Which statement correctly describes the contract clause's treatment of private vs government contracts?

• A. Private contracts: rational basis; government contracts: intermediate
• B. Private contracts: intermediate-type scrutiny; government contracts: stricter scrutiny
• C. Private contracts: strict scrutiny; government contracts: rational basis
• D. Both private and government contracts are exempt from the contract clause.

Answer: (C)

The contract clause protects private contracts more stringently than government contracts. When a state law impairs a private contract, the courts treat that impairment with a high level of scrutiny, because private expectations in contracts are fundamental to individuals and businesses and shouldn’t be casually overridden. Impairing a private contract must be justified by a compelling public purpose and be narrowly tailored to achieve it.

By contrast, when the contract at issue is one the government itself entered into, the impairment is reviewed more leniently. The courts apply a rational-basis-type review, allowing the state leeway to balance public interests, budgetary constraints, and policy goals. This reflects the notion that government obligations can be weighed against broader public needs, so a looser standard often applies.

So, private contracts face stricter scrutiny; government contracts face a more permissive, rational-basis review.