My forthcoming book, Scoundrels: Political Scandals in American History, covers political as well as sexual scandals. One of the worst of the political scandals involved a fraudulent land deal early in our history. In 1795, a group of Georgia state legislators accepted bribes from four private land companies to enact a law that allowed the sale of land from the state’s western boundaries at prices far below market value. When the public learned of the fraudulent sales, angry citizens expressed their sense of outrage by turning out most of the legislature in the next election. Seeking to rectify the damage, the new legislature attempted to rescind the sale by enacting a law invalidating the previous law. Unfortunately, most of the land already had been conveyed to third parties, who argued they were bona fide purchasers that had acquired the property in good faith.
The claims between the state of Georgia and the land companies continued well into the next decade. A case eventually made its way to the United States Supreme Court. Robert Fletcher bought a tract of the disputed land from speculator John Peck in 1795. Unable to use or convey his property free and clear of encumbrances, Fletcher sued Peck, charging that Peck had sold him land without clear title. In a landmark United States Supreme Court case, Fletcher v. Peck, Chief Justice John Marshall wrote an opinion finding that the Contract Clause of the United States Constitution did not allow a state to void contracts for the transfer of land, even though the land was secured through illegal bribery. It was one of the most important Supreme Court cases on the sanctity of contracts in the court’s history.
Speculators had been trading in land since early in the eighteenth century. As people flooded into an undeveloped area in search of arable land, speculators snatched up parcels as quickly as they could, intent on reselling the land for higher prices. Because land titles often were not free and clear of encumbrances, speculation carried huge risks. An unlucky speculator might be left holding the bag if he failed to flip the purchase before a defect in the chain of ownership were found, or if state legislators regulated land sales. For the crafty speculator, buying cheap land and quickly reselling it for a handsome profit could be lucrative if the timing worked in his favor.
Ownership of Georgia’s western lands in the 1780s was murky and ripe for exploitation by unscrupulous adventurers. The parameters of the western boundary were unclear, but the state claimed tens of thousands of acres even though it had no means of enforcing the claim. Aware of the confusion, state legislators sought to determine the state’s boundaries after the Revolutionary War ended. New residents flocking into the area were desperate to develop tracts of land, but they needed assurances that their purchases were legitimate and legally enforceable. Georgia had claimed a swath of land westward to the Mississippi River, which included an area comprising the later states of Alabama and Mississippi. The claim was complicated because Native American tribes living in those areas believed that the land belonged to them. Spain also had staked out claims.
Although much of the land was uninhabitable in its current state, one area that seemed suitable for settlement was the land around present-day Vicksburg, Mississippi, where the Yazoo River flows into the Mississippi River. Over time, the name “Yazoo lands” or the “Yazoo line” became a shorthand reference to all of Georgia’s western lands.
For a sparsely populated state such as Georgia to insist that it owned all lands extending from the city of Savannah on the Atlantic coast to the Mississippi River was audacious in the 1780s. Surrounded by Native American tribes to the east and west, and facing Spanish claims down south in Florida, Georgia state government barely functioned. Enforcing its land claims was virtually impossible. No one who understood the situation believed that the state would or could do anything to retaliate against an entity that interfered with the alleged western boundary.
The state legislature encouraged new residents to settle down in Georgia, and, as an inducement, land was cheap. As larger numbers of white settlers arrived, the number of able-bodied men to serve in the state militia increased. The militia was necessary to keep the tribes in line and provide a disincentive for industrious Spanish troops to wander up from South Georgia in search of an easy land grab. The law originally limited the available acreage to 1,000 acres per individual settler, but speculators easily circumvented that figure, especially in the western lands.
In 1784 and 1785, the state of Georgia attempted to establish counties in what later became Alabama and Mississippi, but those efforts came to naught. By the mid-1780s, the state legislature became increasingly concerned about the Yazoo lands. Fearful that their claims would dissolve owing to the state’s inability to enforce the boundary, legislators resolved to accept the first reasonable offer that came along. When the Confederation Congress showed no interest in acquiring the land because it was too remote to be useful, the only viable option was to allow private land speculators to submit proposals and sell out to a commercial enterprise.
