Article 1, section 10, of the U.S. Constitution prohibits states from impairing contractual obligations. Through Supreme Court interpretation, the prohibition extends to state impairment of contracts not only among private parties but also between private parties and the states themselves.
The Framers drafted the contracts clause because they were concerned with various attacks of the debtor class on property interests. In a variety of ways, state legislatures enacted laws that effectively relieved debtors of their contractual obligations. However, the first important Supreme Court interpretations of the contracts clause involved a legislative grant of land and the terms of a corporate charter, not a state impairment of contractual relations between private parties.
In Fletcher v. Peck
The Court led by Chief Justice Roger Brooke Taney continued to apply the contracts clause to a wide array of disputes, including debtor-creditor relations, state legislation regulating and taxing banks, and even an agreement between the federal government and the states. The most noteworthy decision of the Taney Court is Charles River Bridge v. Warren Bridge
After the Civil War (1861-1865) to the 1880’s the Court continued to render decisions generally favorable to propertied interests. For example, during this period municipalities attempted to repudiate their bonded indebtedness. The Court ruled against them in all but a few of the two hundred cases that came before it. However, late in this period the Court began to recognize the legitimate use of state police powers
Chief Justice Charles Evans Hughes’s majority opinion in Home Building and Loan Association v. Blaisdell
By the mid-1960’s, the Court completed the process of rejecting constitutional absolutism in favor of a balancing-of-interests approach to contract clause interpretation. For example, Texas amended in 1941 a 1910 public land sale law. The original law allowed purchasers who had missed their payments to reinstate their claims at any time upon payment of the missed interest but before a third party obtained title to the land in question. The 1941 amendment limited the repayment option to five years. Upholding the unilateral change, Justice Byron R. White in El Paso v. Simmons
In a pair of cases, the Burger Court created the necessary precedents for a resurgence of the contracts clause. In United States Trust Co. v. New Jersey
Subsequently, the Court was asked to extend its reasoning to eminent domain and equal protection matters, but it consistently refused to do so. The contracts clause does not appear to be destined to a resurgence reminiscent of the days of John Marshall. However, because the balancing-of-interests test by its nature is highly subjective, a sufficiently property-minded Court may employ it at any time.
Ely, James, Jr. The Guardian of Every Other Right: A Constitutional History of Property Rights. New York: Oxford University Press, 1992. Fried, Charles. Saying What the Law Is: The Constitution in the Supreme Court. Cambridge, Mass.: Harvard University Press, 2004. Magrath, C. Peter. Yazoo: The Case of “Fletcher v. Peck.” New York: W. W. Norton, 1966. Melone, Albert P. “The Contract Clause and Supreme Court Decisionmaking: A Bicentennial Retrospective.” Midsouth Political Science Journal 9 (1988): 41-63. Melone, Albert P. “Mendelson v. Wright: Understanding the Contract Clause.” Western Political Quarterly 41 (1988): 791-799. Price, Polly J. Property Rights: Rights and Liberties Under the Law. Santa Barbara, Calif.: ABC-Clio, 2003. Wright, Benjamin F., Jr. The Contract Clause of the Constitution. Cambridge, Mass.: Harvard University Press, 1938.
Charles River Bridge v. Warren Bridge
Dartmouth College v. Woodward
Fletcher v. Peck
Home Building and Loan Association v. Blaisdell
Ogden v. Saunders
Stone v. Mississippi
Sturges v. Crowninshield