The Contract Clause and the Evolution of American Federalism, 1789-1815

Author(s): Steven R. Boyd

Source: The William and Mary Quarterly , Jul., 1987, Vol. 44, No. 3, The Constitution of the United States (Jul., 1987), pp. 529-548

Published by: Omohundro Institute of Early American History and Culture

Stable URL: http://www.jstor.com/stable/1939769

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The Contract Clause and the

Evolution of American Federalism,

I789-i8I5

Steven R. Boyd

A RTICLE I, Section io, of the United States Constitution declares that no state “shall enter into any Treaty, Alliance, or Confeder- ation; grant Letters of Marque and Reprisal; coin Money; emit

Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”

One portion of that section, the prohibition on states passing laws that impair the obligation of contracts, has proven particularly important in

American constitutional history and in the development of American

federalism.’ Few men at the time of the adoption of the Constitution foresaw this crucial role for the contract clause. It attracted little comment during the ratification debate, while those who did consider it usually linked it with the companion prohibition on bills of credit or the ban on “any Thing but gold and silver” being made “a Tender in Payment of Debts.”2 They made this connection because during the Confederation debtors in some states used depreciated paper money to pay their obligations. This action, sanctioned by various states that declared their

Mr. Boyd is an associate professor of history at the University of Texas at San Antonio. He wishes to thank Robert Becker, James Broussard, John P. Kaminski, and Sandra Van Burkleo for assistance in preparing this article.

‘The standard work on the contract clause is Benjamin Fletcher Wright, The Contract Clause of the Constitution (Cambridge, Mass., I938). Forrest McDonald’s Novus Ordo Seclorum: The Intellectual Origins of the Constitution (Lawrence, Kan., i985), esp. 270-275, focuses on the Constitutional Convention and the question of the authorship of the clause. On the development of the clause during the early national period see, in addition to Wright, Peter Magrath, Yazoo: Law and Politics in the New Republic: The Case of Fletcher v. Peck (Providence, R.I., i966). On federalism see Martin Diamond, “What the Framers Meant by Federalism,” in Robert A. Goldwin, ed., A Nation of States. Essays on the American Federal System (Chicago, i963).

2 See, for example, “A Citizen of Philadelphia” [Pelatiah Webster], “Remarks on the Address of Sixteen Members,” in Merrill Jensen, John P. Kaminski, and Gaspare J. Saladino, eds., The Documentary History of the Ratification of the Constitution (Madison, Wis., I976- ), XIII, 302, hereafter cited as History of

Ratification.

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530 WILLIAM AND MARY QUARTERLY

paper issues to be legal tender, was part of a broad pattern of state interference in private contracts.3 The proponents of constitutional change argued that such policies were unjust, iniquitous, and unaccept- able.

In fact, opposition to debtor-oriented state policies was a major factor in the call for the Federal Convention. In the fall of 1787 James Madison advised Thomas Jefferson that the “mutability of the laws of the States,” especially laws involving paper emissions and affecting contracts, “contrib- uted more to that uneasiness which produced the Convention, and prepared the public mind for a general reform” than any other single source.4James Wilson later declared on the floor of the Pennsylvania state convention, “If only the following lines [including the contract clause] were inserted in this Constitution, I think it would be worth our adoption.”5

Historians generally have agreed with Madison that the states’ economic policies played an important role in the decision to call the convention. Charles A. Beard, for example, declared that “of the forces which created the Constitution, those property interests seeking protection against omnipotent legislatures were the most active.”6 Beard concluded, citing Madison as well as Alexander Hamilton and John Marshall, that the contract clause was “designed to bring under the ban substantially all legislation which affected personalty adversely.”7 Merrill Jensen and Forrest McDonald shared Beard’s view. Both stressed the importance the framers attached to the prevention of such state legislation and the role of the contract clause in accomplishing that end.8 Indeed, with the exception of Benjamin Fletcher Wright, who demonstrated that Chief Justice Marshall’s expansion of the clause to include public contracts ran counter to the expectations of some of the framers, most historians have assumed that the federal courts’ interpretation of the contract clause realized the framers’ intentions.9 The brief discussion of the clause during the ratifi- cation debate, because it did not explicitly contradict this idea, seems to reinforce the prevailing interpretation.

3 A1an Nevins, The American States during and after the Revolution, 1 775- 1 789 (New York, I924).

4Madison to Jefferson, Oct. 24, Nov. I, 1787, in History of Ratification, XIII, 447.

5bid.I1, o 50. The lines, which included the contract clause, were “No state shall hereafter emit bills of credit; make any thing but gold and silver coin, a tender in payment of debts; pass any bills of attainder; ex post facto law; or law impairing the obligation of contracts” (ibid.).

6Beard, An Economic Interpretation of the Constitution of the United States (New York, 1913), I78.

7lbid., i82. 8Jensen, The Making of the American Constitution (New York, i964), 97;

McDonald, E Pluribus Unum: The Formation of the American Republic, I 7 76- I 790 (Boston, I965), I86-I87.

9Wright, Contract Clause, chap. i.

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THE CONTRACT CLAUSE 5 3 1

If, however, one examines the early history of the contract clause from the Constitutional Convention through the ratification debates and into the initial legislative, executive, and judicial interpretations, a far more complex picture emerges. Federalists and Antifederalists held a wide range of opinions about the meaning of the clause. Furthermore, during the first quarter century under the Constitution no one idea of the meaning of the clause held sway. Instead, state legislatures pursued a variety of contradictory policies. These policies in turn illustrate that there was no single, monolithic intent of the framers. The men who wrote the Constitution, like the men who adopted and implemented it, held a vast range of ideas (including, some of them, no opinion at all) of what the various parts of the Constitution meant.

The initial attempts to bring meaning to the language of the document took place, for issues related to the contract clause, in the states and only secondarily in the federal courts. Furthermore, within the states all three branches of government grappled with notions of the meaning of the clause prevalent in each state. In acting upon these conflicting concep- tions, state policymakers also sought to establish their conception of proper federal-state relations. The ultimate configuration of the system of federalism, which Madison insisted was neither wholly national nor wholly federal, lay in the balance as state policymakers debated the meaning of the contract clause.

