Contract Clause

From Wikipedia, the free encyclopedia

Jump to: navigation, search
United States of America

This article is part of the series:

United States Constitution

Original text of the

Constitution
Preamble
Articles of the Constitution
I · II · III · IV · V · VI · VII

Amendments to the
Constitution
Bill of Rights
I · II · III · IV · V
VI · VII · VIII · IX · X
Subsequent Amendments
XI · XII · XIII · XIV · XV
XVI · XVII · XVIII · XIX · XX
XXI · XXII · XXIII · XXIV ·
XXV
XXVI · XXVII

Other countries · Law Portal

view • talk • edit

This article relates to an article of the United States Constitution. For terms of a legal
contract, see Contractual term.
 This article needs attention from an expert on the subject. See the talk page for
details. WikiProject Law or the Law Portal may be able to help recruit an expert.
(November 2008)

The Contract Clause appears in the United States Constitution, Article I, section 10, clause 1.
It states:

The Contract Clause prohibits states from enacting any law that retroactively impairs contract
rights. The Contract Clause applies only to state legislation, not court decisions.
The Framers of the Constitution added this clause in response to the fear that states would
continue a practice that had been widespread under the Articles of Confederation—that of
granting "private relief." Legislatures would pass bills relieving particular persons (predictably,
influential persons) of their obligation to pay their debts. It was this phenomenon that also
prompted the framers to make bankruptcy law the province of the federal government.
During and after the Revolution, many states passed laws favoring colonial debtors to the
detriment of foreign creditors. Federalists, especially Alexander Hamilton, believed that such a
practice would jeopardize the future flow of foreign capital into the fledgling United States.
Consequently, the Contract Clause, by ensuring the inviolability of sales and financing contracts,
encouraged an inflow of foreign capital by reducing the risk of loss to foreign merchants trading
with and investing in the former colonies. (See generally James W. Ely Jr., The Guardian of
Every Other Right (Oxford Univ. Press 1998).)

Contents
[hide]
• 1 Origins
○ 1.1 Treaties, Alliances, or Confederations
○ 1.2 Bills of Credit
○ 1.3 Legal Tender
○ 1.4 Bills of Attainder
• 2 The Contract Clause Since Blaisdell
○ 2.1 Modification of Private Contracts
○ 2.2 Modification of Government Contracts
• 3 See also
• 4 References

[edit] Origins
[edit] Treaties, Alliances, or Confederations
At the time of the Civil War, this clause was one of the provisions upon which the Court relied in
holding that the Confederation formed by the seceding States could not be recognized as having
any legal existence.[1] Today, its practical significance lies in the limitations which it implies
upon the power of the States to deal with matters having a bearing upon international relations.
In the early case of Holmes v. Jennison,[2] Chief Justice Taney invoked it as a reason for holding
that a State had no power to deliver up a fugitive from justice to a foreign State. More recently,
the kindred idea that the responsibility for the conduct of foreign relations rests exclusively with
the Federal Government prompted the Court to hold that, since the oil under the three mile
marginal belt along the California coast might well become the subject of international dispute
and since the ocean, including this three mile belt, is of vital consequence to the nation in its
desire to engage in commerce and to live in peace with the world, the Federal Government has
paramount rights in and power over that belt, including full dominion over the resources of the
soil under the water area.[3] In Skiriotes v. Florida,[4] the Court, on the other hand, ruled that this
clause did not disable Florida from regulating the manner in which its own citizens may engage
in sponge fishing outside its territorial waters. Speaking for a unanimous Court, Chief Justice
Hughes declared; “When its action does not conflict with federal legislation, the sovereign
authority of the State over the conduct of its citizens upon the high seas is analogous to the
sovereign authority of the United States over its citizens in like circumstances.”[5]
[edit] Bills of Credit
Within the sense of the Constitution, bills of credit signify a paper medium of exchange,
intended to circulate between individuals, and between the Government and individuals, for the
ordinary purposes of society. It is immaterial whether the quality of legal tender is imparted to
such paper. Interest bearing certificates, in denominations not exceeding ten dollars, which were
issued by loan offices established by the State of Missouri and made receivable in payment of
taxes or other moneys due to the State, and in payment of the fees and salaries of state officers,
were held to be bills of credit whose issuance was banned by this section.[6] The States are not
forbidden, however, to issue coupons receivable for taxes,[7] nor to execute instruments binding
themselves to pay money at a future day for services rendered or money borrowed.[8] Bills issued
by state banks are not bills of credit;[9] it is immaterial that the State is the sole stockholder of the
bank,[10] that the officers of the bank were elected by the state legislature,[9] or that the capital of
the bank was raised by the sale of state bonds.[11]
[edit] Legal Tender
Relying on this clause, which applies only to the States and not to the Federal Government,[12] the
Supreme Court has held that where the marshal of a state court received state bank notes in
payment and discharge of an execution, the creditor was entitled to demand payment in gold or
silver.[13] Since, however, there is nothing in the Constitution prohibiting a bank depositor from
consenting when he draws a check that payment may be made by draft, a state law providing that
checks drawn on local banks should, at the option of the bank, be payable in exchange drafts was
held valid.[14]
[edit] Bills of Attainder
Statutes passed after the Civil War with the intent and result of excluding persons who had aided
the Confederacy from following certain callings, by the device of requiring them to take an oath
that they had never given such aid, were held invalid as being bills of attainder, as well as ex post
facto laws.[15]
Other attempts to raise bill-of-attainder claims have been unsuccessful. A Court majority denied
that a municipal ordinance that required all employees to execute oaths that they had never been
affiliated with Communist or similar organizations, violated the clause, on the grounds that the
ordinance merely provided standards of qualifications and eligibility for employment.[16] A law
that prohibited any person convicted of a felony and not subsequently pardoned from holding
office in a waterfront union was not a bill of attainder because the “distinguishing feature of a
bill of attainder is the substitution of a legislative for a judicial determination of guilt” and the
prohibition “embodies no further implications of appellant’s guilt than are contained in his 1920
judicial conviction.”[17]
[edit] The Contract Clause Since Blaisdell
During the New Deal Era, the Supreme Court began to depart from the Lochner era
constitutional interpretation of the Commerce Clause, Due Process, and the Contract Clause.
In Home Building & Loan Association v. Blaisdell 290 U.S. 398 (1934), the Supreme Court
upheld a Minnesota law that temporarily restricted the ability of mortgage holders to foreclose.
The law was enacted to prevent mass foreclosures during a time of economic hardship in
America. The kind of contract modification performed by the law in question was arguably
similar to the kind that the Framers intended to prohibit. The Supreme Court held that this law
was a valid exercise of the state's Police Power. It found that the temporary nature of the contract
modification and the emergency of the situation justified the law..[18]
Further cases have refined this holding, differentiating between governmental interference with
private contracts and interference with contracts entered into by the government. Succinctly,
there is more scrutiny when the government modifies a contract to alter its own obligations. (See
United States Trust Co. v. New Jersey, 431 U.S. 1 (1977).)[18]
[edit] Modification of Private Contracts
The Supreme Court laid out a three-part test for whether a law violates the Contract Clause in
Energy Reserves Group v. Kansas Power & Light 459 U.S. 400 (1983). First, the state regulation
must substantially impair a contractual relationship. Second, the State "must have a significant
and legitimate purpose behind the regulation, such as the remedying of a broad and general
social or economic problem." 459 U.S. at 411-13 Third, the law must be reasonable and
appropriate for its intended purpose. This test is similar to rational basis review.[18]
[edit] Modification of Government Contracts
In United States Trust Co. v. New Jersey, the Supreme Court held that a higher level of scrutiny
was needed for situations where laws modified the government's own contractual obligations. In
this case, New Jersey had issued bonds to finance the World Trade Center and had contractually
promised the bondholders that the collateral would not be used to finance money losing rail
operations. Later, New Jersey attempted to modify law to allow financing of railway operations,
and the bondholders successfully sued to prevent this from happening.[19]
[edit] See also
• Charles River Bridge v. Warren Bridge
• Contract law
• Dartmouth College v. Woodward
• Federalist No. 10, complete text at Wikisource.
• Fletcher v. Peck
• Reserved Powers Doctrine of the United States
[edit] References
1. ^ Williams v. Bruffy, 96 U.S. 176, 183 (1878).
2. ^ 39 U.S. (14 Pet.) 540 (1840).
3. ^ United States v. California, 332 U.S. 19 (1947).
4. ^ 313 U.S. 69 (1941).
5. ^ 313 U.S. at 78–79.
6. ^ Craig v. Missouri, 29 U.S. (4 Pet.) 410, 425 (1830); Byrne v. Missouri, 33 U.S. (8 Pet.) 40
(1834).
7. ^ Virginia Coupon Cases (Poindexter v. Greenhow), 114 U.S. 269 (1885); Chaffin v. Taylor, 116
U.S. 567 (1886).
8. ^ Houston & Texas Central R.R. v. Texas, 177 U.S. 66 (1900).
9. ^ a b Briscoe v. Bank of Kentucky, 36 U.S. (11 Pet.) 257 (1837).
10.^ Darrington v. Bank of Alabama, 54 U.S. (13 How.) 12, 15 (1851); Curran v. Arkansas, 56 U.S.
(15 How.) 304, 317 (1854).
11.^ Woodruff v. Trapnall, 51 U.S. (10 How.) 190, 205 (1851).
12.^ Juilliard v. Greenman, 110 U.S. 421, 446 (1884).
13.^ Gwin v. Breedlove, 43 U.S. (2 How.) 29, 38 (1844). See also Griffin v. Thompson, 43 U.S. (2
How.) 244 (1844).
14.^ Farmers & Merchants Bank v. Federal Reserve Bank, 262 U.S. 649, 659 (1923).
15.^ Cummings v. Missouri, 71 U.S. (4 Wall.) 277, 323 (1867); Klinger v. Missouri, 80 U.S. (13
Wall.) 257 (1872); Pierce v. Carskadon, 83 U.S. (16 Wall.) 234, 239 (1873).
16.^ Garner v. Board of Public Works, 341 U.S. 716, 722–723 (1951). Cf. Konigsberg v. State Bar
of California, 366 U.S. 36, 47 n.9 (1961).
17.^ De Veau v. Braisted, 363 U.S. 144, 160 (1960). Presumably, United States v. Brown, 381 U.S.
437 (1965), does not qualify this decision.
18.^ a b c Chemerinsky, Erwin (2002) (in English). Constitutional Law. New York, United States:
Aspen Publishers. p. 1276 pages. ISBN 0-7355-2428-9.
19.^ 431 U.S. 1. (1977)
[hide]
v•d•e
United States Constitution