Private land companies submitted proposals to the state legislature in November 1789. Among the competitors, the South Carolina Yazoo Company, headed by Thomas Washington (who also used the alias Walsh), was a notorious land speculation venture with a reputation for predatory business practices. Alexander Moultrie, the attorney general of South Carolina, partnered with the company. Patrick Henry and seven other partners formed the Virginia Yazoo Company and submitted a proposal, as did the Tennessee Yazoo Company.
Using their considerable political connections, the land companies pushed a bill through the state legislature approving their proposals. Georgia Governor George Walton signed the bill into law on December 21, 1789. Under the terms of the agreement, the South Carolina Yazoo Company received 10 million acres of land stretching between the Mississippi River and the Tombigbee River for just under $67,000. The Virginia Yazoo Company captured 11 million acres north of the South Carolina Yazoo Company’s claim in return for $94,000. The Tennessee Yazoo Company procured four million acres around Muscle Shoals for $47,000.
Their deal eventually fell through owing to disputes over financing, but speculators remained interested in acquiring Georgia’s western acreage. For the next five years, the original problems with the western lands remained. Georgia lacked a stable government; therefore, the state legislature had no way to enforce laws or decrees. Native American unrest occasionally led to armed clashes, and the legislature was desperately short of funds. A desire to engineer a sale remained strong, but the challenges were daunting.
Enter James Gunn. The proverbial poor-boy-made-good, he had a large personality and an even larger desire to brawl and duel with his opponents. Gunn served in the Continental Army during the Revolutionary War and eventually became a lawyer in Savannah before winning election to the United States Senate representing Georgia in the first Congress. A Federalist, Gunn supported a robust federal government that would promote elite interests. As soon as the state legislature reelected him to the United States Senate—state legislators selected United States senators until 1913—he aggressively promoted a new scheme to sell off the Yazoo lands. Recognizing that the enterprise was politically perilous, Gunn was willing to take the risk because the rewards promised to be astronomical. He vowed to avoid the same type of brouhaha that had ensued in 1789.
He was nothing if not bold, and he had been planning for the purchase ahead of his Senate reelection. In November 1794, Gunn and two partners created the Georgia Company and joined with other group, the Georgia Mississippi Company, headed by a speculator named Thomas Glascock. Gunn’s group planned to purchase a land mass equal to approximately half of the present-day states of Alabama and Mississippi while Glascock’s organization would purchase land below Gunn’s claim, an area encompassing the old South Carolina Yazoo grant. Together, the two companies would pay $400,000, with $80,000 of that sum provided as a down payment.
Gunn also negotiated with John B. Scott of the Virginia Yazoo Company, who sought to revive his 1789 claim. Zachariah Cox of the Tennessee Yazoo Company soon engaged in talks as well. His company also wanted to resurrect its original proposal. Gunn’s goal was to present a single, unified package to the legislature. He knew that Georgia’s leaders were anxious to resolve the issue, and his plan would enjoy a greater likelihood of success if he could simplify the transaction.
To that end, all the land companies agreed to the same stipulations. They would pay 2.33 cents per acre for 40 million acres, with 20 percent due up front and the balance due on November 1, 1795, the last day of the legislative session. Gunn fervently hoped that a new legislature in 1796 would not modify the sale, especially if the contracts were signed and the money in hand by year’s end. To ensure that the deal would not become embroiled in controversy about the manner of payment, which had doomed the 1789 venture, the contracts specified that the companies would remit payment in United States bank bills.
The deal initially went according to plan. On December 8, 1794, a legislative joint committee reported favorably on the package, although the committee allowed for the possibility that other companies could submit late proposals. They would be considered if they provided terms favorable to the state. To ensure that other companies would not snatch all or part of the deal away from the four land companies, Gunn promised to reserve a million acres of land for sale to Georgia citizens.
The state legislature gathered the four companies’ proposals into a single bill for consideration. Following the second reading, the deal appeared to be completed when, suddenly, a rival group of speculators emerged. This new group, the Georgia Union Company, pledged to pay $500,000 for the lands identified in Gunn’s and Glascock’s proposals—$100,000 more than their offer—plus, the company would set aside five million acres for Georgians to purchase land. This generous proposal threatened to derail Gunn’s carefully laid plans. He was saved when the Georgia Union Company failed to produce the required down payment by the deadline. It had been an uncomfortably close call.
