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A Look Back at the Contract Clause:
The Early Years – An Expansive Application
by Roger Bern
The history of the Contract Clause,1 illustrates, in microcosm, the transformation that has occurred in this nation with respect to presuppositions about the role and purpose of government. It discloses a transformation from a presupposition that governments are instituted among men to secure “unalienable Rights” granted to men by their Creator,2 to one that governments exist to advance or protect “broad societal interest[s],”3 the “economic interests of the State,”4 “the good of the whole”5 “the general good of the public”6 or “the common weal,”7 to which individual rights, particularly in the economic sphere, are subordinated. It captures in miniature the drift away from the principles enunciated in the Declaration of Independence upon which the Constitution is based.8
The Contract Clause appears in the first paragraph of article I, section 10 and is set forth here in that context
No State shall enter into any Treaty, Affiance, 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.9
Notwithstanding its brevity and surface simplicity, the meaning of the Contract Clause is far from clear. Its key terms – “impairing,” “obligation” and “contracts” – are undefined in the Constitution, and the record of its consideration by the Convention is both brief and inconclusive.10
The clause was written and adopted against a backdrop of economic and political dislocations following the War for Independence. Many citizens were in debt, particularly farmers who had speculated on land during a period of rising prices. Professor Peltason describes the setting:
Property and debtor laws were extremely harsh. Defaulting debtors were thrown into jail and deprived of all their holdings. In many states, the legislatures, responsive to the pressure of the farmers, passed laws to alleviate the lot of debtors. Paper money was made legal tender for the payment of debts, bankruptcy laws were passed, and sometimes the courts were closed to creditors. These laws, in turn, aroused the creditor classes, who, feeling that their rights had been infringed, demanded action to put a stop to such “abuses” of power by the state legislatures. Creditors, in fact, were foremost among the groups that brought the Constitutional Convention about; the prevention of such interferences with private rights by the state legislatures was one of the major purposes of the Convention.11
Peltason concludes that section 10 was the “principal result” of this concern.
Though such a setting suggests numerous concerns that influenced the adoption of the various portions of section 10, it sheds little light on the intended scope of the cryptically worded Contract Clause. The same can be said of the writings of the Federalists. The author of The Federalist No. 4412 excoriated the states’ practice of printing paper money, and lamented the “pestilent effects of paper money, on the necessary confidence between man and man; on the necessary confidence in the public councils; on the industry and morals of the people, and on the character of Republican Government.”13 Prohibition of the states’ issuance of bills of credit was seen as a way to prevent further occurrence of those evils. But with respect to the Contract Clause, which The Federalist No. 44 treated in the same paragraph with bills of attainder and ex post facto laws, the author wrote only in the most general terms, applicable collectively to the three prohibitions.14 The failure to isolate the Contract Clause for particular comment means that no clear insight regarding the scope of the clause can be gleaned from The Federalist No. 44.
The Federalist No. 1015 dealt with the evils of faction and strongly condemned interest group legislation. Its author identified as the “most common and durable source of factions … the various and unequal distribution of property. Those who hold, and those who are without property, have ever formed distinct interests in society. Those who are creditors, and those who are debtors, fall under a like discrimination.”16
Professor Richard Epstein, in an insightful article17 observes that although The Federalist No. 10 and No. 44 are not phrased in the language of economics, the concern they express about the evils inherent in the legislative process of governmental redistribution of opportunities has in recent years been captured in that language.
[A]ny grant of legislative power will invite “rent-seeking” behavior; each group will try to use that legislative power to expropriate the wealth of its rivals. Economic rents are measured by the difference in value to the owner derived from the best use of a given asset and the value derived from its next best use. Where that gap is large there is a target for expropriation by legislative activity, as a well-aimed tax or regulation can reduce the return to the private owner without inducing him to shift to his next best activity.18
The effect of such rent-seeking behavior is not only wealth redistribution but also a misallocation of resources from ordinary productive activities to non-productive (in the economic sense) lobbying and counter-lobbying activities.19 The “rentseeking” tendency, expressed in terms of man’s fallen nature, could be put this way: If fallen man can obtain wealth by having government take it from another and give it to him, rather than by working for it himself, expect him to make every effort to induce the government to do so.
However, though the fear of faction and special interest economic legislation was so clearly expressed in The Federalist No. 10, it was done in the context of defending the structure of the national government. The cure that it asserted the Constitution gave was a republican form of government.20 The Federalist No. 10 made no reference to any direct prohibition against the states enacting such economic special interest legislation. In fact, in its next-to-last paragraph, The Federalist No. 10 stated:
The influence of factious leaders may kindle a flame within their particular States, but will be unable to spread a general conflagration through the other States:… a rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union, than a particular member of it; in the same proportion as such malady is more likely to taint a particular county or district, than an entire State.21
Thus, although an expansive reading of the Contract Clause would be consistent with the rhetoric of denunciation in The Federalist No. 10 of the evils of factions and special interest legislation, its scope is not directly implicated by that document. Likewise, the writings of the Anti-Federalists during the ratification period22 and the actual references to the clause in the ratifying conventions23 are sparse and quite inconclusive with respect to the scope of the clause.
