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Constitutional Law • Contracts Clause
CONLAW#073
Legal Definition
State legislation that impairs a contract to which the state is a party is subject to strict scrutiny.
Plain English Explanation
When a state's laws interfere with a contract that the state itself is part of, the state's actions are examined very closely and critically to ensure they are absolutely necessary for a very important reason (and not just the state trying to weasel out of an agreement it now regrets).
Hypothetical
Hypo 1: Bob signs a contract with Hypofornia State to supply computers to all public schools. After a year, a new governor decides the contract is too costly and passes a law to cancel it. Result: Because Hypofornia State is trying to impair a contract it's a party to, the state's action is subject to strict scrutiny. The law to cancel the contract would likely be deemed invalid unless the state can show a compelling reason for its action.
Hypo 2: Sam's construction company has a contract with New Hypoland to repair highways. Mid-project, New Hypoland passes a law reducing the agreed payment, claiming budget deficits. Result: This law directly impairs the contract between Sam's company and New Hypoland. Under strict scrutiny, the law would be upheld only if New Hypoland could prove the budget deficit is a compelling state interest and there's no other way to address it without altering the contract.
Hypo 2: Sam's construction company has a contract with New Hypoland to repair highways. Mid-project, New Hypoland passes a law reducing the agreed payment, claiming budget deficits. Result: This law directly impairs the contract between Sam's company and New Hypoland. Under strict scrutiny, the law would be upheld only if New Hypoland could prove the budget deficit is a compelling state interest and there's no other way to address it without altering the contract.
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