• Last updated on November 11, 2022

By upholding an emergency moratorium on the foreclosure of homes and farms, the Supreme Court greatly limited the scope of the obligations-of-contracts clause.

During the Great Depression, many state legislatures enacted debtor-relief statutes to mitigate the wholesale foreclosure of homes and farms. The Minnesota Mortgage Moratorium Law of 1933 authorized state courts to grant two-year exemptions from scheduled mortgage payments as long as the debtor paid a reasonable rent. When John Blaisdell and his wife were granted a mortgage extension, their creditor asserted that the action violated the contract clause of the Constitution. Similar debtor-relief legislation had consistently been declared unconstitutional in the nineteenth century.Contracts clause;Home Building and Loan Association v. Blaisdell[Home Building and Loan Association v. Blaisdell]

By a 5-4 vote, the Supreme Court surprised most observers when it upheld the Minnesota statute. Chief Justice Charles Evans HughesHughes, Charles Evans;Home Building and Loan Association v. Blaisdell[Home Building and Loan Association v. Blaisdell] argued that contracts were subject to the reasonable exercise of the police power of the states, which encompassed the authority to provide temporary relief for economic emergencies. Adopting a balancing approach between individual rights and the public welfare, Hughes found that the law was a “reasonable means to safeguard the economic structure upon which the good of all depends.” Speaking for the four dissenters (the so-called Four Horsemen:Four Horsemen George Sutherland, Pierce Butler, Willis Van Devanter and James C. McReynolds), Justice Sutherland insisted that the original intent of the contract clause had been to prevent state action impairing the obligations of contracts to help debtors in time of emergency.

By enlarging the police power exception, the Blaisdell decision tended to eclipse the contract clause as a protector of property rights but did not entirely kill the clause. In Allied Structural Steel Co. v. Spannaus[case]Allied Structural Steel Co. v. Spannaus[Allied Structural Steel Co. v. Spannaus] (1978), for example, the Court used the contract clause to void a Minnesota statute that retroactively modified a company’s obligations under its pension plan.[case]Home Building and Loan Association v. Blaisdell[Home Building and Loan Association v. Blaisdell]

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