State Ex Rel. Roth v. Waterfield , 167 Okla. 209 ( 1933 )

Since the adoption of the original opinion in this case, prepared by Mr. Justice BUSBY (opinion October 17, 1933,167 Okla. 209, 29 P. [2d] 24), the Supreme Court of the United States has passed upon the validity of the Minnesota Mortgage Moratorium Law in the case of Home Building Loan Association v. John H. Blaisdell and Rosella Blaisdell, his wife, 54 S.Ct. 231, 78 L.Ed. ___ opinion January 8, 1934.

Counsel for defendant in error now insists that this decision of the Supreme Court of the United States is authority for sustaining the validity of the Oklahoma Mortgage Moratorium Law in full, and justifies his right to a rehearing in this case.

The Minnesota Supreme Court, 249 N.W. 334, and the United States Supreme Court, upheld the validity of the Minnesota Act. The original opinion of this court, while sustaining the most of the Oklahoma Act, chapter 16, S. L. 1933, in this case, strikes down section 1 thereof, for the reason that said section 1 is unconstitutional.

Due to the importance of the character of legislation involved, and the great weight to which each of the decisions of the highest judicial tribunal of our country is entitled, we deem it beneficial to supplement the former opinion of this court by discussing the opinion of the United States Supreme Court.

The opinion of the Supreme Court of the United States in the Blaisdell Case, supra, does not support the contention of the defendant in error in this case on account of the vital difference between the Minnesota Act and the Oklahoma Act. There are vital differences in the two acts, and vital differences in the court procedure under the Minnesota Act and under section 1 of the Oklahoma Act. These vital differences are directly responsible for the fact that the Minnesota Act does not, and the Oklahoma Act in section I does, violate the applicable provisions of constitutional limitation upon the legislative authority.

Both the Minnesota Act and the Oklahoma Act are temporary in character, and have for their purpose the granting of additional time or delay in the foreclosure of mortgages on account of the existing emergency of economic depression. This purpose is altogether wholesome and wholly legitimate. But, in affording that relief, as in every other enactment, the Legislature must act within its lawful power; and it is in the providing of and for this relief and delay, and in the method and manner of providing for it, that the Oklahoma Legislature overlooks the constitutional limitation on legislative power and violates the Constitution, while the Minnesota Legislature, by fixing reasonable conditions upon the relief and delay obtainable, recognized such limitation and did not violate the Constitution. We should here note in detail some of the differences between the Minnesota Act and the Oklahoma Act. The Oklahoma Act, in section 1, purports to grant a flat or fixed extension of time or delay of nine months to answer in any foreclosure action pending or to be filed. The Minnesota Act grants no flat or fixed time or delay in any instance whatever, but the Minnesota Act authorizes the trial judge, on application of the mortgagor, to grant additional time for redemption and postponement of execution sales, the time to be fixed by the trial court in each case in its judicial discretion, not, however, beyond May 1, 1935, the terminative date of the Act. Section 1 of the Oklahoma Act purports to grant a fixed and flat extension of nine months' time in which no court shall hold or conduct a trial in a foreclosure action now pending wherein the issue is already joined. The Minnesota Act fixes and imposes no delay whatever in judicial action by the court in foreclosure cases. Section 1 of the Oklahoma Act purports to grant fixed and flat delays and extensions of nine months' time without any compensation whatever to the mortgagee; while the Minnesota Act authorizes the trial court to grant extensions and delay only after the trial court has first conducted a hearing and determined the reasonable rental value of the property, and has by order required the mortgagor, during the period of extension or delay granted, to pay all, or a reasonable portion, of such rental value to the mortgagee to apply on the interest on the loan and the taxes on the property. The period of nine months attempted to be granted by section 1 of the Oklahoma Act is a fixed time, and may not be shortened by order of the court; while in proceedings under the Minnesota Act, even though the court has heard the matter and granted an extension of time determined to be reasonable in the instant case, and has fixed the amount of rental value to be paid in the case, the court may at any time thereafter shorten the time granted, where any change in condition justifies it as an equitable action of the court, and requires it in the protection of the interest of any of the parties.

