This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
By its terms this clause of the Constitution provides that "no state " shall pass the laws in question. It does not, therefore, restrict the power of the United States government.1 If in the exercise of its authority, the United States passes an act otherwise constitutional which impairs the obligation of contracts, such act is not on that account objectionable. Thus a federal bankrupt act which discharges debts existing before its passage,2 an act affecting the medium of payment of past debts,3 or an act regulating interstate commerce, which avoids preexisting contracts,4 are each valid. Whether this clause applies to territories or the District of Columbia is a question still in doubt.5 On the one hand, it seems that Congress, having itself power to pass laws impairing the obligation of contracts and having power to create territorial governments instead of legislating for the territories directly, could bestow such power upon the territory if it pleased. On the other hand, it seems absurd to hold that a territory has in this regard greater power than a state. This clause undoubtedly applies to the states of the union while members of the union,6 even if they are actually in a state of rebellion,7 but it does nut apply to the states of the union before the formation of the union,8 nor to independent states before their admission to the union.9 It also applies to public corporations such as municipalities created by the states for governmental purposes.10 This clause has no application to foreign governments. If their laws determine the validity of a contract upon which an action is brought in our courts,11 effect must be given even to statutes which impair the obligation of contracts. Thus an act of the Parliament of Canada12 is not made invalid by this clause of the Federal Constitution.
1 Juilliard v. Greenman, 110 TJ. S. 421; Legal Tender Cases, 12 Wall. (U. S.) 457; Evsns-Snider-Buel Co. V. McFadden, 105 Fed. 293; 44 C. C. A. 494; 58 L. R- A. 900; Ansley v. Ainsworth. - Ind. Ter. - ; 69 S. W. 884; Hopkins v. Jones, 22 Ind. 310; Fitzgerald v. Ry., 63 Vt. 169; 13 L. R. A. 70; 22 Atl. 76.
2 In re Herrman. 106 Fed. 987; 46 C. C. A. 77; affirming 102 Fed. 753; Loud v. Pierce, 25 Me. 233; Cutter v. Folsom, 17 N. H. 139.
3 Legal Tender Cases, 12 Wall. (U. S.) 457.
4 Fitzgerald v. Ry., 63 Vt. 169; 13 L. R. A. 70; 22 Atl. 76.
5 Thus in Hanford v. Davies, 163 U. S. 273, the court held that "even if it were assumed that the constitutional provision in question applied to the legislative enactments of a territory," the judgment of a territorial court was not a " law" in this sense.
6 Los Angeles v. Water Co., 177 U. S. 558; Houston, etc.. Ry v. Texas, 170 U. S. 243: Mobile, etc., R. R. v. Tennessee, 153 U. S. 486; Bier v. MeGehee, 148 U. S. 137.