Purpose

Art. III, Sec. 10

Section 10. No law impairing the obligation of contracts shall be passed.

Purpose

The policy of protecting contracts against impairment presupposes the maintenance of a government by virtue of which contractual relations are worthwhile a government which retains adequate authority to secure the peace and good order of society.

When impairment occurs:

The court rested its decision on the ground that laws altering existing contracts constitute an impairment within the meaning of the contract clause only if they are unreasonable in the light of the circumstances occasioning their enactment. Application of this ‘rule of reason was justified on the theory that all contracts are made subject to an implied reservation of the protective power of the state, and that therefore statutes which validly exercise this reserved power, rather than impairing the obligations of an existing contract, are comprehended within them”

When Allowed:

It must be noted that the application of the reserved power of the State to protect the integrity of the government and the security of the people should be limited to its proper bounds and must be addressed to a legitimate purpose.

If these bounds are transgressed, there is no room for the exercise of the power, for the constitutional inhibition against the impairment of contracts would assert itself. We can cite instances by which these bounds may be transgressed. One of them is that the impairment should only refer to the remedy and not to a substantive right.

The State may postpone the enforcement of the obligation but cannot destroy it by making the remedy futile. Another limitation refers to the propriety of the remedy. The rule requires that the alteration or change that the new legislation desires to write into an existing contract must not be burdened with restrictions and conditions that would make the remedy hardly. In other words, the Blaisdell case postulates that the protective power of the State, the police power, may only be invoked and justified by an emergency, temporary in nature, and can only be exercised upon reasonable conditions in order that it may not infringe the constitutional provision against impairment of contracts.

While non-impairment of contracts is constitutionally guaranteed, the rule is not absolute, since it has to be reconciled with the legitimate exercise of police power, i.e., “the power to prescribe regulations to promote the health, morals, peace, education, good order or safety and general welfare of the people.’ Invariably described as “the most essential, insistent, and illimitable of powers” and “in a sense, the greatest and most powerful attribute of government,” the exercise of the power may be judicially inquired into and corrected only if it is capricious, whimsical, unjust or unreasonable, there having been a denial of due process or a violation of any other applicable constitutional guarantee.