What does the Contract Clause restrict?

The correct answer highlights that the Contract Clause of the United States Constitution restricts states from enacting laws that impair existing contract rights. This clause is found in Article I, Section 10, and serves to protect the sanctity of contracts by preventing states from passing legislation that would retroactively alter or impair the obligations of contracts already in force.

This protection is essential for maintaining stability and reliability in contractual agreements, fostering confidence among parties entering into contracts. For example, if a state were to pass a law that makes it impossible for parties to fulfill their contractual obligations or that significantly diminishes the value of the contract, it could undermine the expectations of the contracting parties and disrupt commerce.

Recognizing the importance of this protection helps to clarify the intent behind the Contract Clause and the necessity for judicial protection against potential state encroachments on private agreements. Other options do not accurately capture the specific limitations imposed by the Contract Clause regarding existing contracts.