Home Building & Loan v. Blaisdell (1934) – Guest Essayist: James D. Best
To stem home and farm foreclosures during the Great Depression, Minnesota passed a law which allowed a mortgagor to pay court-determined rent set below the contractual mortgage amount. The mortgage holder could not foreclose as long as the mortgagor paid the reduced rent.
The Minnesota law was passed on April 18, 1933, and the Supreme Court (5-4) decided in favor of the law’s constitutionality in January of 1934.
Constitutional issues are seldom black and white, but Home Building & Loan Association v. Blaisdell would appear to be one of those rare cases. The Constitution reads, “No state shall pass any law impairing the obligation of contracts.” This simple sentence seems clear, but the headnote to the Blaisdell case, paragraph 3 reads:
The clause providing that no State shall pass any law impairing the obligation of contracts is not to be applied with literal exactness, like a mathematical formula, but is one of the broad clauses of the Constitution which require construction to fill out details.
Yet, it can be argued that the Framers meant this statement to be taken with “literal exactness.” During the Constitutional Convention in 1787, foreclosures were rampant, and several states had passed laws that impaired contracts by forcing debtors to accept as legal tender purposely inflated state-generated paper money. These laws put a stranglehold on credit markets, deepening the difficult economic times. The Framers didn’t want this to happen again, so they added the Contracts Clause to preclude the exact type of action taken by Minnesota.
How did the Supreme Court justify an apparent violation of the Contracts Clause? Minnesota argued that previous cases had established that private contracts could be impaired for the general good, and that in a state of emergency, the general good included action to alleviate the emergency. For example, in Manigault v. Springs (1905), the Supreme Court rationally ruled that states—on a limited basis—could override an individual contract.
“It is the settled law of this court that the interdiction of statutes impairing the obligation of contracts does not prevent the State from exercising such powers … for the general good of the public, though contracts previously entered into between individuals may thereby be affected.”
The Blaisdell decision further weakened the Contracts Clause, but more important, this decision laid the groundwork to negate the clause in toto. Using Blaisdell as a precedent, the Gold Clause Cases (1935) further eroded the Contracts Clause, and ever since, no significant case has been won relying on this clause.
In his Blaisdell dissent, Justice Sutherland, presciently wrote that the decision had:
the potentiality of future gradual but ever-advancing encroachments upon the sanctity of private and public contracts. The effect of the Minnesota legislation … is of trivial significance compared with the far more serious and dangerous inroads upon the limitations of the Constitution which are almost certain to ensue as a consequence naturally following any step beyond the boundaries fixed by that instrument.
Although the Supreme Court sometimes makes momentous decisions that alter our way of interpreting the Constitution, a more common pattern is gradual erosion of constitutional limits. First, a sympathetic case opens a pinprick, then that case is used as a precedent to open a fissure, and follow-on cases expand the precedents to breach the restriction entirely.
Beyond legal implications, the Blaisdell decision had economic consequences. Contract interference chilled the nation’s credit markets because lenders could no longer rely on recovering the collateral that backed a loan. Some have even argued that the Supreme Court’s action was heartless because its sympathetic treatment of a few borrowers helped to deepen and elongate the Great Depression.
Another aspect of Blaisdell made it a monumental decision: the case started a trend of treating the Constitution as a living force that could be molded to meet popular passions. The Constitution had certainly been violated in the past, but the basic meaning had not been irrevocably altered. The Supreme Court discovered that when they overruled constitutional restrictions to favor a popular issue of the day, they suffered few complaints, while proponents cheered. The FDR courts, and those that followed, gained license to ignore the wording and intent of the Constitution.
The selection of a Supreme Court Justice has become a highly charged emotional event. It’s instructive that political movements spend an inordinate amount of time and resources influencing Supreme Court nominations, and hyperventilate when fighting a nomination they dislike. Everyone knows that these are enormously powerful people—with life tenure. Everyone pretends their candidates are impassive judges that will decide each case based only on the law. If that were so, no one would care who sat on the bench.
Thomas Jefferson wrote, “It has long, however, been my opinion, and I have never shrunk from its expression…that the germ of dissolution of our federal government is in the constitution of the federal Judiciary; … working like gravity by night and by day, gaining a little today and a little tomorrow, and advancing its noiseless step like a thief, over the field of jurisdiction, until all shall be usurped.”
Home Building & Loan v. Blaisdell (1934) Supreme Court decision: