Decline and fall of the Contracts Clause

George Leef reviews James W. Ely, Jr., book The Contract Clause: A Constitutional History. The clause, part of Article I, prescribes that no state shall pass any law “impairing the obligation of contracts”:

By the end of the Marshall era, the Contract Clause provided a firm defense against legislative interference for rights under public and private contracts. That would be its high-water mark. Soon state and federal courts began to whittle away at it….

The 1934 Supreme Court case of Home Building and Loan v. Blaisdell is often cited as a turning point in the clause’s demotion, but the stripping away of protection against such laws has continued into more modern times.

Thus, state governments now have nearly unlimited power to tamper with contractual obligations and the reliability of a contract depends upon how judges might weigh several vague factors. Where the Founders wanted certainty, we now have a great deal of uncertainty.

Ely concludes by taking us into recent cases where the clause has been resurrected in efforts by public employee unions to prevent legislatures from whittling away any of their promised benefits through efforts to lower budget deficits.

These may sometimes prevent even laws aimed at reducing “unearned” future benefits arising from public-sector work that has not yet been performed. Even as some courts render such benefits provisions constitutionally binding on subsequent legislatures, they show little interest in reviving the clause’s old scope so as to bar legislation that impairs the obligation of existing private contracts.

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