Can Tennessee require traffic-camera vendors contracting with the state to agree in advance to incorporate any future statutory changes?

Plain-English summary

Representative Vince Dean asked the AG whether the legislature could constitutionally require, as a condition of contracting with state or local government, that traffic-camera vendors agree their contracts will incorporate any future amendments to the camera-enforcement statute (Tenn. Code Ann. § 55-8-198). The concern was the federal Contract Clause (Article I, § 10) and the parallel Tennessee provision (Article I, § 20), which both bar laws impairing contract obligations. Could the state demand a contractual blank check on its own future legislation?

AG Cooper said yes, with significant practical limits. The constitutional impairment-of-contracts doctrine bars laws that take away vested rights or substantially impair existing contractual relationships. But where a vendor agrees in advance to be bound by future statutory changes, those future changes are not "impairing" the contract; they are operating within the contract the vendor freely signed. The federal and state Contract Clauses do not prevent parties from voluntarily agreeing to be bound by terms that have not yet been written.

The protection against unreasonable use of this device comes from a different doctrine: unconscionability. A traffic-camera vendor required to agree in advance to all future amendments is signing what is essentially an adhesion contract (take it or leave it, no chance to negotiate). Tennessee courts apply heightened scrutiny to adhesion contracts under Buraczynski v. Eyring and Taylor v. Butler. If the legislature later amended § 55-8-198 in a way that was completely unforeseeable and oppressive (Cooper's example: amending the statute to slash vendor pay), a court would likely refuse to enforce that change as unconscionable. If the amendment was reasonable and consistent with the regulated industry (his example: requiring updated software that is industry-standard), a court would likely enforce it.

The opinion's practical takeaway: the legislature can write the requirement, vendors can agree to it, and that agreement is constitutional. But the future amendments themselves are subject to a reasonableness backstop through the unconscionability doctrine. Vendors do not have to fear being legislated into ruin; they can challenge oppressive amendments at the time those amendments are imposed.

Currency note

This opinion was issued in 2010. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: What is the Contract Clause and why is it relevant here?
A: Article I, § 10 of the U.S. Constitution prohibits states from passing any "Law impairing the Obligation of Contracts." Tennessee's Article I, § 20 has parallel language ("no retrospective law, or law impairing the obligations of contracts, shall be made"). The Tennessee Supreme Court has held the two have identical meaning. First Utility District of Carter County v. Clark.

Q: Doesn't a contract that incorporates "future statutory changes" violate the Contract Clause when those changes are passed?
A: That is the heart of the question. The AG's answer is no, because the parties consented in advance to the device. A future statutory change that operates through a contract clause the parties freely signed is not "impairing" an existing right; it is performing an existing right. The vendor could choose not to enter the contract, or could negotiate a sunset clause, or could lobby against an unwelcome amendment.

Q: What if the future amendment is brutal? Like cutting payments in half?
A: That is where unconscionability picks up the slack. Tennessee unconscionability doctrine asks whether the contract or term, "in light of all facts and circumstances," is so one-sided that the contracting party had "no opportunity for meaningful choice." Aquascene v. Noritsu, citing the Restatement. A statutory amendment imposing brutal pay cuts on vendors who had no chance to bargain would likely be unenforceable on this ground.

Q: Does this only protect future amendments to § 55-8-198, or all statutes?
A: The opinion addresses the specific question about § 55-8-198 (traffic cameras). The reasoning is general, however. Government contracts often require compliance with applicable laws, rules, and regulations as amended. The opinion's footnote acknowledges this is a "common" provision in contracts.

Q: What's an "adhesion contract"?
A: A standardized contract offered on a take-it-or-leave-it basis without realistic opportunity to bargain. Black's Law Dictionary 40 (6th ed. 1990). Tennessee courts apply special scrutiny to enforcement of adhesion contracts under Buraczynski v. Eyring (Tenn. 1996), refusing to enforce terms beyond an ordinary person's reasonable expectations or that are oppressive.

Q: Will every future amendment to § 55-8-198 be enforceable?
A: Most reasonable ones will be. The opinion's safe-harbor example: requiring the use of updated software that is readily available in the industry. Such a change is foreseeable in a regulated industry, costs are bearable, and the term is consistent with how the industry already operates. A vendor accepting the contract in 2010 should expect tech-update requirements over time.