Text Preamble and Articles · Bill of Rights · Subsequent Amendments

Articles Preamble · One · Two · Three · Four · Five · Six · Seven

Bill of
1 · 2 · 3 · 4 · 5 · 6 · 7 · 8 · 9 · 10
Rights
Amendments
11 · 12 · 13 · 14 · 15 · 16 · 17 · 18 · 19 · 20 · 21 · 22 · 23 · 24 · 25 · 26 · 27
Ratified · Proposed · Conventions to propose · State ratifying conventions
 History · Articles of Confederation · Mount Vernon Conference · Annapolis
Convention · Philadelphia Convention (Virginia Plan · New Jersey Plan ·
Formation
Connecticut Compromise · Three-Fifths Compromise · Signers) · Federalist
Papers (list) · Massachusetts Compromise

Appointments · Appropriations · Case or Controversy · Citizenship ·

Commerce · Compact · Confrontation · Contract · Copyright and Patent ·
Due Process · Emolument · Equal Protection · Establishment · Exceptions ·
Ex post facto · Extradition · Free Exercise · Fugitive Slave · Full Faith and
Credit · General Welfare · Guarantee · Impeachment · Ineligibility · Militia ·
Clauses
Natural–born citizen · Necessary and Proper · No Religious Test ·
Origination · Postal · Presentment · Privileges and Immunities · Privileges or
Immunities · Speech or Debate · Supremacy · Suspension · Takings · Taxing
and Spending · Territorial · Title of Nobility · Treaty · Trial by Jury ·
Vesting · War Powers

Theory · Concurrent powers · Congressional enforcement · Double

jeopardy · Dormant Commerce Clause · Enumerated powers · Executive
Interpretatio
privilege · Incorporation of the Bill of Rights · Nondelegation doctrine ·
n
Preemption · Saxbe fix · Separation of church and state · Separation of
powers · Unitary executive theory
Retrieved from "http://en.wikipedia.org/wiki/Contract_Clause"
Categories: United States Constitution
Hidden categories: Law articles needing expert attention | Articles needing expert attention from
November 2008 | All articles needing expert attention
Personal tools
• Log in / create account
Namespaces
• Article
• Discussion
Variants
Views
• Read
• Edit
• View history
Actions
Search
Top of Form
Special:Search

Search

Bottom of Form
Navigation
• Main page
• Contents
• Featured content
• Current events
• Random article
• Donate
Interaction
• Help
• About Wikipedia
• Community portal
• Recent changes
• Contact Wikipedia
Toolbox
• What links here
• Related changes
• Upload file
• Special pages
• Permanent link
• Cite this page
Print/export
• Create a book
• Download as PDF
• Printable version
• This page was last modified on 24 October 2010 at 07:11.
• Text is available under the Creative Commons Attribution-ShareAlike License;
additional terms may apply. See Terms of Use for details.
Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a non-profit
organization.
• Contact us
• Privacy policy
• About Wikipedia
• Disclaimers

•
•