Home Building and Loan Assn. v. Blaisdell
290 U.S. 398 (1934)
Minnesota passed the Minnesota
Mortgage Moratorium Law, which
prevented mortgage holders for foreclosing on mortgages for two years.
This was right in the middle
of the Great Depression, and a lot of people were losing their homes.
Blaisdell defaulted on his
mortgage, and the lender (HB&LA) tried to foreclose, but were prevent
from doing so by the new law.
HB&LA argued that the
law was a violation of their freedom of contract, and therefore a violation of the Contracts
Clause of the Constitution.
Article I §10 says, "No State shall pass any law
impairing the obligation of contracts."
The US Supreme Court upheld
the law.
The US Supreme Court found
that under their police powers, a
State has the power to protect its citizens. Under normal conditions,
the State's police powers
are limited by the Contracts Clause, but there is a balancing test that must be taken into account
to satisfy the Due Process Clause.
The Court found that in
extraordinary conditions, such as the Great Depression, the balance tips
towards the State's obligations to protect citizens, and away from
private individuals' rights to contract.
In a dissent, it was argued
that the Constitution must be read literally. If States were allowed to
create laws that interfered with existing contracts between individuals
during an emergency, soon other excuses would be found for violating
contractual relationships.
The majority noted that the
law was temporary and was set to expire soon, but that didn't convince
the dissent that this was a slippery slope away from the laissez-faire
policies of the 1920s.
This case marked the beginning
of the change from courts looking at cases not from a Contracts Clause perspective, but from the Due Process
Clause of the 14th
Amendment perspective.
The Contracts Clause is very inflexible, and the courts had to
really bend over backwards to hold good laws constitutional.
On the other hand, Due
Process is a broader concept, but is
also more flexible. So when looking at things from a due
process perspective, the courts are
allowed to do a balancing test.
