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Federalist 44

posted by Stephen Lubben

As others have noted, the Indiana Pension Funds invoke the founding fathers in support of their claim that the government is rolling over their rights as creditors.  This part of the brief particularly stands out:

As James Madison wrote long ago in language that is still markedly salient today: “laws impairing the obligation of contract are contrary to the first principles of the social compact, and to every principle of sound legislation.”  The FEDERALIST No. 44 (James Madison).

I'm not a constitutional law expert, but this quote seems out of context to me.  Federalist 44 deals with the Contract Clause, the prohibition on the States passing laws impairing contractual obligations. Congress' power under the Bankruptcy Clause is not subject to this limitation. The Supreme Court, under Chief Justice Marshall, explained the relationship between the two clauses in 1819 in Sturges v. Crowninshield:

Without entering further into the delicate inquiry respecting the precise limitations which the several grants of power to congress, contained in the constitution, may impose on the state legislatures, than is necessary for the decision of the question before the court, it is sufficient to say, that, until the power to pass uniform laws on the subject of bankruptcies be exercised by congress, the States are not forbidden to pass a bankrupt law, provided it contain no principle which violates the 10th section of the first article of the constitution of the United States [the Contract Clause].

Indeed, it is arguable that a Bankruptcy Code would be unworkable, or at least of limited value, it if could not impair the obligations of preexisting contracts.  And similarly, seen from the perspective of those founding fathers who saw debtor-creditor law as an important part of the national economy, it makes perfect sense that the States' ability to atomize debt collection law would be restricted.

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Comments

People might want to look at in re Lewis, US App. 9th Circuit, 506 F 3d 927, Nov 5, 2007 which addresses the issue of laws impairing the obligation of contracts in the context of the retroactive provisions of the 1998 Higher Education Act as it pertains to discharge of student loans in bankruptcy. This is a very large area where failing to pay attention to the caution in The Federalist has adversely affected thousands of individuals. Clearly the constitution allows the Federal government to pass ex post facto laws and laws impairing the obligation of contracts, but it does not follow that it is in the public interest for it to routinely do so to suit the convenience of one or another special intgerest group.

Martha Sherwood

The 1932 Blaisdell case in effect allows states to impair the obligation of contract if the impairment is in the nature of a debt workout. The wingnuts hate it, but it is good law.

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