It will thus be noted that the Oklahoma Act proposes to grant extensions and delays in case of every action to foreclose a real estate mortgage without regard to whether in that particular case the delay is necessary or equitably justifiable; while the Minnesota Act does not itself grant any delay whatever and only authorizes the trial court to grant the delay when, upon application of the mortgagor, the court determines, first, whether any delay is necessary, equitable, and proper; second, the amount of delay that in that particular case is justified; third, determines the amount of reasonable rental value which the mortgagor should pay in that particular case upon the particular property involved in that case; and thereupon, fourth, the court grants the delay determined to be reasonable and proper in that case upon the expressed condition of payment of the sum found reasonable and proper to be paid upon the property therein involved, and with the further wholesome provision that under the Minnesota Act the court may thereafter change the period of time granted and grant a longer extension or shorten the extension theretofore granted, if any change in condition warrants such action.

Thus, under section 1 of the Oklahoma Act, the extensions of time are fixed and are granted to the mortgagor in every case, thus being applicable alike to those cases where the extension of time is neither necessary nor equitable, as well as those cases where an extension of time is necessary and equitable by reason of the inability of the mortgagor to pay, and by reason of the desire of the mortgagor to continue to own or occupy the premises, and by reason of his desire to have the extension of time in order that he may arrange to protect himself, and arrange to discharge his debt at a more convenient time when conditions will permit him to be better able to do so, while under the Minnesota Act all matters in reference to the granting of time and the terms thereof are continuously subject to the jurisdiction and judicial action of the trial court, with specific authority in that court to change the extension of time granted, and the terms and conditions thereof.

Having in mind these differences in the two legislative enactments, we observe this in reference to the decision of the Minnesota Supreme Court upholding the Minnesota Act, and the decision of the Supreme Court of the United States in the Blaisdell Case affirming the judgment of the Minnesota Supreme Court.

The Minnesota Supreme Court gave controlling force to the provision of the Minnesota Act which indicated that the Act did not exceed that which was reasonably necessary in any case to give relief to an unfortunate mortgagor, and to the provision of the act for compensation, or payment, during the delay or period of extension, of a sum determined by the court in view of the rental value of the property involved in the action in which the relief was granted. The holding of that court in that regard is concisely stated in syllabus par. No. 3, in that case, Blaisdell v. Home Building Loan Ass'n, 249 N.W. 334:

"Statute under which time for redeeming from mortgage foreclosure sale may be extended held not to exceed that which was reasonably necessary to give relief in temporary emergency, where statute was not to remain in operation beyond May 1, 1935, and during period of extension, rental value of property must be applied on payment of taxes, insurance, and debt. (Laws 1933, C. 339.)"

And in the body of the opinion the court stressed these portions of their act and specifically noted a similar act in North Dakota, which the North Dakota Supreme Court had held unconstitutional. The Minnesota Supreme Court specifically notes that the act of the North Dakota Legislature extended time of redemption without conditions, while under the Minnesota Act the extension was granted by the court only upon reasonable conditions, that is, the payment of the reasonable rental value of the property during the period of extension. And based upon that provision for compensation, and the provisions for judicial hearings after notice, the Minnesota court held that the Minnesota Act did not take property without due process of law. This conclusion might be said to naturally follow, because in proceedings under the Minnesota Act no extension at all was granted until there had first been had a judicial hearing, and upon notice and a determination of a right or necessity of the mortgagor to have an extension, and the reasonable amount of extension to be granted, and the fixing of reasonable compensation to be paid by the mortgagor during the period of delay or extension. The Chief Justice of the Minnesota Supreme Court, whose concurrence was essential to the adoption of the opinion, concurred, but in doing so stated:

"If it (referring to the Minnesota Act) had provided no compensation or protection incident to the extension, I would have agreed to the conclusion reached by the North Dakota court. I would then think the application of the police power was unreasonable."

In the Minnesota case the trial court found that the time to redeem would expire under prior law on May 2, 1935; that the mortgagors occupied the premises as their homestead, occupying three rooms and offering the remaining rooms for rent to others; that the reasonable value of the income on the property, and the reasonable rental value, was $40 per month. Thereupon, acting pursuant to the provisions of the Moratorium Act, the court entered its judgment extending the period of redemption to May 1, 1933, the last date to which an extension could be granted under the act, subject to the condition that the mortgagor should pay to the mortgagee $40 per month through the extension period from May 2, 1933, all these amounts to go to the payment of taxes on the property, insurance, interest, and to apply on the mortgage indebtedness.

