In the case of New Orleans Water Works Company v. New Orleans in 1896, the Supreme Court ruled on a dispute between a private water company and the city of New Orleans regarding contract rights. The court held that when a municipality grants an exclusive franchise to provide public services such as water supply, it cannot later grant another similar franchise without violating its original agreement. In this case, after granting an exclusive right to supply water to the city for fifty years to one company (New Orleans Water Works), the city then granted another twenty-five-year contract for part of those same services to another entity (The Sewerage and Water Board). The court found that this second grant violated its initial agreement with New Orleans Water Works because it infringed upon their exclusivity rights under their existing contract. Therefore, they ruled in favor of the plaintiff -the private water company- stating that municipalities must honor contracts made with private entities.

In the dissenting opinion for New Orleans Water Works Company v. New Orleans, it was argued that the city of New Orleans had no right to terminate its contract with the water company prematurely without providing compensation. The justices contended that a clause in their agreement allowed for termination only if there were an inability to supply water or a failure on part of the company to fulfill its obligations. They believed this did not apply as neither condition was met and thus, terminating such contract would be unconstitutional under U.S law which prohibits laws impairing contractual obligations. Furthermore, they disagreed with majority's interpretation of Louisiana state constitution asserting it does not grant cities power to annul contracts at will but rather gives them authority over corporations within their jurisdictional limits subject to constitutional restrictions including prohibition against impairment of contracts.