The Declaration of Independence, the cornerstone upon which the Constitution was founded, also provides support for a limitation upon governmental interference with persons entering into agreements, not unlawful in nature, with the expectation that such will be enforced by civil government. As a shorthand reference, we will refer to such activity as the “right to contract.” Neither the “right to contract” nor the “right of property” is among the unalienable rights identified in the Declaration, but each is fairly encompassed within the broader terms used. In fact, the Declaration’s statement that among the unalienable rights are “Life, Liberty and the pursuit of Happiness” appears to be a shorthand or summary version of section 1 of the June 12, 1776, Bill of Rights of the Constitution of Virginia, which declared:
That all men are by nature equally free and independent, and have certain inherent rights, of which, when they enter into a state of society, they cannot, by any compact, deprive or divest their posterity; namely, the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety.24
That, coupled with the Declaration’s presupposition that governments are instituted to secure, not to hamper, men’s rights, would suggest that some constitutional limitation upon the power of government, including the power of the federal government, against interference with the right to contract, would be consistent with the principles of the Declaration. However, the Declaration does not provide the gauge for judging the scope intended for the particular words chosen for the Contract Clause.
Such a limitation on government would also be consistent with what may be called a Biblical model.25 That model begins with God as the Creator of all things and, therefore, Lord over all Creation.26 It recognizes that man is created in the image of God, and that man thus owes his very existence to God and has a duty to honor and obey God.27 It recognizes what might be termed the Creation Mandate – God’s command to man to be fruitful, multiply, fill the earth and take dominion over all of its resources, all to God’s glory.28
One of the ways man carries out the Creation Mandate is by entering into agreements with his fellows. Such agreements are possible because, in creating man in His own image, God has endowed man with language, the ability to communicate with words. In particular, God has given man ability to communicate with words of a special quality – words of promise – which in the very nature of things instill in the one who hears them a confidence, an expectation, that they will be kept.29
Because man is wholly accountable to his Creator for the way he conducts himself toward God, toward himself, toward his fellows and toward his environment, self-government is the first level of government in the Biblical model. Created in God’s image and the recipient of the Creation Mandate, man has a duty to God to govern his own life and to steward all that he is and has in a way that glorifies God. In carrying out the Creation Mandate in society, among man’s duties to God is the duty to recognize that his fellow human beings bear the image of God and likewise operate under the Creation Mandate.
When man carries out the Creation Mandate in recognition of the image of God in his fellows and without interfering with their efforts to do the same, he fulfills his duty to God and does no harm to them. When he fails to so govern himself and instead interferes with his fellows carrying out the Creation Mandate in their lives, he is not only a sinner toward God but also an evildoer toward his fellows.
The Biblical model also recognizes that God has established the institution of civil government and has granted it authority to punish evildoers and to provide a quiet and tranquil environment so that man may carry out his duties to God in all godliness and dignity.30 In the contract setting, this authority of government is appropriately brought to bear to enforce promises, that is, to take action against the promise-breaker (evildoer) whenever his breach of faith has adversely affected the stewardship/dominion position of the promisee or whenever it undermines sanctity of promise as a vehicle for carrying out the Creation Mandate.
Civil government does not act within its authority if it dictates directly or indirectly the terms upon which the parties can or cannot contract, save to the extent of prohibiting bargains that are antithetical to the Creation order.31 If civil government attempts to limit or proscribe the substance to which parties might independently agree in otherwise lawful bargains, it acts not in its authorized role as an avenger against evildoers and a facilitator of an environment in which each person can carry out his Creation Mandate duties to God, but rather in a dominion role that has never been assigned to it. If it does so, it also undermines the Creation order primacy of self-government and the principle of individual accountability to God.
But though a Biblical model supports a significant limitation on civil government with respect to contracts, it – like the legislative history of section 10, twentieth century economic theory and the Declaration – does not settle the question of the intended scope of the words chosen for the Contract Clause.
In its early appearances before the Supreme Court, the Contract Clause was given an expansive reading. In Fletcher v. Peck,32 Chief Justice Marshall, writing for the Court, ruled that the clause applied not only to executory contracts, but also to those which had been executed, including grants of property rights; and that it applied not only to contracts between private parties, but also to contracts to which a state was a party. Those conclusions dictated the holding that the clause prohibited a subsequent Georgia legislature from annulling an earlier grant of land title made by a previous legislature to private parties who in turn had sold the land to bona fide purchasers.
