Article I, Section 10 contains a long, somewhat diverse list of prohibitions on the power of the states to engage in certain activities. Understanding its significance depends on first placing it within the larger framework of Article I, which is primarily devoted to setting out the structure of Congress and then enumerating its legislative powers. Those activities occupy Sections 1 through 8. Section 9 prohibits a broad array of activities by the federal government, which run the gamut from weakening the privilege of the writ of habeas corpus to taxing exports from the states.
Section 10 imposes a similar list of prohibitions on the powers of the states. Clause 1 contains absolute prohibitions that Congress cannot waive. Clauses 2 and 3 impose prohibitions that Congress can waive—presumably by legislation, although the text does not make clear whether any joint resolution is subject to a presidential veto. It is difficult to explain why the prohibitions found in Clause 1 cannot be waived by Congress while those in the last two clauses can be. But in both cases, the state interests are made subordinate to those of the national government.
These prohibitions in Section 10 can be divided into several subclasses. One group imposes on the states some of the restrictions that Section 9 imposed on Congress: the power to pass bills of attainder or ex post facto laws, or to grant titles of nobility. A second category guarantees that matters of war and diplomacy belong primarily or exclusively to the national government. The states are prohibited from forming compacts with foreign nations or even with each other without the assent of Congress.
A third category applies to financial matters, dealing with such issues as the power to coin money, emit bills of credit, or lay duties on imports and exports. During the Revolutionary War, both the Continental Congress and the states resorted to the massive issuance of various instruments of credit, unsecured by adequate taxation. The resulting depreciation in the value of these instruments, coupled with the corresponding inflation of prices, created a strong consensus to empower Congress to secure the public credit of the United States by levying its own taxes and limiting, though hardly eliminating, the financial powers of the states. Under the Articles of Confederation, both the Continental Congress and the states had the authority to coin money, but only Congress could fix its “alloy and value.” The evident intention is to give that power exclusively to Congress under Article I, Section 8, Clause 5.
Section 10, Clause 1 contains a general prohibition against states emitting letters of credit, unless, as it came to be understood, they were drawn on some specific fund set aside for that purpose. The result reads like a compromise designed to prevent the open-ended use of state credit without shutting down the capacity of the states to borrow at all. These provisions, together with the requirement that only gold and silver could be used for legal tender, stem from the desire to insulate other states in the union from the fiscal shocks created by any single state.
A fourth category coordinates the respective powers of the state in domestic and foreign affairs. There is an evident tension between the absolute prohibition on “any treaty, alliance, or confederation” found in Clause 1, and the apparent authorization to enter into any agreement or compact with another state or foreign power so long as Congress consented. Finally, it is worth noting that the Union was considered sufficiently fragile that Section 10, Clause 3 allows for the states to “engage in War,” waiving the requirement of congressional consent in cases of imminent danger. Indeed, these military issues loomed large in the Founding period because Article I, Section 8, Clauses 15 and 16 and Article II, Section 2, Clause 1 also contain detailed provisions for the maintenance of state militias and the circumstances under which they could also be called into the service of the United States. Lastly, the Guarantee Clause of Article IV, Section 4 deals primarily with the threat of invasion for which either congressional or presidential intervention is then contemplated. The mechanics of all these provisions are exceedingly complex, and none are set out in the Constitution.
The single provision of Article I, Section 10 that has brought forth the greatest amount of litigation is the Contracts Clause, which categorically declares, “No state shall . . . pass any Law Impairing the Obligation of contract.” Like other limitations on the financial powers of the states, this Clause reflected the fears of the propertied classes who favored the adoption of the Constitution that the state legislatures might well enact laws adversely affecting the just rights of creditors. After 1810, the expansive definition of the Contracts Clause revealed how broadly the Supreme Court, under Chief Justice John Marshall, viewed the danger of intrusive state legislation. Thus from as early as Fletcher v. Peck (1810) and Dartmouth College v. Woodward (1819), the Clause was held to apply not only to private agreements, but also to state charters that could not be revoked except upon payment of just compensation to proprietors. It was also understood that the Contracts Clause was not limited to debtor-creditor relationships, but applied to all contracts, notably including charters of incorporation granted by legislatures.