The clause meant different things to different men in 1787-1788 and throughout the early national period. To Federalist William Gardner, a Portsmouth, New Hampshire, merchant, it meant that the election of “anticommercial” and “dogmatical” Antifederalists to the state legislatures was of little consequence. The “wings of the legislature” had been “pretty well clipped,” he advised Nicholas Gilman, a New Hampshire Federalist, former member of the Constitutional Convention, and later a member of the First Congress. Once the “much wished for federal government” was set in “motion,” it would render the state legislatures impotent, their “unfit” members incapable of inflicting damage.10

Six weeks later, William R. Davie, who had served as one of North Carolina’s delegates to the Federal Convention, offered a far different notion of the meaning of the clause. At the North Carolina convention, during a discussion of the paper money provision of Article I, Section IO, he insisted that the clause would not affect that state’s existing paper money or public securities. The clause applied, he assured the delegates, “merely to contracts between individuals.” It was this limited meaning, Davie added, that made the clause the “best in the Constitution.”1

Although Gardner and Davie agreed on the merit of the contract clause, their understandings of it varied enormously. Gardner praised the Con-

10Gardner to Gilman,. June I4, I788, Gardner Papers, New-York Historical Society, New York City.

11 Max Farrand, ed., The Records of the Federal Convention of 1 787, 4 vols., rev. ed.

(New Haven, Conn., I 937), III, 350.

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532 WILLIAM AND MARY QUARTERLY

stitution because it materially restricted the power of the state legislatures. Davie, on the other hand, insisted that the clause applied only to private contracts, leaving the state legislatures free to act in a broad range of areas.

This ambiguity was in part a result of the way in which the contract clause became a part of the Constitution. When delegates to the Federal Convention assembled in May I787, none of the resolutions they considered resembled Article I, Section io. The Virginia Plan, which formed the basis for discussion for the first two months of the convention, proposed to empower the national legislature “to negative all laws passed by the several States contravening, in the opinion of the national legisla- ture, the articles of union; or any treaties subsisting under authority of the Union.” 12 Although that broad grant of authority was originally agreed to without debate or dissent, the delegates eliminated it on July I7.13 Every subsequent attempt to add it to the Constitution failed. Instead of a general restraint on state action imposed at the discretion of the national legislature, the Constitution they drafted imposed more precise limits enforceable only in response to specific state action.

The restriction on the states that denied to them the power to impair the obligation of contracts was first proposed late in the deliberations, on August 28, when Rufus King of Massachusetts “moved to add, in the words used in the Ordinance of Cong[res]s establishing new States, a prohibition on the States to interfere in private contracts.”’14 King’s reference was to the Northwest Ordinance, which declared that “no law ought ever to be made or have force in the said territory that shall, in any manner whatever, interfere with or affect private contracts, or engage- ments bona fide, and without fraud previously performed.”’15

Two delegates spoke against King’s motion. Gouverneur Morris of Pennsylvania thought it “would be going too far,” for there were “a thousand laws relating to bringing actions-limitations of actions & which affect contracts.” George Mason of Virginia raised a similar objection, while Madison, although in favor of the motion, still preferred a “negative on the State laws [which] could alone secure the effect.” In response to these objections, Wilson asserted that only “retrospective” interferences would be prohibited. Madison countered that retrospective interferences were already precluded by the “prohibition of ex post facto laws, which will oblige the Judges to declare such interferences null & void.” The delegates then approved by a vote of seven states to three an amendment offered by John Rutledge of South Carolina that transformed King’s resolution into a denial of the right of the states to pass bills of attainder or retrospective laws.16 That prohibition was materially expanded by the

12Ibid.I, 225.

31bid., II, 2 1-22. 14lbid., 439. 15The People ShallJudge. Readings in the Formation of American Policy (Chicago,

1949), I, 252-253. ‘6Farrand, ed., Records, II, 439-440.

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THE CONTRACT CLAUSE 533

committee on style to prohibit the states from “altering or impairing the obligation of contracts.” On September 14 the delegates deleted the word “altering” and the contract clause became part of the Constitution.17

Although the debates in Philadelphia shed little light on the framers’ understanding of the clause, the arguments of Federalists and Antifederal- ists during the contest over ratification, comments by other observers, and calls for legislative action after individual state ratifications and before the inauguration of the new government all indicate a diversity of opinions about the meaning and prospective impact of the clause.

One version of what the clause meant linked it to the other monetary provisions in Article I, Section io. William Maclaine of North Carolina, for example, tied it to the prohibition of further emissions of state paper money.18 So did Pelatiah Webster, a Philadelphia merchant and pamphle- teer, who argued that the Constitution “obliged” people to “fulfil their contracts, and not avoid them by tenders of any thing less than the value stipulated.’9 A group of citizens from Northampton County, Pennsylva- nia, also understood the Constitution in these terms.20 On the other hand, Roger Sherman and Oliver Ellsworth, two of Connecticut’s delegates to the convention, declared in a letter to the governor that Article I, Section io, denied to the states the power to impair “the obligation of contracts by ex post facto laws.”’21

Others assumed that the prohibition applied only to state interferences in private contracts. Gov. Edmund Randolph of Virginia, a member of the Federal Convention and the Virginia state convention, insisted that the clause applied only to “private contracts.”22 So did William R. Davie, who declared in the North Carolina convention that the clause only limited state authority to interfere in “contracts between individuals.”23

Precisely what kinds of interference in private contracts would be precluded was a matter of some discussion. In Federalist No. 44 Madison insisted that the “sober people” of America were “weary” of state legislative interferences in “cases affecting personal rights.”24 One specific kind of interference Madison condemned was installment legislation. Of a 1786 Virginia court bill that allowed debtors to pay their obligations in three annual installments, he remarked that “such an interposition of the law in private contracts is not to be vindicated on any legislative principle

71Ibid., 597, 6g9. 18Jonathan Elliot, ed., The Debates in the Several State Conventions on the Adoption

of the Federal Constitution …. 5 vols., 2d ed. (Philadelphia, i86i), IV, 477. 19″A Citizen of Philadelphia,” “Remarks on the Address of Sixteen Members,”

in History of Ratification, XIII, 302. 20 Ibid., II, 648. 21 Sherman and Ellsworth to Gov. Samuel Huntington, Sept. 26, I787, ibid.,

XIII, 47 I. 22Elliot, ed., Debates, IV, 477. 23Farrand, ed., Records, III, 350. 24Jacob E. Cooke, ed., The Federalist (Middletown, Conn., i960), 30I-302.

