ArtI.S10.C1.4.5.2 Blaisdell Case and State Modifications to Private Contracts

Article I, Section 10, Clause 1:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

Although the Supreme Court had long recognized that states retained at least some sovereign power to regulate contracts to protect the public welfare1 —and increasingly permitted states to modify private contract rights to respond to changes in the economy during the early twentieth century2 —a major shift in Contract Clause doctrine resulted from the Court’s decision in Home Building & Loan Ass’n v. Blaisdell in 1934.3 Prior to the 1930s, the Court often adopted a robust interpretation of the Contract Clause when evaluating state legislation, applying it stringently to strike down state laws deemed to interfere with contract and property interests.4 However, during the depths of the Great Depression, the Court significantly weakened the constraints that the Contract Clause imposes on state government regulation of private contracts.5

In Blaisdell, the State of Minnesota enacted the Minnesota Mortgage Moratorium Law, which allowed courts to extend temporarily the period of time during which a mortgagor (e.g., a homeowner) could redeem a home after the bank foreclosed on the property, preventing the mortgagee from obtaining possession during that time.6 This right ran contrary to existing contracts, which granted the lender the right to foreclose.7 In order to take advantage of this option, the mortgagor had to pay a “reasonable value of the income on” or “reasonable rental value of” the property to the mortgagee.8

Although the Minnesota law prevented the mortgagee from obtaining actual possession, the Supreme Court upheld the law as necessary and reasonable to address the economic crisis because it was appropriately tailored to address the emergency and was limited in duration.9 The Court noted that a state had the power to regulate existing contracts in order to “safeguard the vital interests of its people” 10 as an exercise of its sovereignty.11 The Court cited several examples of cases in which it upheld state regulation aimed at protecting citizen welfare despite interference with existing contracts. For example, a state could amend its constitution to forbid lotteries that it previously authorized12 or regulate intoxicating liquors13 without violating existing contracts. It could regulate to protect the public from nuisances14 or regulate to further public safety more generally, even when such regulations disrupted existing contractual relationships.15 The Court also cited cases in which a state exercised its sovereign powers to protect its own economic interests, despite interference with existing contracts, including cases in which the Court upheld a state’s regulation of rates charged by public services corporations or laws that imposed various legal requirements on businesses.16

In addition to signaling that the Court would more often defer to state regulation of private contracts in the public interest, Blaisdell is also notable because the Court set forth a test for when such state regulation impairs private contractual obligations in violation of the Contract Clause. The Court adopted a balancing test, justifying a pragmatic approach on the grounds that contract rights were meaningful only if the state exercised its powers to “safeguard the economic structure upon which the good of all depends.” 17 It held that a state may regulate existing private contractual relationships, consistent with the Contract Clause, if the law serves a legitimate public purpose and the “measures taken are reasonable and appropriate to that end.” 18 This standard, which is more deferential to the state than the standard applicable to public contracts,19 leaves judges with room to balance the states’ reserved powers to regulate to protect the public welfare against the Contract Clause’s limitation on state power, which aims to safeguard the sanctity of contractual relationships.20

See, e.g., W. River Bridge Co. v. Dix, 47 U.S. (6 How.) 507, 532–33 (1848). back
As one commentator noted, during the early twentieth century and before Blaisdell, the Supreme Court “expanded the basis upon which states could modify contract rights and advanced an interpretation of the Contract Clause that stressed judicial deference to local legislation enacted for the protection of the economic and social interests of all segments of society.” Samuel R. Olken, Charles Evan Hughes and the Blaisdell Decision: A Historical Study of the Contract Clause, 72 Or. L. Rev. 548 (1993). Such legislation included laws that permitted tenants “to remain in possession of rental apartments upon the expiration of their leases.” Id. at 547–51, 601 (citing Levy Leasing Co. v. Siegel, 258 U.S. 242 (1922)). back
290 U.S. 398 (1934). back
See id. at 431–32 (collecting cases). back
See James. W. Ely, Jr., The Contract Clause: A Constitutional History 1 (2016). back
Id. at 415–16, 424–25. back
See id. back
Id. at 416–18. back
Id. at 425, 444–48; see also El Paso v. Simmons, 379 U.S. 497, 516–17 (1965) (holding a Texas law that limited the time in which a purchaser of land could exercise their reinstatement rights to five years following forfeiture to the state for non-payment of interest did not contravene the Contract Clause). back
Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 434 (1934). back
Id. at 435 ( “Not only are existing laws read into contracts in order to fix obligations as between the parties, but the reservation of essential attributes of sovereign power is also read into contracts as a postulate of the legal order.” ). back
Id. at 436 (citing Stone v. Mississippi, 101 U.S. 814, 819 (1880)). back
Id. (citing Beer Co. v. Massachusetts, 97 U.S. 25, 32–33 (1878)). back
Id. (citing Fertilizing Co. v. Hyde Park, 97 U.S. 659, 667 (1878)). back
Id. (citing Chi., Burlington & Quincy R.R. Co. v. Nebraska, 170 U.S. 57, 70, 74 (1898)). back
Blaisdell, 290 U.S. at 437–38 (collecting cases). back
Id. at 442–44 ( “If by the statement that what the Constitution meant at the time of its adoption it means to-day, it is intended to say that the great clauses of the Constitution must be confined to the interpretation which the framers, with the conditions and outlook of their time, would have placed upon them, the statement carries its own refutation. . . . With a growing recognition of public needs and the relation of individual right to public security, the court has sought to prevent the perversion of the clause through its use as an instrument to throttle the capacity of the States to protect their fundamental interests.” ). back
Id. at 438. back
See U.S. Trust Co. v. New Jersey, 431 U.S. 1, 25–28 (1977). back
See Blaisdell, 290 U.S. at 439 ( “The reserved power cannot be construed so as to destroy the limitation, nor is the limitation to be construed to destroy the reserved power in its essential aspects.” ). back