On December 20, 1794, the bill, having passed both legislative chambers, landed on the desk of Georgia Governor George Mathews. Much to Gunn’s consternation, the governor vetoed the bill on December 29. As Mathews explained in his veto message, the price was “inadequate to the value of the lands.” Moreover, the acreage reserved for Georgians was too small. He also objected to the lack of public notice for the sale. In Mathews’ opinion, notice probably would have brought out additional rivals, which would have driven up the price for the entire parcel.
Gunn scrambled to work his legislative contacts. The Georgia House of Representatives appointed a committee of five to approach the governor to determine whether they could assuage his concerns. After two conferences, the legislators produced a modified bill, which was joined with a measure to allow state troops to be paid with part of the land. It was styled as a supplementary state troops act, presumably to disguise the sale and provide political cover. Who could object to a patriotic bill to reward state troops for their service in policing state boundaries?
Governor Mathews certainly did not object. He was in an awkward position with the new bill. If he vetoed the measure because of concerns about the land deal, he would cut off funding for the troops who were tasked with defending the state’s borders. No doubt he was not completely satisfied with the legislation, but on balance he thought it worth signing. On January 7, 1795, he did exactly that, allowing 35 million acres of western lands to be sold to private companies in the Yazoo Act.
The Virginia Yazoo Company withdrew its offer before the law went into effect, and its agents formed a new concern, the Upper Mississippi Company, which submitted a proposal under the supplementary act. Of the total purchase price of $500,000, the Georgia Company paid $250,000; the Georgia Mississippi Company, $155,000; the Upper Mississippi Company, $35,000; and the Tennessee Company, $60,000. Altogether, they put up a $98,000 down payment. The Georgia Union Company again offered a counterproposal on more favorable terms, but, again, the consortium failed to provide a sufficient down payment. The legislature rejected the proposal, and the deal with the four land companies moved ahead.
From the outset, critics argued that the deal was rife with corruption and self-dealing. It soon became clear that James Gunn and his associates had circulated throughout the bars, taverns, and hallways where legislators met in Augusta, the temporary state capital. When a legislator waffled in his support, Gunn or his agent offered a sweetened deal. The waffler could have a share of the land at a favorable price. An astute recipient might choose to sell his share at a higher price, use the proceeds to pay for the original purchase, and pocket the difference. Numerous legislators became land speculators owing to Gunn’s inducements. Because they were trading their support for a land speculation scheme in exchange for a stake in that same scheme, the enterprise became a testament to corruption.
As soon as the public learned of the sale, signified by the governor’s signature on the Yazoo legislation, an uproar ensued. The Washington administration grumbled about a state selling property, but it was the citizens of Georgia who felt especially betrayed. United States Senator James Jackson, a long-time rival of his colleague, Senator Gunn, joined with the anti-Yazoo forces to consider nullifying the deal. Jackson had opposed the measure all along, denouncing the bill in January 1795 as “a confiscation Act of the rights of your Children & mine, & unborn Generations, to supply the rapacious graspings of a few sharks.” He outlined a strategy for opponents of the Yazoo sale, predicting that “the day will come when another and more pure & virtuous Legislature, will make null & void this sale of birthright—for in my opinion the Legislature will constitutionally have a right to do so.”
Jackson became so involved in the anti-Yazoo effort that he resigned from the Senate to devote his time and energies to the cause. Arguing that voters should remove state legislators who voted to sell the Yazoo lands, Jackson offered himself as a candidate for state office. He won. Jackson proved to be an effective speaker in the Georgia House of Representatives. Recognizing that the series of land transactions were too complex for many citizens to understand, Jackson became adept at characterizing the sale in stark, colorful terms. In selling off the lands, Yazooists had succumbed to the “spirit of speculation” that “had invaded our happy land.” These corrupt public officials had destroyed the “love of virtue and democracy,” allowing “speculation, monopoly, and aristocracy” to become “triumphant.” He promised that the first order of business for a newly elected legislature would be to rescind the land sale.
With most state legislators who supported the 1795 sale defeated in the next election, the new legislature convened in January 1796 in Louisville and took up the rescission question. Governor Mathews’ term was about to expire, but he nonetheless sent a note to the state legislature cautioning members against rescinding the sale. The outgoing governor doubted “whether a law can be constitutionally made to repeal another that has been so fully carried into effect as the one now in question.” His successor, Jared Irwin, had no such qualms about the legality of rescission.