Q: How does the "vested rights" framework relate to this?
A: Vested rights are rights "already acquired" under existing law. Doe v. Sundquist. A vendor's existing contract for past services is a vested right; a vendor's expectation that the law will not change is not. Future amendments that affect future performance under a contract that explicitly contemplates such amendments do not strip "vested rights."

Q: Is there a risk to the state in writing this kind of contract?
A: The state should expect that any future amendment imposing serious burdens will be challenged on unconscionability or substantive-due-process grounds. The opinion is candid: "completely unforeseeable and/or unreasonable terms" will not be enforced. The legislature should write the future statutory changes with that limit in mind, especially when imposing them on vendors who agreed in advance.

Background and statutory framework

The contracts clauses of the federal and Tennessee constitutions were both written to protect property and economic interests from sudden legislative changes that disrupt expectations. Article I, § 10 of the U.S. Constitution bars states from passing any "Law impairing the Obligation of Contracts." Article I, § 20 of the Tennessee Constitution bars "any retrospective law, or law impairing the obligations of contracts." The Tennessee Supreme Court has long held the two are identical in meaning. First Utility District of Carter County v. Clark (Tenn. 1992); Paine v. Fox (Tenn. 1938).

Tennessee impairment doctrine looks to whether the law lessens the value of the contract or diminishes a right that existed at the time of contracting. Lake County v. Morris (Tenn. 1930); Hannum v. McInturf (Tenn. 1873). Laws affecting enforcement that exist at the time of contracting are part of the contract. Kee v. Shelter Insurance (Tenn. 1993). Doe v. Sundquist (Tenn. 1999) added a four-factor test for retroactive provisions: whether public interest is advanced or retarded; whether the bona fide intentions or reasonable expectations of affected persons are defeated; whether the statute surprises persons who relied on a contrary state of the law; and whether the statute is procedural or remedial.

The federal Contract Clause analysis (Energy Reserves Group v. Kansas Power & Light, 1983; Allied Structural Steel v. Spannaus, 1978; United States Trust Co. v. New Jersey, 1977) applies a three-step test:

1. Whether the state law substantially impairs a contractual relationship.
2. If so, whether the law serves a significant and legitimate public purpose.
3. If so, whether the adjustment of contracting parties' rights is based on reasonable conditions and is appropriate to the public purpose.

Where the affected industry has a history of regulation, foreseeability of changes weighs against finding substantial impairment.

The opinion threads these doctrines through a different lens. A vendor signing a contract that says "future amendments to § 55-8-198 will be incorporated and binding" has consented to the future application. The "impairment" question is reframed: there is no impairment of an existing right because the existing right was conditioned on future amendments. The reasonable-expectation analysis comes out the same way: the vendor's reasonable expectation, based on the contract terms it signed, is that future amendments will apply.

This reframing exposes the vendor to the risk that future legislation will be unfavorable, but Tennessee unconscionability doctrine provides a counter-protection. Lewis Refrigeration v. Sawyer (6th Cir. 1983) and the Tennessee cases (Haun v. King, Aquascene v. Noritsu, Buraczynski v. Eyring, Taylor v. Butler) collectively hold that:

• An unconscionable contract or term is one whose inequality is so manifest as to "shock the judgment of a person of common sense" or that is "so one-sided ... that the contracting party is denied any opportunity for meaningful choice."
• Adhesion contracts (standardized, take-it-or-leave-it) get special scrutiny: enforceability turns on whether terms are within reasonable expectations or are oppressive.
• Courts will not enforce adhesion contracts that are oppressive to the weaker party or that limit the obligations of the stronger party.

The vendor required to sign a state contract incorporating future amendments is, by hypothesis, signing an adhesion contract: there is no negotiation room. The unconscionability layer therefore bites particularly hard. A court can refuse to enforce a future amendment, while leaving the rest of the contract intact, if the amendment is truly oppressive.

The opinion's two examples are instructive. A future amendment requiring industry-standard software updates is enforceable: it is foreseeable in a regulated industry and the cost is reasonable. A future amendment slashing vendor compensation midway through a contract is unenforceable: it is unforeseeable, oppressive, and undermines the basic bargain. The unconscionability test sorts these cases out.

