Eleanor Finch
The Contract Clause, or Article I, Section 10, Clause 1 of the United States Constitution, is a constitutional provision that prohibits states from enacting laws that impair the obligation of contracts. The clause was drafted to protect property interests from state legislative actions and address concerns over debtor class attacks on contractual obligations. It recognises the right to form contracts while allowing the government to create laws barring contracts that go against public policy, such as those for sex work or child labour. The Contract Clause has been interpreted by the Supreme Court to limit a state's power to enact legislation that breaches or modifies its contracts or regulates contracts between private parties.
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What You'll Learn
- The Contract Clause prohibits states from issuing currency
- It also prohibits states from enacting laws relieving people of contractual obligations
- The Framers added the clause to protect property interests from state legislative actions
- The Contract Clause does not prohibit the federal government from modifying or abrogating contracts
- The Contract Clause is a dynamic element of constitutional law
The Contract Clause prohibits states from issuing currency
The Contract Clause, or Article I, Section 10, Clause 1 of the United States Constitution, prohibits states from issuing their own currency. This clause was included in the Constitution to protect individuals from state government interference and to prevent states from infringing on the powers of the federal government. The Framers of the Constitution added this clause in response to the widespread practice of states granting "private relief" by passing bills that relieved influential individuals of their debt obligations. This practice was seen as detrimental to the country's economic prospects, as it jeopardized the future flow of foreign capital into the United States.
The Contract Clause specifically states that no state shall "coin Money; emit Bills of Credit; [or] make any Thing but gold and silver Coin a Tender in Payment of Debts." This means that states are prohibited from creating their own currency or money, but they are allowed to make gold and silver coins as a form of payment for debts. The Supreme Court has interpreted this clause to limit the power of states to enact legislation that breaches or modifies its own contracts or regulates contracts between private parties.
While the Contract Clause prohibits states from issuing currency, it does not prohibit them from issuing coupons receivable for taxes or executing instruments binding themselves to pay money at a future date for services rendered or money borrowed. Additionally, the Supreme Court has held that creditors should be paid in gold or silver when a debtor's property (bank notes) are seized by a state court.
The Contract Clause has been a significant part of the Supreme Court's early history, featuring in nearly 40% of all cases challenging state legislation before 1889. However, in recent years, the Supreme Court has not invoked the clause to invalidate a state law for over four decades, leading scholars to conclude that it is no longer a relevant part of the Constitution. Despite this, the broad language of the Contract Clause continues to be a topic of litigation, especially during the COVID-19 pandemic, when litigants protesting against eviction moratoria and other rent assistance sought relief under this clause.
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It also prohibits states from enacting laws relieving people of contractual obligations
The Contract Clause, or Article I, Section 10, Clause 1 of the United States Constitution, imposes specific prohibitions on states to protect individuals from state government interference. One such prohibition is against enacting laws that relieve people of their contractual obligations.
This clause was included in the Constitution to address the widespread practice under the Articles of Confederation of states granting "private relief" by passing bills that relieved influential people of their debts. This practice was detrimental to foreign creditors and jeopardized the future flow of foreign capital into the United States. The Contract Clause aimed to ensure the inviolability of sales and financing contracts, encouraging an inflow of foreign investment by reducing the risk of loss to foreign merchants trading with and investing in the former colonies.
The Supreme Court has interpreted the Contract Clause to limit the power of states to enact legislation that breaches or modifies its contracts or regulates contracts between private parties. For example, in Ogden v. Saunders, the Court concluded that a law prospectively affecting contracts, or impacting those formed after the law goes into effect, did not violate the Constitution. This interpretation curbed the trend of granting vast constitutional protections to contracts and ensured that contracts were not exacted with rigid literal fulfilment, which was not the intent of the Constitution.
However, the Supreme Court has also recognized that states retain some power to regulate contracts in the public interest. For instance, in Home Building & Loan Association v. Blaisdell, the Court upheld a Minnesota law that temporarily restricted mortgage holders' ability to foreclose during the Great Depression, preventing mass foreclosures during an economic crisis. The Court held that the temporary nature of the contract modification and the emergency situation justified the law as a valid exercise of the state's police power.
Despite its historical significance, the Contract Clause has fallen into relative disuse in recent decades, with the Supreme Court not invoking it to invalidate a state law in over forty years. However, the broad language of the clause continues to be a topic of litigation, particularly in the context of the COVID-19 pandemic, where litigants have sought relief from eviction moratoria and other pandemic-related measures.
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The Framers added the clause to protect property interests from state legislative actions
The Contract Clause, or Article I, Section 10, Clause 1 of the United States Constitution, imposes prohibitions on the states to protect individuals from intrusion by state governments and to prevent interference with the powers of the federal government. The Framers added the clause to protect property interests from state legislative actions, specifically in response to the practice of states granting "private relief" by passing bills that relieved influential persons of their debts. This practice was detrimental to foreign creditors and jeopardized the inflow of foreign capital into the United States.