In addition, the Contracts Clause was read to afford protection to both sides of the agreement—buyer and seller, creditor and debtor, grantor and grantee. The Supreme Court also held, in Sturges v. Crowninshield (1819) that the Contracts Clause protected rights under contracts previously formed. Yet by a 4-3 vote, with Chief Justice Marshall and Justice Story dissenting, the Court held in Ogden v. Saunders (1827) that the Contract Clause did not protect from legislative invalidity any contracts made after a particular statute was enacted. The early cases also recognized a police power exception of uncertain scope for cases dealing with the public safety, health, general welfare, and morals. Finally, there was additional uncertainty as to whether the Contracts Clause (like the Takings Clause of the Fifth Amendment) provided protection against state judicial as well as legislative actions.
The adoption of the Fourteenth Amendment, which imposed many direct limitations on state power, subject to both judicial and congressional enforcement, meant that the Contracts Clause was no longer the only avenue to impose new limitations on the exercise of state power. Nonetheless, in this context, the Clause’s relative specificity has led to extensive litigation over the question of whether its systematic application, like that of the Due Process and Equal Protection Clauses, continues to impose meaningful restrictions on major programs from mortgage moratoria to pension plan solvency, from bankruptcy reform to government lending practices.
The larger debate today raises in its most general form the question of whether rational basis review or higher scrutiny should be applied to claims brought under the Contracts Clause, both as to the scope of its basic coverage and the size and power of the exceptions. This debate is but one of many facets of the choice between the classical liberal and progressive views of constitutionalism, which pivoted sharply toward the progressive view during the 1930s, where for the most part it remains today.
It is commonly said that John Locke, the champion of social contract theory and natural rights, was one of the intellectual godfathers of the American Constitution. Yet for Locke and other social contract theorists, the major challenge was to figure out how ordinary individuals could form a state that allowed them to escape the uncertainties of living in the state of nature. The influence of natural rights theory is evident in many state constitutions, like the Massachusetts Constitution of 1780, whose explicit purpose is to form a stable order to protect “the natural rights” of its members. See Preamble, Massachusetts Constitution of 1780.
The formation of a national government is not intended primarily to secure a safe passage out of the state of nature, a task which should already have been successfully done by the states. Rather it was to put into place a complex agreement among states that equitably distributes powers among coequal sovereigns. That second inquiry has little to do with the preservation of natural rights as such. The difficulty of undertaking this is reflected in the structure of Article I, which begins by defining the legislative power, and concludes in Section 10 by listing the prohibitions of activities that can be undertaken only by the states.
The confusion, however, only deepens because some of the most important provisions of Article I, Section 10, may address individual rights if they are understood, as Professor Rakove notes, as federal checks on what sovereign states are allowed to do to their citizens. In some of these cases, as with the adoption of ex post facto laws and bills of attainder, the concern is not with reserving to the national government certain tasks by denying them to the states. Article I, Section 9, Clause 3 prohibits the Congress from passing either bills of attainder or ex post facto laws, in the same fashion that Article I, Section 10, Clause 1 does for the states. The identical nature of the two prohibitions has nothing to do with the distribution of powers between levels of government and everything to do with the conviction that singling out certain people for special treatment, or imposing criminal punishments retroactively for actions that were legal when undertaken, reads very much like a natural law protection capable of universal application. Indeed, much of the debate at the Constitutional Convention was not about the propriety of these prohibitions, but about whether they were needed at all, given that the prohibited activities were universally condemned as odious in the natural law tradition. See Daniel Troy, Ex Post Facto, in The Heritage Guide to the Constitution.
One happy circumstance is that, for the most part, these two clauses have not played a central role in constitutional litigation. The same cannot be said of the Contracts Clause, which reads in part like a jurisdictional limitation and in part like a protection of the natural right to contract. The Clause itself was adopted from the earlier provision in the Northwest Ordinance of 1787, which provided: “It is understood and declared, 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 formed.”
One interpretive challenge asks which elements mentioned in the Northwest Ordinance carry over to the slimmed-down Contracts Clause, evidently written in more categorical terms. Part of the difficulty stems from the confusion over why the Framers included this Clause in the Constitution in the first place. One common explanation, offered by Professor Michael McConnell, is that it was intended to protect interstate contracts from assaults by state governments. See Michael W. McConnell, Contract Rights and Property Rights: A Case Study in the Relationship Between Individual Liberties and Constitutional Structure, 76 Cal. L. Rev. 267 (1988).