Within the decade the Marshall Court confirmed that the clause applied to all public contracts, whether they be in the form of agreements, grants or charters. In The Trustees of Dartmouth College v. Woodward,33 Marshall delivered the opinion of the Court holding that the clause prevented the terms of a charter of incorporation from the crown to a private educational institution from thereafter being modified by the state in which such corporation operated. Of the Dartmouth College holding James Kent in his Commentaries observed
The decision in that case did more than any other single act, proceeding from the authority of the United States, to throw an impregnable barrier around all rights and franchises derived from the grant of the government; and to give solidity and inviolability to the literary, charitable, religious, and commercial institutions of our country.34
It certainly cultivated confidence within the business community and was followed by our unprecedented proliferation of commercial corporations in the nation.
Between the decisions in Fletcher v. Peck and Dartmouth College, the Court, in another Marshall opinion, New Jersey v. Wilson,35 ruled that the Contract Clause precluded the state of New Jersey from withdrawing a tax exemption that had previously been included in a grant of land to an Indian tribe. The effort to withdraw the exemption came after the tribe had decided to move out of the state and sold the land to private parties. On the authority of Fletcher v. Peck the grant was a contract within the meaning of the clause and thus the term, even though it was one that deprived the state of its power to tax the particular land, could not be unilaterally altered by the state.
In its 1923 decision in Green v. Biddle,36 the Court, speaking through Justice Washington, ruled that the clause applied to compacts between two states and rendered unconstitutional a Kentucky statute that diminished or altered the landowners’ rights in certain lands according to the terms of a compact between Virginia and Kentucky ceding such lands to the latter. Making it clear that the clause did not merely proscribe laws which permitted obligors to escape their obligations,37 the Court stated
Any deviation from [a contract’s] terms, by postponing, or accelerating, the period of performance which it prescribes, imposing conditions not expressed in the contract, or dispensing with the performance of these which are, however, minute, or apparently immaterial, in their effect upon the contract of the parties, impairs its obligation.38
The real test for whether the Contract Clause would become a full-fledged guarantor of the right to contract came in the case of Ogden v. Saunders.39 Notwithstanding a forceful effort by Chief Justice Marshall, the Court declined, 4-3, to accord the clause that role. The case involved the application of a state insolvency statute that discharged a debtor from a contract which had been formed subsequent to the enactment of the law. Years earlier, in Sturges v. Crowninshield,40 the Court had determined that a state insolvency law which discharged a debtor from a contract entered into prior to the enactment of the law was repugnant to the Contract Clause and of no legal effect. Ogden v. Saunders presented the clear question whether a state insolvency law made applicable to contracts formed after its enactment was also constitutionally impermissible because of the Contract Clause. Marshall, in his only dissent on constitutional matters, concluded that the clause prohibited such prospective, as well as retrospective application, while the four justices in the majority held the clause prohibited only such laws as would operate retrospectively, that is, upon contracts formed prior to the enactment of the law.
Marshall’s effort to make the clause applicable to state legislation operating prospectively employed analysis that was both insightful and consistent with a Biblical model with respect to the source of “obligation” of contract, and quite deft in demonstrating how the obligation of contract could be “impaired” by a law already in existence at the time of its formation.
However, the difficulty that most troubled his colleagues on the majority,41 and the one that in the end proved insurmountable for Marshall, was how those few words could operate to prohibit states’ interfering with the right of contract without at the same time prohibiting them from enacting and enforcing laws such as statutes of limitation, statutes of fraud and usury laws, which all members of the Court believed were valid and desirable. On that difficult point Marshall’s analysis was unpersuasive and even carried its own seeds for destroying the protection of the clause.
With regard to the source of contractual “obligation,” Marshall strongly disagreed with his colleagues who concluded it was derived from the positive law of the state – that contract is merely a creature of society which derives all of its obligation from human laws. On that point Marshall took a position consistent with a Biblical model and with the Declaration of Independence. He wrote, in pertinent part:
So far back as human research carries us, we find the judicial power as a part of the executive, administering justice by the application of remedies to violated rights, or broken contracts. We find that power applying these remedies on the idea of a pre-existing obligation on every man to do what he has promised on consideration to do; that the breach of this obligation is an injury for which the injured party has a just claim to compensation, and that society ought to afford him a remedy for that injury. We find allusions to the mode of acquiring property, but we find no allusion, from the earliest time, to any supposed act of the governing power giving obligation to contracts. On the contrary, the proceedings respecting them of which we know any thing, evince the idea of a pre-existing intrinsic obligation which human law enforces. If, on tracing the right to contract, and the obligations created by contract, to their source, we find them to exist anterior to, and independent of society, we may reasonably conclude that those original and pre-existing principles are, like many other natural rights, brought with man into society; and, although they may be controlled, are not given by human legislation.