The Contract Clause prohibits states from enacting laws that impair the obligation of contracts, including state laws that relieve particular persons of their contractual obligations. It recognizes the right to form contracts while allowing the government to create laws barring contracts that violate public policy, such as those involving sex work or child labor. The Supreme Court has interpreted the clause to limit state power in two ways: by prohibiting states from breaching or modifying their own contracts, and by preventing states from regulating contracts between private parties.
The Contract Clause was also designed to prevent states from issuing their own currency. However, states are permitted to make "gold and silver coin a tender in payment of debts." The clause does not prohibit the federal government from modifying or abrogating contracts, and the Supreme Court has occasionally upheld state laws that temporarily modify contractual obligations during economic crises.
Over time, the Supreme Court's interpretation of the Contract Clause has evolved, shifting from an absolutist view to a more balanced approach that considers both state interests and the rights of private parties. The clause has fallen into relative disuse in recent decades, with the Supreme Court not invoking it to invalidate a state law in over forty years. However, it remains a dynamic element of constitutional law, reflecting the ongoing tension between state regulation and contractual freedom.
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The Contract Clause does not prohibit the federal government from modifying or abrogating contracts
The Contract Clause, or Article I, Section 10, Clause 1 of the United States Constitution, imposes prohibitions on state governments to protect individuals from intrusion. The clause was added to the Constitution to prevent states from relieving influential individuals of their obligation to pay debts, which could have jeopardized the future flow of foreign capital into the country.
While the Contract Clause prohibits states from enacting legislation that impairs the obligation of contracts, it does not prohibit the federal government from modifying or abrogating contracts. For instance, during the New Deal Era, the Supreme Court upheld a Minnesota law that temporarily restricted the ability of mortgage holders to foreclose, despite this being a type of contract modification that the Framers of the Constitution likely intended to prohibit. The Court justified its decision by citing the temporary nature of the modification and the emergency situation of the Great Depression.
The Contract Clause has been interpreted to allow the government to create laws barring contracts that violate public policy, such as those for sex or child labor. Additionally, the Supreme Court has held that the Contract Clause does not encompass marriage contracts pertaining to divorce laws or a state's waiver of sovereign immunity in general legislation.
The Contract Clause has fallen into relative disuse in recent decades, with the Supreme Court not invoking it to invalidate a state law in over forty years. However, the clause has seen a resurgence in litigation during the COVID-19 pandemic, with litigants challenging eviction moratoria, rent assistance, and vaccine mandates.
In summary, while the Contract Clause places limitations on state power and protects individuals' contractual rights, it does not restrict the federal government from modifying or abrogating contracts, particularly in times of economic crisis or emergency situations.
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The Contract Clause is a dynamic element of constitutional law
The Contract Clause, outlined in Article I, Section 10, Clause 1 of the United States Constitution, is a dynamic element of constitutional law. This clause imposes specific prohibitions on state powers, aiming to protect individuals from state government interference and preserve the enumerated powers of the federal government. The Framers included this clause to address concerns about states granting "private relief," where influential individuals were relieved of debt obligations.
The Contract Clause recognises people's right to form contracts while also allowing the government to prohibit contracts that conflict with public policy, such as those involving sex work or child labour. It also prevents states from creating their own currency and enacting laws that relieve individuals of contractual obligations.
The Supreme Court has historically played a significant role in interpreting the Contract Clause, with early cases like Fletcher v. Peck (1810) and Dartmouth College v. Woodward (1819) setting important precedents. During the late 19th and early 20th centuries, the Court's decisions gradually weakened the protections of the Contract Clause. More recently, the Court has not invoked the clause to invalidate a state law in over forty years, leading some scholars to believe it is no longer relevant.
However, the Contract Clause remains a dynamic element of constitutional law, particularly in the context of evolving societal challenges. For example, during the COVID-19 pandemic, litigants protesting against eviction moratoria and vaccine mandates sought relief under the Contract Clause, indicating a potential reevaluation of its role.
The Contract Clause reflects the ongoing tension between state regulation and contractual freedom, and its interpretation continues to evolve as society changes.
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Frequently asked questions
The Contract Clause is a constitutional provision in the US Constitution that prohibits states from enacting laws that impair the obligation of contracts.
The Contract Clause protects individuals from intrusion by state governments and keeps states from intruding on the powers of the US federal government.
The Contract Clause was drafted in response to concerns over the debtor class's attacks on contractual obligations. State legislatures were enacting laws that relieved debtors of their contractual obligations.
During the New Deal Era, the Supreme Court upheld a Minnesota law that restricted the ability of mortgage holders to foreclose. This was to prevent mass foreclosures during the Great Depression. The Court also ruled that the Contract Clause did not disallow Florida from regulating the manner in which its citizens engage in sponge fishing outside its territorial waters.
