Opinion ID: 2059200
Heading Depth: 1
Heading Rank: 4

Heading: The Contract Clause

Text: There is a facial appeal to the contention of the Dealers that these limitations on the amount of commissions impair the obligation of their preexisting contracts. For instance, 43 Am. Jur.2d Insurance § 181, at 239 (1969) states, [A] statute limiting the amounts which insurance companies may expend for securing new business does not apply to an existing long-term contract with a general agent, so as to reduce the amounts to be paid him under his contract. Boswell v. Security Mut. Life Ins. Co., 193 N.Y. 465, 86 N.E. 532 (1908), is cited as authority for that statement. The contract setting the rate of commissions at issue in that case had been in existence for nearly five years and had about fourteen years to run when a new statute was enacted limiting expenses of life insurance companies, including commissions. The court did say: We are of opinion that section 97 of the Insurance Law should not be construed as retroactive, and, therefore, it does not apply to the contract before us. If construed otherwise it would contravene the provision of the Federal Constitution that no state shall pass any law impairing the obligation of contracts. (Art. 1, sec. 10.) Id. at 473. However, the more recent opinions of the United States Supreme Court do not take such a simplistic view. See generally Annot., 57 L.Ed.2d 1279 (1979). In the recent case of Garris v. Hanover Ins. Co., 630 F.2d 1001 (4th Cir.1980), the court examined Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S.Ct. 2716, 57 L.Ed. 2d 727 (1978), and United States Trust Co. v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977), stating: It does not minimize the contemporary significance of United States Trust and Allied Structural Steel to note that they simply refine and update the traditional balancing test between reserved state police power and private contractual obligations that has always been required in Contract Clause analysis. In the process they have newly highlighted a number of factors critical to fair application of the test and have suggested a helpful staged sequence for analysis of these factors. While there might be some question about the precise stage at which the various factors are most appropriately considered, all can be taken into account in an analysis that asks in sequence: (1) Has there been an impairment of contractual obligation sufficiently severe to generate further constitutional concern? (2) If so, is the impairment nevertheless saved against constitutional infirmity because (a) it is imposed upon reasonable conditions that adequately protect the admittedly impaired interests, or (b) it is in any event reasonable and necessary to the accomplishment of a discernible public purpose lying within reach of the state's police power? Id. at 1005. To like effect, see the discussion by Judge Eldridge for this Court in Robert T. Foley Co. v. W.S.S.C., 283 Md. 140, 151-52, 389 A.2d 350 (1978).