Obligation of Contracts

• Author: Dennis J. Mahoney
• Pages: 1835-1836

Page 1835

The CONSTITUTIONAL CONVENTION OF 1787, engaged as it was in producing a frame of national government, provided in the Constitution for only a very few restrictions on the LEGISLATIVE POWER of the STATES. Among these was the proscription of any state law impairing the obligation of contracts; that the delegates omitted to include a similar prohibition as to Congress is attributable entirely to the fact that they did not contemplate the existence of national contract law. The phrase "obligation of contracts" did not exist as a term of art, but originated in the Constitution; its meaning is not as obvious as it may seem.

The moral obligation of contracts derives from the voluntary agreement of parties who promise to perform certain duties in exchange for some valuable consideration. In the NATURAL RIGHTS political philosophy of the Framers of the Constitution, the obligation to obey the law itself derives from a SOCIAL COMPACT, in which the individual obliges himself to obey in exchange for the state's guarantee of security for his life, liberty, and property. The moral obligation of contracts, of course, cannot be impaired by state law.

But contracts are also legally binding under the COMMON LAW (as modified from time to time by statute). One of the things that induces men to enter into contracts is the knowledge that the state, by its courts and officers, stands ready to enforce the contractual duties undertaken by the parties. This knowledge is especially important when, as in contracts for lending money, one party will have already performed his side of the bargain while the promise of the other party remains "executory," that is, to be performed in the future. The CONTRACT CLAUSE of the Constitution was intended to prevent state law from undermining the enforceability at law of obligations voluntarily entered into.

The Framers of the Constitution well knew the temptation to repudiate obligations improvidently undertaken. SHAYS ' REBELLION, which had just been suppressed in Massachusetts, had been directed against judicial enforcement of farm mortgage loans. The CONTINENTAL CONGRESS, sitting at the same time as the Convention, recognized the same danger and wrote into the NORTHWEST ORDINANCE a provision that "no law ought ever to be made or have force in the said territory, that shall, in any manner whatever, interfere with or affect private contracts, or engagements, bona fide, and without fraud previously...