292 U.S. 571 (1934), 855, Lynch v. United States

Docket Nº:No. 855
Citation:292 U.S. 571, 54 S.Ct. 840, 78 L.Ed. 1434
Party Name:Lynch v. United States
Case Date:June 04, 1934
Court:United States Supreme Court

Page 571

292 U.S. 571 (1934)

54 S.Ct. 840, 78 L.Ed. 1434



United States

No. 855

United States Supreme Court

June 4, 1934

Argued May 7, 1934




1. Policies of yearly renewable term insurance issued under the War Risk Insurance Act are not gratuities, but are contracts of the United States. P. 576.

2. Such valid contracts of the United States are property, and the rights of private individuals arising out of them are protected by the Fifth Amendment. P. 579.

3. Congress is without power to reduce expenditures by repudiating and abrogating the contractual obligations of the United States. P. 580.

4. Consent to sue the United States on a contract is not a part of the obligation of the contract which may not be impaired; it is a privilege accorded, not the grant of a property right protected by the Fifth Amendment, and may be withdrawn at any time. P. 580.

Page 572

5. Withdrawal of all remedy, administrative as well as judicial, for enforcement of a contract against the United States would not imply a repudiation of the contract. P. 582.

6. By the provision of § 17 of the Economy Act of March 20, 1933, purporting to repeal "all laws granting or pertaining to yearly renewable term insurance," Congress intended to take away the rights of beneficiaries under outstanding yearly renewable term policies, and not merely to withdraw their privilege to sue the United States in respect of such policies. P. 583.

7. This statutory provision, being void insofar as it purports to take away the contractual right, cannot, by the rules of construction, be given effect as a withdrawal of consent to suit, non constat that Congress would have wished to deny the remedy if it had realized that the contractual right remained valid. P. 586.

8. Section 5 of the Economy Act, providing:

All decisions rendered by the Administrator of Veterans' Affairs under the provisions of this title or the regulations issued pursuant thereto, shall be final and conclusive on all questions of law and fact, and no other official or court of the United States shall have jurisdiction to review by mandamus or otherwise any such decision,

does not relate to war risk insurance, but concerns only pensions, compensation allowances and special privileges, all of which are gratuities. P. 587.

67 F.2d 490; 68 id. 442, reversed.

Certiorari to review two judgments, in different circuits, which sustained the dismissal by District Courts of actions to recover amounts alleged to be due the beneficiaries of war risk term insurance policies.

Page 574

BRANDEIS, J., lead opinion

MR. JUSTICE BRANDEIS delivered the opinion of the Court.

These cases, which are here on certiorari, present for decision the same question. In each, the plaintiff is the beneficiary under a policy for yearly renewable term insurance1 issued during the World War pursuant to the War Risk Insurance Act of October 6, 1917, c. 105,

Page 575

Article IV, §§ 400-405 (40 Stat. 409). The actions were brought in April, 1933, in federal District Courts to recover amounts alleged to be due. In each case, it is alleged that the insured had, before September 1, 1919, and while the policy was in force, been totally and permanently disabled; that he was entitled to compensation sufficient to pay the premiums on the policy until it matured by death; that no compensation had ever been paid; that the claim for payment was presented by the beneficiary after the death of the insured; that payment was refused, and that thereby the disagreement arose which the law makes a condition precedent to the right to bring suit. In No. 855, which comes here from the Fifth Circuit, the insured died November 27, 1924. In No. 861, which comes here from the Seventh Circuit, the insured died May 15, 1929.

In each case, the United States demurred to the petition on the ground that the court was without jurisdiction to entertain the suit, because the consent of the United States to be sued had been withdrawn by the Act of March 20, 1933, c. 3, 48 Stat. 8, commonly called the Economy Act.

