Contracts Vs. Constitutional Amendments: Who Wins?

The Contract Clause, or Article I, Section 10, Clause 1 of the United States Constitution, imposes prohibitions on the states to protect individuals from state government intrusion and to keep states from intruding on the powers of the federal government. The Contract Clause has been interpreted differently over time, with the Supreme Court's views shifting. While it does not prohibit the federal government from modifying or abrogating contracts, it does prohibit states from issuing their own money and from enacting legislation that relieves individuals of their contractual obligations. The Contract Clause has been invoked during the COVID-19 pandemic, with some arguing that the need to stem the spread of the virus outweighed impairments of the obligation of contracts.

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The Contract Clause and its limitations

The Contract Clause, outlined in Article I, Section 10, Clause 1 of the US Constitution, places a number of limitations on state power. The clause states that no state shall "pass any [...] Law impairing the Obligation of Contracts". The Framers of the Constitution added this clause in response to the fear that states would continue the practice of granting "private relief", where influential persons were relieved of their debts. The Contract Clause was intended to prevent this and to ensure the inviolability of sales and financing contracts, thereby encouraging an inflow of foreign capital.

The Supreme Court's interpretation of the Contract Clause has shifted over time. Initially, the Court interpreted the clause to limit a state's power to enact legislation that breaches or modifies its own contracts or regulates contracts between private parties. During the New Deal Era, the Court began to depart from this strict interpretation, upholding a Minnesota law that temporarily restricted the ability of mortgage holders to foreclose during the Great Depression. The Court held that the temporary nature of the contract modification and the emergency situation justified the law.

In more recent times, the Supreme Court laid out a three-part test in Energy Reserves Group v. Kansas Power & Light to determine whether a law conforms with the Contract Clause. Firstly, the state regulation must not substantially impair a contractual relationship. Secondly, the state must have a significant and legitimate purpose behind the regulation, such as addressing a broad social or economic issue. Thirdly, the law must be reasonable and appropriate for its intended purpose.

Despite this broad scope and historical preeminence, the Contract Clause has been described as falling into desuetude. During the COVID-19 pandemic, several Contract Clause cases were brought challenging state-imposed eviction moratoriums. However, courts generally found that the public health crisis and the need to stem the spread of the virus outweighed impairments of contractual obligations.

The Fourteenth Amendment's Due Process Clause

The Fourteenth Amendment was adopted after the Civil War to protect individual rights from state interference. The Due Process Clause of this amendment guarantees procedural due process, meaning that government actors must follow certain procedures before depriving an individual of their protected life, liberty, or property interests. This includes the right to a trial by jury.

The Due Process Clause of the Fourteenth Amendment has been used to apply the Bill of Rights to state governments, a doctrine known as "incorporation". This has been used to extend the Sixth Amendment right to a trial by jury to the states, for example.

The Supreme Court's interpretation of the Contract Clause

The Contract Clause, outlined in Article I, Section 10 of the US Constitution, states that "No State shall [...] pass any [...] Law impairing the Obligation of Contracts". This clause has been the subject of much litigation and interpretation by the Supreme Court, with nearly 40% of all cases challenging state legislation before 1889 involving the Contract Clause.

During the New Deal Era, the Supreme Court's interpretation of the Contract Clause underwent a significant change in the case of Home Building & Loan Ass'n v. Blaisdell. In this case, the Court declined to strictly enforce the Contract Clause's prohibition on state legislation that alters private contracts. Instead, it upheld a Minnesota law that temporarily restricted the ability of mortgage holders to foreclose during the Great Depression, recognising the state's police power and the temporary nature of the contract modification. This decision set a precedent for differentiating between governmental interference with private contracts and interference with contracts entered into by the government.

The Supreme Court has laid out a three-part test in Energy Reserves Group v. Kansas Power & Light to determine whether a law conforms with the Contract Clause:

• The state regulation must not substantially impair a contractual relationship.
• The state must have a significant and legitimate purpose behind the regulation, such as addressing a broad and general social or economic problem.
• The law must be reasonable and appropriate for its intended purpose.

