Thursday, February 13, 2014

MBE Fast Fact: The Contract Clause

You should consider the Contract Clause (Constitutional Law), whenever a fact pattern presents a state enacting a law that retroactively impairs existing contractual rights. States are prohibited from enacting such legislation; specifically, state legislation that substantially impairs an existing private contract is invalid unless the legislation both serves an important and legitimate public interest, and is a reasonable and narrowly tailored means of promoting that interest. This is essentially the intermediate scrutiny test that runs throughout Constitutional Law, though the wording is slightly different.

Importantly, note that the clause does not prohibit states from enacting laws that impair contracts that have yet to be entered into. Further, a distinction is made to the above rule when there is legislation that impairs an already-existing contract to which the state is a party (as opposed to a contract consisting only of private parties). When the state is a party, a stricter level of scrutiny applies. Though the notes do not go into much detail here, the general rule of strict scrutiny should apply to such legislation, and especially so if the state legislation reduces the contractual burdens of the state.

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