Adams v. Spillyards

Appellants are the owners and holders of certain past-due promissory notes executed by appellees, secured by a deed of trust on certain real estate in Jefferson County. Suit was filed April 6, 1932, to foreclose, which was met by demurrer. The court overruled the demurrer January 31, 1933, and thereafter an answer was filed, admitting the execution and delivery of the notes and deed of trust. There was no dispute as to the facts. On February 25, 1933, act 57 of the Acts of 1933 became a law, and its provisions were invoked by appellees. The court, in accordance with the requirements of 2 of said act, refused to enter a decree of foreclosure to which he found appellants were entitled, unless and until they would enter into and file a stipulation that they would bid at the sale the amount of the judgment, interest and costs. Appellants refused to do this, and filed a motion to have the decree entered without such requirement. The court overruled the motion, and this appeal followed.

We think this was a final order from which an appeal lies.

The only question presented is the constitutionality of said act 57 of 1933. We copy it in full as follows:

"Section 1. In any foreclosure, in any court in the State of Arkansas in which real estate is involved, the real estate securing the loan sought to be foreclosed shall be considered to be the value of the loan made, irrespective of the amount which may be realized from the sale of such real property.

"Section 2. When any such foreclosure suits are brought, the plaintiff shall not be entitled to a decree of foreclosure until and unless said plaintiff shall file a stipulation in said cause that he will bid the amount of the debt, interest and costs.

"Section 3. Where any such suits are now pending and sale of said property has been made under decree of courts foreclosing same, and the sale has not been confirmed by the court, the chancellor is hereby directed and it is made his duty to inquire into the amount that said property sold for, and hear testimony thereon in order to ascertain whether or not the purchaser bid the fair market value of said property, and said sale shall not be confirmed until after said hearing, and the Supreme Court of this State shall review the findings of said chancellor on appeal, even though no fraud or inequitable conduct is attributed to any person conducting said sale or any party interested therein.

"Section 4. Where any such suits are filed after the effective date of this act and real property is sold under foreclosure decree, said sale shall not be confirmed by the court until and unless said court has inquired into the amount that said property sold for, and hear testimony thereon in order to ascertain whether or not the purchaser bid the fair market value for said properly and said sale shall not be confirmed until after said hearing, and the Supreme Court of this State shall review the findings of said chancellor on appeal, even though no fraud or inequitable conduct is attributed to any person conducting said sale or any party interested therein.

"Section 5. When any suit seeking the foreclosure of real estate is filed and application is made for the appointment of a receiver, the court shall have the power to appoint the owner of said property as such receiver, and the fact that he is the owner in itself shall not disqualify him to serve in such capacity.

"Section 6. If any part, sentence, section, or paragraph of this act is held to be unconstitutional, the remaining valid parts shall not be affected."

The attack made on the validity of the act is based on art. 1, 10, Constitution of the United States, and art. 2, 17, Constitution of Arkansas, both prohibiting the State from passing any law impairing the obligation of contracts. It is of course well settled that the Constitution of this State is "not an enabling, but a restraining act (Straub v. Gordon, 27 Ark. 629), and that the Legislature may rightfully exercise its powers subject only to the limitations and restrictions of the Constitution of the United States and of the State of Arkansas," as we said in Bush v. Martineau, 174 Ark. 214, 295 S.W. 9, and that an act of the Legislature is presumed to be constitutional and will not be held by the courts to be otherwise unless there is a clear conflict between the act and the Constitution, and that all doubt should be resolved in favor of the act. Bush v. Martineau, supra, and cases there cited. It is equally well settled that, if an act runs counter to the plain provisions of the Constitution, the courts should not hesitate to so declare and hold the act invalid. Another rule which is not open to dispute and is well settled both in this court and the Supreme Court of the United States is thus stated in Robards v. Brown,40 Ark. 423: "The laws which are in force at the time when, and the place where, a contract is made and to be performed enter into and form a part of it. This is only another mode of saying that parties are conclusively presumed to contract with reference to the existing law." And in Walker v. Whitehead, 16 Wallace (U.S.) 314, it is said: "The laws which exist at the time of the making of a contract and in the place where it is made and to be performed enter into and make a part of it. This embraces those laws alike which affect its validity, construction, discharge and enforcement. Nothing is more material to the obligation of a contract than the means of its enforcement. The ideas of validity and remedy are inseparable, and both are parts of the obligation which is guaranteed by the Constitution against impairment. The obligation of a contract ``is the law which binds the parties to perform their agreement.' Any impairment of the obligation of a contract — the degree of impairment is immaterial — is within the prohibition of the Constitution."

