Article 1, Section 1, Clause 1 — Overview Of Contract Clause

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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.

In addition to prohibiting states from enacting bills of attainder and ex post facto laws, the Constitution seeks to protect private rights from state interference by limiting the states’ power to enact legislation that alters existing contract rights.[1](https://www.law.cornell.edu/constitution-conan/article-1/section-1/clause-1/overview-of-contract-clause#fn1art1 " See Ogden v. Saunders, 25 U.S. (12 Wheat.) 213, 266–67 (1827) ( “If it were proper to prohibit a State legislature to pass a retrospective law, which should take from the pocket of one of its own citizens a single dollar, as a punishment for an act which was innocent at the time it was committed; how much more proper was it to prohibit laws of the same character precisely, which might deprive the citizens of other States, and foreigners, as well as citizens of the same State, of thousands, to which, by their contracts, they were justly entitled, and which they might possibly have realized but for such State interference?” ); see also Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 431 (1934) ( “The obligations of a contract are impaired by a law which renders them invalid, or releases or extinguishes them[,] and impairment, as above noted, has been predicated on laws which without destroying contracts derogate from substantial contractual rights.” ) (citations omitted). ") The Constitution’s Contract Clause provides: “No State shall . . . pass any . . . Law impairing the Obligation of Contracts.” [2](https://www.law.cornell.edu/constitution-conan/article-1/section-1/clause-1/overview-of-contract-clause#fn2art1 " U.S. Const. art. I, § 10, cl. 1. The Supreme Court has long considered contractual “obligations” to encompass both the express terms of an agreement and the underlying state law regarding interpreting and enforcing contracts upon which the parties relied when they made the contract. See U.S. Trust Co. v. New Jersey, 431 U.S. 1, 19–20 & n.17 (1977) ( “The obligations of a contract long have been regarded as including not only the express terms but also the contemporaneous state law pertaining to interpretation and enforcement.” ). Such underlying state law may include the law of the place in which the contract was made and the place where it will be performed. Id. Thus, the “obligation” of a contract refers to laws that affect its “validity, construction, discharge and enforcement.” Blaisdell, 290 U.S. at 429–30 (quoting Von Hoffman v. City of Quincy, 71 U.S. (4 Wall.) 535, 550 (1866)). States have long regulated the formation, interpretation, enforcement, and performance of contracts. Ogden, 25 U.S. (12 Wheat.) at 286 ( “But to assign to contracts, universally, a literal purport, and to exact for them a rigid literal fulfilment, could not have been the intent of the constitution. It is repelled by a hundred examples. Societies exercise a positive control as well over the inception, construction, and fulfilment of contracts, as over the form and measure of the remedy to enforce them.” ). ") Although this language could be read as completely prohibiting a state’s legislative impairment of contracts, the Supreme Court has interpreted the clause to limit a state’s power to enact legislation that: (1) breaches or modifies its own contracts; or (2) regulates contracts between private parties.[3](https://www.law.cornell.edu/constitution-conan/article-1/section-1/clause-1/overview-of-contract-clause#fn3art1 " U.S. Trust Co., 431 U.S. at 17. Notably, the Clause does not apply to acts of the Federal Government. Sinking-Funds Cases, 99 U.S. 700, 718–19 (1878) (acknowledging that the Federal Government is “prohibited from depriving persons or corporations of property without due process of law” but is “not included within the constitutional prohibition which prevents States from passing laws impairing the obligation of contracts” ); see also Samuel R. Olken, Charles Evans Hughes and the Blaisdell Decision: A Historical Study of the Contract Clause, 72 Or. L. Rev. 513, 519 (1993) (discussing how the Contract Clause “differed from the Northwest Ordinance in that it barred only state impairment of contract obligations” ). ")

