Opinion ID: 197501
Heading Depth: 2
Heading Rank: 1

Heading: General Contract Clause Principles

Text: 13 Although the wording of the Contract Clause appears uncompromising--No state shall ... pass any ... Law impairing the Obligation of Contracts ... 6 --the Supreme Court does not interpret it as an absolute bar on the impairment of either governmental or private contractual obligations. See United States Trust Co. v. New Jersey, 431 U.S. 1, 21, 97 S.Ct. 1505, 1517, 52 L.Ed.2d 92 (1977) ( '[T]he prohibition is not an absolute one and is not to be read with literal exactness like a mathematical formula.'  (quoting Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 428, 54 S.Ct. 231, 236, 78 L.Ed. 413 (1934))). Rather, the Supreme Court has elaborated an analysis under which a court must first ascertain whether a change in state law has resulted in  'the substantial impairment of a contractual relationship.'  General Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S.Ct. 1105, 1109, 117 L.Ed.2d 328 (1992) (quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244, 98 S.Ct. 2716, 2722, 57 L.Ed.2d 727 (1978)). Next, the reviewing court must determine whether the impairment is nevertheless justified as reasonable and necessary to serve an important public purpose. United States Trust Co., 431 U.S. at 25, 97 S.Ct. at 1519. Where the contract allegedly impaired is one created, or entered into, by the state itself, less deference to a legislative determination of reasonableness and necessity is required, because the State's self-interest is at stake. Id. at 26, 97 S.Ct. at 1519; see also McGrath, 88 F.3d at 16 (when the state itself is a party, it must do more than mouth the vocabulary of the public weal in order to reach safe harbor.). 14 The first step described above can be further broken down into three components: whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial. Romein, 503 U.S. at 186, 112 S.Ct. at 1109. In the instant case, we need not reach the issue of impairment or substantiality, because the plaintiffs fail to demonstrate the existence of a contractual relationship protected by the Contract Clause. At the same time that less deference is given to state legislatures when it is the state that wishes to relieve itself of contractual obligations, a clear showing must be made that a state law has created a contractual obligation on the part of the state in the first place. See Hoffman v. Warwick, 909 F.2d 608, 614 (1st Cir.1990) (The Contract Clause is applicable to contracts into which the state enters, but normally state statutory enactments do not of their own force create a contract with those whom the statute benefits.).