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What Is the Purpose of the Contracts Clause in Article I?

Professor Julia Mahoney discusses why the Contract Clause was needed in the Constitution. At the time that the Constitution was being drafted, various states had passed laws allowing debtors to default on their loans. The Contract Clause gave the federal government authority to oversee and enforce contracts between creditors and debtors, nullifying the state laws. It remains controversial as to how broad that federal authority is, and how it interacts with state legislation and authority. https://youtube.com/watch?v=Yy0JMdfg4tc


The Contract Clause was inspired in part by a flurry of laws passed by states which had effects on existing debts. There was concern that state legislatures were going to, or had already, passed laws, such that creditors were being dispossessed of their property, in essence, the debts were being wiped out, or nearly so. Now, the extent to which the Contract Clause actually prevents government from passing laws that affect the relationships between creditors and debtors - that's a whole area of controversy that deserves, I think, careful attention. The question, as always, is how far does this limitation on the power of state legislatures to pass statutes that affect contracts, go? One might say that the Contract Clause is meant to ensure that there will be a very high level of stability when it comes to contractual obligations. That is that those who enter into contracts, can be quite sure that government isn't going to do anything, or at least not be able to do very much so as to change what they get under that contract. But many argue, understandably, that, that's not what the Contract Clause does, or should do, at all. That in a dynamic society, especially dynamic commercial society, they're going to be inevitable a lot of changes in terms of what sorts of contracts the government will use its courts, will allow to be enforced in the courts, including what sorts of remedies may be awarded as the result of contractual breach. And that it is unrealistic to expect for the Contract Clause to operate so as to set contractual obligations in stone. There was no way for any Constitution to ensure that all debts wherever, and however contracted, are always going to be paid, and in time and in full. But the Contract Clause was designed to be a powerful vehicle to prevent, sort of hasty, or significant rearrangements of the relationships between creditors and debtors. In other words, that it was meant to at least put a brake on the ability of state legislatures to significantly change the relationships between creditors and debtors.

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