United States Trust Co. v. New Jersey case brief

United States Trust Co. v. New Jersey case brief summary

431 U.S. 1 (1977)

CASE SYNOPSIS

Appellant, trustee for port authority bonds, sought review of the Supreme Court of New Jersey, which affirmed a lower court's holding that the statutory repeal of a statutory covenant was a reasonable exercise of the state's police power and was not prohibited by the Contract Clause, U.S. Constitutional Article I, § 10, cl. 1.

CASE FACTS
Appellant, trustee for port authority bonds, brought an action to contest the repeal of a statutory covenant limiting the ability of a port authority to subsidize rail passenger transportation from revenues and reserves. Appellant claimed that repeal of the covenant impaired the obligation of the state's contract with the bondholders because it totally eliminated its security provision, which protected the port authority's reserve fund from depletion.

PROCEDURAL HISTORY
The state superior court ruled that the statutory repeal was a reasonable exercise of the state's police power and found that it was not prohibited by the Contract Clause, U.S. Constitutional Article I, § 10, cl. 1. The state supreme court affirmed. Appellant challenged the decision.

DISCUSSION

• The court reversed, holding that the Contract Clause was violated because the repeal had the effect of impairing a contractual obligation of the state. 
• The court found that the state's financial obligation was not a reserved power that could not be contracted away. 
• Also, the court also determined that the impairment was not reasonable or necessary to serve an important public purpose.

CONCLUSION

The court reversed a state's supreme court's affirmance of a lower court's holding that the statutory repeal of a statutory covenant did not violate the Contract Clause of U.S. Constitution. The court held that the repeal of the statutory covenant did violate theContract Clause because it impaired a financial contractual obligation of the state and the impairment was not reasonable or necessary to serve an important public purpose.