In the case of Knoxville Water Company v. Knoxville in 1905, the U.S Supreme Court was tasked with deciding whether a city could legally reduce water rates set by a private company that had been contracted to provide water services. The City of Knoxville, Tennessee had entered into an agreement with the privately-owned Knoxville Water Company which allowed it to operate within city limits and supply residents with water for thirty years. However, when the city later attempted to lower these rates without consent from the company, this led to legal action being taken against them. The court ruled in favor of the City of Knoxville stating that as long as they were acting reasonably and not confiscatory towards their actions on reducing rates then it would be lawful under their police powers granted by state law.

In the dissenting opinion for Knoxville Water Company v. Knoxville, Justice Harlan argued that the majority's decision was a departure from established principles of constitutional law. He contended that it was not within the power of a state to alter or impair contracts without consent from both parties involved. In this case, he believed that Tennessee had violated its contract with the water company by reducing rates set in their agreement without mutual consent. Furthermore, he disagreed with the majority's view on due process rights under Fourteenth Amendment; arguing instead that these rights were infringed upon when Tennessee unilaterally changed agreed-upon terms in an existing contract between private and public entities. Thus, according to Justice Harlan’s perspective, such actions constituted an unlawful taking of property without just compensation which is contrary to constitutional provisions.