Citations and references

Statutes and constitutional provisions:

• Tenn. Code Ann. § 55-8-198 (traffic camera enforcement)
• Tenn. Const. art. I, § 20 (retrospective and impairment provision)
• U.S. Const. art. I, § 10 (Contract Clause)

Cases:

• First Utility District of Carter County v. Clark, 834 S.W.2d 283 (Tenn. 1992), Tennessee Supreme Court (federal/state contract clauses identical)
• Paine v. Fox, 172 Tenn. 290, 112 S.W.2d 1 (Tenn. 1938), Tennessee Supreme Court
• Doe v. Sundquist, 2 S.W.3d 919 (Tenn. 1999), Tennessee Supreme Court (vested rights and four-factor retroactivity test)
• Morris v. Gross, 572 S.W.2d 902 (Tenn. 1978), Tennessee Supreme Court
• Lake County v. Morris, 160 Tenn. 619, 28 S.W.2d 351 (1930), Tennessee Supreme Court
• Hannum v. McInturf, 65 Tenn. 225 (1873), Tennessee Supreme Court
• Kee v. Shelter Insurance, 852 S.W.2d 226 (Tenn. 1993), Tennessee Supreme Court
• Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400 (1983), U.S. Supreme Court (federal Contract Clause framework)
• Allied Structural Steel Co. v. Spannaus, 428 U.S. 234 (1978), U.S. Supreme Court
• United States Trust Co. v. New Jersey, 431 U.S. 1 (1977), U.S. Supreme Court
• Lewis Refrigeration Co. v. Sawyer Fruit, Vegetable & Cold Storage Co., 709 F.2d 427 (6th Cir. 1983), federal court of appeals (unconscionability is question of law)
• Haun v. King, 690 S.W.2d 869 (Tenn. Ct. App. 1984), Tennessee Court of Appeals (unconscionability standard)
• Aquascene, Inc. v. Noritsu Am. Corp., 831 F.Supp. 602 (M.D. Tenn. 1993), federal district court
• Buraczynski v. Eyring, 919 S.W.2d 314 (Tenn. 1996), Tennessee Supreme Court (adhesion contract scrutiny)
• Taylor v. Butler, 142 S.W.3d 277 (Tenn. 2004), Tennessee Supreme Court (adhesion contracts)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2010/op10-014.pdf

Original opinion text

Vendors' Contractual Rights Under the State and Federal Constitutions

QUESTION

May the General Assembly constitutionally require that, as a condition to contracting with a state agency or political subdivision, a vendor of goods or services involving surveillance cameras operated in accordance with Tenn. Code Ann. § 55-8-198 hereafter agree to incorporate into any such contract any subsequently enacted changes to that statute, thereby waiving the vendor's rights under the Contract Clauses of the Federal Constitution, Article I, Section 10, and the Tennessee Constitution, Article I, Section 20; or, would such a requirement violate the "unconstitutional conditions" doctrine?

OPINION

The General Assembly may constitutionally require that, as a condition to contracting with a state agency or political subdivision, a vendor of goods or services involving surveillance cameras operated in accordance with Tenn. Code Ann. § 55-8-198 must agree to incorporate into any such contract any subsequently enacted changes to that statute; provided, however, any terms that are incorporated into an existing contract due to statutory changes must be reasonable. A court would be unlikely to permit enforcement of completely unforeseeable and/or unreasonable terms inserted into an existing contract, and such terms would be subject to an attack on the basis of unconscionability.

ANALYSIS

Article I, Section 20, of the Tennessee Constitution provides "[t]hat no retrospective law, or law impairing the obligations of contracts, shall be made." The Constitution of the United States, Article I, Section 10, also prohibits any state from passing any law impairing the obligation of contracts. The Tennessee Supreme Court has stated that the meanings of the federal and state constitutional provisions are identical. First Utility District of Carter County v. Clark, 834 S.W.2d 283, 287 (Tenn. 1992); Paine v. Fox, 172 Tenn. 290, 112 S.W.2d 1 (Tenn. 1938).

