334 U.S. 1 (1948), argued 15–16 Jan. 1948, decided 3 May 1948 by vote of 6 to 0; Vinson for the Court, Reed, Jackson, and Rutledge not participating. Shelley is one of four cases known collectively as the Restrictive Covenant Cases, the others being McGhee v. Sipes, Hurd v. Hodge, and Urciolo v. Hodge. In its decision in these cases, the Court held that state judicial enforcement of agreements barring persons from ownership or occupancy of real property on racial grounds is forbidden by the Equal Protection Clause of the Fourteenth Amendment. The Court also determined that enforcement of racial covenants by federal courts violated the Due Process Clause of the Fifth Amendment.
Agreements to impose restrictions of various sorts on the uses of land are a familiar device in real estate law. Racial covenants, however, sought not to bar specific uses of land but, rather, certain classes of persons from its ownership and occupancy. It was not until municipal zoning laws requiring racial segregation in urban residential housing were invalidated by the Court in Buchanan v. Warley (1917) that persons promoting housing segregation turned in significant numbers to the use of racial covenants. By the time that Shelley v. Kraemer reached the Supreme Court, racial restrictive agreements were being enforced in many northern cities, and the prospects for the spread of the racial covenant system to other parts of the country were very strong.
In reaching its decision the Supreme Court largely ignored the massive collection of social data submitted by the parties attacking the racial covenants. Instead, the Court's opinion focussed on traditional concepts of “state action” in Fourteenth Amendment law. A sharp distinction was drawn between the creation of the restrictive agreements and their enforcement by courts of equity. According to the Court, those entering into the agreements engaged in merely private behavior, activity not regulated or restricted by constitutional provisions. The judicial enforcement of the covenants, however, was seen as constituting official action violative of rights to equal protection of the laws of minority persons excluded from from occupancy of the land by the covenants. Among the factors cited by the Court to support its result were that in enforcing the covenants the courts applied common-law rules of the jurisdiction in question, that equitable powers were applied directly against minority members subjected to discrimination on racial grounds, and that the transactions being invalidated were those between willing sellers and willing buyers, thus frustrating efforts of sellers to ignore racial criteria in the sale of their land.
The opinion of the Court has been frequently criticized. Ordinarily it is not assumed that the state when enforcing private agreements adopts or is accountable for the various and often conflicting purposes of the contracting parties. Rather, the state is seen as simply providing the means through which a system of private contract can be administered. The facts surrounding the covenant cases, however, suggest that in enforcing the racial covenants the states did more than provide neutral enforcement of private contracts, but had, in fact, adopted policies of racial residential segregation in the supposed interests of protecting property values, suppressing crime, and promoting racial purity. Unfortunately, these matters were not fully canvassed in the Court's opinion, nor were adequate indicia suggested to determine the point at which enforcement of private agreements becomes transmuted into state action to advance public policies.