Allgeyer v. Louisiana

Supreme Court of United States
165 U.S. 578 (1897)

ELI5:

Rule of Law:

The Due Process Clause of the Fourteenth Amendment protects the liberty to contract, which includes the right of a citizen to make a contract outside of their state that is valid in the place of its creation, and a state cannot prohibit incidental acts performed within its borders to carry out such a valid out-of-state contract.

Facts:

E. Allgeyer & Co. was an exporter of cotton operating in Louisiana.
Allgeyer & Co. entered into an open marine insurance policy with the Atlantic Mutual Insurance Company of New York, a company not licensed to do business in Louisiana.
The insurance contract was made and to be performed in New York.
The policy required Allgeyer & Co. to provide notice to the insurance company of specific shipments of cotton it wished to have covered under the policy.
While in Louisiana, Allgeyer & Co. mailed a letter of notification to the Atlantic Mutual Insurance Company in New York to insure a specific shipment of cotton.

Procedural Posture:

The State of Louisiana filed a petition against E. Allgeyer & Co. in a Louisiana state trial court, seeking a penalty for violating a state statute.
The trial court entered judgment in favor of the State of Louisiana.
E. Allgeyer & Co. (appellant) appealed to the Supreme Court of Louisiana.
The Supreme Court of Louisiana affirmed the trial court's judgment, upholding the constitutionality of the state statute.
E. Allgeyer & Co. sought review from the U.S. Supreme Court by a writ of error.

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Issue:

Does a state statute that penalizes a resident for mailing a notification letter within the state to an unlicensed, out-of-state insurance company, in order to effectuate coverage under a valid insurance contract that was made outside the state, violate the liberty protected by the Due Process Clause of the Fourteenth Amendment?

Opinions:

Majority - Mr. Justice Peckham

Yes, the state statute violates the liberty protected by the Due Process Clause of the Fourteenth Amendment. The 'liberty' mentioned in the Fourteenth Amendment encompasses more than just freedom from physical restraint; it includes the right of a citizen to enjoy their faculties, pursue any lawful calling, and enter into all contracts proper, necessary, and essential to those pursuits. The insurance contract at issue was validly made in New York, outside Louisiana's jurisdiction. The act of mailing a notification letter from within Louisiana was not the formation of a contract, but rather a collateral act performed pursuant to a valid, pre-existing contract. A state's police power cannot extend to prohibiting its citizens from making valid contracts outside its jurisdiction or from performing incidental acts within the state to fulfill the terms of such contracts.

Analysis:

This case is historically significant as the first instance in which the Supreme Court interpreted the 'liberty' of the Fourteenth Amendment's Due Process Clause to include an economic right: the 'liberty of contract'. This decision laid the groundwork for the Lochner era, a period where the Court used the doctrine of substantive due process to strike down numerous state economic regulations, such as minimum wage and maximum hour laws, on the grounds that they infringed upon this freedom. It expanded the scope of due process from purely procedural protections to a substantive check on the power of legislatures to regulate the economy.

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