Fighting Foreclosure: The Blaisdell Case, the Contract Clause, and the Great Depression

by John A. Fliter, Derek S. Hoff

In the depths of the Great Depression, when foreclosure rates skyrocketed across the United States, more than two dozen states passed mortgage-extension or -adjustment laws to help farmers and homeowners keep their properties. One such statute in Minnesota led to the most important property law case of its time and still casts a long shadow upon constitutional debates and our own era's severe economic downturn.

Fighting Foreclosure marks the first book-length study of the landmark 1934 Supreme Court decision in Home Building and Loan Association v. Blaisdell, which, by a 5-4 vote, upheld the Minnesota Mortgage Moratorium Act. On the one hand, Blaisdell validated efforts by states to offer legislative relief to citizens struggling to keep their farms and homes. On the other, it caused an outcry among banking interests and conservative legal theorists, who argued that these laws violated the Contract Clause of the Constitution and interfered with our free market system.

In his majority opinion, Chief Justice Charles Evans Hughes argued that the reasonable and limited nature of the law and the unusual severity of the emergency it addressed placed it firmly within the "police powers" of the states to protect the health and safety of the people. In a strongly worded dissent, Justice George Sutherland argued for a consistent and strict interpretation of the Contract Clause regardless of economic exigency.

John Fliter and Derek Hoff provide a concise history and analysis of not only this landmark case and the reasoning behind its sharply divided decision but also of the entire history of the Contract Clause. They trace closely the agricultural crisis, political pressures, and farmer-protest movement that produced the Minnesota law. And their study contributes to scholarly debate about the origins of the Constitutional Revolution of 1937, by which the Supreme Court accepted the New Deal, as well as to public debates about constitutional interpretation and the role that government should play in providing relief to distressed citizens.

In the midst of our nation's ongoing suffering from massive foreclosures and bankruptcies, Fighting Foreclosure also offers a potent reminder that the High Court's decisions often revolve around lives at risk as much as abstract legal debates.

Genres: Law

232 pages, Paperback

First published September 1, 2012

Reviews

[Frank Stein · Rating 4 out of 5]

An interesting if at times over-detailed history of the Blaisdell v. Home Building and Loan Association Case (1934), which declared Minnesota's mortgage moratorium law constitutional and therefore allowed other states to enact far-reaching debt moratoriums and other kinds of economic interventions at the beginnings of the Depression.

Fliter and Hoff first trace the history of the Contract Clause of the constitution at stake in the case, a worthwhile endeavor since most legal historians focus on the the travails of the Due Process Clause. The authors show the clause was originally taken by Rufus King straight from the Northwest Ordinance and was intended to prevent states from stopping debt collections. In the Supreme Court's first 70 years they struck down a number of state acts which aimed to favor debtors over creditors, but beginning in the 1880 case of Stone v. Mississippi, where the court upheld a state statute banning lotteries, the court began allowing certain public exceptions to the contract clause, like changing contracts between utilities and their customers (in 1919). In 1921, in Block v. Hirsh, the Court also allowed states to regulate urban rents for the first time, an important precedent for Blaisdell.

The authors then describe the background in Minnesota that led to the passage of the mortgage moratorium. Floyd Olson, the Farmer-Labor Party elected governor from 1930, vigorously supported Milo Reno and his Farmers' Holiday Association, which used force to block foreclosure sales and "boycott" urban consumers in a bid to raise prices, and the combined political advocacy of the group and the threat of more disorder forced the law. The authors even go into detail on the previous twenty years of Minnesota history, like the Rural Credit banks Minnesota and the Dakotas set up in the nineteen teens and twenties to offer state-subsidized mortgages to farmers, but which became political patronage pits and much-hated landlords during the Depression.

Finally, the authors describe the battles behind the 5-4 opinion Chief Justice of the Supreme Court Charles Evans Hughes wrote. Apparently, Cardozo and Stone pushed Hughes to write a more expansive opinion, legitimating much more state intervention than he had originally intended.

The book points out the obvious resonances in our modern era of mass foreclosure, but notes that except for 2 major 1970s cases, Blaisdell represented the end of the significant Contract Clause jurisprudence. Thus, like the more celebrated 1937 "switch in time," Blaisdell represents a real monumental shift in how we read our Constitution. This book does a good job explaining that shift and its implications