It becomes material then to inquire as to the rights of mortgagees of real estate at the time and prior to the effective date of said act 57 in foreclosure proceedings in chancery courts. They had the right under existing law to have a judgment on the obligation in default after service and issue joined after 90 days or any day court was in session after default in pleading, and a condemnation of the real estate covered by the mortgage to be sold and applied to the payment of the debt, interest and costs. If not sold for a sufficient sum to cover, there was a deficiency judgment upon which execution could issue as at law. Foreclosure sales of real estate could not be set aside and confirmation refused for mere inadequacy of consideration, but only for fraud or other inequitable conduct in the matter of the sale, coupled with gross inadequacy of consideration. Nor could sale be postponed more than six months. There was no provision of law declaring that "the real estate securing the loan sought to be foreclosed shall be considered to be the value of the loan made, irrespective of the amount which may be realized from the sale of such property," nor that the plaintiff should "file a stipulation in said cause that he will bid the amount of the debt, interest and costs," until act 57 was enacted. It frequently happens, though not the general custom, that loans are made and real estate security taken when both parties know that the security is of less value than the loan, and it frequently happens that loans are made on both real and personal property as security. In either event, under act 57, in order to foreclose on the real estate in the chancery court, the mortgagee would have to relinquish the personal responsibility of the mortgagor as well as the personal property covered by the mortgage, for "the real estate * * * shall be considered to be the value of the loan made," and he must file a stipulation that he will bid for it the full amount of the judgment, interest and costs. This too in the face of the fact that the loan was made more on the moral risk than on the real estate security in the one case, and more on the personality securing the loan than the real estate in the other. The undisputed effect of 1 and 2 of the act is to prohibit deficiency judgments in mortgage foreclosures in chancery courts, a legal possible right inherent in an existing Arkansas mortgages at the effective date of the act, which was a part of the mortgage contracts themselves. This personal liability was a part of the contract because authorized by law at the time of execution and in the place of performance. The principal object of act 57 was to take away from the mortgagee that right, and of necessity violates the obligations of an existing mortgage contracts. Sections 3 and 4 undertake to change the rule many times announced by this court, and of long duration, that the court cannot refuse to confirm a judicial sale for mere inadequacy of consideration except for fraud, unfairness or some other inequitable conduct of the sale. See Marten v. Jirkovsky, 174 Ark. 417,295 S.W. 365; Free v. Harris, 181 Ark. 647, 27 S.W.2d 510. This was the law as to an existing mortgages, became a part of them, and related to a substantial remedy to collect the debts for which they were given. Section 5 attempts to make the owner or mortgagor eligible for appointment as receiver, in the event a receiver is sought. Such was not the law theretofore. By 8613, Crawford Moses' Digest, "No party or attorney, or person interested in an action shall be appointed receiver therein." This section has long been the law for a time the memory of man runneth not to the contrary, for this court held in Cook v. Martin, 75 Ark. 40, 87 S.W. 625, that it was declaratory of the common law. We think this section, as well as 3 and 4, would not have been adopted without 1 and 2, and the act is therefore not severable, and we cannot sustain any part thereof, as provided in 6.