In the rudest state of nature a man governs himself, and labors for his own purposes. That which he acquires is his own, at least while in his possession, and he may transfer it to another. This transfer passes his right to that other. Hence the right to barter. One man may have acquired more skins than are necessary for his protection from the cold; another more food than is necessary for his immediate use. They agree each to supply the wants of the other from his surplus. Is this contract without obligation? If one of them, having received and eaten the food he needed, refuses to deliver the skin, may not the other rightfully compel him to deliver it? Or two persons agree to unite their strength and skill to hunt together for their mutual advantage, engaging to divide the animal they shall master. Can one of them rightfully take the whole? or, should he attempt it, may not the other force him to a division? If the answer to these questions must affirm the duty of keeping faith between these parties, and the right to enforce it if violated, the answer admits the obligation of contracts, because, upon that obligation depends the right to enforce them. Superior strength may give the power, but cannot give the right. The rightfulness of coercion must depend on the pre-existing obligation to do that for which compulsion is used. It is no objection to the principle, that the injured party may be the weakest. In society, the wrong-doer may be too powerful for the law. He may deride its coercive power, yet his contracts are obligatory; and, if society acquire the power of coercion, that power will be applied without previously enacting that his contract is obligatory.
Independent nations are individuals in a state of nature. Whence is derived the obligation of their contracts? They admit the existence of no superior legislative power which is to give them validity, yet their validity is acknowledged by all. If one of these contracts be broken, all admit the right of the injured party to demand reparation for the injury, and to enforce that reparation if it be withheld. He may not have the power to enforce it, but the whole civilized world concurs in saying, that the power, if possessed, is rightfully used.
In a state of nature, these individuals may contract, their contracts are obligatory, and force may rightfully be employed to coerce the party who has broken his engagement.
What is the effect of society upon these rights? When men unite together and form a government, do they surrender their right to contract, as well as their right to enforce the observance of contracts? For what purpose should they make this surrender? Government cannot exercise this power for individuals. It is better that they should exercise it for themselves. For what purpose, then, should the surrender be made? It can only be, that government may give it back again. As we have no evidence of the surrender, or of the restoration of the right; as this operation of surrender and restoration would be an idle and useless ceremony, the rational inference seems to be, that neither has ever been made; that individuals do not derive from government their right to contract, but bring that right with them into society; that obligation is not conferred on contracts by positive law, but is intrinsic, and is conferred by the act of the parties. This results from the right which every man retains to acquire property, to dispose of that property according to his own judgment, and to pledge himself for a future act. These rights are not given by society but are brought into it. The right of coercion is necessarily surrendered to government, and this surrender imposes on government the correlative duty of furnishing a remedy.
… [T]he right to contract is the attribute of a free agent, and … he may rightfully coerce performance from another free agent who violates his faith. Contracts have, consequently, an intrinsic obligation. When men come into society, they can no longer exercise this original and natural right of coercion. It would be incompatible with general peace, and is, therefore, surrendered. Society prohibits the use of private individual coercion, and gives in its place a more safe and more certain remedy. But the right to contract is not surrendered with the right to coerce performance. It is still incident to that degree of free agency which the laws leave to every individual, and the obligation of the contract is a necessary consequence of the right to make it.42
Marshall’s analysis of the source of “obligation” is premised on the inherent sanctity of promise, upon a belief that the authority to use promises to engage the cooperation of others belongs, by nature, to man, not to government, and upon a belief that the proper role of government is to enforce such promises. It mirrors what could be described in Biblical terms as the sanctity of promise, which derives from man being created in the image of God, the grant of the Creation Mandate to individuals and families prior to the Fall and the institution of civil government, and the authority of civil government to punish evildoers and to provide an environment in which man may carry out his Creation Mandate duties to God. Marshall’s analysis of the right to contract as a “natural right, brought with man into society,” and which is “not surrendered” by his entering into society, but rather that which is to be enforced by government finds striking parallel with the Declaration’s premise of unalienable rights secured by civil government.
