Chief Justice John Marshall's 1810 decision in Fletcher v. Peck arose from the Yazoo Land Fraud, in which the Georgia legislature voted in 1795 to sell 35 million acres of land (in what is now Alabama and Mississippi) to four private companies. The Yazoo land, named after a major river running through it, was sold at bargain rates (less than two cents per acre). Many Georgia legislators had been bribed to offer such good terms: many of them received stock in one of the companies; others received cash payments.
U.S. Senator James Jackson of Georgia returned from the capital in Philadelphia to run for the state legislature and lead the fight against the Yazoo fraud. Angry Georgia voters turned the legislators who voted to sell the land out of office and the new legislature, at the instigation of Jackson, repealed the grant in 1796. In the interim, however, much of the land had been sold one or two times, and the new property owners—many of whom had paid as much as sixteen cents per acre—now claimed they were innocent victims of the Georgia legislature's repeal. But proponents of the repeal claimed that the subsequent purchasers had known about the circumstances of the fraud (the story was reported throughout the nation) and thus could not claim to be innocent purchasers.
The Yazoo fraud took on national dimensions when the purchasers asked Congress to compensate them from their losses. Federalists, who generally supported property rights more vigorously than Jeffersonian Republicans, opposed the repeal. Meanwhile, the four land companies that had purchased the land sought to challenge the repeal by concocting a lawsuit. John Peck, an investor in the New England Mississippi Company (one of the grantees in 1795), sold land to Robert Fletcher (another investor in the same company). In his lawsuit Fletcher presented himself to the court as innocent of the wrongdoing and claimed that he was being deprived of his property rights. The repeal by the Georgia Legislature thus pitted subsequent purchasers against initial grantees.
Marshall's opinion invalidated Georgia's repeal, using two arguments: "Georgia was restrained, either by general principles . . . common to our free institutions" or by article I, section 10 (the Contracts Clause), of the U.S. Constitution (Fletcher v. Peck, 10 U.S. 87, 139 [1810]). The "general principles" included the idea that innocent subsequent purchasers should not be deprived of their property. As Marshall said, "He has paid his money for a title good at law, he is innocent, whatever may be the guilt of others, and equity will not subject him to the penalties attached to that guilt" (Fletcher, 10 U.S. at 133).
Marshall also broadly construed the Contracts Clause, which prohibits states from passing a "law impairing the obligation of contracts." The initial understanding of that clause appears to have been that states could not interfere with contracts among private parties; it seemed to have no bearing on contracts between the government and individuals. Thus when Fletcher proclaimed the power of federal courts to protect legislated contracts from interference, it marked an expansion of the Contracts Clause. In praise of the Contracts Clause, Marshall wrote, "The people of the United States, in adopting the instrument, have manifested a determination to shield themselves and their property from the effects of those sudden and strong passions to which men are exposed" (Fletcher, 10 U.S. at 138).
For Marshall and other Federalists, the Constitution was a support against the passions of legislatures. Subsequent cases, like Dartmouth College v. Woodward (1819) and Ogden v. Saunders (1827) applied the Contracts Clause to prohibit legislative interference in state charters and bankruptcy. The Contracts Clause thus became an important vehicle for judges (particularly those of the Federalist and later Whig Parties) to protect property rights.