Contract Clause

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The Contract Clause appears in the United States Constitution, Article I, section 10, clause 1. It states:

No State shall ... pass any ... Law impairing the Obligation of Contracts.

The framers of the Constitution added this clause due to fear that states would continue a practice that had been widespread under the Articles of Confederation—that of granting "private relief." Legislatures would pass bills relieving particular persons (predictably, influential persons) of their obligation to pay their debts. It was this phenomenon that also prompted the framers to make bankruptcy law the province of the federal government.

During and after the Revolution, many states passed laws favoring colonial debtors (ie discharging their debts) to the detriment of foreign creditors. Federalists, especially Alexander Hamilton, believed that such a practice would jeopardize the future flow of foreign capital into the fledgling United States. Consequently, the Contract Clause, by insuring the inviolability of sales and financing contracts, encouraged an inflow of foreign capital by reducing the risk of loss to foreign merchants trading with and investing in the former colonies. (See generally James W. Ely Jr., The Guardian of Every Other Right (Oxford Univ. Press 1998).)

Though the language of this clause indicates a blanket prohibition against states' interference in contracts, in practice this is no longer the case. New York State government has with New York City, Yonkers, Nassau County, and most recently Buffalo, impaired the obligation of collective bargaining agreements. With the blessing of the New York Court of Appeals (New York's highest court), the state legislature has been able to pass special legislation establishing Fiscal Stability Authorities that have the power to freeze union contract obligations. In the case of Buffalo, the Buffalo Fiscal Stability Authority has frozen pay raises, step increases, and other monetary benefits required by the affected unions' contracts. These wage freezes have also been applied to those contracts negotiated prior to the establishment of the Fiscal Stability Authority.^{[[Citing sources citation needed]]}

See also

• Fletcher v. Peck
• Federalist No. 10, complete text at .
• Contract law

United States Constitution
Original text: Preamble | Article 1 | Article 2 | Article 3 | Article 4 | Article 5 | Article 6 | Article 7 Amendments: 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | 26 | 27
Formation	History of the Constitution | Articles of Confederation | Annapolis Convention | Philadelphia Convention | New Jersey Plan | Virginia Plan | Massachusetts Compromise | Connecticut Compromise | Federalist Papers | Signatories
Amendments	Bill of Rights | Ratified | Proposed | Unsuccessful | Conventions to propose | State ratifying conventions
Clauses	Case or controversy | Commerce | Commerce (Dormant) | Contract | Copyright | Due Process | Equal Protection | Establishment | Free Exercise | Full Faith and Credit | Impeachment | Natural–born citizen | Necessary and Proper | No Religious Test | Presentment | Privileges and Immunities (Art. IV) | Privileges or Immunities (14th Amend.) | Speech or Debate | Supremacy | Taxing and Spending | Territorial | War Powers
Interpretation	Congressional power of enforcement | Double jeopardy | Enumerated powers | Incorporation of the Bill of Rights | Nondelegation | Preemption | Separation of church and state | Separation of powers | Constitutional theory

 

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