With respect to the “impairment” issue, Marshall’s colleagues in the majority concluded there could be no impairment except of contracts already in existence at the time the law was passed by the legislature, either because every contract is made with reference to and is governed by existing law,43 or because existing law forms a part of the obligation to every contract.44 Justice Thompson’s focus upon “impairment” as something that must occur, if at all, at the time the law is passed, is illustrative: “The law must have a present effect upon some contract in existence, to bring it within the plain meaning of the language employed. There would be no propriety in saying, that a law impaired, or in any manner whatever modified or altered, what did not exist.”45 For Justice Washington, who believed existing law “form,[ed] a part of the contract, and of its obligation, it would seem to be somewhat of a solecism to say that it does, at the same time, impair that obligation.”46
Marshall countered that “[t]he time to which the word ‘impairing’ applies, is not the time of the passage of the act, but of its action on the contract. That is, the time present in contemplation of the prohibition.”47 He explained:
The [insolvency] law, at its passage, has no effect whatever on the contract [at its formation]…. When, then, does its operation commence? We answer, when it is applied to the contract. Then, if ever, and not till then, it acts on the contract, and becomes a law impairing its obligation…. A law, then, of this description, if it derogates from the obligation of a contract, when applied to it, is, grammatically speaking, as much a law impairing that obligation, though made previous to its formation, as if made subsequently.48
To the proposition that existing law becomes a constituent part of the obligation of contract or that all contracts are made subject to existing laws, Marshall made several arguments, among them the following. First, even assuming for argument those propositions to be correct, they nevertheless beg the question. For such propositions assume a valid law. Yet, if one law (for example, an insolvency law) enters into or governs all subsequent contracts, so also does every other law that relates to the subject, including article I, section 10 of the Constitution. But if that section prohibits the states from passing such a statute, the statute is not a valid law and thus is neither incorporated into nor governs subsequent contracts.49
On the other hand, to say that notwithstanding section 10, any legislative act is a sort of “master term” that enters into or governs all subsequent contracts, reduces the Contract Clause from one introducing the great principle of protection of the right to contract without state interference, to a restriction which every state may elude at pleasure.50 Marshall saw the consequences of a “master term” theory:
A legislative act … declaring that all contracts should be subject to legislative control, and should be discharged as the legislature might prescribe, would become a component part of every contract, and be one of its conditions.
… The obligation of contracts in force, at any given time, is but of short duration; and, if the inhibition be of retrospective laws only, a very short lapse of time will remove every subject on which the act is forbidden to operate, and make this provision of the constitution so far useless.51
Professor Epstein comments with regard to the “master term” theory that it “is a way to annihilate the clause, not to interpret it. Suppose, for example, the state passed a law which read in full: ‘Any private contract entered into after the passage of this statute shall be subject to abrogation or modification by subsequent legislation.'”52 A literal application of the “master term” theory would thus free the state in the future to pass laws that operated both prospectively and retrospectively. Though Epstein believes such a law would be recognized as a “transparent attempt to claim for the state power that the Constitution removes from it, and could not withstand serious consitutional [sic] scrutiny,”53 he notes the appeal to some “master term” in other less expansive but nonetheless intrusive state interference with contract terms likewise “subverts the relationship between the Constitution and state legislation. It allows the legislature to expand its powers as long as it acts quickly, and it converts the ideal of contract from a source of private right based upon private volition into yet another object of legislative faction.”54
The “master term” theory, which renders legislation that operates prospectively “non-impairing” by definition, flows easily and predictably from the majority’s conclusion with respect to the source of contractual “obligation.” For, as justice Trimble, of the majority, put it, once it is determined that the obligation connotes of nothing more than the efficacy which the civil law attaches to it, the “necessary corollary” is
that the obligation of a contract made within a sovereign State, must be precisely that allowed by the law of the State, and none other…. If the positive law of the State declares the contract shall have no obligation, it can have no obligation, whatever may be the principles of natural law in relation to such contract.55
Or as justice Johnson, of the majority, put it after concluding that obligation could not exist independently from the laws of society:
[A]ll the contracts of men receive a relative, and not a positive interpretation: for the rights of all must be held and enjoyed in subserviency to the good of the whole. The State construes them, the State applies them, the State controls them, and the State decides how far the social exercise of the rights they give us over each other can be justly asserted.
Why may not the community set bounds to the will of the contracting parties in [the insolvency area] as in every other instance. That will is controlled in the instances of gaming debts, usurious contracts, marriage, brokrage [sic] bonds, and various others . . . . Who can doubt the power of the State to prohibit her citizens from running in debt altogether? … And if to be prohibited altogether, where is the limit which may not be set both to the acts and the views of the contracting parties?56
Such language seems a far cry from that contained in the Declaration. Perhaps in part at least it is the result of the perceived predicament in which the justices found themselves. They had before them the Contract Clause, which was part and parcel of the first paragraph of section 10, a paragraph phrased in absolute prohibitory terms with respect to all matters addressed in it. But they also had before them the knowledge that there were state statutes, for example, statutes of fraud, statutes of limitation, usury laws, laws prohibiting gambling contracts, and the like, of which they (even Marshall) approved and could not conceive of a society being without. How could the Contract Clause operate to prohibit legislation that operated prospectively as well as retrospectively and yet permit survival of these state laws of which they approved?