We think this case is ruled by that of Robards v. Brown, 40 Ark. 423. In that case Scott and wife and Robards and wife in 1874 executed to one Ward as trustee a deed of trust on lands to secure the payment of sundry debts. Power was given the trustee in the instrument to sell the lands and distribute the proceeds on certain contingencies. In 1880 the trustee advertised and sold the lands under the power contained in the deed of trust to Brown who paid his bid and received his conveyance. The sale was made without regard to the act of March 17, 1879, which provided that at such sales the property, real or personal, should not be sold for less than two-thirds of the appraised value; provided it should not apply to sales of property for the purchase money thereof; and if real property was not sold at the first offering, another offering might be made twelve months thereafter, and sold to the highest bidder without reference to the appraisement; and provided further that real property so sold might be redeemed by the mortgagor at any time within one year from the sale by payment of the sale price with 10 per cent. interest and costs of sale. It also provided for appointment of appraisers. Within one year from the date of sale Robards sought to redeem by tendering the amount required by the act. Brown refused the money tendered, Robards withheld possession, and Brown brought ejectment. Robards defended under the act of 1879 on the ground that it was not appraised and sold in compliance therewith, and that he had the right thereunder to redeem. This court denied the right as did the lower court. It was there said: "As this raises a federal question, the interpretation which the Supreme Court of the United States has placed upon that clause of the Constitution which prohibits the States from passing laws impairing the obligation of contracts is of controlling influence with us. And we find that in Bronson v. Kinzie, 1 Howard 311, this precise question was presented. It was there decided, after the most mature deliberation, Chief Justice TANEY delivering the opinion of the court, that both the appraisement and the redemption clause of a similar act, passed by the Legislature of Illinois, were unconstitutional, as applied to mortgages previously executed." McCracken v. Haywood, 2 Howard 608; Gantly's Lessees v. Ewing, 3 Howard 707; Howard v. Bugbee, 24 Howard 461. were cited to the same effect. The court in the Robards case continued: "The Constitution forbids all laws alike which affect the validity, construction, discharge and enforcement of contracts. The State may change legal remedies, forms of action, of pleading and of process, the times of holding courts, etc., and may shift jurisdiction from one court to another. And such changes may have the incidental effect of delaying the collection of debts. But the Legislature cannot, under the guise of legislating upon the remedy, in effect, impair the obligation of contracts. The idea of right and remedy are so intimately associated as often to be inseparable. Now any legislation which deprives a party of a remedy substantially as efficient as that which existed at the making of the contract does impair its obligatory force." Citing a number of cases from the Supreme Court of the United States.

We cannot see any distinction in principle between that case and this. There the subsequent statute required appraisement and sale for two-thirds the appraised value; whereas here the statute arbitrarily says the land shall be considered to be the value of the loan, without regard to sale, price, although it might in fact be many times more or less than the loan. In that case the land must be sold for two-thirds the appraised value; whereas here it is required to bring the amount of the loan regardless of all other considerations. In that case one could finally, after one year from the first offering, if it failed to bring the required amount, have a sale to the highest bidder without regard to appraisement; whereas, here, if the mortgagee is unwilling to file the stipulation required by 2, he can never have a decree of foreclosure or of sale, and can never realize anything from the security under foreclosure in court. In that case it was held that the right to redeem within one year rendered the statute unconstitutional and void, the court saying: "Common sense and observation teach us that the right to sell at once the entire fee simple in lands and to give the purchaser immediate possession is worth more and will be more likely to produce the mortgage debt than the restricted right of selling a conditional interest in lands. Thus the law, if extended to previous mortgages, would curtail and materially embarrass the creditor's right to subject the entire interest of the debtor in the property to the payment of the debt intended to be secured." So this court held that because the act denied the right to sell the entire interest, and withheld from sale the equity of redemption for one year, the act was void as to existing mortgages, and correctly so. Here the act prohibits any decree for sale, except plaintiff stipulate to pay the full amount of the debt, etc., and prohibits any confirmations, even for the amount of the debt, interest and costs, until after the court has ascertained from evidence on a hearing that such amount was "the fair market value of the property." In other words, if the court should determine that the amount bid at the sale was not "the fair market value of the property," it would have the right and power to disapprove the sale, "even though no fraud or inequitable conduct is attributed to any person conducting said sale or any party interested therein," and even though the plaintiff filed the required stipulation and did bid the amount of the judgment, interest and costs. Sections 3 and 4 so provide. This comparison of the act under consideration with that discussed in Robards v. Brown, supra, is made for the purpose of showing, which it does, that the former presents a clearer case of violation of the obligation of existing contracts than did the latter, and we desire to say that we again approve what was said in Robards v. Brown, and that it is supported by many decisions of the Supreme Court of the United States, both prior and subsequent thereto. We therefore hold that said act 57, as applied to existing contracts, is void.

