Brief Fact Summary. As an emergency measure, during the Great Depression, Minnesota passed a law that modified lender’s contractual rights of foreclosure with their debtors. The constitutionality of the law was brought into question.
Synopsis of Rule of Law. A State action that impairs a private contract is not valid unless it is reasonably related to the achievement of a legitimate State end.
Held. No. The law was a legitimate use of its police powers since Minnesota faced massive economic difficulties.
The Contract Clause was adopted by the Framers during the distressed economic times following the Revolutionary War. It was established to counter the “ignoble array of legislative schemes” of State legislatures which were designed to defeat the obligations of debtors owed to creditors by interfering with contractual arrangements. The Framers feared that if private contracts were not respected, the destruction of credit would result, and credit was essential to the prosperity of the Nation’s economy.
Therefore, the Contract Clause was not intended to confer absolute rights onto private parties entering into contracts. Rather, it was intended to serve as qualified right, over which the State retained some power to control, for the benefits of the Nation as a whole.
Thus, the question is not whether legislative action affects contracts, but instead whether legislative action is reasonably appropriate to the achievement of a legitimate end. This is the test under the Contract Clause of
In this case, the legislation was addressed to a legitimate end — an emergency existed in Minnesota. Plus, the conditions upon which the period of redemption under the contract was extended do not appear unreasonable.
Dissent. Justice Sutherland: A provision of the United States Constitution cannot be interpreted in two distinctly opposite ways. It cannot mean one thing under certain conditions and another thing under other conditions. If the provisions of the Constitution cannot be upheld when it discomforts us as well as when it comforts us, they may as well be abandoned.
Discussion. The Supreme Court in this case would have us view the Contract Clause not so much as a provision intended to confer a right on citizens as individuals, e.g., for the protection of private citizens entering into personal contracts; but rather as a provision that confers a right on the citizens collectively, e.g., for the protection of a sound credit market we all can enjoy. Viewing the clause as the latter type of right, it seems more justifiable for the government do as it has done here — adjust the private rights of individual citizens for the benefit of the public.