Contract Clause - Explained
What is the Contract Clause of the US Constitution?
Written by J. Mance Gordon
Updated at April 21st, 2024
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What is the Contract Clause?
Article I, Section 10 states that, No state shall pass any Law impairing the obligation of contracts. This is known as the Contract Clause.
What does the Contract Clause do?
The Contract Clause prohibits state governments from specifically legislating to interfere with (or usurp) private contract rights.
It is, however, limited by the ability of state governments to legislate to interfere with those rights under their police power.
The state may pass legislation impairing a contract if the law is passed to deal with a specific emergency situation.
Further, a state government may generally legislate to regulate an industry or commercial activity. Such legislation may have the effect of interfering with existing contracts.
Because the legislation is not directly targeted at interfering with an individuals (or businesss) contract rights, it does not violate the Contracts Clause.
The Contract Clause demonstrates the drafters regard for the importance of individual contract rights.
- Note: The Contract Clause does not limit the power of the Federal Government to interfere with a private contract.
- Example: John has a business in State A that conducts international trade. His largest trading contract is with ABC Company (a French Company). State A passes a law requiring that all trading with ABC Company can only be carried out by State A. This would be unconstitutional if State A is intentionally legislating to usurp Johns contract rights. A generally prohibition against all trade with ABC company, however, may be legal.
Related Concepts
- What is the Separation of Powers?
- Executive Branch
- Legislative Branch
- Judicial Branch
- Limitations:
- Emolument Clause
- What is Federalism?
- Commonwealth
- What is the Supremacy Clause and Preemption?
- What is the Full Faith & Credit Clause?
- What is the Privileges and Immunities Clause?
- What is the Contract Clause?