The Supreme Court of the United States, in the decision first above cited, affirmed the judgment of the Minnesota Supreme Court, and likewise gave controlling effect to the provisions of the Minnesota Act, which we have above noted as being vitally different from the provisions of section 1 of the Oklahoma Act, supra.

The opinion of the Supreme Court of the United States was delivered by Mr. Chief Justice Hughes. On page 232 of the opinion it is said:

"We are here concerned with the provisions of part 1, section 4, authorizing the district court of the county to extend the period of redemption from foreclosing sales 'for such additional time as the court may deem just and equitable,' subject to the above described limitation. The extension is to be made upon application to the court, on notice, for an order determining the reasonable value of the income on the property involved in the sale, or if it has no income, then the reasonable rental value of the property, and directing the mortgagor to 'pay all or a reasonable part of such income or rental value, in or toward the payment of taxes, insurance, interest, mortgage * * * indebtedness at such times and in such manner' as shall be determined by the court."

Further in the body of the opinion it is said:

"We approach the questions thus presented upon the assumption made below, as required by the law of the state, that the mortgage contained a valid power of sale to be exercised in case of default; that this power was validly exercised; that under the law then applicable the period of redemption from the sale was one year and that it has been extended by the judgment of the court over the opposition of the mortgagee-purchaser; and that during the period thus extended, and unless the order for extension is modified, the mortgagee-purchaser will be unable to obtain possession, or to obtain or convey title in fee, as he would have been able to do had the statute not been enacted. The statute does not impair the integrity of the mortgage indebtedness. The obligation for interest remains. The statute does not affect the validity of the sale or the right of a mortgagee-purchaser to title in fee, or his right to obtain a deficiency judgment, if the mortgagor fails to redeem within the prescribed period. Aside from the extension of time, the other conditions of redemption are unaltered. While the mortgagor remains in possession he must pay the rental value as that value has been determined, upon notice and hearing, by the court. The rental value so paid is devoted to the carrying of the property by the application of the required payments to taxes, insurance, and interest on the mortgage indebtedness. While the mortgagee-purchaser is debarred from actual possession, he has, so far as rental value is concerned, the equivalent of possession during the extended period.

"In determining whether the provision for this temporary and conditional relief exceeds the power of the state by reason of the clause in the federal Constitution prohibiting impairment of the obligations of contracts, we must consider the relation of emergency to constitutional power, the historical setting of the contract clause, the development of the jurisprudence of this court in the construction of that clause, and the principles of construction which we may consider to be established.

"Emergency does not create power. Emergency does not increase granted power or remove or diminish the restrictions imposed upon power granted or reserved. The Constitution was adopted in a period of grave emergency. Its grants of power to the federal government and its limitations of the power of the states were determined in the light of emergency and they are not altered by emergency."

Further in the opinion it is said:

"The question is not whether the legislative action affects contracts incidentally, or directly or indirectly, but whether the legislation is addressed to a legitimate end and the measures taken are reasonable and appropriate to that end."

Further in the opinion it is said:

"Whatever doubt there may have been that the protective power of the state, its police power, may be exercised — without violating the true intent of the provision of the federal Constitution — in directly preventing the immediate and literal enforcement of contractual obligations by a temporary and conditional restraint, where vital public interests would otherwise suffer, was removed by our decisions relating to the enforcement of provisions of leases during a period of scarcity of housing. Block v. Hirsh, 256 U.S. 135; Marcus Brown Holding Co. v. Feldman, 256 U.S. 170; Edgar A. Levy Leasing Co. v. Siegel, 258 U.S. 242."

Those three former decisions are then analyzed in the opinion, and in each of these opinions controlling effect was likewise given to the provisions providing for compensation.

After reviewing various authorities in keeping with the contentions of the parties, the Supreme Court of the United States in that case, in the concluding pages of the opinion, applied the criteria established by former decisions, and stated its conclusion in five numbered paragraphs as follows: First, in substance, that an emergency existed in Minnesota by reason of a general depression which furnished a proper occasion for the exercise of the reserve power of the state to protect the vital interests of the community. Second, in substance, that the Minnesota Act was addressed to a legitimate end. Third, quoting in full:

"In view of the nature of the contracts in question — mortgages of unquestionable validity — the relief afforded and justified by the emergency, in order not to contravene the constitutional provision, could only be of a character appropriate to that emergency and could be granted only upon reasonable conditions."