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534 WILLIAM AND MARY QUARTERLY

within my knowledge.”25 Installment laws like the Virginia bill, stay laws (postponing the time for the payment of debts beyond their contractual limits), and commodity payment laws (allowing payment in specified commodities at a proportion of their appraised value) were all, Madison recalled late in life, laws impairing the obligation of contracts as he understood the ban.26

Others seemingly agreed. Wilson, for example, in discussing types of state legislation that were proscribed, insisted to the Pennsylvania state convention that the Constitution prohibited not only installment laws but “other acts of a similar effect.”27 Charles Cotesworth Pinckney, a South Carolina framer, remarked in an “Extract of a letter from an eminent Member of the late Convention at Philadelphia,” published in the Charleston Columbian Herald, that the Constitution was an honest one and that the limitations on the states found in Article I, Section io, meant “that in future we shall be free from the apprehensions of paper money, pine barren acts [commodity payment laws], and installment laws.”28 Antoine de la Forest, the French vice consul in New York City, reported to the comte de Montmorin in September 1787 that “the creation of Paper money, the laws that stay the operation of obligations and Contracts, those that authorize the payment of debts in property or depreciated paper, can no longer take place. “29

Some public figures, while agreeing that the Constitution prohibited these types of legislation in the future, insisted that the state legislatures nonetheless could and should act to protect the interest of debtors while they still had power to do so. In Georgia, for example, “Tullius” wrote in an essay published in the Gazette of the State of Georgia in June 1788 that “the period is now fast approaching when, from the limited authority left in each individual state by the new Constitution, we shall be deprived of the power and opportunity, which now present themselves, of doing an act which will at once be an important piece of justice to many of our best citizens and, at the same time, bring the most extensive advantages to the state at large.” The act to which “Tullius” alluded was one “lately talked of in conversation,” namely, a law for the payment of debts in installments. “Tullius” called on the Georgia executive council to summon the legisla- ture into session so that it could enact such a law before the ratification of the Constitution by nine states would deny forever any state legislature the right to so interfere in debtor-creditor relations.30

There is no indication that the executive council considered this proposal, but Edward Telfair, governor of Georgia in 1786-1787 and

25James Madison to James Madison, Sr., Dec. I2, I786, in Robert A. Rutland

et al., eds., The Papers of James Madison, IX (Chicago, i975), 205. 26 “Preface to Debates in the Convention of I787,” Farrand, ed., Records, III,

548. 27 History of Ratification, II, 5I9. 28Ibid., XIII, 274n. 29La Forest to comte de Montmorin, Sept. 28, I787, ibid., 259. 30Ibid., III, 300-30I.

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THE CONTRACT CLAUSE 5 3 5

1789-1793, did respond unofficially. Writing as “A Planter,” Telfair argued that once the Constitution was adopted, any state legislation contrary to it-including the proposed installment measure-would not “continue in force.” In lieu of an ineffective installment law, Telfair proposed an allotment system, or commodity payment plan, by which debtors could transfer a portion of their property at its real value to creditors before the commencement of the new government. This mea- sure, too, required prompt action, for it also would be prohibited by Article I, Section 10.31 Despite such urgings, the executive council did not call the legislature into special session. By January 1789, when the legislature did meet, the opportunity to act had passed.

Proponents of debtor relief were more successful in South Carolina, where in November 1788 the legislature enacted an installment law that made all debts contracted before January I, 1787, recoverable in five annual installments beginning in March 1789. A similar measure, passed the year before, made the first installment due in March 1788. The 1788 legislation provided that any payments made under the 1787 law would be credited under the new act. As in Georgia, some Federalists argued that the new law was unconstitutional since the Constitution prohibited such legislation. Proponents of the measure, Federalist and Antifederalist alike, argued the contrary, insisting that the Constitution would not bind the states until the new government was set in motion, and that state laws passed before that date would not be affected by the constitutional ban.32

The simple language of the Constitution, along with statements made by its proponents during the convention and ratification debates, indicates a widespread belief that certain forms of debtor-relief legislation that had been permissible during the Confederation era would be precluded following establishment of the new federal government in 1789. Some Federalists and Antifederalists understood the clause to encompass far more than that. A New Hampshire Federalist, for example, argued in the Portsmouth New-Hampshire Spy (November 3, 1787) that the Constitu- tion “expressly prohibits those destructive laws in the several states which alter or impair the obligation of contracts; so that in future anyone may be certain of an exact fulfillment of any contract that may be entered into or the penalty that may be stipulated in case of failure.” This writer was not precise, but the inference from his statement is that the states’ power to pass bankruptcy and insolvency legislation, as well as stay, installment, and commodity payment laws, would be eliminated by the Constitution.

Although no other Federalist made such a broad assertion of the

31Ibid., 304-307. 32″An Act to Regulate the Payment and Recovery of Debts . . . ,” in Thomas

Cooper and David J. McCord, eds., The Statutes at Large of South Carolina, i o vols. (Columbia, S.C., I836-I84I), V, 88-92. The debates are printed in the City Gazette, or the Daily Advertiser (Charleston), Oct. 24, 27, 28, I788. For a discussion of South Carolina’s debtor policies see Jerome J. Nadelhaft, The Disorders of War. The Revolution in South Carolina (Orono, Maine, i98i), I92-200.

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5 36 WILLIAM AND MARY QUARTERLY

inclusive force of Article I, Section io, several Antifederalists did. Luther Martin, a Maryland delegate to the Constitutional Convention, in a speech to the Maryland legislature later published as an Antifederalist pamphlet, suggested that the Constitution threatened that state’s existing insolvency legislation.33 A Pennsylvania Antifederalist, “Deliberator,” warned that under the Constitution “no state can give relief to insolvent debtors, however distressing their situation may be; since Congress will have the exclusive right of establishing uniform laws on the subject of bankruptcies throughout the United States; and the particular states are expressly prohibited from passing any law impairing the obligation of contracts.”34 Richard Henry Lee ultimately concluded that the power of Congress to pass uniform codes of bankruptcy posed a threat to the states’ bankruptcy power and therefore opposed it. 35And Antifederalists in the New York state convention sent a circular letter to the state legislatures that included an amendment stipulating that “the Power of Congress to pass uniform Laws concerning Bankruptcy shall only extend to Merchants and other Traders; and that the States respectively may pass Laws for the relief of other Insolvent Debtors.”36

Did the clause apply to public contracts or only to private ones? Did it extend to all debtor-relief legislation or only to particular kinds? Did it affect legislation enacted before the Constitution was ratified or only laws passed afterward? The language of the Constitution led men to different conclusions. And while William Symmes, an Antifederalist delegate to the Massachusetts convention, acknowledged that he did not “at present understand what effect it [the contract clause] will have,” his modesty was atypical.37 In large measure unaware of this diversity of views, most men believed that they understood the clause. They also assumed that their understanding coincided with that of the majority of the framers and anticipated that it would be the basis of public policy in the immediate future.

