HOME BUILDING & LOAN ASSOCIATION v. BLAISDELL 290 U.S. 398 (1934)

This was the most important contract clause case since charles river bridge v. warren bridge co. (1837). The great Depression of the 1930s, by wiping out jobs and savings and savaging the economy, threatened homeowners, farmers, shopkeepers, and others with the loss of their property through foreclosures on mortgages. The states responded by enacting debtors' relief legislation that postponed the obligations of mortgagors to meet payments. Minnesota's statute authorized a state court, on application from a debtor, to exempt property from final foreclosure for no more than two years, during which time the creditor must be paid a reasonable rental value fixed by the court and the debtor might refinance the mortgage. The Supreme Court's precedents seemed to require a decision that the contract clause was violated by the statute, which operated retroactively on mortgages contracted prior to its enactment and delayed enforcement of the mortgagee's contractual rights.

By a 5–4 vote the Court sustained the statute in an opinion by Chief Justice charles evans hughes. The prohibition of the contract clause, he declared, "is not an absolute one and is not to be read with literal exactness like a mathematical formula." In times of acute economic distress the states might employ their reserved police power, "notwithstanding interference with contract," to prevent immediate enforcement of obligations by a temporary and conditional restraint, in order to safeguard the vital public interest in private ownership. As Justice george sutherland, for the dissenters, trenchantly observed, the police power, whether reserved or inalienable, had never previously justified impairing the obligation of contract between private parties. Hughes, however, distinguished precedents such as bronson v. kinzie (1843) by saying that they had not, as here, provided for securing the mortgagee the rental value of the property during the extended period. Although the statute affected contracts, it was addressed to a legitimate end of the police power and employed reasonable means to achieve it. The restraint and realism that characterized this opinion and that in nebbia v. new york (1934) of the same term did not dominate the Court's opinions during the next two critical terms, when it confronted new deal legislation. After Blaisdell, however, the contract clause lay almost dormant until the late 1970s.

Leonard W. Levy
(1986)