The Supreme Court has held that the Contract Clause does not generally prevent states from enacting laws to protect the welfare of their citizens.[4](https://www.law.cornell.edu/constitution-conan/article-1/section-1/clause-1/overview-of-contract-clause#fn4art1 " Blaisdell, 290 U.S. at 434–35 (observing that a state “continues to possess authority to safeguard the vital interests of its people[;] . . . [t]his principle of harmonizing the constitutional prohibition with the necessary residuum of state power has had progressive recognition in the decisions of this Court” ); see also W.B. Worthen Co. v. Thomas, 292 U.S. 426, 433 (1934) ( “[L]iteralism in the construction of the contract clause . . . would make it destructive of the public interest by depriving the State of its prerogative of self-protection.” ). ") Thus, states retain some authority to enact laws with retroactive effect that alter contractual or other legal relations among individuals and entities.[5](https://www.law.cornell.edu/constitution-conan/article-1/section-1/clause-1/overview-of-contract-clause#fn5art1 " See Blaisdell, 290 U.S. at 428 ( “[T]he prohibition is not an absolute one and is not to be read with literal exactness like a mathematical formula.” ); U.S. Trust Co., 431 U.S. at 17 ( “[T]he Contract Clause does not prohibit the States from repealing or amending statutes generally, or from enacting legislation with retroactive effects.” ); El Paso v. Simmons, 379 U.S. 497, 506–09 (1965) ( “[I]t is not every modification of a contractual promise that impairs the obligation of contract under federal law . . . . The State has the ‘sovereign right . . . to protect the . . . general welfare of its people . . . . Once we are in this domain of the reserve power of a State we must respect the wide discretion on the part of the legislature in determining what is and what is not necessary.’” ) (quoting E. N.Y. Sav. Bank v. Hahn, 326 U.S. 230, 232–33 (1945)); Trs. of Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.) 518, 628–30 (1819) ( “Taken in its broad unlimited sense, the [Contract Clause] would be an unprofitable and vexatious interference with the internal concerns of a State . . . . [T]he framers of the constitution could never have intended to insert in that instrument a provision so unnecessary, so mischievous, and so repugnant to its general spirit.” ). Notably, other constitutional provisions may limit a state’s power to enact retroactive legislation that, for example, imposes a punishment (e.g., a bill of attainder or ex post facto law). See U.S. Trust Co., 431 U.S. at 17 n.13. For example, the Contract Clause generally does not prevent a state from altering laws governing state offices or civil institutions, or from enacting laws on the subject of divorce. Trs. of Dartmouth Coll., 17 U.S. (4 Wheat.) at 627–30 ( “That the framers of the constitution did not intend to retrain the States in the regulation of their civil institutions, adopted for internal government, and that the instrument they have given us, is not to be so construed, may be admitted. The provision of the constitution never has been understood to embrace other contracts, than those which respect property, or some object of value, and confer rights which may be asserted in a court of justice. It never has been understood to restrict the general right of the legislature to legislate on the subject of divorces.” ). The Court has cautioned, however, that the clause should not be interpreted to imply that parties may contract to obtain immunity from state regulation. U.S. Trust Co., 431 U.S. at 22 ( “The States must possess broad power to adopt general regulatory measures without being concerned that private contracts will be impaired, or even destroyed, as a result. Otherwise, one would be able to obtain immunity from state regulation by making private contractual arrangements.” ); see also Hudson Cnty. Water Co. v. McCarter, 209 U.S. 349, 357 (1908) ( “One whose rights, such as they are, are subject to state restriction, cannot remove them from the power of the State by making a contract about them.” ). ") However, a state’s regulation of contracts, whether involving public or private parties, must generally be reasonably designed and appropriately tailored to achieve a legitimate public purpose.[6](https://www.law.cornell.edu/constitution-conan/article-1/section-1/clause-1/overview-of-contract-clause#fn6art1 " U.S. Trust Co., 431 U.S. at 22 ( “Legislation adjusting the rights and responsibilities of contracting parties must be upon reasonable conditions and of a character appropriate to the public purpose justifying its adoption.” ). A court’s evaluation of the reasonableness of state legislation that affects private contract rights may include consideration of the background circumstances that motivated the state law’s adoption and the measure’s duration, among other factors. See Blaisdell, 290 U.S. at 444–47. Courts accord legislatures some deference in determining necessity and reasonableness of such legislation. U.S. Trust Co., 431 U.S. at 22–23. ")

Prior to the ratification of the Fourteenth Amendment and the subsequent development of the Supreme Court’s Due Process jurisprudence in the late nineteenth and early twentieth centuries, the Contract Clause was one of the few constitutional clauses that expressly limited the power of the states.[7](https://www.law.cornell.edu/constitution-conan/article-1/section-1/clause-1/overview-of-contract-clause#fn7art1 " See Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 241 (1978) (characterizing the Contract Clause as “perhaps the strongest single constitutional check on state legislation during our early years as a Nation” ); U.S. Trust Co., 431 U.S. at 15 ( “Over the last century, however, the Fourteenth Amendment has assumed a far larger place in constitutional adjudication concerning the States [than the Contract Clause].” ). As noted in McDonald v. Chicago, 561 U.S. 742 (2010), during the 1960s, the Court “shed any reluctance to hold that rights guaranteed by the Bill of Rights met the requirements for protection under the Due Process Clause. The Court eventually incorporated almost all of the provisions of the Bill of Rights. Only a handful of the Bill of Rights protections remain unincorporated.” Id. at 764–65; see e.g., Duncan v. Louisiana, 391 U.S. 145, 161–62 (1968) (holding that the Fourteenth Amendment’s Due Process Clause incorporates the Sixth Amendment right to