Marshall argued that the states’ authority to enact statutes of limitation could be saved by making a distinction between “obligation” and remedy, since such laws related only to remedy and therefore were not proscribed.57 That artificial distinction ignored not only the teachings of respected legal commentators such as Blackstone,58 but also the contrary position Marshall himself had taken in Marbury v. Madison,59 and common sense as well. For if Marshall were really serious about that distinction, the clause would be powerless against both prospective and retrospective encroachments by the states. Marshall himself conceded that under his obligation/remedy distinction it might be possible for a state, if it were “sufficiently insane to shut up or abolish its Courts, and thereby withhold all remedy,”60 to annihilate effectively all remedy for a breach of contract. Yet he mentioned that such action would not annihilate the obligation of contract. Would such a law withholding all remedy offend the Contract Clause? The most Marshall was willing to do with that question was to dodge it, stating whether the Constitution would interpose a shield against such an attempt to violate the spirit while evading its letter “will depend on the law itself which shall be brought under consideration.”61 He added, “The anticipation of such a case would be unnecessarily disrespectful, and an opinion on it would be, at least, premature.”62 It is no wonder his colleagues on the majority were unpersuaded by Marshall’s obligation/remedy distinction.63
Marshall’s argument to save statutes of fraud, recording statutes and usury laws was equally unpersuasive and in fact forfeited the strong position he had taken with regard to the source of obligation. He stated:
[W]e readily admit, that the whole subject of contracts is under the control of society, and that all the power of society over it resides in the State legislatures, except in those special cases where restraint is imposed by the constitution of the United States. The particular restraint now under consideration is on the power to impair the obligation of contracts. The extent of this restraint cannot be ascertained by showing that the legislature may prescribe the circumstances, on which the original validity of a contract shall be made to depend. If the legislative will be, that certain agreements shall be in writing, that they shall be sealed, that they shall be attested by a certain number of witnesses, that they shall be recorded, or that they shall assume any prescribed form before they become obligatory, all these are regulations which society may rightfully make and which do not come within the restrictions of the constitution, because they do not impair the obligation of the contract. The obligation must exist before it can be impaired; and a prohibition to impair it, when made, does not imply an inability to prescribe those circumstances which shall create its obligation. The statutes of frauds, therefore, which have been enacted in the several States, and which are acknowledged to flow from the proper exercise of State sovereignty, prescribe regulations which must precede the obligation of the contract, and, consequently, cannot impair that obligation. Acts of this description, therefore, are most clearly not within the prohibition of the constitution,
The acts against usury are of the same character. They declare the contract to be void in the beginning. They deny that the instrument ever became a contract. They deny it all original obligation; and cannot impair that which never came into existence.64
But previously Marshall had argued that “obligation” arises from the agreement of the parties, that it pre-exists society and government, that the right to contract is not granted by society, but brought into it.65 And, significantly, Marshall suggested no limiting principle which could keep government from legislating, for example, that there is no original obligation whenever government says so.
* Copyright © 1986, 2006 Roger Bern. Used by permission. This article was first published in 6 J. Christian Jurisprudence (1986).
1. U.S. Const. art. 1, § 10, d. 1.
2. We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are life, liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed … . The Declaration of Independence para. 2 (U.S. 1776).
3. Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 249 (1978).
4. Home Bldg. & Loan Ass’n. v. Blaisdell, 290 U.S. 398, 437 (1934).
5. Ogden v. Saunders, 25 U.S. (12 Wheat.) 213, 282 (1827) (Johnson, J., opinion).
6. Manigault v. Springs, 199 U.S. 473, 480 (1905).
8. See generally Titus, The Law of Our Land, 6 J. Christian Jurisprudence 57 (1986); J.Q. Adams, The Jubilee of the Constitution: A Discourse Delivered at the Request of the New York Historical Society (Apr. 30, 1839), reprinted in 6 J. Christian Jurisprudence 1, 18-19 (1986).
9. U.S. Const. art. l, 5 10, cl. 1 (emphasis added).
10. 2 The Records of the Federal Convention of 1787, at 439-40, 448-49, 619 (M. Farrand ed. 1966) (Madison’s record of the debates at the Constitutional Convention on August 28 and 29 and on September 14); Constitutional Chaff – Rejected Suggestions of the Constitutional Convention of 1787 with Explanatory Argument 80-810. Butzner ed. 1941); C. Rossiter, 1787: The Grand Convention 230 (1966). The idea of prohibiting states from interfering with contracts first appears in the convention records in the form of a motion from the floor by Mr. Rufus Icing of Massachusetts. He moved to add to the article under discussion (which eventually became part of article 1, section 10) the words used in the Northwest Ordinance. The language used by Congress in the Northwest Ordinance was: “[N]o 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.” Northwest Ordinance art. II (U.S. 1787) (emphasis added). The last two words of the Ordinance make it clear that it was designed to prohibit only laws with retrospective application. Although Mr. Icing’s motion was defeated, he, as one of five delegates appointed to the committee on style, was able to persuade his colleagues on that committee to add a clause prohibiting states from interfering with contracts. The language emerging from the committee on style, however, was not that of the Northwest Ordinance, but rather the more cryptic language presently found in article I, section 10.
