What is a Contract?
A contract is an agreement voluntarily ended by two or more parties. A promise is made and something of value is given, promised, or pledged in exchange
Contracts in the Constitution
“No state shall . . . pass any . . . law impairing the obligation of contracts” (Article I, Section X)
This was meant to protect agreements between private parties from state interference.
This also protected agreements that occurred between private parties and states.
Fletcher v. Peck (1810)
Facts: Georgia legislature annulled a land grant due to alleged corruption; Fletcher bought land from Peck and sued.
Rule: State laws that impair contracts are unconstitutional under the Contract Clause.
Reasoning: Contracts are protected from state interference even if original deals were corrupt; ensures stability and reliability in private agreements.
Trustees of Dartmouth College v. Woodward (1819)
Facts: New Hampshire tried to alter Dartmouth College’s charter from a private to a public institution.
Rule: Private corporate charters are protected under the Contract Clause.
Reasoning: States cannot interfere with private contracts or charters; preserves the autonomy of private corporations.
Proprietors of Charles River Bridge v. Proprietors of
Warren Bridge (1837)
Facts: Massachusetts granted a toll bridge charter, then authorized a competing free bridge. Original bridge company sued for damages.
Rule: States can authorize new public projects even if they affect existing private contracts; public interest can outweigh contract claims.
Reasoning: Charter should not imply monopolies; promotes economic development and public benefit over private gain.
Home Building & Loan v. Blaisdell (1934)
Facts: Minnesota imposed a temporary moratorium on mortgage foreclosures during the Great Depression.
Rule: States may temporarily alter contracts in emergencies without violating the Contract Clause.
Reasoning: Emergency conditions can justify temporary state interference to protect public welfare; not permanent impairment.
United States Trust v. New Jersey (1977)
Facts: New Jersey tried to repeal earlier legislation guaranteeing bondholders of public authorities.
Rule: States cannot impair contract obligations of bondholders under the Contract Clause.
Reasoning: Retroactive legislative changes that destroy vested contractual rights are unconstitutional; protects financial and contractual stability.
Allied Structural Steel Co. v. Spannaus (1978)
Facts: Minnesota imposed a pension liability law on companies for employees’ past service.
Rule: State law cannot retroactively impair vested contractual obligations.
Reasoning: Contract Clause protects companies from unexpected retroactive obligations; preserves fairness in employment and financial planning.
