East New York Sav Bank v. Hahn

• Decision Date: 05 November 1945
• Docket Number: No. 62,62
• Citation: 160 A.L.R. 1279,66 S.Ct. 69,90 L.Ed. 34,326 U.S. 230
• Parties: EAST NEW YORK SAV. BANK v. HAHN et al
• Court: U.S. Supreme Court

326 U.S. 230

66 S.Ct. 69

90 L.Ed. 34

EAST NEW YORK SAV. BANK

v HAHN et al.

No. 62.

Argued Oct. 18, 1945.

Decided Nov. 5, 1945.

Appeal from the Supreme Court of the State of New York, County of kings.

Mr. John P. McGrath, of New York City, for appellant.

Mr. Orrin G. Judd, of New York City, for appellees.

Mr. Justice FRANKFURTER delivered the opinion of the Court.

This was an action begun in 1944 to foreclose a mortgage on real property in the City of New York for non- payment of principal that had become due in 1924. The trial court held that the foreclosure proceeding was barred by the applicable New York Moratorium Law. 182 Misc. 863, 51 N.Y.S.2d 496. This Law, Chapter 93 of the Laws of New York of 1943, extended for another year legislation first enacted in 1933, whereby the right of foreclosure for default in the payment of principal was suspended for a year as to mortgages executed prior to July 1, 1932.¹ Year by year (except in 1941 when an extension for two years was made) the 1933 statute was renewed for another year. The New York Court of Appeals, one judge dissenting, affirmed the trial court's judgment. 293 N.Y. 622, 59 N.E.2d 625. Upon claim duly made below that the Moratorium Law of 1943 was repugnant to the Contract Clause of the Constitution of the United States. Art. I, § 10, the case is here on appeal under § 237(a) of the Judicial Code, 28 U.S.C. § 334(a), 28 U.S.C.A. § 344(a). The validity of the statute is likewise challenged under the Fourteenth Amendment but too feebly to merit consideration.

Since Home Bldg. & L. Ass'n v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413, 88 A.L.R. 1481, there are left hardly any open spaces of controversy concerning the constitutional restrictions of the Contract Clause upon moratory legislation referable to the depression. The comprehensive opinion of Mr. Chief Justice Hughes in that case cut beneath the skin of words to the core of meaning. After a full review of the whole course of decisions expounding the Contract Clause—covering almost the life of this Court—the Chief Justice, drawing on the early insight of Mr. Justice Johnson² in Ogden v Saunders, 12 Wheat. 213, 286, 6 L.Ed. 606, as reinforced by later decisions cast in more modern terms, e.g., Manigault v. Springs, 199 U.S. 473, 480, 26 S.Ct. 127, 130, 50 L.Ed. 274; Marcus Brown Co. v. Feldman, 256 U.S. 170, 198, 41 S.Ct. 465, 466, 65 L.Ed. 877, put the Clause in its proper perspective in our constitutional framework. The Blaisdell case and decisions rendered since (e.g., Honeyman v. Jacobs, 306 U.S. 539, 59 S.Ct. 702, 83 L.Ed. 972; Veix v. Sixth Ward Ass'n, 310 U.S. 32, 60 S.Ct. 792, 84 L.Ed. 1061; Gelfert v. National City Bank, 313 U.S. 221, 61 S.Ct. 898, 85 L.Ed. 1299, 133 A.L.R. 1467; Faitoute Co. v. Asbury Park, 316 U.S. 502, 62 S.Ct. 1129, 86 L.Ed. 1629), yield this governing constitutional principle: when a widely diffused public interest has become enmeshed in a network of multitudinous private arrangements, the authority of the State 'to safeguard the vital interests of its people,' 290 U.S. at page 434, 54 S.Ct. at page 239, 78 L.Ed. 413, 88 A.L.R. 1481, is not to be gainsaid by abstracting one such arrangement from its public context and treating it as though it were an isolated private contract constitutionally immune from impairment.

The formal mode of reasoning by means of which this 'protective power of the state,' 290 U.S. at page 440, 54 S.Ct. at page 241, 78 L.Ed. 413, 88 A.L.R. 1481, is acknowledged is of little moment. It may be treated as an implied condition of every contract and, as such, as much part of the contract as though it were written into it, whereby the State's exercise of its power enforces, and does not impair, a contract. A more candid statement is to recognize, as was said in Manigault v. Springs, supra, that the power 'which, in its various ramifications, is known as the police power, is an exercise of the sovereign right of the government to protect the * * * general welfare of the people, and is paramount to any rights under contracts between individuals.' 199 U.S. at page 480, 26 S.Ct. at page 130, 50 L.Ed. 274. Once we are in this domain of the reserve power of a State we must respect the 'wide discretion on the part of the legislature in determining what is and what is not necessary.' Id. So far as the constitutional issue is concerned, 'the power of the State when otherwise justified,' Marcus Brown Co. v. Feldman, 256 U.S. 170, 198, 41 S.Ct. 465, 466, 65 L.Ed. 877, is not diminished because a private contract may be affected.

Applying these considerations to the immediate situation brings us to a quick conclusion. In 1933, New York began a series of moratory enactments to counteract the virulent effects of the depression upon New York realty which have been spread too often upon the records of this Court to require even a summary. Chapter 793 of the Laws of 1933 gave a year's grace against foreclosures of mortgages, but it obligated the mortgagor to pay taxes, insurance, and interest. The validity of the statute was sustained in Klinke v. Samuels, 264 N.Y. 144, 190 N.E. 324. The moratorium has been extended from year to year. When the 1937 reenactment was questioned, the New York Court of Appeals again upheld the legislation. Maguire & Co. v. Lent & Lent, Inc., 277 N.Y. 694, 14 N.E.2d 629. This decision was rendered after a joint legislative committee had made a thorough study and recommended continuance of the moratorium. New York Legislative Document (1938) No. 58. In 1941, the Legislature reflected some changes in economic conditions by requiring amortization of the principal at the rate of 1% per annum, beginning with July 1, 1942. The same legislature established another joint legislative committee to review once more the New York mortgage situation. 'After a most exhaustive study of the moratorium,' a report was submitted recommending its extension for another year. New York Legislative Document (1942) No. 45. The Governor of New York urged such legislation (New York Legislative Document (1943) No. 1 p. 9) and the Law now under attack was enacted. It is relevant to note that the New York Legislature in subsequent extensions of the moratorium again took note of changed economic conditions by increasing the amortization rate to 2% in 194...