11. J. Peltason, Corwin and Peltason’s Understanding the Constitution 81 (7th ed. 1976); see also C. Beard, An Economic Interpretation of the Constitution of the United States 178-81 (2d ed. 1935).
12. The Federalist No. 44 (J. Madison) (J. Cooke ed. 1961).
13. Id. at 300.
14. The three matters prohibited were collectively described as “contrary to the first principles of the social compact, and to every principle of sound legislation.” Id. at 301. The author stated that of these three matters, bills of attainder and ex post facto laws
are expressly prohibited by the declarations prefixed to some of the State Constitutions, and all of them are prohibited by the spirit and scope of these fundamental charters. Our own experience has taught us nevertheless, that additional fences against these dangers ought not to be omitted. Very properly therefore have the Convention added this constitutional bulwark in favor of personal security and private rights; and I am much deceived if they have not in so doing as faithfully consulted the genuine sentiments, as the undoubted interest of their constituents. The sober people of America are weary of the fluctuating policy which has directed the public councils. They have seen with regret and indignation, that sudden changes and legislative interferences in cases affecting personal rights, become jobs in the hands of enterprizing and influential speculators; and snares to the more industrious and less informed part of the community. They have seen, too, that legislative interference, is but the first link of a long chain of repetitions; every subsequent interference being naturally produced by the effects of the preceding. They very rightly infer, therefore, that some thorough reform is wanting which will banish speculations on public measures, inspire a general prudence and industry, and give a regular course to the business of society.
Id, at 301-02.
15. The Federalist No. 10 (J. Madison) (J. Cooke ed. 1961).
16. Id. at 59.
17. Epstein, Toward a Revitalization of the Contract Clause, 51 U. Chi. L. Rev. 703 (1984).
18. Id. at 713. Epstein gives the following example:
[S]uppose that the best use of a given asset yields its owner $100 while its next best use yields but $50. A tax of $25 on the preferred use will not induce the owner to redeploy his asset and will net the beneficiaries of the tax or regulation $25. By contrast, a tax of $60 will net the legislature nothing, as the owner prefers the $50 derivable from the second best activity to the $40 left to him from the first.
20. The Federalist No. 10, supra note 15.
21. Id. at 64-65.
22. See, e.g., General Information Delivered by Luther Martin to the General Assembly of the State of Maryland (1788), reprinted in 2 The Complete Antifederalist 27, 64-65 (H. Storing ed. 1981) [hereinafter Storing] (opposing the Contract Clause because it would prevent the state governments from “passing laws totally or partially stopping the courts of justice, or authorising the debtor to pay by instalments [sic], or by delivering up his property to his creditors at a reasonable and honest valuation” even in times of “great public calamities and distress” ); Essays of Brutus MV (Mar. 6, 1788), reprinted in 2 Storing, supra, at 433, 436 (linking the Contract Clause with the prohibition against emission of bills of credit and tender laws and praising the provision, stating, These prohibitions give the most perfect security against those attacks upon property which . . . some of the states have but too wantonly made, by passing laws sanctioning fraud in the debtor against his creditor”); Essay by Deliberator (Feb. 20, 1788), reprinted in 3 Storing, supra, at 176, 180 (asserting that, because of the bankruptcy clause and the Contract Clause, “[n]o state can given [sic] relief to insolvent debtors, however distressing their situation may be”).