33Martin, “The Genuine Information Delivered to the Legislature of the State of Maryland . . . ,” in Herbert J. Storing, ed., The Complete Anti-Federalist, 7 vols. (Chicago, 198I), II, I9-82.

34 Freeman’s Journal (Philadelphia), Feb. 20, I788, ibid., III, i8o. 35Ibid., II, 343-344. 36 Linda Grant De Pauw, The Eleventh Pillar: New York State and the Federal

Constitution (Ithaca, N.Y., i966), appendix B, 300. 37 Symmes to Peter Osgood, Jr., Nov. I 5, I 787, in History of Ratification, XIV,

I I 3. It should also be noted that there was some agreement on what the clause did not do. It did not diminish the equity power of state jurists, who could abrogate private contracts if they were “unjust.” The literature on the rapid shift in private law from this just-price notion to a modern one that stresses the sanctity of a contract unless fraud is proven occurred independently of the constitutional mandate of Article I, Section io, which only restricted the lawmaking authority of the legislature. On the development of modern contract law see Morton J. Horwitz, The Transformation of American Law, 1780-1860 (Cambridge, Mass., I977), chap. 6. On the preservation of state equity power see Hamilton, Federalist No. 8o.

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THE CONTRACT CLAUSE 537

TABLE I STATE LAWS IMPAIRING THE OBLIGATION OF CONTRACTS,

BY YEAR IN FORCE, I789-I8I5

Year Vt. R.I. Conn. N. Y. NJ. Pa. Md. Va. N.C. S.C. Ga.

I789 SB SB B B B B S B IB I790 SB SB B B B B S B IB I79I SB SB B B B B B S B IB I792 SB SB B B B B B S B IB I793 SB B B B B B B S B IB I794 SB B B B B B S B I795 SB B B B B B S B I796 SB B B B B S B I797 SB B B B B S B I798 SB B B B B S B I799 SB B B B B S B i8oo SB B B B S B S B i8oi SB B B B S B S B I802 SB B B B S B S B I8o3 SB B B B S B S B I804 SB B B B S B S B i8o5 SB B B B S B S B i8o6 SB B B B S B S B I807 SB B B B S B S B i808 SB B B B S B S S B S I8o9 SB B B B S B S S B S i8io SB B B B B S B i8ii SB B B B B S B I8I2 SB B B B B B S S B S I8I3 SB B B B B B S S B S i8I4 SB B B B SB B S S B S i8I5 SB B B B SB B S

S = Stay, I = Installment, B = Bankruptcy. The statutes are cited in the notes attached to discussion of them in the text or in Coleman, Debtors and Creditors, and Feller, “Moratory

Legislation,” Harvard Law Rev., XLVI (I 9 3 3), I o6 I-I o8 5.

The implications of these different understandings of the scope of the contract clause are important. If, at its broadest, all state interferences in contracts public and private were precluded (including interferences created by existing legislation), the role of the states in the new constitu- tional order would be substantially diminished. Furthermore, if the states could not act, then the federal power to pass bankruptcy statutes was exclusive, and the role of the federal government in the operation of the economy would be quite broad. If, on the other hand, the clause restricted only particular types of state legislative interference in private contracts henceforth, then the power of the states in regulating the economic life of the nation remained significant.

The resolution of these ambiguities, and thus of the shape of federal-

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538 WILLIAM AND MARY QUARTERLY

state relations, came only gradually as state legislatures and state and federal courts moved to establish their notions of constitutional policy in the new republic. The legislatures necessarily took the lead in defining areas of permissible state action. Between I788 and i8I5 they imple- mented their standard of constitutional right and political authority by continuing existing legislation respecting contracts and by supplementing it with additional stay and bankruptcy measures.

Historians have long been aware of some aspects of state interference in contracts following ratification of the Constitution. Peter J. Coleman, for example, analyzed all state bankruptcy legislation from the founding of the colonies to the close of the nineteenth century in Debtors and Creditors in America. Insolvency, Imprisonment for Debt, and Bankruptcy, i607-1900.38 Other historians have also noted specific statutes as did Louis Hartz in Economic Policy and Democratic Thought: Pennsylvania, 1776-i86o.39 Legal scholars, too, have identified state laws interfering with contracts follow- ing ratification.40 Table I, which incorporates all of this research as well as my own in the published state statutes, illustrates the extent to which stay, installment, and bankruptcy legislation remained a part of state public policy during the early national period.

In some states such policies represented a continuation of debtor-relief measures adopted in the I78os. In I787, for example, the South Carolina legislature approved an installment law. It did so over the objections of Federalist David Ramsay, who maintained that the measure was “uncon- stitutional” because the “power of all legislative bodies was limited by the eternal laws of justice and reason.”41′ The act allowed repayment of existing debts over a three-year period. Eighteen months later, the legislature revised the law to allow debtors to pay over five years and to permit any payments made under the I787 act to be credited under the new law. Proponents of the revised installment act, including Charles Pinckney and Pierce Butler, both of whom had been delegates to the Federal Convention, were not persuaded by the argument of Jacob Read, another convention delegate, that the new Constitution, having been ratified by nine states, was already binding. The bill, as finally approved, allowed payment of debts, some of which were already thirty years old, over five years beginning in March I789, a date that fortuitously coincided with the commencement of the new federal government.42

After i8oo, Pennsylvania, as part of a “radical program of judicial reform,”43 allowed petty debtors to stay executions of debts under one hundred dollars for three to nine months. Although the act was vetoed by

38 Coleman, Debtors and Creditors (Madison, Wis., I974). 39Hartz, Economic Policy and Democratic Thought (Cambridge, Mass., I948). 40A. H. Feller, “Moratory Legislation: A Comparative Study,” Harvard Law

Review, XLVI (1933), i06i-i085. 41 Report of House Debates, Massachusetts Gazette (Boston), Mar. 27, 1787. 42Cooper and McCord, eds., Statutes, V, 88-92; City Gaz. (Charleston), Oct. 24,

27,28, I788.

43Richard E. Ellis, The Jeffersonian Crisis: Courts and Politics in the Young Republic (New York, I9 7I), i6i.