This essay is part of a discussion about Article I, Section 10 with Jack Rakove, Professor of History, Political Science and, by courtesy, Law, William Robertson Coe Professor of History and American Studies, Stanford University. Read the full discussion here.
While true, it does not explain why the Clause applies to all local contracts as well. A second explanation, which McConnell also discussed, is directed toward local abuses such as debtor’s relief laws. Thus in speaking about Article I, Section 10 in The Federalist No. 44, James Madison denounced states’ “sudden changes and legislative interferences” in the business affairs of their citizens, even for transactions that take place wholly within one state.
The Northwest Ordinance of 1787 also raises more specific interpretive difficulties. The Ordinance only protected those contracts in place before the law went into effect, which was adopted for the Contracts Clause in Ogden v. Saunders (1827) over the dissents of both Justices Marshall and Story. The issue bristles with difficulties. One powerful objection to the Marshall/Story position is that it flies in the face of hundreds of years of legal history by refusing to give credit to statutes of limitations, recordation statutes, and the statute of frauds, all of which necessarily impair certain contracts that lack the requisite formalities in order to increase the security of exchange overall. But it hardly follows that the prospective reading of the Contracts Clause has to be rejected in order to accommodate these common-sense cases. In this regard, it is instructive to compare the Contracts Clause with the Takings Clause, where the latter allows for the taking of property for public use on payment of just compensation. Why not therefore read a just compensation exception into the Contracts Clause?
That position is not as far-fetched as it sounds. In West River Bridge Co. v. Dix (1848) the question was whether the United States could condemn a bridge that had been authorized by government charter. It had earlier been held that the Contracts Clause applied to government charters in Dartmouth College v. Woodward, (1819), in which New Hampshire simply sought to take over Dartmouth College, causing harm that could not be easily cured by paying compensation. But in Dix, it would have been absurd to say that no state could ever condemn any property for public use on payment of just compensation whenever that property had been acquired by contract, either from the state or from some private party. Hence the Court read in a just compensation exception that brought the Contracts Clause closer to the Takings Clause, again by a process of textual implication.
In an earlier work I articulated an intermediate position that first gives the Contracts Clause prospective effect, but then allows for statutes that meet a general just compensation test. See Richard A. Epstein, Toward a Revitalization of the Contract Clause, 51 U. Chi. L. Rev. 703 (1984). Thus, the additional security of transaction from the statutes of limitation and the like improve the lot of all individuals governed by them, so long as they do not selectively apply to benefit one group of individuals, say debtors, at the expense of others, say creditors.
That same position can apply to efforts to limit the remedies given for breach of existing contracts, as in United States Trust Co. of New York v. New Jersey (1977). In that case, the Court refused to let states eliminate bond covenants in loan agreements intended to prevent the diversion of cash to other purposes without also offering some substitute protection to the lenders. Adopting this approach for both prospective and retroactive changes of contract terms allows for a consistent application of the Contracts Clause to all contracts, and thus meets a major concern of both Marshall and Story: that a general law banning all future contracts would, under the majority opinion, escape any possibility of invalidation.
It is also clear that a just compensation exception is not the only one that has to be read into the Contracts Clause for it to make sense. Some contracts are formed by fraud or duress, and surely these common law defenses to their enforcement are not upset by the constitutional requirements. At the very least, that simple observation means that some version of the police power must be read into the Constitution to cover these eventualities. It was generally addressed in Brown v. Maryland (1827), which dealt with the import/export clause in Article I, Section 10, Clause 2, and recognized that “the police power” covered at the very least “the removal of gunpowder.” Brown gives rise in turn to the interpretive challenge of how to identify what forms of regulation survive the literal application of the Contracts Clause beyond the obvious cases of gunpowder and other potential nuisances.
It is on this issue that the difference between the classical liberal and progressive view is most vivid. The key case for these purposes is Home Building & Loan Ass’n v. Blaisdell (1934), which held that “emergency legislation” that allowed for the postponement of interest payments on a mortgage was not an impairment of contract because of the dodgy rationale that merely “modifying the remedy” does not necessarily impair the obligation of contract, even if the creditor is left worse off in consequence.