Fourth, quoting:

"The conditions upon which the period of redemption is extended do not appear to be reasonable. The initial extension of the time of redemption for 30 days from the approval of the act was obviously to give a reasonable opportunity for the authorized application to the court. As already noted, the integrity of the mortgage indebtedness is not impaired; interest continues to run; the validity of the sale and the right of a mortgagee-purchaser to title or to obtain a deficiency judgment, if the mortgagor fails to redeem within the extended period, are maintained; and the conditions of redemption, if redemption there be, stand as they were under the prior law. The mortgagor during the extended period is not ousted from possession but he must pay the rental value of the premises as ascertained in judicial proceedings and this amount is applied to the carrying of the property and to interest upon the indebtedness. The mortgagee-purchaser during the time that he cannot obtain possession thus is not left without compensation for the withholding of possession. Also important is the fact that mortgagees, as is shown by official reports of which we may take notice, are predominantly corporations, such as insurance companies, banks, and investment and mortgage companies. These, and such individual mortgagees as are small investors, are not seeking homes or the opportunity to engage in farming. Their chief concern is the reasonable protection of their investment security. It does not matter that there are, or may be, individual cases of another aspect. The Legislature was entitled to deal with the general or typical situation. The relief afforded by the statute has regard to the interest of mortgagees as well as to the interest of mortgagors. The legislation seeks to prevent the impending ruin of both by a considerate measure of relief.

"* * * Although the courts would have no authority to alter a statutory period of redemption, the legislation in question permits the courts to extend that period, within limits and upon equitable terms, thus providing a procedure and relief which are cognate to the historic exercise of the equitable jurisdiction.

"If it be determined, as it must be, that the contract clause is not an absolute and utterly unqualified restriction of the state's protective power, this legislation is clearly so reasonable as to be within the legislative competency."

Fifth, quoting:

"The legislation is temporary in operation. It is limited to the exigency which called it forth. While the postponement of the period of redemption from the foreclosure sale is to May 1, 1935, that period may be reduced by the order of the court under the statute, in case of a change in circumstances, and the operation of the statute itself could not validly outlast the emergency or be so extended as virtually to destroy the contracts.

"We are of the opinion that the Minnesota statute as here applied does not violate the contract clause of the federal Constitution. Whether the legislation is wise or unwise as a matter of policy is a question with which we are not concerned.

"What has been said on that point is also applicable to the contention presented under the due process clause. Block v. Hirsh, supra.

"Nor do we think that the statute denies to the appellant the equal protection of the laws. The classification which the statute makes cannot be said to be an arbitrary one. Magoun v. Illinois Trust Savings Bank, 170 U.S. 283; Clark v. Titusville, 184 U.S. 329; Quong Wing v. Kirkendall,223 U.S. 59; Ohio Oil Co. v. Conway, 281 U.S. 146; Sproles v. Binford,286 U.S. 374."

Thus is made apparent the extent to which the Supreme Court of the United States gave controlling effect to the provisions of the Minnesota Act, providing for a judicial hearing and a day in court before any extension of time was granted, and providing for such extension as was determined to be reasonable in each case, to be granted only after determination and requirement as to payment of the proper and reasonable sum, dependent upon the reasonable rental value of the premises.

Sections 2 and 3 of the Oklahoma Act are quite similar to the Minnesota Act. These sections authorize the trial courts in Oklahoma to grant continuances and extensions of time upon equitable terms within the two-year limit of the act. We here repeat the words of the Supreme Court of the United States in speaking of the Minnesota Act:

"Although the courts would have no authority to alter a statutory period of redemption, the legislation in question permits the courts to extend that period, within limits and upon equitable terms, thus providing a procedure and relief which are cognate to the historic exercise of the equitable jurisdiction."

We are impressed with the force with which this statement, and many other expressions of that court above quoted, would likewise apply to sections 2 and 3 of the Oklahoma Act.

In the majority opinion of this court in the instant case, prepared by Mr. Justice BUSBY, in upholding the provisions of sections 2 and 3 of the Oklahoma Act, this court said:

"They may be properly interpreted to vest in the district court the power to exercise judicial discretion in granting continuances on account of existing economic conditions in that class of cases when (1) the owner shall pay at any time before confirmation of sale, the accruing interest and all taxes due upon said property; (2) before confirmation of sale when the owner shall pay or cause to be secured a reasonable rental value for the time or term which said judge shall order said cause to be continued; (3) where, before confirmation, it shall appear that the value of the property is sufficient to satisfy the lien and costs of foreclosure, and the owner shall pay or otherwise secure taxes due upon said land; or (4) when the district court in the exercise of sound judicial discretion shall make such other requirements as will reasonably compensate and adequately protect the mortgagee during the period of delay."