The COVID-19 pandemic has pushed the boundaries of the Contract Clause, with many cases testing the Supreme Court's modern two-step test:

• Whether state law has substantially impaired a contractual relationship.
• Whether it did so for a legitimate public purpose.

In summary, the Supreme Court's interpretation of the Contract Clause has shifted over time, with early interpretations focusing on preventing state interference in private contracts, while later interpretations during economic crises have allowed for more flexibility in state legislation to address pressing social and economic issues.

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The Contract Clause and COVID-19 eviction moratoriums

The COVID-19 pandemic has brought to light the tension between the constitutional protection of contractual relationships and the government's ability to respond to a national crisis. The Contract Clause, enshrined in Article I, Section 10 of the US Constitution, prohibits states from passing laws that impair contractual obligations. This clause has been invoked in numerous legal challenges to COVID-19 eviction moratoriums, which landlords argue have infringed on their property rights, including their ability to collect rent and evict tenants.

The Ninth Circuit, in the case of Apartment Association v. City of Los Angeles, became the first federal court of appeals to address a Contract Clause challenge to a COVID-19 eviction moratorium. The court acknowledged that the moratorium curtailed landlords' rights, such as their ability to evict tenants for non-payment of rent or other reasons. However, the court denied a landlord association's request for a preliminary injunction, ruling that the landlords failed to demonstrate a likelihood of success on their Contract Clause claim. The court applied a two-step test, considering whether the moratorium substantially impaired contractual relationships and whether it served a legitimate public purpose.

The court concluded that the moratorium was a reasonable and appropriate way to advance the significant and legitimate public purpose of preventing displacement from homes during the pandemic, which could exacerbate public health-related problems. This decision set a precedent for other district courts, which have also upheld eviction moratoriums, emphasizing the crisis of the pandemic and the legitimate public purpose of protecting public health and economic stability.

While the Contract Clause protects contractual relationships, the government's response to the COVID-19 pandemic has highlighted the inherent tension between contractual rights and the state's duty to protect its citizens during a national crisis. The Supreme Court's precedent in upholding a moratorium on foreclosures during the Great Depression, due to an emergency and the protection of society's basic interests, provides a framework for evaluating the validity of COVID-19 eviction moratoriums.

The COVID-19 eviction moratoriums have sparked debates about the balance between contractual rights and the government's role in mitigating a crisis. While landlords argue for their property rights, the courts' decisions during this pandemic era have underscored the importance of safeguarding public health and addressing economic instability. These cases illustrate the complexities of interpreting and applying the Contract Clause in modern times, particularly when societal needs and contractual obligations clash.

The Contract Clause and state power

The Contract Clause, or the obligation of contracts, is a provision in the US Constitution that prohibits states from enacting laws that impair contractual obligations. It is designed to protect private rights and prevent state interference in contracts. The clause states that "No State shall [...] pass any [...] Law impairing the Obligation of Contracts".

The Contract Clause has been interpreted by the Supreme Court to limit the power of states to enact legislation that breaches or modifies its own contracts or regulates contracts between private parties. This interpretation seeks to balance the protection of contracts with the necessary residuum of state power. For example, in the case of Ogden v. Saunders, the Court held that the Contract Clause prevents states from passing laws that impair the obligation of contracts.

The Contract Clause was once a prominent feature of constitutional litigation, particularly before the Civil War when the Constitution imposed few constraints on state governments. However, its prominence has since waned, with other constitutional provisions, such as the Fourteenth Amendment, taking precedence in adjudication concerning the states.

Despite this, the Contract Clause continues to be invoked in legal challenges, particularly in the context of public-employee pensions and state-level pension reforms. The Supreme Court has formulated a two-step test for judging Contract Clause cases against state governments: firstly, determining whether state law has substantially impaired a contractual relationship; and secondly, whether it did so for a legitimate public purpose. This test has been applied in cases concerning COVID-19-related eviction moratoriums, with courts finding that the public health crisis generally outweighs impairments of contractual obligations.

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