance of benefits under the membership contract, is an invalid
discrimination.
34
defined, to limit it to those cases in which the liability arose. As the purpose of
the amendment was to supplement the original statute, the classification was
properly the same. And with respect to subsequent transactions, the amendment
must be regarded as having the same validity as it would have had if it had
formed a part of the earlier enactment. No criticism on the ground of
discrimination can successfully be addressed to the amendatory act which
would not likewise impeach the statute in its earlier form.
35
But the propriety of the classification of the original statute was considered and
upheld by this court. And the validity of legislation abrogating the fellowservant rule, both with respect to the class of cases embraced in the statute, and
also where it is abolished as to railway employees generally, has been
sustained. Minneapolis & St. L. R. Co. v. Herrick, 127 U. S. 210, 32 L. ed. 109,
8 Sup. Ct. Rep. 1176; Missouri P. R. Co. v. Mackey, 127 U. S. 205, 32 L. ed.
107, 8 Sup. Ct. Rep. 1161; Louisville & N. R. Co. v. Melton, 218 U. S. 36, 54
L. ed. 921, 30 Sup. Ct. Rep. 676; Mobile, J. & K. C. R. Co. v. Turnipseed, 219
U. S. 35, 55 L. ed. , 31 Sup. Ct. Rep. 136. In view of the full discussion of
this subject in the recent decisions above cited, nothing further need be said
upon this point.
36
We find none of the objections which have been made to the validity of the
amendatory act to be well taken, and the judgment is therefore affirmed.