Home Building and Loan Assn. V. Blaisdell

• Hughes 1934. Facts. This case involved an emergency modification of debtor’s obligations. A Minnesota statute, enacted at the height of the Depression, postponed mortgage foreclosures and extended periods of redemption. The statute permitted courts to give extensions from mortgage foreclosure sales, if the mortgagor paid “all or a reasonable part” of the property’s fair income or rental value. The measure was intended to apply to mortgages issued prior to the date of the law (e.g. the statute was retroactive).

• Holding. SCt upheld the law; although what Minnesota had done appeared to be a paradigm violation of the Contracts Clause, SCt refused to invalidate the law.

• Right to protect public interest. SCt upheld statute on the theory that the state had at least the right to temporarily delay enforcement of a mortgage’s literal terms, where “vital public interests” would otherwise suffer. In view of the enormous economic emergency which gave rise to the statute, the modification was a limited and reasonable one. SCt stressed that principal remained due, interest continued to run, the right of foreclosure would ultimately be restored, and the statute would (SCt assumed) be rescinded once the economic emergency was over.

• Implied power to modify. In justifying this limited right to modify contracts in order to protect the public interest, the Blaisdell Court noted that “the reservation of essential attributes of sovereign power is read int contracts as a postulate of the legal order.”

• Relevance of New Deal, Cardozo’s unpublished opinion:

• Here, as was the case in Commerce Clause cases, we see the transformative effect of the New Deal on constitutional law. It is hard to imagine this statute being upheld even ten years earlier. The most unprecedented depression that the country faced almost certainly played a large role in the SCt’s decisionmaking.

• This was less clear in the published opinions than in Cardozo’s concurrence, which he ultimately chose not to publish. Cardozo argued that in the 19^th Century Contracts Clause cases, only the rights of individuals seemed to be at stake.

1. In the 19^th century, the rights and interests of the state itself were involved, as it seemed, only indirectly and remotely, if they were thought to be involved at all.

2. However, in modern times, “the welfare of the social organism in any of its parts is bound up more inseparably than ever with the welfare of the whole.” Laissez-faire theory is inadequate for economic life today.

3. Statute in question is not designed to further either individual or class interests, but rather the good of the state “by maintaining the economic structure on which the good of all depends.” This attainment of this “august and impersonal” end will not be barred by obstruction of a contract set up along the way.

Modern contracts clause law and ak analysis

• Later cases indicated that the Contracts Clause is not entirely dead, but that states may abrogate contracts, their own or others’, if they do so for reasons that the SCt is persuaded are good ones (and the SCt has been pretty deferential toward the states’ reasons, though not absolutely so).

• AK Analysis. Should SCt be doing more with the Contracts Clause than it has been doing?

• One argument against the Fletcher rule (providing that states must be held to their own contracts) is that states can enter into some pretty loony contracts, which they may later have excellent reasons to want to get out of.

• An extreme example is presented by El Paso v. Simmons, where a Texas contract created a set of claims on land (not the claims of the owners) that could be activated at any time, apparently until the end of time. Many of the purposes of guaranteeing property and contract would be thwarted by protecting property and contract here.