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Law School Case Brief

United States Tr. Co. v. New Jersey - 431 U.S. 1, 97 S. Ct. 1505 (1977)

Rule:

The Contract Clause, U.S. Const. art. I, § 10, cl. 1, limits the power of the states to modify their own contracts as well as to regulate those between private parties. Yet the Contract Clause does not prohibit the states from repealing or amending statutes generally, or from enacting legislation with retroactive effects.

Facts:

Appellant, trustee for port authority bonds, brought an action to contest the repeal of a statutory covenant limiting the ability of a port authority to subsidize rail passenger transportation from revenues and reserves. Appellant claimed that repeal of the covenant impaired the obligation of the state's contract with the bondholders because it totally eliminated its security provision, which protected the port authority's reserve fund from depletion. The state superior court ruled that the statutory repeal was a reasonable exercise of the state's police power and found that it was not prohibited by the Contract Clause, U.S. Const. art. I, § 10, cl. 1. The state supreme court affirmed. Appellant filed a petition for certiorari review.

Issue:

Did the repeal of the covenant in question violated the non-impairment clause of the Constitution?

Answer:

Yes.

Conclusion:

The United States Supreme Court held that the Contract Clause was violated because the statute's repeal had the effect of impairing a contractual obligation of the state of New Jersey. The Court found that the state's financial obligation was not a reserved power that could be contracted away. Moreover, the Court determined that the impairment was not reasonable or necessary to serve an important public purpose.

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