Moratorium

A suspension of activity or an authorized period of delay or waiting. A moratorium is sometimes agreed upon by the interested parties, or it may be authorized or imposed by operation of law. The term also is used to denote a period of time during which the law authorizes a delay in payment of debts or performance of some other legal obligation. This type of moratorium is most often invoked during times of distress, such as war or natural disaster.

Government bodies may declare moratoria for a broad range of reasons. For example, a local government may attempt to regulate property development by imposing a moratorium on the issuance of building permits. The legality of such a moratorium is generally determined by measuring its impact on the affected parties. In 1987 the U.S. Supreme Court held that certain moratoria on property development may be unconstitutional takings, thus making it more difficult for local governments to slow development in their communities (First English Evangelical Lutheran Church v. Los Angeles County, 482 U.S. 304, 107 S. Ct. 2378, 96 L. Ed. 2d 250). On the other hand, in 1995 the Court upheld a thirty-day moratorium on lawyer advertising that was challenged as an infringement of FIRST AMENDMENT rights (Florida Bar v. Went For It, Inc., 515 U.S. 618, 115 S. Ct. 2371, 132 L. Ed. 2d 541).

Many state legislatures have passed moratorium legislation in response to popular demand for debt relief during emergencies. The constitutionality of these statutes is determined using a two-pronged analysis. First, the courts consider the effect of the moratorium on the rights of the parties to the impaired contract. If the moratorium changes only the remedy for breach and not the terms of the contract, it is generally upheld (see Sturges v. Crowninshield, 17 U.S. [4 Wheat.] 122, 4 L. Ed. 529 [1819]). Second, if the moratorium is a response to a bona fide emergency, it is upheld (see Johnson v. Duncan, 3 Mart. 530 [La. 1815], upholding a moratorium passed when the British invaded Louisiana in 1814).

As a function of its POLICE POWER, a state may suspend contractual rights when public welfare, health, or safety are threatened. However, this police power is limited by standards of reasonableness. During the WORLD WAR I housing shortage, some New York landlords raised rents to exorbitant levels and evicted tenants who failed to pay. In response to what it perceived as a public health and safety emergency, the state legislature passed a law that limited rentals to reasonable amounts, gave courts authority to determine reasonableness, and prohibited landlords from evicting tenants willing to pay reasonable rents. The law was sustained by the U.S. Supreme Court in Marcus Brown Holding Co. v. Feldman, 256 U.S. 170, 41 S. Ct. 465, 65 L. Ed. 877 (1921).

An example of a contemporary debt moratorium is the Minnesota Mortgage Moratorium Act (1933 Minn. Laws 514), passed by the Minnesota legislature in response to a sharp rise in foreclosures on mortgaged farm property. The constitutionality of the act was challenged in Home Building & Loan Association v. Blaisdell, 290 U.S. 398, 54 S. Ct. 231, 78 L. Ed. 413 (1934), in which the Supreme Court upheld the legislation based on five criteria: a bona fide emergency existed; the statute addressed a legitimate societal interest; debt relief was granted only under limited conditions; contractual rights were reasonably protected; and the legislation was of limited duration. This act was extended until 1942. Fifty years later the Minnesota legislature responded again to public pressure to relieve farm debts by passing another Mortgage Moratorium Act (Minn. Stat. § 583.03 [Supp. 1983]).