Historical Background on Contract Clause

prev | next

Article I, Section 10, Clause 1:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

After the American Revolution, many citizens of the newly created United States had difficulty repaying their debts, motivating state legislatures to enact a number of laws to relieve them of their financial obligations.1 During the peak of this financial crisis, and under the Articles of Confederation, states enacted laws that assisted debtors by, for example, (1) permitting a debtor to tender worthless property or nearly valueless commodities in payment of debts; (2) extending the time for repaying a debt beyond the time period provided for in a contract; and (3) permitting the payment of overdue obligations in installments rather than a lump sum.2

Historical sources from the time of the Founding do not shed much light on the Contract Clause’s original meaning.3 Certainly, the Framers knew the states had enacted various laws that disrupted private contracts, and they wanted to protect private property rights.4 At least some of the delegates who attended the Constitutional Convention of 1787 in Philadelphia were aware that the Confederation Congress, the country’s governing body under the Articles of Confederation, had recently passed an ordinance governing the Northwest Territory that specifically protected private contract rights from legislative interference.5 Article 2 of the Northwest Ordinance provided that “in the just preservation of rights and property it is understood and declared, that no law ought ever to be made, or have force in the said territory, that shall in any manner whatever interfere with, or affect private contracts or engagements, bona fide and without fraud previously formed.” 6

During deliberations over the Constitution, delegate Rufus King of Massachusetts proposed to insert the Northwest Ordinance’s broad language into the Constitution.7 Delegates Gouverneur Morris and George Mason opposed the addition of this language, arguing that state legislatures would occasionally need to modify contract rights in order to protect their citizens.8 On the other hand, James Madison “admitted that inconvenience might arise from such a prohibition but thought on the whole it would be overbalanced by the utility of it.” 9 However, Madison suggested that the Constitution’s prohibition on ex post facto laws would prevent states from impairing the obligation of contracts retroactively, and the delegates approved language in Article I, Section 10 of the draft Constitution without the proposed Contract Clause.10

The next day, however, delegate John Dickinson of Delaware stated that, after further research, he had determined the term ex post facto “related to criminal cases only; that [the language prohibiting such laws] would not, consequently, restrain the states from retrospective laws in civil cases; and that some further provision for this purpose would be requisite.” 11 Nonetheless, the delegates did not approve the Contract Clause’s addition to the Constitution during these deliberations; rather, the Committee of Style and Arrangement, which produced the final version of the Constitution, added a modified version of the Contract Clause to the document without significant comment.12

The debates over the Constitution’s ratification briefly addressed the Contract Clause. Federalists, who generally supported a strong central government, argued the clause would (1) protect private contract rights from state debtor relief legislation; and (2) improve commercial relations among the states. Writing in the Federalist No. 44, James Madison briefly discussed the importance of the Contract Clause along with the Ex Post Facto Clause and the Constitution’s prohibition on bills of attainder.13 Madison argued these clauses would prevent shifting state legislative majorities from retroactively impairing private rights.14 The Framers may also have added the Contract Clause to prevent a breakdown in commercial relations among the states. In the Federalist No. 7, Alexander Hamilton noted that state laws abrogating private contract rights could serve as a source of hostility among the states.15 And several other speakers at state ratifying conventions argued that the Contract Clause would protect interstate contracts from impairment.16 Perhaps surprisingly, the Anti-Federalists, who generally opposed a strong central government, supported the Contract Clause.17 However, they believed that state courts rather than federal courts should enforce it.18

Although most commentators involved in debates over the proposed Constitution agreed that the document should include the Contract Clause, one delegate to the Federal Convention, Maryland Attorney General Luther Martin, opposed the Clause.19 In a letter to the Maryland House of Delegates that foreshadowed the development of the Supreme Court’s jurisprudence, Martin argued that the Contract Clause would tie states’ hands and prevent them from modifying contracts to address national crises.20

As Justice John Marshall explained in an early opinion interpreting the Contract Clause, the Framers’ intent in including such language in the Constitution was to prohibit states from enacting legislation intended to assist debtors by abrogating or modifying the terms of existing contracts,21 as many colonies and states had done during the Colonial Era and under the Articles of Confederation.22 The Founders believed these laws injured creditors and undermined contractual relationships.23 The Constitution’s Framers therefore sought to preserve faith in contractual relationships—and facilitate interstate and foreign commerce—by adding a constitutional restraint on state power to impair contractual obligations.24 This restraint reflected the Framers’ preference for private ordering; that is, the notion that private parties could enter into and rely upon binding contracts to “order their personal and business affairs.” 25