At this point the just compensation requirement in Dix is effectively eliminated in many cases of preexisting contracts. The upshot is that it leads to the adoption of a general “rational basis” test in contract cases—similar to that which the Supreme Court adopted with respect to other forms of retroactive legislation in connection with the Due Process Clause of the Fifth Amendment in Pension Benefit Guaranty Corp. v. R.A. Gray & Co. (1984) and the Takings Clause of that same Amendment in Connolly v. Pension Benefit Guaranty Corp. (1986), as they applied to the federal government. The importance of this shift in connection with both the Contracts and the Takings Clause cannot be overestimated, given the huge shift in power from private parties to the national government.
For those, like myself, who believe in The Classical Liberal Constitution, this constitutional transformation energized huge political factions that, as Madison saw, worked against the interest of the public as a whole. In contrast, progressive thinkers tolerated the increased level of government activity. As Justice Thurgood Marshall wrote in Usery v. Turner Elkhorn Mining Co. (1976), virtually “all legislative Acts adjusting the burdens and benefits of economic life,” subject to a narrow exception for laws found “arbitrary and irrational,” fall within Congress’s authority. By implication the same level of deference was afforded to state legislatures. At this point, there is little distinctive left to the Contracts Clause, which is unwisely swallowed up by the general presumption in favor of all economic regulations.
The various clauses in this Section cover a wide array of issues, and these clauses do leave some questions open as to just how rigorous are the limitations being imposed on the authority of the states. Yet there is another sense in which the Section as a whole retains a unifying theme. The existence of these limitations demonstrates that the individual states no longer possessed anything resembling the traditional conception of sovereignty. That famous word never appears in the text of the Constitution, although it had been part of the Articles of Confederation. In designing a federal system, however, the Framers of the Constitution were effectively asserting that the states no longer possessed a full array of sovereign powers. There were emergency conditions when the states could use a modicum of military force, if their militia was in good shape. But for all practical purposes, the Constitution denied the states the ability to make war and conduct diplomacy with foreign nations—both traditional markers of the sovereignty of a modern nation-state.
The restrictions on the internal legislative powers of the states—as for example in laws relating to the obligation of contracts—similarly derogated from any claim to sovereignty. Of course, the states retained enormous legislative powers that would continue to dominate the business of American governance for decades to come. But the idea that the states remained sovereign entities, in the traditional meaning of the term, no longer made any sense.
This essay is part of a discussion about Article I, Section 10 with Richard A. Epstein, Laurence A. Tisch Professor of Law and Director of the Classical Liberal Institute, New York University School of Law. Read the full discussion here.
The diminution of the sovereignty of the states was a topic that the Framers of the Constitution had considered in 1787. At James Madison’s insistence, the Virginia Plan included a clause authorizing the national legislature to negative (or veto) state laws “contravening . . . the Articles of Union.” Madison personally believed that this power should be applied “in all cases whatsoever,” so that the national government could not only defend itself against the legislative interference of the states, but also intervene within the states to protect minorities against unjust legislation. In the end, to Madison’s deep disappointment, the Convention rejected the negative. But Article I, Section 10 and the Supremacy Clause of Article VI partly (but only partly) fulfilled Madison’s purpose. It would take the adoption of the Fourteenth Amendment in 1868 and the eventual development of the incorporation doctrine to give the national government the authority that Madison had wanted for it all along.
None of these texts used the word sovereignty: that major category of political thinking had evidently disappeared from American constitutional practice. But emptying the word sovereignty of its content, as the Constitution did both by omitting its use and by vitiating its application, did not prevent its political and rhetorical exploitation. Politicians like John C. Calhoun and the Southern secessionists of 1860-61 could always argue that the states were the original sovereign members of the Union, and that their sovereignty could never wholly disappear.
How one could assert that residual sovereign authority of the states while the Union was safely functioning remained a puzzle. But when the Union did begin to encounter fundamental challenges to its continuance—as it did with the enactment of the Alien and Sedition Acts of 1798, or the Hartford Convention of 1815, or the Nullification Crisis of 1832-1833, and finally during the Secession Crisis of 1860-1861—the language of state sovereignty became more attractive. It could never describe how the Union was working, but it could become a formula for its collapse.
In this session, students will explore Federalism and the debate over how to balance the powers of the national government, the…