Desiccated by Judicial Dereliction

Originalism is a two-way street. Judges wishing to interpret the Constitution in accordance with its original public meaning must not import into their decisions policy proscriptions not actually derived from the text and structure of that document. Just as important is that textualism and originalism require judges to give force to all provisions of the Constitution, and not pick and choose which clauses to enforce.

Critics have accused the modern Supreme Court of inventing some rights the Framers never intended while ignoring other—express—provisions. Failing to give meaning to clear constitutional text is as great a judicial dereliction as making up bogus constitutional rights.

In his new book, The Contract Clause, Vanderbilt University law school professor James W. Ely, Jr. explores the long and complicated history of the language in Article I, section 10, forbidding the states to enact “any . . . law impairing the obligation of contracts.” Once one of the most litigated provisions in the Constitution, and regarded by some 19th century judges as a vital check on state power, the Contract Clause was largely drained of meaning during the Progressive Era and the Great Depression. The coup de grace was administered in 1934, when the Court upheld a state mortgage-moratorium law in Home Building and Loan Association v. Blaisdell[1].

Is the Contract Clause dead and buried, a casualty of New Deal jurisprudence, as some scholars suggest[2], or can (and should) the moribund provision be resuscitated? Ely’s comprehensive survey, a worthy successor to Benjamin F. Wright’s classic The Contract Clause of the Constitution (1938), describes the interpretation of the clause as a “roller-coaster ride” and leads the reader on a detailed tour of every twist and turn, beginning with its adoption.

Contra Forrest McDonald, who believed that the origin of the Contract Clause “is shrouded with mystery,” Ely convincingly demonstrates that the Framers sought to protect the integrity of contractual exchanges in the nation’s emerging market economy as a reaction to debt-relief laws that some states adopted after the Revolutionary War. Debtors will always outnumber creditors. In a representative democracy, this imbalance inevitably creates political pressure for debt-relief laws (and similar measures, such as the issuance of paper tender and the revocation of bank charters), particularly during economic downturns, undermining confidence in the sanctity of contracts and thereby hampering commerce.

At the Constitutional Convention, the Framers rejected a proposal to adopt the sweeping protection of private contracts contained in the Northwest Ordinance. The clause they wrote, which was adopted without debate, was narrower; it banned retrospective (or “ex post”) interferences with contracts by the states. Despite the objections of some Anti-Federalists, notably Luther Martin of Maryland, to the limitation of state power, the Constitution was ratified without significant controversy regarding the Contract Clause. Many states adopted constitutions containing a contract clause patterned on Article I, section 10.

During the 19th century, as the nation grew, and its economy developed, political demands for various forms of debt-relief collided with the sparse and somewhat cryptic wording of the federal Contract Clause, generating a great volume of litigation. Until permanent federal bankruptcy legislation was enacted in 1898, states were motivated to pass various forms of debt-relief laws, many (but not all) of which were challenged. Under Chief Justice John Marshall (1801-1835), the early Supreme Court interpreted the Contract Clause broadly, to apply to both private and public contracts, a view that the Progressive historian Wright believed was overbroad, but which Ely painstakingly defends. (The issuance by the state of land grants, tax exemptions, and corporate charters are examples of “public contracts.”)

Ely carefully examines not only Supreme Court decisions, but also lower federal court and state court decisions applying the Contract Clause. (Most cases concerning the clause were heard in state court.) Despite Marshall’s bold leadership, Ely’s analysis reveals that other aspects of early Contract Clause jurisprudence were confused, such as what Ely terms the “elusive distinction between contractual rights and remedies.” The role of natural law was similarly murky.

Prior to arriving at the momentous epoch of the 20th century, Ely reviews the tumultuous eras associated with Chief Justice Roger B. Taney (1836-1864), the Civil War and Reconstruction, and the Gilded Age—a period of significant economic growth during which private contracts enjoyed broad constitutional protection by state and federal courts. The rights/remedies dichotomy remained a muddle. In the sphere of public contracts, the Court in Charles River Bridge (1837) held that corporate grants should be strictly construed in favor of the public. The Taney Court built upon the doctrinal foundations that Marshall had laid.

