In the case of Wood et al. v. Lovett, 1940, the Supreme Court ruled that a state law cannot retroactively invalidate contracts or obligations previously valid under existing laws at the time they were made. The case involved three Arkansas bondholders who challenged an Arkansas statute which attempted to limit their rights to collect on bonds issued by local improvement districts in Little Rock during the 1920s and early 1930s. These bonds had been legally issued under then-existing laws but became burdensome due to economic conditions brought about by the Great Depression. The new legislation sought to relieve this burden by reducing interest rates and extending repayment periods for these debts without consent from creditors, effectively impairing contractual obligations contrary to Article I Section 10 of U.S Constitution ("No State shall...pass any...Law impairing Obligation of Contracts"). In a unanimous decision led by Justice Hugo Black, it was held that such legislative action violated constitutional provisions protecting contract rights against impairment.

In the dissenting opinion for Wood et al. v. Lovett, Justice Owen Roberts argued that the majority's decision was an overreach of judicial power and a violation of states' rights to manage their own affairs. He contended that Arkansas had every right to pass laws regarding its financial obligations and debts, even if those laws were unfavorable or inconvenient for certain parties involved. Furthermore, he disagreed with the majority's interpretation of the Contract Clause in this case, stating it should not be used as a tool by courts to interfere with state legislation unless there is clear evidence that such legislation is impairing contractual obligations unreasonably or unnecessarily. In his view, Arkansas' law did not meet this threshold because it merely sought to restructure payment terms rather than nullify them completely; thus, no impairment occurred under constitutional standards.