A committee established by the new legislature investigated the constitutionality of the original legislation authorizing the land sale. A hint about the committee’s proclivities could be found in its chairman. James Jackson, now fully ensconced in the Georgia House of Representatives, took the helm. He presented materials from the May 1795 state constitutional convention as well as grand jury presentments and petitions indicating that the sale should never have occurred. The findings outlined in the committee’s final report, published on January 22, were a foregone conclusion.
“It appears to your committee,” the report concluded, “that the public good was placed entirely out of view, and the private interest alone consulted; that the rights of the present generation were violated, and the rights of posterity bartered, by the said act; and that by it, the bounds of equal rights were broken down, and the principles of aristocracy established in their stead.” Not surprisingly, the report found that “sufficient grounds” existed to declare the Yazoo sale “a nullity in itself, and not binding or obligatory on the people of this State.”
The committee sent along a proposed bill to nullify the sale. Yazoo defenders had argued that the appropriate remedy was to be found in a court of law, but the bill insisted that a “notorious” injury that had harmed the general populace must be rectified by the state legislature. In fact, the previous act must be expunged so that all legal documents relating to the sale would be destroyed as though they had never existed.
Jackson and his supporters sought to garner as much political support as possible. To that end, the committee directed that the official 1795 act be burned “in the square, before the State House” with “a line to be formed by the members of both branches” of the legislature attending to bear witness. This public act would demonstrate to the public that the new state legislature was truly a sentinel of the public welfare.
The legislature passed the bill overwhelmingly on February 13, 1796—by a vote of 44 to 3 in the state house and 14 to 4 in the state senate. Governor Irwin signed it into law that same day. In accordance with the committee’s directive, two days later state legislators gathered in the state house square to burn the Yazoo Act. According to popular legend, the fire was lit not by the hand of man, but by the sun’s rays passing through a magnifying glass, causing “fire from heaven” to consume the offending law “as by the burning rays of the lidless eye of Justice.”
Rescission was not as easily achieved as the legislators hoped it would be. As soon as the four Yazoo companies acquired the land in 1795, they sold parcels to third parties. Not only did they wish to turn a tidy profit as soon as possible, but they needed to accumulate enough capital to pay off the balance of the purchase price by the November 1795 deadline. The typical transaction involved dividing parcels and selling them. Buyers usually divided the parcels still further. In a short time, the number of bona fide purchasers multiplied.
As the original Yazoo companies hurriedly sold off tracts before the February 1796 act rescinded the sale, their investors enjoyed the positive effects of the speculation bubble. When news of the rescission reached the northern states, however, prices plummeted. Some purchasers had bought the land on credit, paying a down payment in hopes of paying off the purchase with proceeds collected after they sold their shares. It was not uncommon for a land speculator to buy beyond his means, which, of course, is the idea of speculating in land. It is a form of legalized gambling. In gambling, someone wins—usually only a very few—and someone loses, often the multitudes who can ill afford to cover their loses.
Faced with innumerable debts and essentially useless promissory notes, some subsequent purchasers simply walked away from their investments. The intricate web of complex transactions invariably resulted in a slew of lawsuits as the parties looked to the courts to figure out who owed what to whom. It was one of those cases, Fletcher v. Peck, that landed in the United States Supreme Court and became a landmark expression of the sanctity of contracts in American law.
The case originated in May 1803, when Robert Fletcher sued John Peck in the United States circuit court in Boston, claiming that the latter did not supply clear title to the parcels of land that Peck sold. The original complaint alleged four breaches of contract. First, Georgia had no authority to sell the Yazoo lands in 1795. Second, the original 1795 was illegal because legislators received bribes to curry their favor. Third, John Peck’s land title was constitutionally and legally impaired by the 1796 rescinding act. Finally, at the time that Georgia enacted the 1795 act, the United States government, not Georgia, owned the Yazoo lands.
The prayer for relief indicated that Fletcher sought a refund of the $3,000 purchase price. Subsequent legal commentators have characterized Fletcher v. Peck as “a mere feigned case,” with both parties seeking a United States Supreme Court opinion that would void the Georgia state legislature’s 1796 act rescinding the 1795 law. As evidence, critics cite the quick nature of the suit—a writ commanding that John Peck appear in court was issued four days after the purchase—not to mention that the 1796 rescission was well known when the transaction occurred. If Fletcher feared that Peck could not provide clear title, why did he purchase land that he knew or should have known was the subject of a long-standing dispute regarding the legitimacy of the initial conveyance?
