Freedom of Contract and the Rise of Judicial Tyranny

Anyone who thinks that this earlier post reflects a softening on my part with respect to judicial tyranny should read this, this, this, and this, for starters. I take aim today at the grievous mischief done by the U.S. Supreme Court in the name of preserving freedom of contract. That freedom is specified in Article I, Section 10, of the U.S. Constitution:

No State shall…pass any…Law impairing the Obligation of Contracts…

Some have argued that the Constitution enables the federal government to interfere in contractual relationships because such interference isn’t forbidden. Those sophists conveniently forget that the Constitution grants to the federal government only the powers enumerated in the Constitution.

Others have argued that the federal government’s interference in contractual relationships is warranted by the Commerce Clause in Article I, Section 8, of the Constitution:

The Congress shall have Power…

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes….

But it is clear that the Constitution grants Congress the power to regulate interstate commerce for the purpose of fostering free trade among the States, not for the purpose of regulating the operation of businesses engaged in that trade. For example, Article I, Section 9, specifies that

[n]o Tax or Duty shall be laid on Articles exported from any State.

No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another: nor shall Vessels bound to, or from, one State, be obliged to enter, clear, or pay Duties in another.

And Article I, Section 10, goes on to say that

[n]o State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it’s inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Controul of the Congress.

With that issue out of the way, let us consider the fate of contractual freedom and the rise of judicial tyranny. The U.S. Supreme Court upheld that right in Bronson v. Kinzie (1843). According to The Oxford Guide to United States Supreme Court Decisions (Oxford University Press, 1999, p. 33),

Chief Justice Roger B. Taney held that [a] legislative attempt to modify the terms of [an] existing mortgage was an unconstitutional impairment of the obligation of contract. Taney agreed that a state could alter the remedies available to enforce past as well as future contracts. He nonetheless emphasized that such changes could not materially impair the rights of creditors. In broad language Taney extolled the virtue of the Contract Clause: “It was undoubtedly adopted as part of the Constitution for a great and useful purpose. It was to maintain the integrity of contracts, and to secure their faithful execution throughout this Union.”

The Oxford Guide continues :

The Court long adhered to the Bronson rule, invalidating state laws that interfered with contractual rights in the guise of regulating remedies. The decision was effectively superseded, however, by Home Building and Loan Association v. Blaisdell (1934), in which the justices ruled that contracts were subject to the reasonable exercise of state police power.

Just what is “reasonable exercise of state police power”? In Home Building and Loan Association, according to Chief Justice Hughes, writing for the Court, it is this:

We come back, then, directly, to the question of impairment. As to that, the conclusion reached by the court here seems to be that the relief [from mortgage foreclosures] afforded by the [Minnesota] statute does not contravene the constitutional provision because it is of a character appropriate to the emergency and allowed upon what are said to be reasonable conditions.

That is, the Court simply decided to uphold a Minnesota statute that altered the terms of a contract because it wanted to do so, not because it had constitutional authority for doing so. The Constitution doesn’t forbid States from impairing contracts except in emergencies or to exercise their “policing power”; the Constitution flatly forbids States from impairing contracts.

How hard can it be to enforce the plain meaning of the Constitution? It can be impossible when that isn’t what the Court wants to do. Take the doctrine of “substantive due process” — a whole-cloth invention of the Court in the case of Dred Scott (1857), as described by Brian C. Anderson at City Journal:

What makes Dred Scott the prototype of today’s judicial activism is its radical rewriting of the Fifth Amendment’s due process clause, which states that no person shall be “deprived of life, liberty, or property, without due process of law”—meaning, according to ancient legal tradition, simply that the authorities had to follow the legally proper procedures in applying the law. In Dred Scott, the Court declared that any federal law that deprived a citizen of his slaves would in itself violate due process. This notion of “substantive” due process—that government can’t deprive citizens of certain property or certain liberties without violating due process by the very act of doing so—“has enabled judges to do more freewheeling lawmaking than any other,” says [Justice Antonin] Scalia.

What does substantive due process have to do with freedom of contract? Anderson continues:

[F]rom the late 1890s until the mid-1930s, [the Court] again marshaled the substantive due process concept to make, rather than interpret, law. This time, the Court injected into the due process clause (not just of the Fifth Amendment but also of the post–Civil War Fourteenth Amendment, modeled on it, that applied to states) a natural right to “freedom of contract” dear to the nation’s rising business class. This “substance”—this liberty that could be taken away by no legitimate due process—was more morally defensible than slaveholding, but the interpretive sleight of hand to “discover” a protection that wasn’t in the Constitution was the same as in Dred Scott. The 1905 Lochner case symbolizes this period in constitutional history: it struck down, on the substantive due process grounds that it violated freedom of contract, a New York law that limited bakers’ workweeks to 60 hours for health reasons—only one of hundreds of federal and state social welfare laws, including early New Deal initiatives, that couldn’t get past the courts during these decades. “Like its even more unseemly ancestor Dred Scott,” observe legal thinkers Eugene Hickok and Gary McDowell, “Lochner helped set in motion the mechanics of government by judiciary.”

The Lochner Court could have decided that case by standing foursquare on the Contracts Clause, as did the Court in Bronson v. Kinzie. But the Court was too anxious to find rights where none existed, thus paving the way for

[t]he heroic new judge [who] drew inspiration from a doctrine called “the Living Constitution,” which held, as Justice William Brennan put it, that: “The genius of the Constitution rests not in any static meaning it might have had in a world that is dead and gone, but in the adaptability of its great principles to cope with current problems and current needs.” More than adapt, the Living Constitution could bring about epochal social changes whenever judges like Brennan believed that justice demanded them….