So entrenched was the sanctity of contracts that, following the abolition of slavery, the Supreme Court still enforced the collection of debts for the purchase of slaves. The 1870s, as it turned out, were the high-water mark of the Contract Clause. After that, the mounting conflict between the states’ inherent “police power” and the constitutional protection of contracts grew increasingly pointed. Ely concludes that “cracks began to appear in contract clause jurisprudence as courts sought to deal with novel issues in a complex economy.” Also, as economic regulation moved from the states to the federal government, the Contract Clause—which, again, limits only the states—lost some of its relevance.

Ely emphasizes that “It is essential to differentiate the contract clause from the emerging liberty of contract doctrine,” but the two are related because parties’ (and courts’) reliance on the latter undercut the significance of the former. Ironically, the advent and eventual passing of the Lochner era (1897-1937), based on a non-originalist theory of “substantive due process,” contributed to a weakening of the constitutional guaranties explicitly embodied in the Contract Clause. Both doctrines were doomed by trends culminating with the constitutional law revolution wrought by the New Deal, which Ely discusses in chapter 6. Tellingly, in Pennsylvania Coal Company v. Mahon[3], the Supreme Court majority invalidated the Kohler Act without even mentioning the Contract Clause, upon which the affected coal company heavily relied in making its case.

Ely asks, “How does one account for the gradual withering of the contract clause?” The answer is, by the intellectual ascendency of the Progressive movement. Specifically, he says,

Progressives argued that contracts were merely products of society that could be altered or abolished to serve the needs of society. They challenged the individualistic understanding of contracts and in essence argued that contracts were not deserving of special constitutional protection.

Progressives read the Contract Clause out of the Constitution because it interfered with the ever-expanding power of the state, and socially desirable legislation such as rent control and rate regulation. In a rebuke to the British jurist Henry Sumner Maine[4], Progressive jurists steered American law—which  evolved “from status to contract”—back to status.

As this trend accelerated during the Great Depression, it prompted demands for governmental intervention in the economy such as mortgage-moratorium laws and similar measures. Chief Justice Charles Evans Hughes’s decision for a 5 to 4 majority in Blaisdell declared that emergency conditions justified the exercise of the police power, “notwithstanding interference with contracts.”[5] Hughes’s  opinion, Ely notes, specifically rejected an originalist understanding of the Contract Clause, shunning “the interpretation which the framers, with the conditions and outlook of their time, would have placed upon” the Constitution.[6] Within a decade, FDR’s New Deal justices effectively interred the Contract Clause altogether.

Judicial attitudes rebounded slightly in the late 1970s, in what Ely refers to as “an uncertain Renaissance.” After “decades of neglect,” the Court modestly revived the Contract Clause, albeit with a “jumbled, if not incoherent, standard of review.”[7] While Ely offers little hope that the clause will regain its previous constitutional importance—unlike the Court’s strengthening in recent decades of protections under the Fifth Amendment’s Takings Clause—he closes the book with a review of what state courts have done over the past 30 years under state constitutions.

Some state courts follow the “virtually worthless, ” watered-down federal standard, while others take a more aggressive approach, using the contract clauses of state constitutions to prevent states from reforming public employee retirement benefits—an inauspicious development, and hardly what the Framers had in mind in 1787.

Maintaining the sanctity of contracts was once regarded as essential to individual freedom. In 1829, famed Supreme Court Justice Joseph Story declared that legislative interference with “the obligation and security of contracts” is “in its essence tyranny.” That was then. Judicial attitudes have changed dramatically. The Contract Clause is a masterful—if sobering—post mortem on a once-vital constitutional protection that has been desiccated by judicial dereliction.

[1] 290 U.S. 398 (1934).

[2] Michael S. Greve, The Upside-Down Constitution (Harvard University Press, 2012), p. 143.

[3] 260 U.S. 393 (1922).

[4] Henry Sumner Maine, Ancient Law (1861).

[5] 290 U.S. at 437.

[6] Ibid. at 443.

[7] See, for example, United States Trust Company v. New Jersey, 431 U.S. 1 (1977).