Thus clearly announcing the same reasoning and theory of the Supreme Court of the United States in construing the Minnesota Act. The Minnesota Act, chapter 339, S. L. Minn. 1933, granted no extension of time whatever to answer actions to foreclose mortgages, and granted no delay in the trial of mortgage foreclosure actions after issues were joined, while, as we have heretofore observed, section 1 of the Oklahoma Act granted a fixed extension or delay of nine months to answer in such suits, and a fixed delay of trial of nine months in actions now pending. The Minnesota Act only provided for the judicial granting of an extension of time in the confirmation of mortgage foreclosure sales, or in the time to redeem. The second and third sections of the Oklahoma Act, which were held valid by the majority opinion heretofore referred to in this case, appear to make ample provision for judicial granting of continuances, and for delay in confirmation of foreclosure sales, and in fact in some respects go further than the Minnesota Act. If the valid portion of the Oklahoma Act is applied in keeping with the construction placed upon it in the majority opinion, the trial judge, in so applying it in Oklahoma, may grant to mortgagors, in such cases as they are entitled to relief, virtually all of the relief, which may be granted in Minnesota under the provisions of the act sustained by the Supreme Court of the United States, and in some instances delay may be granted here which is not authorized in that state. This is apparent from a reading of the act as quoted in the majority opinion and the construction therein placed upon it. Only a casual reading thereof is necessary to observe the provisions under which the trial court may grant extensions and delay which will, to a large extent at least, meet the needs and necessities of mortgagors who, by reason of the facts in each case, are entitled to receive it, as well as may possibly be done, and upon such terms and conditions of' securing or paying a reasonable rental value, or payment of interest and taxes, as would be sustainable under the decision of the Supreme Court of the United States.

The Supreme Court of the United States said:

"In view of the nature of the contracts in question — mortgages of unquestionable validity — the relief afforded and justified by the emergency, in order not to contravene the constitutional provision, could only be of a character appropriate to that emergency and could be granted only upon reasonable conditions."

Announcing the same principle, this court said, in the case at bar (syllabus par. 4):

"Situations may arise which justify an extension of the police powers of the state to remedy economic conditions, but when such power is undertaken to be exercised with that object in view to the detriment of one class of persons, appropriate provisions for protecting the rights of that class of persons and providing compensation for rights infringed upon, should be provided."

And again, in the body of the opinion, we say:

"In view of the gravity of the economic situation and its effect in preventing mortgagors meeting the full amount of the mortgage indebtedness on the due date thereof, and its further effect in destroying competitive bidding at foreclosure sales, and in view of the eminence of the authority which has approved such legislation, we have concluded that the situation is such as to warrant a temporary interference with contract rights through the enactment under the police power of appropriate legislation that does not violate constitutional provisions and in which proper provision is made for the protection of the rights of the mortgagee during the period of the delay."

And also:

"In all cases equitable requirements should be made for the preservation of the mortgaged premises, the payment of the current interest and taxes and for appropriate protection of the property by insurance as well as such other requirements as may be proper and just under the circumstances.

"The three subdivisions of section I each grant an arbitrary and capricious extension of time amounting to a taking of private property without any provision whatever for compensation to or protection of the rights of the mortgagee."

It is clearly apparent that the recent opinion of the Supreme Court of the United States is added authority for the views previously announced by this court in the case at bar, in upholding in part and striking down in part the Oklahoma Mortgage Moratorium Act.

For the reasons stated in the majority opinion, and the additional reasons herein stated, we adhere to the majority opinion which invalidates section I of chapter 16, S. L. 1933, but sustains the validity of other portions of that act as being within the reserved power of the state, and a reasonable exercise of that power devoted to a legitimate end in view of existing emergency need.

The petition for rehearing is denied.

RILEY, C. J., CULLISON, V. C. J., and ANDREWS, BAYLESS, and BUSBY, JJ., concur. SWINDALL, McNEILL, and OSBORN, JJ., dissent.