Article I, Section 20, of the Tennessee Constitution prohibits laws which take away or impair vested rights acquired under existing laws or create a new obligation, impose a new duty, or attach a new disability in respect of transactions or considerations already passed. Doe v. Sundquist, 2 S.W.3d 919, 923 (Tenn. 1999) (quoting Morris v. Gross, 572 S.W.2d 902 (Tenn. 1978)). Among the primary tests for whether the obligation of a contract has been impaired are whether the value of the contract or security has been lessened, Lake County v. Morris, 160 Tenn. 619, 28 S.W.2d 351 (1930), or whether the right in full existing at the time the contract was executed has been diminished. Hannum v. McInturf, 65 Tenn. 225 (1873). The laws affecting enforcement of a contract, and existing at the time and place of its execution, enter into and form a part of that contract. Kee v. Shelter Insurance, 852 S.W.2d 226, 228 (Tenn. 1993). In that case, the Tennessee Supreme Court found that an extension in the statute of limitations could not constitutionally apply to a claim that had already accrued under an insurance contract before the extension was passed.

Your question suggests a scenario whereby a vendor of surveillance camera services or goods would be required, as a condition of contracting with the State or a local government, to agree in advance to incorporate into the contract any future amendments to Tenn. Code Ann. § 55-8-198. That is, the original contract would contain a provision binding the vendor to compliance with any future statutory changes regarding surveillance camera goods or services.

In determining whether a particular state regulatory measure (in this case, future amendments to Tenn. Code Ann. § 55-8-198 that are presently unknown) is constitutionally valid under the federal Contract Clause, federal courts generally apply a three-pronged test. Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 410-13, 103 S.Ct. 697, 704-05, 74 L.Ed.2d 569, 580-81 (1983). The threshold inquiry is whether the state law has, in fact, operated as a substantial impairment of a contractual relationship. Allied Structural Steel Co. v. Spannaus, 428 U.S. 234, 244, 98 S.Ct. 2716, 2722, 57 L.Ed.2d 727 (1978). In determining the extent of the impairment, the courts are to consider whether the industry the complaining party is engaged in has been regulated in the past. Id. at 242 n.13, 98 S.Ct. at 2721 n.13. Where, in light of all facts and circumstances, including past regulation and the terms of the agreement, a change in state law is foreseeable, the change does not impair the parties' reasonable expectations. Energy Reserves Group, 459 U.S. at 710, 103 S.Ct. at 707, 74 L.Ed.2d 569. The Tennessee Supreme Court relied on similar factors to determine whether a change in the process of accessing adoption records impaired a "vested right" in violation of Article I, Section 20, of the Tennessee Constitution. Doe, 2 S.W.3d at 924. The Court inquired, first, whether the public interest is advanced or retarded; second, whether the retroactive provision gives effect to or defeats the bona fide intentions or reasonable expectations of the affected persons; third, whether the statute surprises persons who have long relied on a contrary state of the law; and finally, the extent to which a statute appears to be procedural or remedial.

Because your question concerns the application of future statutory changes that are currently unknown, it is impossible to provide a meaningful analysis applying these legal principles to the facts. The first question, however, would likely be whether, in light of all the facts and circumstances, the change in the law would be a substantial impairment of a contractual relationship between the State or local government and the vendor of surveillance camera goods or services.

Under the federal Contract Clause, if the challenged regulatory measure does impair a contract, then the second inquiry is whether the regulatory measure came into being pursuant to a significant and legitimate public purpose, United States Trust Co. v. New Jersey, 431 U.S. 1, 22, 97 S.Ct. 1505, 1517, 52 L.Ed.2d 92 (1977), such as the remedying of a broad and general social or economic problem. Allied Structural Steel Co., 428 U.S. at 247, 249, 98 S.Ct. at 2723-25. Once a legitimate public purpose has been identified, the next inquiry is whether the adjustment of "the rights and responsibilities of contracting parties [is based] upon reasonable conditions and [is] of a character appropriate to the public purposes justifying [the legislation] adoption." United States Trust Co., 431 U.S. at 22, 97 S.Ct. at 1518. Furthermore, as is customary in reviewing economic and social regulation, courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure. Energy Reserves Group, 459 U.S. at 412-13, 103 S.Ct. at 704-05, 74 L.Ed.2d at 581.

The next question, therefore, would be whether the statutory change came into being pursuant to a significant and legitimate public purpose, such as the remedying of a broad and general social or economic problem. Assuming this question is answered in the affirmative, the question then becomes whether the adjustment of the rights and responsibilities of the parties to the contract is based upon reasonable conditions and is of a character appropriate to the public purposes justifying the extension.