Now, as to its application to future contracts, or to mortgages and deeds of trust on real estate executed subsequent to the effective date of the act, we think a careful examination of the act itself discloses that it has no application to the foreclosure of such contracts or mortgages. It does not in express terms apply to foreclosures on mortgages and deeds of trust on real estate to be hereafter executed, but apparently to foreclosures on contracts already in existence. In fact, the words "mortgage" or "deed of trust" are nowhere used in the act. Foreclosures on real estate are several times mentioned, and foreclosures on mechanics' liens and purchase money liens are covered as well as mortgages and deeds of trust. The evident purpose of the Legislature was to relieve a present condition by applying the poultice of the act to the sore spot of deficiency judgments in foreclosures of mortgages, caused by decline in realty values. They made it expressly applicable to cases of foreclosure now pending and sales already made but not confirmed, which could not possibly have reference to future contracts, (section 3); and also to "suits filed after the effective date of this act and real property is sold under foreclosure decree of courts for said sale shall not be confirmed," etc. The whole context, we think, shows the Legislature was dealing with what it deemed a temporary emergency. Another matter not without force in determining this question, is that House Bill No. 270, by Gates, of Cleveland, was introduced and passed both Houses almost simultaneously with the Senate bill, which became act 57, which prohibited deficiency judgments in mortgage foreclosures, but by its express terms in 2, applied only to future contracts. It was introduced in the House January 26 and finally passed both Houses on February 13. Whereas act 57 was introduced in the Senate January 18, and finally passed both Houses February 10. The former was vetoed by the Governor, and the latter became a law without his signature. Evidently the Legislature thought the provisions of the bill, which became act 57, were not broad enough to prevent deficiency judgments on future contracts, and introduced and passed House Bill 270 to cover the apparent defect.

Before concluding, we desire to call attention to the case of Dennis v. Moses, 18 Wash. 537, 52 P. 33, holding unconstitutional an act of that State, entitled, "An act relating to deficiency judgments." We cannot review this case, nor the many others in both this State and the Supreme Court of the United States, sustaining, as we view them, the present holding. Suffice it to say that we have carefully considered the matter from every legal viewpoint, and have reached the conclusion that the act applies only to foreclosures on existing contracts, and is unconstitutional and void.

The judgment will therefore be reversed, and the cause remanded with directions to enter the decree of foreclosure and sale of the property without reference to act No. 57 of the Acts of 1933.

BUTLER, J., (concurring). The case before the court involves the question of procedure in the foreclosure and sale under a mortgage executed prior to the passage of act No. 57 of the General Assembly of 1933. Therefore, this act could have no other than a retroactive application to the case at bar. The majority hold that such an application violates the contract clause of the Federal Constitution. I agree that this question is concluded by the decisions of the Supreme Court of the United States and of this jurisdiction although it would appear that the authority of these decisions has been somewhat shaken by later decisions of the Supreme Court of the United States in the cases of Block v. Hirsch, 256 U.S. 135, 41 S. Ct. 458, and Marcus Brown Holding Company v. Feldman, 256 U.S. 170,41 S. Ct. 465. I therefore concur in the judgment of the majority in so far as it holds that the act, supra, can have no application in the instant case, for to so apply it would violate the contract clause of the Federal Constitution as construed by our own decisions and those of the United States Supreme Court. But to that part of the opinion which declares the act under consideration indivisible, and, if one section be found to be unconstitutional, the whole act must fall, I cannot agree. Neither can I agree to the conclusion that the act has no application to the foreclosure of deeds of trust and mortgages executed after it became effective.

In the first place, I observe that these questions were not before the court, and the declarations relating to them were unnecessary in disposing of the real question involved. They are, therefore, obiter dicta and not binding upon this court in any subsequent case. In the second place, the construction, I submit, can be justified in no other way than by reading into the act something that is not there and which from its language is clear the lawmakers never intended, a proceeding which is plainly an invasion by the judiciary of legislative powers.

