Article by John L. Kraft, Thomas Loikith, and Bryan G. Petkanics
In an attempt to improve public services or to avoid impending financial crises, legislatures in recent years have sought to narrow or eliminate the contractual rights of holders of government bonds. An earlier article by John Kraft discussed the 1974 repeal by New Jersey and New York of the 1962 covenant which limited the involvement of the Port Authority of New York and New Jersey in mass transit projects. At the time the earlier article was published, suit was pending in the Superior Court of New Jersey seeking to declare the repeal unconstitutional as an impairment of the contractual obligation between the two states and certain holders of Authority bonds. The New Jersey Supreme Court upheld the validity of the repeal. In 1978, however, the United States Supreme Court reversed, holding the repeal unconstitutional as an impairment of the contract rights of Authority bondholders in United States Trust Co. of New York v. New Jersey.
This article will briefly summarize United States Trust, then address other actions by bondholders to protect themselves against legislative acts adversely affecting their contractual rights. Finally, it will suggest constitutional methods by which legislatures may avoid contractual obligations that prevent the development of necessary public projects while accommodating the rights of bondholders.
About the Author
John L. Kraft. A.B., Georgetown University; LL.B., Yale University; Member, New Jersey, New York, and District of Columbia Bars.
Thomas Loikith. B.A., Montclair State College; J.D., Rutgers University; Member, New Jersey Bar.
Bryan G. Petkanics. B.A., Fordham University; J.D., Georgetown University; Member, New Jersey Bar.
Citation
55 Tul. L. Rev. 735 (1981)