United States Trust Co. v. New Jersey
431 U.S. 1 (1977)

Annotate this Case

U.S. Supreme Court

United States Trust Co. v. New Jersey, 431 U.S. 1 (1977)

United States Trust Company of New York v. New Jersey

No. 75-1687

Argued November 10, 1976

Decided April 27, 1977

431 U.S. 1

Syllabus

A 1962 statutory covenant between New Jersey and New York limited the ability of the Port Authority of New York and New Jersey to subsidize rail passenger transportation from revenues and reserves pledged as security for consolidated bonds issued by the Port Authority. A 1974 New Jersey statute, together with a concurrent and parallel New York statute, retroactively repealed the 1962 covenant. Appellant, both as a trustee for and as a holder of Port Authority bonds, brought suit in the New Jersey Superior Court for declaratory relief, claiming that the 1974 New Jersey statute impaired the obligation of the States' contract with the bondholders in violation of the Contract Clause of the United States Constitution. The 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. The New Jersey Supreme Court affirmed.

Held: The Contract Clause prohibits the retroactive repeal of the 1962 covenant. Pp. 431 U. S. 14-32.

(a) The outright repeal of the 1962 covenant totally eliminated an important security provision for the bondholders, and thus impaired the obligation of the States' contract. Pp. 431 U. S. 17-21.

(b) The security provision of the 1962 covenant was purely a financial

Page 431 U. S. 2

obligation, and thus not necessarily a compromise of the States' reserved powers that cannot be contracted away. Pp. 431 U. S. 21-25.

(c) The repeal of the 1962 covenant cannot be sustained on the basis of Faitoute Iron & Steel Co. v. City of Asbury Park, 316 U. S. 502, and W. B. Worthen Co. v. Kavanaugh, 295 U. S. 56, simply because the bondholders' rights were not totally destroyed. Pp. 431 U. S. 26-28.

(d) An impairment of contract such as is involved in this case can only be upheld if it is both reasonable and necessary to serve an important public purpose, but here the impairment was neither necessary to achieve the States' plan to encourage private automobile users to shift to public transportation nor reasonable in light of changed circumstances. Total repeal of the 1962 covenant was not essential, since the States' plan could have been implemented with a less drastic modification of the covenant, and since, without modifying the covenant at all, the States could have adopted alternative means of achieving their twin goals of discouraging automobile use and improving mass transit. Nor can the repeal be claimed to be reasonable on the basis of the need for mass transportation, energy conservation, and environmental protection, since the 1962 covenant was adopted with knowledge of such concerns. Pp. 431 U. S. 28-32.

69 N.J. 253, 353 A.2d 514, reversed.

BLACKMUN, J., delivered the opinion of the Court, in which BURGER, C.J., and REHNQUIST and STEVENS, JJ., joined. BURGER, C.J., filed a concurring statement, post, p. 431 U. S. 32. BRENNAN, J., filed a dissenting opinion, in which WHITE and MARSHALL, JJ., joined, post, p. 431 U. S. 33. STEWART, J., took no part in the decision of the case. POWELL, J., took no part in the consideration or decision of the case.

Page 431 U. S. 3

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Primary Holding

Prioritizing some programs as more important than others for receiving funding does not allow a state to avoid its obligations.

Facts

New York and New Jersey sold bonds to support an independent Port Authority that they shared. The states used bridge and tunnel tolls to protect the bond holders. Two years after the Authority took control over a privately owned commuter train service that was experiencing financial difficulties, the states agreed not to use money pledged to make bond payments for the purpose of financing railroad deficits. However, they eventually repealed these agreements so that they could use toll money more generally. Their actions were challenged by the United States Trust Co. of New York and other bond holders on the basis that repealing the agreements violated the Contracts Clause by undermining the right of the bond holders to receive payment. The lower court dismissed the claim, finding that the repeal was valid under the state police power and the states had the right to choose to allocate the toll money to mass transit.

Opinions

Majority

  • Harry Andrew Blackmun (Author)
  • Warren Earl Burger
  • William Hubbs Rehnquist
  • John Paul Stevens

Under the Contracts Clause, a state may impose laws that affect existing contracts if they are supported by reasonable conditions and the public interest. Closer scrutiny is appropriate when a state passes laws that affect its own contracts. The state generally will be bound by its own debts if the authority that it has contracted away is not the type of authority that is typically reserved to the state. This is not the case if the state has made an agreement that is not purely financial, but the allocation of toll money is a purely financial arrangement. A change of mind about how they want to spend the money is not a sufficient justification for the states to refrain from paying their debts. They also might have taken less drastic measures than simply repealing the entire agreement.

Dissent

  • William Joseph Brennan, Jr. (Author)
  • Byron Raymond White
  • Thurgood Marshall

Private rights must bow to the state police powers when they are legitimately asserted. There was a reasonable basis for the state to reallocate its funds to address serious environmental and energy problems. While there must be a justification to infringe on the rights of creditors, a sufficient justification was present here.

Concurrence

  • Warren Earl Burger (Author)

Recused

  • Potter Stewart (Author)
  • Lewis Franklin Powell, Jr.

Case Commentary

Ordinarily, a state can repeal or amend laws as it wishes, since this is a normal government function. The situation is somewhat distinctive, however, when a state appears to make a promise that binds itself as though in a contract. There may be an inference of self-interest when the state loosens its own responsibilities vis-a-vis private actors.

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