Originally filed in May 1803, the case came before the circuit court in the June 1803 term. Both litigants consented to a continuance from term to term until October 1806. Apparently, the litigants as well as the rest of the New England claimants waited to see if Congress would enact legislation that would provide compensation for the injured landowners. After a lapse of more than three years, it appeared likely that Congress would not act, and the case should move forward.
United States Supreme Court justices “rode the circuit” early in the nineteenth century, which meant that a justice presided over circuit court cases. Fletcher v. Peck finally came before Associate Supreme Court Justice William Cushing in the fall of 1806. Acting in his capacity as a circuit court judge, Cushing ruled in Peck’s favor, after which Fletcher applied for a writ of error allowing him to appeal the decision. The justice granted the writ on November 11, 1806.
Once again, the litigants and their fellow landowners delayed the case as they waited to see what, if anything, Congress would do. In 1804, Congress had debated a compensation bill for claimants, but the measure had been controversial, and nothing had passed. Members debated it again in 1807 and 1808, but the matter failed again. By the latter year, the litigants recognized that they must seek redress in the courts.
Because the original lawsuit had not been prosecuted, Fletcher had to refile. Justice Cushing again heard the case, ruled in Peck’s favor, and allowed a second writ of error. A certified record of the case appeared in the United States Supreme Court in February 1808, with oral argument scheduled for February 1809.
The high court announced its decision on March 16, 1810. Writing for the court majority, Chief Justice John Marshall established a precedent heralding the importance of contracts in American law. He struck down Georgia’s 1796 law rescinding the 1795 sale, finding that the rescission was unconstitutional. Marshall grounded his opinion in a strict interpretation of the Contract Clause of the United States Constitution, Article I, Section 10, Clause 1. The clause reads: “No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”
According to Marshall, the Contract Clause prohibited Georgia from voiding contracts for the transfer of land, even if votes for the original legislation were secured through illegal bribery. “That corruption should find its way into the governments of our infant republics and contaminate the very source of legislation, or that impure motives should contribute to the passage of a law or the formation of a legislative contract are circumstances most deeply to be deplored,” Marshall wrote.
The problem is that innocent third-party purchasers must have faith that a contract, negotiated in good faith, will be upheld in a court of law. The original fraud was deplorable, but “the rights of third persons who are purchasers without notice, for a valuable consideration, cannot be disregarded.” To rule otherwise, Marshall explained, would be to undermine American business because a person could never rely on a contract to secure their legal rights. “If there be any concealed defect, arising from the conduct of those who had held the property long before he acquired it, of which he had no notice, that concealed defect cannot be set up against him,” Marshall argued. “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. All titles would be insecure, and the intercourse between man and man would be very seriously obstructed if this principle be overturned.”
Fletcher v. Peck is remembered not only because it strictly interpreted the Contract Clause, but also because it was the first time that the United States Supreme Court struck down a state law as unconstitutional. (Marbury v. Madison, the court’s landmark 1803 case, struck down part of a federal law.) The case represented a further expansion of national power.
In the aftermath of the court’s opinion, Yazoo claimants continued to clamor for compensation. Congress finally passed an indemnity law to do exactly that. The Senate passed its version of the bill by a 24-8 vote, on February 28, 1814. The House passed the bill by a closer margin, 84-76, on March 26, 1814. President James Madison signed the measure into law on March 31, 1814. The law provided $4.2 million to claimants. In 1815, a group of commissioners began hearing claims and determining how the money would be allocated. This resolution satisfied most claimants, although Native American who lived in the disputed lands were excluded from the settlement. Their claims were extinguished through a series of treaties in the 1820s.
Aside from its impact on constitutional law, the Yazoo land fraud episode became one of the most visible cases of widespread malfeasance in American history. For idealists who believe that the United States is a shining city on a hill, a virtuous nation that can serve as an example for other nations on the efficacy of self-rule, the case is a distressing illustration of avarice in human affairs. As well-structured as the American republic may be, a government is only as good as the behavior of its sentinels. If, as in the case of the Georgia state legislature in 1795, corruption is rife and unchecked, the American experiment is threatened not by foreign enemies, but by domestic charlatans.