Contract Clause

AuthorWallace Mendelson

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In a flashing aperçu Sir Henry Maine observed that "the movement of progressive societies has hitherto been a movement from Status to Contract." In feudal systems a person acquired a fixed, social status by birth, one's legal rights and duties being determined thereby for life. The decline of feudalism was a fading away of the status system in favor of personal rights and duties based largely on contractual relationships. Obligations imposed by ancestry gave way to obligations voluntarily undertaken. Generally thereafter a person's place in society depended upon success or failure in covenants with respect, for example, to wages, raw materials, farm and industrial goods, or artistic talent. In such a setting it is crucial that agreements be dependable?not merely to promote the individual's security

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and mobility but for the good of a society that relies for its sustenance upon a vast network of voluntary, contractual relationships. Thus Article I, section 10, of the Constitution, reflecting in part unfortunate experience under the ARTICLES OF CONFEDERATION, forbids inter alia state laws "impairing the OBLIGATION OF CONTRACTS." In THE FEDERALIST #44, JAMES MADISON, observed that such laws "are contrary to the first principles of the SOCIAL COMPACT and to every principle of sound legislation." In his view "the sober people of America" were "weary of fluctuating" legislative policy, and wanted reform that would "inspire a general prudence and industry, and give a regular course to the business of society."

Indeed the sanctity of contracts was deemed so vital to personal security that in fifty-five years following the Supreme Court's first contract clause decision (FLETCHER V. PECK, 1810), twenty-two states put such provisions in their own constitutions. With one exception each of them was included in the state's bill of rights. Prior to 1810 four states had already done this. All of them protected contracts generally (per Fletcher), not merely private contracts as in the NORTHWEST ORDIANCE. Plainly in JOHN MARSHALL'S day and long thereafter his Court's broad view of the contract clause was widely accepted?along with FREEDOM OF RELIGION, and FAIR TRIALS?as one of those restrictions on government "which serve to protect the most valuable rights of the citizen."

Obviously those who thus equated property rights and civil liberty were?like the Founding Fathers and the MARSHALL COURT?disciples of JOHN LOCKE. He had taught that property and liberty go hand in hand; that neither thrives without the other; that to protect them both as indispensable to life itself is the reason for government. Generations later, in a radically changed economic setting, some Americans came to believe that property hampers liberty. Inevitably then (having forgotten Locke) they would misunderstand both the founders and our early judges?Lockians all. Thus the Progressive movement convinced itself and its heirs that the Marshall Court had erred in holding the contract clause applicable to state, that is, public, covenants and that in so holding the judges had revealed a pro-property bias. Both of these views?derived largely from Fletcher and Dartmouth College v. Woodward (1819)?seem erroneous. The first rests on the strange idea that unambiguous language of the Constitution means not what it plainly says, but rather something else, because of the supposed intent of its authors. (Of course authors' intent may be a proper key to the meaning of ambiguous terminology, but that is a very different matter.)

Had the CONSTITUTIONAL CONVENTION OF 1787 wanted the clause to cover only private agreements, that is, those between individuals, it need only have said so. The Continental Congress had done just that in the Northwest Ordinance: "? no law ought ever to be made, or to have force in the said territory, that shall in any manner whatever, interfere with or affect private contracts.?" Six weeks later, RUFUS KING moved to include its private contract approach in the Constitution. Following a brief discussion of possible ramifications of such a provision, it was dropped. A few days later, at the suggestion of the Committee of Style, the Constitutional Convention adopted the contract clause, which refers comprehensively to "contracts" without qualification. Nothing in our record of the proceedings explains the change of mind or the change of terminology. But this is certain: not a word there or in The Federalist even hints that the founders were concerned only with private covenants?that they thought a state should be free to violate its own agreements. ALEXANDER HAMILTON would later observe: "It is ? impossible to reconcile the idea of a [state] promise which obliges, with a power to make a law which can vary the effect of it." Hamilton, of course, had been a member of the Constitutional Convention.

Long before John Marshall became a judge, Justice JAMES WILSON, in CHISHOLM V. GEORGIA (1793), had asked rhetorically: "What good purpose could this constitutional provision secure if a state might pass a law impairing the obligation of its own contracts, and be amendable, for such a violation of right, to no controlling judiciary power?" This from one who had been perhaps the second most important leader of the Constitutional Convention. Justice WILLIAM PATERSON, too, had been influential at the Convention. Years before Fletcher in a similar case, VAN HORNE ' S LESSEE V. DORRANCE (1795), he had held that a state could not impair its own contractual obligations. So did the highest court of Massachusetts in Derby v. Blake (1799) and in Wales v. Stetson (1806). Fletcher was not without significant judicial precedent.

The argument that the contract clause does not mean what it says rests essentially on the proposition that the crucial contract problem in late eighteenth-century America was erosion of private contract obligations by debtors' relief legislation. No doubt this was a vexing and well-known difficulty. Yet surely it is no ipso facto basis for excluding related problems plainly covered by explicit constitutional language. State negligence with respect to state obligations was after all a matter of experience. Even if it were known that the Framers intended the written words to embrace only private contracts, judges could not properly adopt that view. For those who ratified can hardly be said to have ratified something other than the words of the document. To hold otherwise is to undermine the basic premise of a written constitution. As the Marshall Court put it in orthodox manner in Dartmouth: "This case being within the words of the Contract Clause, must be

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within its operation likewise, unless there be something in the literal construction so obviously absurd or mischievous, or repugnant to the general spirit of the instrument, as to justify those who expound the constitution in making it an exception.?" No such basis for an exception having been discovered, the Supreme Court ever since has found the contract clause applicable as written to contracts generally, whether public or private.

A related problem in Fletcher concerned the scope of the term "contract." The Georgia legislature had sold and granted to speculators millions of acres of public land. A subsequent legislature had repealed the grant on the ground that it had been obtained by bribery. Meanwhile part of the land had been conveyed to innocent third-party purchasers. The issue in Fletcher was whether the initial grant...

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