1: Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 427 (1934) ( “The widespread distress following the revolutionary period, and the plight of debtors, had called forth in the States an ignoble array of legislative schemes for the defeat of creditors and the invasion of contractual obligations.” ); see also Sveen v. Melin, No. 16-1432, slip op. at 6 (U.S. June 11, 2018) ( “The origins of the Clause lie in legislation enacted after the Revolutionary War to relieve debtors of their obligations to creditors.” ).
2: See Sturges v. Crowninshield, 17 U.S. 122, 199, 204–05 (1819).
3: See Blaisdell, 290 U.S. at 427.
4: See James W. Ely Jr., The Contracts Clause: A Constitutional History 11 (2016) ( “Historians generally agree that the establishment of safeguards for private property was one of the principal objectives of the constitutional convention of 1787.” ); see also Blaisdell, 290 U.S. at 459–60 (Sutherland, J., dissenting) (indicating that at least some of the Framers were aware of state laws that disrupted private contracts).
5: See Ely, supra note 4, at 11 ( “Passed by the Confederation Congress while the constitutional convention was meeting in Philadelphia, the Northwest Ordinance established a framework for territorial governance in the Old Northwest.” ).
6: An ordinance for the government of the territory of the United States, North-west of the river Ohio, Library of Congress, https://www.loc.gov/resource/bdsdcc.22501/?st=gallery.
7: See 2 The Records of the Federal Convention of 1787, at 439–40 (Max Farrand ed., rev. ed. 1966).
8: See id.
9: Id. at 440.
10: See id.
11: Jonathan Elliot, 5 The Debates in the Several State Conventions on the Adoption of the Federal Constitution 488 (2d ed. 1836) (statement of John Dickinson).
12: See 2 The Records of the Federal Convention of 1787, at 596–97, 610 (Max Farrand ed., rev. ed. 1966) (McHenry’s notes, September 10–12, 1787) (Report of Committee of Style); Ely, supra note 4, at 13 (noting the Committee of Style “placed a differently worded contract clause into Article I, section 10, that contained various restrictions on state power” ). An attempt to apply the Contract Clause to the Federal Government failed. Elliot, supra note 11, at 546 (motion of Elbridge Gerry).
13: The Federalist No. 44 (James Madison).
14: See id.; see also Fletcher v. Peck, 10 U.S. (6 Cranch) 87, 137–38 (1810) ( “[I]t is not to be disguised that the framers of the constitution viewed, with some apprehension, the violent acts which might grow out of the feelings of the moment; and that the people of the United States, in adopting that instrument, have manifested a determination to shield themselves and their property from the effects of those sudden and strong passions to which men are exposed. The restrictions on the legislative power of the states are obviously founded in this sentiment.” ).
15: See The Federalist No. 7 (Alexander Hamilton) ( “Laws in violation of private contracts, as they amount to aggressions on the rights of those States whose citizens are injured by them, may be considered as another probable source of hostility [among the States].” ).
16: Ely, supra note 4, at 15 (collecting statements).
17: Ely, supra note 4, at 16–17.
18: Ely, supra note 4, at 16–17 ( “Anti-Federalists rarely focused on the clause in urging rejection of the proposed new government. . . . [Instead, at least one writer] insisted that state, not federal, courts should be trusted with deciding cases arising under [the Contract Clause].” ).
19: Elliot, supra note 11, at 376–77 (letter of Luther Martin to the Maryland House of Delegates) ( “I considered, sir, that there might be times of such great public calamities and distress, and of such extreme scarcity of specie, as should render it the duty of a government, for the preservation of even the most valuable part of its citizens, in some measure to interfere in their favor, by passing laws totally or partially stopping courts of justice; or authorizing the debtor to pay by instalments, or by delivering up his property to his creditors at a reasonable and honest valuation.” ).
20: See Elliot, supra note 11, at 376–77.
21: See Trs. of Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.) 518, 628–30 (1819) ( “That anterior to the formation of the constitution, a course of legislation had prevailed in many, if not in all, of the States, which weakened the confidence of man in man, and embarrassed all transactions between individuals, by dispensing with a faithful performance of engagements.” ); see also Sturges v. Crowninshield, 17 U.S. (4 Wheat.) 122, 199 (1819) ( “[T]he prevailing evil of the times, which produced this clause in the constitution, was the practice of emitting paper money, of making property which was useless to the creditor a discharge of his debt, and of changing the time of payment by authorizing distant instalments.” ).
22: Sturges, 17 U.S. (4 Wheat.) at 203.
23: See id. at 204; see also Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 427 (1934) ( “Legislative interferences had been so numerous and extreme that the confidence essential to prosperous trade had been undermined and the utter destruction of credit was threatened.” ).
24: See Blaisdell, 290 U.S. at 427–28; see also Sveen v. Melin, No. 16-1432, slip op. at 2 (U.S. June 11, 2018) (Gorsuch, J., dissenting) ( “[The Framers] took the view that treating existing contracts as ‘inviolable’ would benefit society by ensuring that all persons could count on the ability to enforce promises lawfully made to them—even if they or their agreements later prove unpopular with some passing majority.” (quoting Sturges, 17 U.S. (4 Wheat.) at 206).
25: Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 245 (1978) ( “Contracts enable individuals to order their personal and business affairs according to their particular needs and interests. Once arranged, those rights and obligations are binding under the law, and the parties are entitled to rely on them.” ).