The plaintiffs duly claimed that the act deprived them of property without due process of law in violation of the Fifth Amendment. The District Courts overruled the objection, sustained the demurrers, and dismissed the complaints. Their judgments were affirmed by the Circuit Courts of Appeals. 67 F.2d 490; 68 F.2d 442. The only question requiring serious consideration relates [54 S.Ct. 842] to the construction and effect to be given to the clause of § 17 of the Economy Act upon which the government relies; for the character and incidents of War Risk Insurance and the applicable rules of constitutional law have been settled by decisions of this Court. The clause in question is:

. . . all laws granting or pertaining to yearly renewable term insurance are hereby repealed. . . .

Page 576

First. War Risk Insurance policies are contracts of the United States. As consideration for the government's obligation, the insured paid prescribed monthly premiums. White v. United States, 270 U.S. 175, 180. True, these contracts, unlike others, were not entered into by the United States for a business purpose. The policies granted insurance against death or total disability without medical examination at net premium rates based on the American Experience Table of Mortality and 3 1/2 percent interest; the United States bearing both the whole expense of administration and the excess mortality and disability cost resulting from the hazards of war. In order to effect a benevolent purpose, heavy burdens were assumed by the Government.2 But the policies, although not entered into for gain, are legal obligations of the same dignity as other contracts of the United States and possess the same legal incidents.

War Risk Insurance, while resembling in benevolent purpose pensions, compensation allowances, hospital and other privileges accorded to former members of he Army and Navy or their dependents, differs from them fundamentally

Page 577

in legal incidents. Pensions, compensation allowances, and privileges are gratuities. They involve no agreement of parties, and the grant of them creates no vested right. The benefits conferred by gratuities may be redistributed or withdrawn at any time in the discretion of Congress. United States v. Teller, 107 U.S. 64, 68; Frisbie v. United States, 157 U.S. 160, 166; United States v. Cook, 257 U.S. 523, 527. On the other hand, war risk policies, being contracts, are property, and create vested rights. The terms of these contracts are to be found in part in the policy, in part in the statutes under which they are issued and the regulations promulgated thereunder.

In order to promote efficiency in administration and justice in the distribution of war risk insurance benefits, the administration was given power to prescribe the form of policies and to make regulations. The form prescribed provided that the policy should be subject to all amendments to the original act, to all regulations then in force or thereafter adopted. Within certain limits of application, this form was deemed authorized by the Act, White v. United States, 270 U.S. 175, 180, and, as held in that case, one whose vested rights were not thereby disturbed could not complain of subsequent legislation affecting the terms of the policy. Such legislation has been frequent.3 Moreover, from time to time, [54 S.Ct. 843] privileges granted

Page 578

were voluntarily enlarged and new ones were given by the government.4 But no power to curtail the amount of the benefits which Congress contracted to pay was reserved to Congress, and none could be given by any regulation promulgated by the Administrator. Prior to the Economy Act, no attempt was made to lessen the obligation of the government.5 Then, Congress, by a clause of thirteen words included in a very long section dealing with gratuities, repealed "all laws granting or pertaining

Page 579

to yearly renewable term insurance." The repeal, if valid, abrogated outstanding contracts and relieved the United States from all liability on the contracts without making compensation to the beneficiaries.

Second. The Fifth Amendment commands that property be not taken without making just compensation. Valid contracts are property, whether the obligor be a private individual, a municipality, a state, or the United States. Rights against the United States arising out of a contract with it are protected by the Fifth Amendment. United States v. Central Pacific R. Co., 118 U.S. 235, 238; United States v. Northern Pacific Ry. Co., 256 U.S. 51, 64, 67. When the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals.6 That the contracts of war risk insurance were valid when made is not questioned. As Congress had the power to authorize the Bureau of War Risk Insurance to issue them, the due process clause prohibits the United States from annulling them, unless, indeed, the action taken falls within the federal police power or some other paramount power.7

[54 S.Ct. 844] The Solicitor General does not suggest either in brief or argument that there were supervening conditions

Page 580

which authorized Congress to abrogate these contracts in the exercise of the police or any other power. The title of the Act of March 20, 1933, repels any such suggestion. Although popularly known as the Economy Act, it is entitled an "Act to maintain the credit of the United States." Punctilious fulfillment of contractual obligations is essential to the maintenance of the credit of public, as well as private, debtors. No doubt there was,...

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