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THE CONTRACT CLAUSE 5 39

Gov. Thomas McKean and then repassed over his veto, and though it was the subject of considerable public debate, no one objected to its stay provision. Furthermore, this policy was broadened in I804 and i8o6 to protect any debtor for a period of three to twelve months if the debtor was a freeholder or could provide adequate security for the amount of the debt, interest, and court costs.44 Finally, in I814, the state authorized a seven-year stay of execution if a majority of a debtor’s creditors agreed.45

The North Carolina legislature enacted measures in i809 and again in i8I 2 that mandated a three-month stay of execution, provided the debtor secured the endorsement of two freeholders as securities.46 The Georgia legislature required similar security in measures of i 8o8 and I 809, as well as a one-third payment in order to obtain a stay.47 The Virginia legislature did the same in i8o8 and I814 when it provided for “stay bonds, to be taken on judgements, decrees, deeds of trust and conditioned for the payment of the debt at the expiration or repeal of the act.”48 This legislation supplemented a policy that allowed debtors to defer the collection of debts for three to twelve months by use of a replevy bond. Under that system, which operated in Virginia from 1748 to I817, a debtor who obtained the signature of a solvent individual as guarantor of the debt could secure a stay of execution.49

Not all states adopted general relief measures. For example, Vermont and Rhode Island after I789 received petitions from debtors seeking relief. In Vermont most of those petitioners were granted a stay of execution of up to ten years, while a smaller number secured a bankruptcy act.50 The Rhode Island legislature granted bankruptcy relief to a larger share of petitioners than did Vermont, but in some cases allowed a stay of execution for periods of a few months to several years. In I792, creditors challenged the latter procedure in federal circuit court. Alexander Cham- pion and Thomas Dickason argued that such a stay impaired the obligation of the contract of debt owed to them by Silas Casey. Justices John Jay and Henry Marchant agreed. In one of the earliest exercises of judicial review

44 “An Act for the Recovery of Debts and Demands not exceeding one Hundred Dollars . . . ,” Laws of the Commonwealth of Pennsylvania (Philadelphia, I 804, i8o6), VI, 383-400, VIII, 558-569. See the discussion of the act in Ellis, Jeffersonian Crisis, i 6o- I64, I67-I68.

45John Purdon, comp., The Digest of the Laws of Pennsylvania, I 700-1830 (Philadelphia, I831), 388-389.

46 Laws of North Carolina (Raleigh, N.C., I 809, I 8I 2), chaps. i, 8. 47 “An Act to Alleviate the Condition of Debtors …,” Acts of the General

Assembly of the State of Georgia (Milledgeville, Ga., i809), i6-i8; “An Act to Alleviate the Condition of Debtors . . . ,” ibid. (i8I o), 29-3 I.

48″An Act Concerning the Sale of Property Under Executions . . . ,” Acts Passed at a General Assembly … (Richmond, Va., i8o8), I4-I5; “An Act Concerning Executions,” ibid. (i8I5), 68-75.

49 “An act to reduce into one act the several acts concerning executions, and for the relief of insolvent debtors,” The Revised Code of the Laws of Virginia … (Richmond, Va., I8I9), 524-547.

50 Coleman, Debtors and Creditors, 69-7 I.

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540 WILLIAM AND MARY QUARTERLY

of a state law, they held that Rhode Island’s act granting a stay of execution to Casey violated the contract clause and was therefore void. The principal record of the case, a notice in the Providence Gazette, reported that the legislature, then in session, agreed to cease granting such stays in the future. The legislature continued to grant bankruptcy relief to roughly half the debtors who petitioned for it and a stay of execution to all petitioners pending legislative action on their request.51

The contract clause places restrictions upon the states only. The Constitution in Article I, Section 8, gives Congress authority to establish a uniform system of bankruptcy legislation. Congress did not, however, exercise that authority until i 8oo, and the statute it then passed was repealed in i803.52 In the absence of federal legislation, states continued to act in this area as they had during the Confederation.

South Carolina, for example, continued measures first adopted in I 7 59, by which an insolvent could obtain a discharge if his creditors accepted a share of his property in settlement for his debt. He then received a one-year stay of suits from any creditors unwilling to accept a partial settlement. This statute, with minor revisions, remained the basis for South Carolina’s bankruptcy policy throughout the nineteenth century.53

Pennsylvania, too, built on its colonial experience by amending several times in the I780s a statute first passed in I750. The statute expired, however, in I793, and not until i8I2 did the state reenter the field. Then it approved a short-lived law that extended bankruptcy relief to residents of the city and county of Philadelphia and made the system voluntary. The law proved so unpopular that it was repealed within a year. In i8I4 a federal district court declared it an unconstitutional impairment of the obligation of contracts.54

North Carolina’s experience paralleled Pennsylvania’s. The legislature expanded colonial practice in I 7 7 7 and I 7 7 8 by allowing debtors to obtain discharge from their obligations by taking an oath of poverty. These laws expired in I 7 9 3.55

New York in I788 and New Jersey in I79i also adopted general bankruptcy legislation, although New Jersey’s law lapsed in I795. New York’s statute allowed a debtor to be discharged of all obligations with the consent of three-fourths of his creditors by value. The law, amended several times, survived until i8I3, when it was replaced by one that allowed a discharge with the consent of two-thirds of the creditors by

51June 23, I792; Coleman, Debtors and Creditors, 95. 52 Charles Warren, Bankruptcy in United States History (Cambridge, I935),

I0-22.

53Cooper and McCord, eds., Statutes, IV, 86-94. The discussion of state bankruptcy legislation that follows is based in large measure on Coleman, Debtors and Creditors. For his discussion of South Carolina legislation see chap. I 3.

54″An act for the relief of insolvent debtors, in city and county of Philadelphia, passed March I3, i8I2″ (Philadelphia, i8I2); Golden v. Prince, io Federal Cases

542-547 [i8I4]- 55 Coleman, Debtors and Creditors, chap. i 6.

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THE CONTRACT CLAUSE 54I

value. This statute was nullified in i 8i9 by the United States Supreme Court decision in Sturgis v. Crowninshield as an unconstitutional impair- ment of the obligation of contracts.56

Other states preferred different policies. Maryland, after a one-year experiment with a general bankruptcy statute in 1787, abandoned it in favor of granting bankruptcy by special petition. Between 1789 and i805, i,456 debtors had their obligations discharged before the state again adopted a general bankruptcy statute. That i8o5 statute continued in operation to i854.57

Rhode Island and Connecticut also preferred a policy of discharging debtors only by special petition. Unlike Maryland, however, where the burden of hearing large numbers of petitions compelled the legislature to transfer this function to the courts, the legislatures of these two states continued to hear such requests to i828 and i8i8 respectively. In those years the legislatures repealed all forms of bankruptcy legislation.58

In summary, then, the “thou shalt nots” of the Constitution did not prevent the states from continuing established policies regarding bank- ruptcy and debtor relief. The question is: how could men embrace a document that potentially at least prohibited such policies and still pursue them?

