United States Trust Co. v. New Jersey, 431 U.S. 1; 97 S. Ct. 1505; 52 L. Ed. 2d 92 (1977)
Facts—New York and New Jersey entered into a covenant in 1962 agreeing that so long as bonds remained unpaid and outstanding, the Port Authority would not use bonds or resources for other than pledged purposes. In 1973, the states modified this agreement, which they then repealed in 1974, in order to direct funding to public transportation, partly in light of the emerging energy crisis. The New Jersey Superior Court and the New Jersey Supreme Court upheld this change.
Question—Did New Jersey’s and New York’s modification of an earlier covenant violate the contract clause in Article I, Section 10 of the Constitution?
Decision—Yes.
Reasons—J. Blackmun (4–3, two justices not participating). After a long review of the history of the Port Authority, Blackmun noted that the terms of the covenant it entered in 1962 were “self-evident.” Despite such terms, the states attempted to repeal the covenant. Although the contract clause was important early in the nation’s history, its use as a means of protecting property has largely been superseded by the Fourteenth Amendment. Home Building and Loan Association v. Blaisdell, 290 U.S. 398 (1934) and El Paso v. Simmons, 379 U.S. 497 (1965) are typical of modern cases on the clause which is no longer applied rigidly. Still, “Whether or not the protection of contract rights comports with current views of wise public policy, the Contract Clause remains part of our written Constitution.” The trial court found a technical impairment of the contract clause in this case, but, as long as the clause is interpreted in light of state police powers, this is but a “preliminary step” in determining whether such an impairment is reasonable. The contract clause limits state modifications of private contracts, but it also limits modifications of its own. Past decisions have established that states cannot use the contract clause to surrender essential at- tributes of their sovereignty. In this case, the states’ limitations were “purely fi- nancial,” and did not compromise state powers. Alterations of contracts require greater scrutiny when “the State’s self-interest is at stake.” Although the states cite the need for mass transportation, energy conservation, and environmental concerns, total repeal of the contract was not needed to achieve these goals, which would have reasonably been foreseen when the contract was executed. The contract clause prohibits such repeal.
C.J. Burger, concurring, argued that a state could repeal a contract it entered only if it showed this to be “essential to the achievement of an important state purpose.”
J. Brennan argued in dissent that “by creating a constitutional safe haven for property rights embodied in a contract, the decision substantially distorts modern constitutional jurisprudence governing regulation of private economic interests.” He contended that the majority decision unduly limited the power of modern elected officials to represent their constituents. He further argued that the majority decision was in conflict with “judicial restraint.” He believed that the financial welfare of bondholders could be adequately protected both “by the political processes and the bond market place itself.”