290 U.S. 398 (1934), argued 8 and 9 Nov. 1933, decided 8 June 1934 by vote of 5 to 4; Hughes for the Court, Sutherland, Butler, McReynolds, and Van Devanter in dissent. The Court's decision in Home Building and Loan Association v. Blaisdell was important not only because it upheld a critical state law passed during the Great Depression but also because it revealed the sharp divisions on the high court over the proper response to the economic crisis.
The legislation at issue was the 1933 Minnesota Mortgage Moratorium Law. The act authorized a Minnesota state court, when called upon by a beleaguered debtor, to consider exempting property from foreclosure “during the continuance of the emergency and in no event beyond May 1, 1935.” The law was passed by a legislature especially mindful of the problems of farmers facing mortgage foreclosures.
This particular case arose as a result of the desire of Mr. and Mrs. John H. Blaisdell, who had received a mortgage on a house and lot from the Home Building and Loan Association, to avoid foreclosure and to extend their mortgage redemption period. A Minnesota district court sided with the Blaisdells on the condition that certainly monthly installments be paid in a timely fashion. The Supreme Court of Minnesota affirmed the ruling. The Loan Association appealed to the U.S. Supreme Court, maintaining that the Moratorium Law was in conflict with the Contracts Clause in Article I, section 10 of the Constitution and the due process and equal protection clauses of the Fourteenth Amendment. The Contract Clause argument proved especially crucial. The Loan Association maintained that the clause's language—“No State shall enter into any … Law impairing the Obligation of Contracts … ”—prohibited Minnesota from altering the contractual relationship between the Blaisdells and the Loan Association.
Chief Justice Charles Evans Hughes and Justice Owen J. Roberts joined with the liberals and ruled the Moratorium Law constitutional by a vote of 5 to 4. Hughes wrote the majority opinion. He submitted that “while emergency does not create power, emergency may furnish the occasion for the exercise of power” (p. 426). In what has been called the most important Contract Clause case since Charles River Bridge v. Warren Bridge (1837), Hughes stated that the Contract Clause was not absolute and that a state always possessed the authority to safeguard the vital interests of its citizens. Hughes found a “growing appreciation … of the necessity of finding ground between individual rights and public welfare.” The chief justice concluded that the “question is no longer merely that of one party to a contract against another but of the use of reasonable means to safeguard the economic structure upon which the good of all depends” (p. 442).
For the four conservative dissenters, Justice George Sutherland argued that the Contract Clause should be interpreted literally. He refused to acknowledge that emergencies could justify state authorized modification of contracts. Sutherland predicted that if the Court allowed the Minnesota Moratorium Act to stand, it could well be the harbinger of greater invasions of the sanctity of contracts. And, if the Contract Clause was so interpreted, Sutherland lamented, all constitutional restrictions on legislative prerogative might collapse. Essentially, Sutherland threw down the constitutional gauntlet. Again and again over the next three years, the Four Horsemen would saddle up and ride out to attempt to thwart state and national attempts to come to terms with the hardships imposed by the Great Depression.