A partial explanation is that the Constitution was not perceived to be controlling until the inauguration of the new government. Therefore, so the proponents of debtor relief in the states argued, legislation approved during the Confederation era avoided the constitutional prohibition. This was the view of the majority in the I788 South Carolina legislature. Chief Justice John Louis Taylor of the North Carolina Supreme Court held it too.59 In Georgia “Tullius” and former governor Telfair agreed that the state legislature could act on matters affecting contracts only until the commencement of the new government, although Telfair also believed that any such legislation had to be executed before that date in order to escape the constitutional prohibition.60 John Brown Cutting of Massachu- setts, a commercial agent in Charleston, agreed with Telfair in this: he advised John Rutledge in the spring of I789 that he doubted that the South Carolina installment act of I788 could continue in operation once the new government was set in motion.61

56For New Jersey see ibid., I36. The New York statutes are summarized in William P. Van Ness and John Woodworth, eds., Laws of the State of New York . . .. 2 vols. (Albany, N.Y., i8I3), I, 460n. Sturgis v. Crowninshield is printed in 4 Wheaton I22-208 (I8I9).

57 Coleman, Debtors and Creditors, chap. I 2. 58 See the tables ibid., 8 i, 96. 59 City Gaz. (Charleston), Oct. 24, 27, I788. See also the discussion of this in the

Jan. I788 session of the legislature in Debates which Arose in the House of Representatives . .. (Charleston, S.C., I83 I), I 4- I 5, I 7. Jones v. Crittenden, 4 North Carolina Reports 6o (I8 I 4).

60 History of Ratification, III, 300, 304-307. 61 Cutting to Rutledge, Feb. 2 I, I789, in Merrill Jensen and Robert A. Becker,

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542 WILLIAM AND MARY QUARTERLY

Opinions varied on this point. Opponents of debtor-relief legislation in South Carolina argued that such statutory relief was precluded by the state’s act of ratification. Francis Corbin, attorney general of Virginia, held that the Constitution was the supreme law of the land as early as August I788, when the required number of states had ratified it.62 Not until i82I did the United States Supreme Court resolve the question: in Owings v. Speed it held that statutes adopted before the inauguration of the new government were constitutional, even if such laws continued to be enforced after March I789. What determined constitutionality, the Court held, was the date of enactment.63

Most legislatures enacted debtor-relief legislation only after the federal government was inaugurated. They did so over the vociferous objections of men who insisted that stay laws, installment laws, commodity payment laws, and the like violated the constitutional ban of Article I, Section io. In i809, for example, a number of North Carolina legislators led by William Gaston, a prominent Federalist and later state judge, opposed their state’s “bill for the relief of debtors.” That measure proposed a one-year stay if the debtor paid one-half the principal, the entire interest due, and court costs, and provided security for the remainder of the obligation. Gaston argued that the Constitution of the United States was “so very clear and explicit, that it must stand obvious to all, an insuperable bar to the passage of the bill. “64

The judges of the North Carolina Supreme Court also proved critical of debtor-relief legislation. In Jones v. Crittenden, decided in January i8I4, Chief Justice Taylor held for the court that the state’s i 8I2 act “to suspend executions for a limited time” impaired the obligation of contracts and was therefore unconstitutional.65 The court declared that the framers intended to prohibit stay laws, that the policy inherent in such legislation was unwise, and that the prohibition was absolute.

In Virginia “Asconius” voiced the same view when that state’s legisla- ture considered a stay law in i8I4. He insisted that such measures were “unconstitutional, iniquitous, and impolitic” as well as “a violation of the principles of natural justice.”66 In Georgia the editor of the Augusta Herald repeatedly attacked that state’s i8o8 debtor-relief measure, and the state’s i8I4 act was similarly condemned in other newspapers as immoral, unnecessary, and unconstitutional.67

eds., The Documentary History of the First Federal Elections, 1788-1790 (Madison, Wis., I976- ), I, 2 I4.

62Aug. 5, I788, Executive Papers, Virginia State Library, Richmond. 636 Wheaton 420-424 (I82 I ). 64 “State Legislative Debate in the House of Commons of North Carolina, on the

Bill for the Relief of Debtors,” Star (Raleigh), Dec. 22, i8o8. 654 North Carolina Reports 55-68 (I 8 I 4). 66 Virginia Gazette (Winchester), Mar. i I, i809. 67May 26, June 2, i8o8. See also “Lucius,” Columbian Museum & Savannah

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THE CONTRACT CLAUSE 543

In light of these arguments, on what grounds could state laws affecting contracts be found not to violate the federal Constitution? First, it should be noted that not all opponents of such laws held that the states could not pass them. Instead, they argued that some particular measure was imprac- tical or unwise. For example, the editor of the Augusta Herald, who assailed the Georgia act of i8o8, observed that the measure, if approved, would stop nearly all civil business of the courts for approximately seven months, “which is certainly extending relief beyond what the circum- stances of the case required.”68 A year and a half later, commenting upon a new bill then pending, the same editor argued that “the less legislative bodies take upon themselves to interfere with the private contracts of individuals, the better.”69 Federalist Shaler Hillyer, an Augusta merchant, likewise condemned the Georgia legislature for approving the i 8o8 statute, which he found “oppressive and immoral” but not unconstitu- tional.70 Clearly, the implication is that on some occasions legislative interferences could be justified as constitutional.

One such occasion, in the minds of some state legislators, resulted from renewal of warfare in Europe after i 8oo. Legislators in the North Carolina House of Commons argued that Jefferson’s embargo necessitated an “indulgence” for their “suffering constituents.” Furthermore, when con- fronted with the contention that a proposed stay law was unconstitutional, spokesmen for the majority maintained it was not. W. R. King insisted that a suspension act passed the previous session, and by implication the one proposed, “was constitutional,” for were it not, the judges “would have refused to carry it into effect. “71 The bill, which provided for a ninety-day suspension, was approved by a ten-vote margin.

In i8I4 a Caroline County, Virginia, farmer offered the same justifica- tion for debtor-relief legislation-that it was constitutional because it was necessary. He called upon the Virginia legislature to close that state’s courts because of disruptions brought by the War of i812. To allow the courts to stay open at a time when “specie is so scarce,” he warned, would mean that the “few holders of it in each county” would “have the upper hand over debtors, quite unfairly.”72

This view was widely held. Thus, while several state and federal courts struck down state laws as unconstitutional impairments of the obligation of contract, other judges viewed these matters differently. For example, in April i8o8, Paul Grimball, a Georgia planter, petitioned the superior court for an injunction to halt a forced sale to satisfy a judgment against

Advertiser, Aug. 2, i8o8; “Wilkes,” Monitor (Washington, Ga.), Oct. I3, I8I 3; and the “Grand Jury of Richmond County,” Columbian Museum, May 26, i8I4.

