Summary of U. S. Trust Co. of N. Y. [Plant] v New Jersey [N J Gov and Atty Gen]
S. Ct. 1977

Contract Clause-Additions to the Due Process Limitation:

Relevant Facts: A trustee[ Pl/ant ] and holder of New York and New Jersey Port Authority bonds instituted an action against the State of New Jersey for declaratory relief, contending that the Contract Clause of the United States Constitution was violated by a New Jersey statute which, together with a concurrent and parallel New York statute, repealed a statutory covenant made by the two states in 1962 that had limited the ability of the Port Authority to subsidize rail passenger transportation from revenues and reserves.

Legal Issue(s): Whether the repeal of the 1962 covenant was a reasonable exercise of N.J. Police Powers and not in violation of the Contract Clause?

Court’s Holding: No.

Procedure:  A New Jersey superior court dismissed the complaint after trial, holding that the statutory repeal was a reasonable exercise of New Jersey's police power and was not prohibited by the Contract Clause, and the New Jersey Supreme Court, affirmed. On appeal, US  S Ct, held that the Contract Clause prohibited the retroactive repeal of the 1962 covenant. Reversed.

Law or Rule(s):  No State shall . . . pass any . . . Law impairing the Obligation of Contracts ”  Art. I, s 10, cl. 1.

Court Rationale: The Contract Cl. does not require a State to adhere to a contract that surrenders an essential attributes of its sovereignty.  The states are bound by their debt contracts.  An impairment is constitutional if it is necessary and reasonable to a legitimate public purpose claimed by the state.  The repeal was not necessary to the achievement of the plan, subsidize mass transit by increasing the toll at tunnels and bridges, when alternative means are available to discourage automobile traffic.  The repeal was not essential when a less drastic measure was available without removing covenant’s limitations on the use of Port Authority revenues and reserves to subsidize commuter trains.

Plaintiff’s Argument:[pl/ant] The repeal was neither reasonable nor necessary, the purpose was to avoid the state’s contract debt without raising taxes or revenue.

Defendant’s Argument: [df/ees] Contract rights are form of property, and as such may be taken for public purpose, provided just compensation is paid. Repeal was a necessary implementation for the plan b/c the new mass transit facilities could not be self-supporting and the deficit levels had already been exceeded.

Due Process Clause of Fourteenth Amendment generally does not prohibit retrospective civil legislation, unless consequences are particularly harsh and oppressive.

TEST – Necessary and reasonable to a legitimate public purpose claimed by a state.  Necessary is determined by 1 – whether measures are essential to purpose; and 2 – whether alternative means would accomplish goal.

Although the absolute language of the Clause must leave room for “the 'essential attributes of sovereign power,' . . . necessarily reserved by the States to safeguard the welfare of their citizens that power has limits when its exercise effects substantial modifications of private contracts. Despite the customary deference courts give to state laws directed to social and economic problems, ” legislation adjusting the rights and responsibilities of contracting parties must be upon reasonable conditions and of a character appropriate to the public purpose justifying its adoption.”