It must be noted that a contract provision requiring compliance with as-yet-unknown terms and conditions would not necessarily violate the constitutional "impairment of contracts" clauses because the vendor, in agreeing to such a contract provision, would be doing so with the knowledge that future statutory amendments would be incorporated into the existing contract. It is therefore vital to distinguish between the current contract provision making future amendments applicable and binding, and the as-yet-unknown future changes to both the statute and the existing contract. Where a contractor agrees in advance to be bound by unknown future terms and conditions, a court might not consider those future changes "impairment of existing contract rights," since the parties agreed in advance to be bound. Rather, where the contractor agreed in advance to future changes, the future changes would likely be deemed new terms that had been mutually anticipated by the parties to the original contract.

Any new contract terms imposed by subsequent statutory changes on a contract would be subject, however, to a "reasonableness" analysis, and the contractor/vendor might attack unreasonable terms as unconscionable, and thus unenforceable.

The question of whether a contract or provision thereof is unconscionable is a question of law. See Lewis Refrigeration Co. v. Sawyer Fruit, Vegetable & Cold Storage Co., 709 F.2d 427, 435 n. 12 (6th Cir. 1983).

If a contract or term thereof is unconscionable at the time the contract is made, a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term. See Restatement (Second) of Contracts § 208 (1981). "The determination that a contract or term is or is not unconscionable is made in the light of its setting, purpose and effect. Relevant factors include weaknesses in the contracting process like those involved in more specific rules as to contractual capacity, fraud, and other invalidating causes ...." Restatement (Second) of Contract § 208, cmt. a (1981).

Enforcement of a contract is generally refused on grounds of unconscionability where the "inequality of the bargain is so manifest as to shock the judgment of a person of common sense, and where the terms are so oppressive that no reasonable person would make them on the one hand, and no honest and fair person would accept them on the other." Haun v. King, 690 S.W.2d 869, 872 (Tenn. Ct. App. 1984) (quoting In re Friedman, 64 A.D.2d 70, 407 N.Y.S.2d 999 (1978)); see also Aquascene, Inc. v. Noritsu Am. Corp., 831 F.Supp. 602 (M.D. Tenn. 1993). An unconscionable contract is one in which the provisions are so one-sided, in view of all the facts and circumstances, that the contracting party is denied any opportunity for meaningful choice. Id.

The contract signed between Taylor and City Auto is one of adhesion, in that it is a standardized contract form that was offered on essentially a "take it or leave it" basis without affording Taylor a realistic opportunity to bargain. See Black's Law Dictionary 40 (6th ed. 1990). We have previously determined that enforceability of contracts of adhesion generally depends upon whether the terms of the contract are beyond the reasonable expectations of an ordinary person, or oppressive or unconscionable. See Buraczynski v. Eyring, 919 S.W.2d 314, 320 (Tenn. 1996). Courts will not enforce adhesion contracts which are oppressive to the weaker party or which serve to limit the obligations and liability of the stronger party. Id.

Taylor v. Butler, 142 S.W.3d 277, 284-86 (Tenn. 2004).

Thus, for example, if a surveillance camera vendor were to sign a five-year contract with a local government under a contract providing that subsequent changes to Tenn. Code Ann. § 55-8-198 were to be incorporated into the contract and become binding on the parties, and two years later Tenn. Code Ann. § 55-8-198 was amended to require the use of updated software that was readily available in the industry, this change would likely be enforceable, all other things being equal. On the other hand, if the amendment to Tenn. Code Ann. § 55-8-198 provided that vendors would henceforth be paid a substantially lower amount for their services than had originally been provided for in the contract, a reviewing court would be unlikely to find such a change reasonable or enforceable.

Accordingly, it appears that the General Assembly may constitutionally require that, as a condition to contracting with a state agency or political subdivision, a vendor of goods or services involving surveillance cameras operated in accordance with Tenn. Code Ann. § 55-8-198 must agree to incorporate into any such contract any subsequently enacted changes to that statute. This is subject to the proviso, however, that any future statutory changes that are incorporated into the existing contract must be reasonable. A court would be unlikely to permit enforcement of completely unforeseeable and/or unreasonable terms into an existing contract, and such terms would be subject to an attack on the basis of unconscionability.

ROBERT E. COOPER, JR.
Attorney General and Reporter

GORDON W. SMITH
Associate Solicitor General

KEVIN STEILING
Deputy Attorney General

Requested by:
The Honorable Vince Dean
State Representative
107 War Memorial Building
Nashville, TN 37243