23. See, e.g., Debate by James Wilson at the Pennsylvania Convention (Dec. 4, 1787), reprinted in 2 The Debates in the Several Conventions on the Adoption of the Federal Constitution 471, 486 (J. Elliot 2d ed. n.d. & reprint 1968) [hereinafter Elliot] (praising the “restraints placed on the state governments” regarding the emission of bills of credit, tender laws and laws impairing the obligation of contracts, stating that “[f]atal experience has taught us … the value of these restraints”); Debate by Patrick Henry at the Virginia Convention (June 15, 1788), reprinted in 3 Elliot, supra, at 473, 473-74 (speaking against the Contract Clause, stating it might invalidate an act of the legislature “for scaling money” and require “paper money [to] be discharged, shilling for shilling”); Debate by George Nicholas at the Virginia Convention (June 15, 1788), reprinted in 3 Elliot, supra, at 476, 476 (stating the Contract Clause could not “hinder” the states from “interfer[ing] with Continental debts” because the states “never could do it”); Debate by Edmund Randolph at the Virginia Convention (June 15, 1788), reprinted in 3 Elliot, supra, at 477, 478 (stating that the scaling of money was still possible since “Congress, and not [the states], have [sic] contracted to pay it” and that Congress “is not affected by this clause at all” ); Debate by James Galloway at the North Carolina Convention (July 29, 1788), reprinted in 4 Elliot, supra, at 190, 190-91 (arguing that the Contract Clause would require the state, which had issued public securities, to “make good the nominal value of [those] securities” and to redeem the “full nominal value … in gold and silver” even though speculators had purchased them for “a very trifling consideration”); Debate by William R. Davie at the North Carolina Convention (July 29, 1788), reprinted in 4 Elliot, supra, at 191, 191 (countering Galloway’s argument by stating that the clause did not “ves[t] the general government with power to interfere with the public securities of any state” but “refer[red] merely to contracts between individuals”); Debate by Charles Pinckney at the South Carolina Convention (May 20, 1788), reprinted in 4 Elliot, supra, at 333, 333-36 (staunchly defending article l, section 10, stating that it was “extremely improper” that states “should ever be intrusted with the power
money, or interfering in private contracts; or, by means of tender-laws, impairing the obligation of contracts” and that “this restraint” was “extremely useful and advantageous … to those states which mean to be honest, and not to defraud their neighbors”).
24. Va. Const. of 1776, pt. 1, § 1, reprinted in 7 The Federal and State Constitutions, Colonial Charters, and Other Organic Laws 3812, 3813 (F. Thorpe ed. 1909 & photo. reprint 1977).
25. G. Amos, Defending the Declaration 105-08 (1989).
26. Genesis 1:1-31.
27. Genesis 1:27.
28. Genesis 1:28.
29. 1 Kings 8:56; Psalm 105:42; 2 Corinthians 1:18-20; Hebrews 13:8.
30. Romans 13:1-7; 1 Peter 2:12-17; 1 Timothy 2:22.
31. G. Amos, Government by the Book 121-23 (October 1987) (unpublished manuscript).
32. 10 U.S. (6 Cranch) 87 (1810).
33. 17 U.S. (4 Wheat.) 518 (1819).
34. 1 J. Kent, Commentaries *418.
35. 11 U.S. (7 Cranch) 165 (1812).
36. 21 U.S. (8 Wheat.) 1 (1823).
37. In Sturges v. Crowninshield, 17 U.S. (4 Wheat.) 122 (1819), the Court ruled as unconstitutional under the Contract Clause state insolvency legislation which purported to discharge a debtor from all liability for a debt waived prior to the passage of such legislation.
38. 21 U.S. at 84.
39. 25 U.S. (12 Wheat.) 213 (1827).
40. 17 U.S. (4 Wheat.) 122 (1819).
41. 25 U.S. at 261-62 (Washington, J., opinion); id. at 286-88 (Johnson, J., opinion); id. at 299-302 (Thompson, J., opinion); id. at 323-27 (Trimble, J., opinion). This was the same matter that was of concern to some at the Constitutional Convention. See supra note 10.
42. 25 U.S. at 344-47, 350 (Marshall, C.J., dissenting) (emphasis added).
43. 25 U.S. at 298-99 (Thompson, J., opinion).
44. 25 U.S. at 259-60 (Washington, J., opinion).
45. 25 U.S. at 303 (Thompson, J., opinion).
46. 25 U.S. at 260 (Washington, J., opinion).
47. 25 U.S. at 337 (Marshall, C.J., dissenting).
49. Id. at 338-39.
50. Id. at 339-40.
51. Id. at 339, 355.
52. Epstein, supra note 17, at 727.
55. 25 U.S. at 320 (Trimble, J., opinion).
56. 25 U.S. at 282, 289-90 (Johnson, J., opinion).
57. 25 U.S. at 348-53 (Marshall, C.J., dissenting).
58. 3 W. Blackstone, Commentaries *23.
59. In Marbury v. Madison, Marshall stated:
The government of the United States has been emphatically termed a government of laws, and not of men. It will certainly cease to deserve this high appellation, if the laws furnish no remedy for a violation of a vested legal right.* * *
[W]here a specific duty is assigned by law, and individual rights depend upon the performance of that duty, it seems equally clear that the individual who considers himself injured, has a right to resort to the laws of his country for a remedy.
5 U.S. (1 Cranch) 137, 163, 166 (1803).
60. 25 U.S. at 351 (Marshall, C.J., dissenting).
61. Id. at 353.
63. 25 U.S. at 323-28 (Trimble, J., opinion).
64. 25 U.S. at 348 (Marshall, C. J., dissenting) (emphasis added).
65. See id. at 344-47.