68May 26, i8o8. 69Nov. 23, I809.

70Hillyer to Oliver Whyte, June i9, i8o8, Hillyer Papers, University of Georgia, Athens.

71 “Debate in the House of Commons,” Star (Raleigh), Dec. 22, i8o8. 72 Virginia Patriot (Richmond), Oct. 2 2, I 8 I 4.

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544 WILLIAM AND MARY QUARTERLY

him. The basis for Grimball’s petition was the unfairness of the proceed- ing, which “would prove ruinous to the complaintant, inasmuch as nearly double the property would be sacrificed now, at a forced sale, which it would have required only four months ago, to pay these judgements.” Grimball’s attorney argued that the court should intervene on the ground of “public utility,” since it would be profoundly unfair for Grimball to be compelled to sacrifice a substantial share of his property at forced sale at a time when prices were artificially depressed because of the federal embargo.73 Opposing counsel did not deny the legitimacy of Grimball’s complaint but contended that an injunction should not be issued because “no levy and sale was yet ordered.” They also argued that if Judge Thomas Charlton did grant Grimball relief, Grimball should then be required to give security “before the relief prayed for could be obtained. “74

After a careful review of the court’s equity power, Judge Charlton declared “that cases of this description involve hardship and oppression; that they are against equity and conscience; that they are promotive of injury to the public; that they enable monied men to accumulate usurious wealth; and that they tend to convert a just and salutary measure of the government [the embargo], into an engine of political disaffection, through the medium of distressed and persecuted debtors. “75 He then issued an injunction to stay the forced sale while requiring Grimball to deposit with the sheriff “sufficient property, the valuation of which to be ascertained by the price at market three months preceding the embargo act,” as security for the debt in question.76 Charlton acted in his capacity as a superior court judge with equity powers. His analysis nonetheless sheds light on the motives of legislators who argued the state could act in extraordinary situations to ensure justice for hard-pressed debtors.

During the spring of i8o8 the Georgia legislature did precisely that when they approved “An act to alleviate the condition of debtors and afford them temporary relief.” The act provided a stay of any judgment from the date of passage of the bill, May 2 3, i 8o8, to December 2 5, i 8o8, provided the defendant entered “good and sufficient freehold security … for the ultimate payment of the debt, cost and interest, and upon paying one third part of the judgement and one third part of the costs.”77

In November of the same year the constitutionality of that measure was challenged on the ground that it impaired the obligation of a contract. In a comprehensive evaluation of the contract clause Charlton forcefully articulated the constitutional understanding of the proponents of debtor- relief legislation. In his ruling he acknowledged that Article I, Section iO, denied the states the authority to pass laws that impaired the obligation of

73Ex Parte Paul Grimball, Cases in the Superior Courts in the State of Georgia I 53 (i8o8).

74Ibid.

75Ibid., I 58. 76Ibid.

77Acts of the General Assembly of Georgia (i 809), i 6- I 8.

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THE CONTRACT CLAUSE 545

contracts. But, he asked, “What is meant by the term ‘impairing the obligation of contracts?’ ” His answer: “any measure . .. that gives them a diminished value, takes from them any of the essential properties of contracts, or which divests them of that priority of lien, obligation or recovery . . . must impair the obligation of the contract.” The Georgia act was constitutional, he insisted, because it did none of those things. Charlton acknowledged that the law extended the period “at which contracts were heretofore enforced” and suspended the means of recov- ery. But the obligation “remained entire, and a bond or covenant is as valuable, and on the score of the obligation, is as operative now, as before the passing of the act.”78

In effect, Charlton distinguished between the obligation of the contract, which was protected, and the means of enforcing it (remedies available to the creditor for failure to fulfill the obligation), which could be altered. This distinction between the obligation of a contract and its remedies had existed at the time of the adoption of the Constitution, may have been tacitly recognized in the revision of the contract clause on the floor of the Federal Convention, and underlay much of the state action described above.

In the spring of I787, for example, members of the Maryland Senate, a conservative and soon to become an overwhelmingly Federalist body, argued against a state emission of paper money proposed by the state House of Delegates. The senators warned that such a measure was unwise in that it “violated the first principles of justice and legislation, by infringing the contracts of individuals.”79 Supporters of the Senate in the ensuing public debate went farther in their attack, explaining that the House of Delegates bill “changes the nature of past contracts, and suggests a mode [of relief] ruinous to creditors, repugnant to justice and good faith, disreputable to government, and fatal to our commercial interests.” These were harsh words, indeed, albeit standard ones among the critics of such debtor-relief measures. What is remarkable, however, is not the language of the Senate’s supporters but their proposed alternative. They called for a “law obliging debtor and creditor to enter into a reasonable composition, proposed by either party, placing the one on a certainty of receiving his due at stipulated periods, and securing the other against suits before the expiration of the term.”80 Some Marylanders opposed as a breach of the obligation of contracts a state issue of paper money that they believed would depreciate and would then be used to pay legitimate debts at full face value. But the same men believed that it was not a breach of contract to use state authority to compel debtors and creditors to agree to a

78p Grimball v. F. Ross, Cases in the Superior Courts i 8o- i 8 i (i 8o8). 79 “The Reply of the Senate,” in Melvin Yazawa, ed., Representative Government

and the Revolution: The Maryland Constitutional Crisis of 1787 (Baltimore, I975), 50.

80″A Proposal from Anne Arundel County,” Maryland Gazette (Annapolis), Feb. 8, I787, ibid., 4.

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546 WILLIAM AND MARY QUARTERLY

moratorium during which a debtor could not be arrested or his property attached, as long as there was a guarantee that the creditor eventually would be compensated.

