In a recent article for the Federalist Society Review, Professor David Forte, JWI Senior Scholar, corrects our jurisprudential history on the Contract Clause by re-examining two opinions from the Supreme Court of the 1930s: Home Building & Loan v. Blaisdell and Worthen v. Thomas. Professor Forte articulates how, contrary to a standard narrative in constitutional law textbooks, “Chief Justice Hughes and his majority did not kill or even mortally wound the Contract Clause in Blaisdell in 1934. Five months later, the Court reaffirmed the vitality of the Contract Clause in Worthen v. Thomas, and it did so unanimously.”
By 1934, the Impairment of Contracts Clause had had a long and not altogether coherent interpretive history. Under Supreme Court precedents, the Clause applied to both public contracts (in which the state was a party) and private contracts (Fletcher v. Peck). It also applied to state charters of corporations (Dartmouth College v. Woodward), though state obligations under such charters were to be strictly construed (Charles River Bridge v. Warren Bridge). The Clause was primarily retrospective, but contracts were to be subject to existing state laws when made (Ogden v. Saunders). The Clause did not limit the state’s inherent power of eminent domain (West River Bridge v. Dix), nor did it prevent a state from adjusting its regime of legal remedies, so long as the newly imposed remedy did not materially impair a party’s substantive rights under a contract (Sturges v. Crowninshield). However, a state could use its police power to make illegal as contra bona morespreviously concluded contracts (Stone v. Mississippi), and the state could not alienate its reserved police powers to prevent it from legislating for the public welfare (e.g. Chicago & A.R. Co. v. Tranbarger), including economic welfare (Noble State Bank v. Haskell). Within each of the aforementioned doctrines, there were exceptions if not contradictions in the Court’s precedents.
The dominance of Worthen is not hard to understand. First, Worthen was unanimously decided. Second, Chief Justice Hughes took pains to limit the impact of Blaisdell’s rule to truly emergency situations where a state used very narrow and temporary means that upheld the fundamental contractual relationship between the parties. In fact, from Worthen v. Thomas onward, there was an uptick in Contract Clause cases before the Court under Chief Justice Hughes. From the time when Hughes became Chief Justice in 1930 until Blaisdell was decided in 1934, the Court heard eight Contract Clause cases. But from 1934’s Worthen v. Thomas through 1937, twenty Contract Clause cases came before the Court, and the Court struck down the state law at issue in five of them. In sum, Blaisdell did not signal the Court’s retreat from considering Contract Clause cases or its reluctance to decide against the state.
Thus, in three Contract Clause cases that came before the Supreme Court soon after Blaisdell, the Court unanimously struck down the state statues at issue in each case for unconstitutionally impairing contracts. Moreover, three justices who had been in the Blaisdell majority took pains to restrict and limit the impact of that decision when they wrote the subsequent opinions. By 1937, Worthen and a now limited Blaisdell had solidified into a workable rule: a state law that materially impairs an obligation of one of the parties to a pre-existing contract violates the Contract Clause, unless there is such an emergency that a narrow and limited exception can be permitted, but only if that exception preserves the underlying benefits of the contract to the parties.
The post-New Deal Court had decided that it was inappropriate for a judicial body to second-guess economic decisions by legislative bodies, whether state legislatures or Congress, and that the property protections in specific parts of the Constitution, such as the Contract Clause and the Takings Clause, had to be turned into issues determinable by the political branches.
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