Citation. 290 U.S. 398, 54 S. Ct. 231, 78 L. Ed. 413, 1934 U.S.
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Brief Fact Summary.
The Appellant, Home Building & Loan Assn. (Appellant), contests a Minnesota law that prevents mortgage holders from foreclosing on mortgages for a period of two-years.
Synopsis of Rule of Law.
A state law may impair the contractual obligations of private parties when there is a legitimate state interest and justification.
In response to the Depression, the Minnesota legislature passed the Minnesota Mortgage Moratorium Law. This law allowed homeowners to seek relief from foreclosure proceedings. Sales could be postponed and periods of redemption extended except for those loans that were made after the passage of the law.
Does this provision violate the Contract Clause of the United States Constitution (Constitution) by impairing the obligations between private parties in contracts?
No. The state was justified under the circumstance of the Depression to extend foreclosure timing to protect the economic interests of the state and its citizens. The Depression was a proper emergency situation that warranted the action by Minnesota. The legislation addressed a legitimate government purpose. The contracts affected by this legislation are limited and it does not arbitrarily affect all mortgage contracts. The time extensions are not unreasonable. The law is temporary in operation.
The Supreme Court of the United States (Supreme Court) provides a description of contractual impairment as that which releases a person from contractual obligation. Generally, a state is not permitted to interfere with private contracts. But, if the state can provide sufficient justification for the interference (such as safeguarding the community for health or economic reasons), then the law will likely be constitutional.