Joseph Jones, a Virginia Federalist, reported a similar view in that state: that alterations in the remedy intended to protect the debtor and guarantee payment at a later date were not impairments of contract. In December I787, he informed Madison, then at the Confederation Con- gress meeting in New York, that the Virginia House of Delegates had adopted a court bill that set a minimum on the value at which goods could be sold at auction in execution of a judgment. If goods did not sell at three-fourths of their value, the execution could be postponed for twelve months, provided the debtor posted bond or otherwise provided adequate security. Such a minimum appraisal law, Jones commented, was held to be no “direct interference with private contracts.”’81

This distinction between the obligation of a contract and the remedies available to a creditor if the debtor failed to fulfill the obligation may have underlain the revisions in the contract clause made on the floor of the Federal Convention. The report of the committee on style denied the states the power of “altering or impairing the obligation of contracts.” The elimination of the words “altering or” may have signified a tacit recogni- tion by the delegates that some changes not diminishing the obligation could be legitimate.82

Not all agreed. In the legislative debate over the i8o8 debtor-relief bill in North Carolina, opponents argued vociferously against the idea that “by passing this bill we should not impair the contract itself, but deprive one of the parties of the opportunity of enforcing it.” Such “a quibble,” William Gaston insisted, “would satisfy no man’s understanding” and was a mere “miserable subterfuge. “83 The observer for the Raleigh Star who covered the debate reported principally the comments of the bill’s opponents, but the implication is clear. The proponents of the bill assumed that what Gaston saw as a “miserable subterfuge” was in fact a legitimate distinction.

That distinction gained formal recognition in i8i9 when Chief Justice Marshall stated his opinion in Sturgis v. Crowninshield that “the distinction between the obligation of a contract and the remedy given by the legislature to enforce that obligation has been taken at the bar, and exists in the nature of things. Without impairing the obligation of the contract, the remedy may certainly be modified. “84 Marshall nonetheless declared unconstitutional the law in question, a New York state bankruptcy act. He did so, first, because it affected contracts entered into before the passage of the law, and, second, because he personally opposed all bankruptcy

81 Dec. i8, I787, in Rutland et al., eds., Madison Papers, X, 329-330. 82The “mystery” of the contract clause is discussed in McDonald, Novus Ordo

Seclorum, 270-275, although he does not suggest the hypothesis advanced here. 83 Star (Raleigh), Dec. 22, i8o8. 84 4 Wheaton I22-208 (i8i9).

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THE CONTRACT CLAUSE 547

legislation. Other members of the Court did not share Marshall’s view, and in Ogden v. Saunders, in i827, he was overruled as to bankruptcy laws affecting contracts entered into after passage of a state bankruptcy act.85

The majority in that case argued that if a state passes a bankruptcy act, that law becomes an implicit part of the contract, affecting the remedies available to the creditor if the debtor fails to perform the obligation. The distinction between the obligation and remedies justified, in Marshall’s opinion in Sturgis v. Crowninshield, the abolition of imprisonment for debt. Building on that opinion, Justice Bushrod Washington held for the majority in Ogden v. Saunders that a discharge could include not only the body of a debtor but his future earnings as well. Such a discharge, he held, did not impair the obligation of a contract.86

The Court’s conclusion in Ogden v. Saunders had been reached by some judges earlier. For example, Justice Brockholst Livingston, a New York Federalist, upheld state bankruptcy legislation in Adams v. Storey, a case decided in i 8I7. He maintained that at the time of the writing of the Constitution the states had a right to pass insolvency and bankruptcy laws, and that neither Article I, Section io, nor Article I, Section 8, restricted that right. Article I, Livingston held, was intended to prevent certain types of state policies arising from the calamities of war-legal tender paper money, installment laws, and commodity payment laws. In contrast, insolvency and bankruptcy laws arose as an “encouragement to trade,” were universal among the states, and served a legitimate function that distinguished them from the types of action prohibited by Article I, Section I0.87 For Livingston, in contrast to the United States Supreme Court, those means that “encouraged trade” were constitutional.

Livingston did not sanction or proscribe stay laws in his decision in Adams v. Storey. Neither did the Supreme Court in I 8 I 9 or I 827. But state legislatures and judges had previously, and would in future, justify such laws on the same grounds that had been used to justify state bankruptcy legislation.88 Such legislation did not impair the obligation of contract for it merely altered the remedy, which was compatible with the intentions of the framers. Furthermore, such legislation was necessary and just. It protected individuals from the deleterious effects of governmental policies, even as it encouraged the legitimate efforts of farmers and merchants.

So, what can we say about the effects of the prohibitions of Article I, Section io, on state economic policy during the early national period? Clearly, the broad potential envisioned by some Federalists and Antifederalists was not realized. Neither Congress nor the federal courts

85 I2 Wheaton 2I3-369 (i827). 86 Ibid.

87 I Federal Cases I4I-I52 [I8I7]. 88 In addition to the material cited above see Murray N. Rothbard, The Panic of

i8i9.q Reactions and Policies (New York, I962), chap. 2.

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548 WILLIAM AND MARY QUARTERLY

moved to prohibit state bankruptcy legislation, except in a limited fashion, and then only after i 8 I 5. The potential for the absolute sanctity of contracts, free from state interference through any form of debtor-relief legislation, which Antifederalists had predicted, and some Federalists may have preferred, was not achieved.

Even so, the states did resort to fewer interferences in contracts, and in more limited ways, after I789 than they had during the Confederation period. No state adopted a commodity payment law after I789, and the only installment law operating during the early national period was passed before the establishment of the new government. Furthermore, some legislatures rejected calls for stay and other forms of debtor-relief legislation, in part because of Article I, Section iO. Still, the impact of the ban was smaller than the language of the Constitution would seem to suggest, for stay and bankruptcy legislation continued to be adopted following ratification of the Constitution.

More broadly, the early history of the contract clause confirms Madison’s argument in The Federalist that the Constitution was neither “wholly national nor wholly federal.” Because of the ambiguity of Article I, Section iO, Federalists and Antifederalists came to widely differing conclusions about the prospective impact of the contract clause. Some interpreted the clause to mean that most or all state debtor relief legislation would be proscribed. Others, Federalist and Antifederalist alike, anticipated a far narrower effect. This host of conflicting interpre- tations, the previous experience of the colonies and states with such policies, and the reactive nature of the federal judiciary, which could respond to state initiatives only when deciding cases alleging a state violation of the Constitution, created a vacuum that states filled by continuing and initiating new stay, installment, and bankruptcy programs.

These state initiatives profoundly affected the ultimate shape of feder- alism. Thus, while the federal courts after i 8I5 moved to deny the constitutionality of stay and installment laws, they accepted such debtor- relief legislation if it had been adopted before the inauguration of the new government. The experience of the states during the first quarter century under the new government also signaled to future state legislatures that stay and other forms of debtor-relief laws could be adopted as short-term responses to immediate economic crises with little likelihood of federal review. Finally, the federal courts affirmed the constitutionality of state bankruptcy legislation that affected only future contracts. The Constitu- tion, as a result of state legislative initiatives that built on the ambiguity of the document and of the diversity of the framers’ intentions, proved incapable of establishing exclusive federal control over state economic policy after I789.

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