If any special provision of an act be unconstitutional and can be stricken out without affecting the validity of the residue of the act, it will be done and the remainder of the act will be allowed to stand. This is the general rule announced by many of our decisions, among the later of which is Stanley v. Gates, 179 Ark. 886, 19 S.W.2d 1000. In the opinion of the majority act No. 57 is copied. It will be seen from an examination of it that all of its sections except 3 are general in their terms, and might, except for the presumption that all acts are to be given a prospective effect except where a contrary intention clearly appears, be both retroactive and prospective. Section 1 relates to "any foreclosure"; section 2 to "any foreclosure suits"; section 4 refers to "any such suits filed after the effective date of this act"; section 5 provides: "When any suit seeking the foreclosure of real estate is filed." Section 3, the one sought to be applied in the instant case, is not general in its terms, but limited and special, and relates to only such suits as had been instituted and were pending before and at the time of the passage of the act, and provides that no sale of real estate shall be confirmed unless and until the chancellor had ascertained that its fair market value had been bid. Its effect is plainly limited to suits to foreclose mortgages which had been executed prior to the passage of the act and is therefore so unconnected with the remaining provisions of the act, with a different purpose to be accomplished, that it may be stricken out without injury to 1, 2, 4 and 5. If there was any doubt on this subject, it is removed by the expressed will of the Legislature. Section 6 provides: "If any part, sentence, section or paragraph of this act is held to be unconstitutional, the remaining valid parts shall not be affected." Courts have no right to ignore such provisions in legislative acts. This court, in the case of Snetzner v. Gregg, 129 Ark. 542-8-9, 196 S.W. 925, referring to a similar provision, stated the duty of the court in these words: "But for the provision just quoted, it would follow that the whole statute is void, because the Legislature had determined it was appropriate and just to tax all of the property, both real and personal, for the construction of the improvements, and we could not see that the Legislature would have passed the statute with the authority to tax personal property eliminated." (This had been eliminated by the court from the statute because in excess of the constitutional power of the Legislature.) Continuing, the court further said: "This declaration incorporated by the lawmakers into the statute presents an altogether different question, for it expresses the purpose of the lawmakers to effect that, even if the personal property cannot be taxed, it is not only practicable to construct the improvement out of the taxation or benefits accruing to real estate, but that it is just to do so. We have then in the statute two legislative determinations; one, that it is just and fair to include the benefits to personality in the scheme of taxation; and also that, if that cannot be done under the law, it is equally just to pay for the construction of the improvements with funds derived from the taxation on benefits accruing to real property alone. This is not the delegation of legislative authority to the courts, nor is it an inconsistent alternative. It is a positive declaration of the purpose of the Legislature to put the law in force to the full extent of its constitutional power. * * * Under a statute like that, a part of the law which is not swept away by the courts as being in conflict with the Constitution is declared to be in force, and there is no mistaking the legislative will in that respect." Here it seems certain the Legislature intended the law to apply to the foreclosure of all mortgages, both those executed in the past and those which might be in the future. The language in all the sections, except 3, is all-embracing and provides for certain procedure in "any suits" without limitation as to the time when the instrument sought to be foreclosed was made. The necessary effect of 3 could relate only to contracts then existing. Therefore, there appear two purposes sought to be accomplished, and by 6 the Legislature makes plain its intent that, if one purpose be unattainable because of constitutional restrictions, the other should be carried into effect.

Among the fundamental rules governing the construction of statutes all must admit the following to obtain; the duty of the court to arrive at the legislative will to be determined primarily from the language of the statute itself and to sweep aside all obstacles in accomplishing it; that statutes are to be construed as having only a prospective operation unless the purpose of the Legislature to give them a retroactive operation is expressly declared or necessarily implied from the language used. Applying these rules to the act, with 3 eliminated, how can any ingenuous view of it or just interpretation justify the statement in the majority opinion: "Now, as * * * to future contracts, or to mortgages * * * subsequent to the effective date of the act, we think a careful examination of the act itself discloses that it has no application to the foreclosure of such contracts or mortgages." To support this statement, reference is made to the action of the Governor in vetoing a certain other bill and the subsequent passage of act No. 57 as persuasive of the interpretation that the latter act was intended to be retroactive only. This argument seems to me to be far-fetched, for it can make no difference what the Governor thought or did, as an application of the rule stated to the language of the statute makes plain the legislative intent without reference to extraneous sources. Section 3 of the act can apply to nothing save suits on mortgages, etc., executed prior to its passage. Included in the comprehensive terms of the remainder of the act are all suits to foreclose any mortgage. So that it might be both retroactive and prospective. In its retrospective effect, like 3, it is in conflict with the provisions of the Federal Constitution prohibiting legislation by the States which impair the obligation of existing contracts. In its prospective application it is not open to that objection and is constitutional. Ogden v. Saunders, 12 Wheat., page 295. This result is reached also by the application of the rule that where any doubt about the constitutionality of a statute exists it must be resolved in favor of its validity and the language given a construction which makes it constitutional, if it is reasonably susceptible to such construction (Dobbs v. Holland, 140 Ark. 398, 215 S.W. 709), and it will be sustained if there is any reasonable doubt of its unconstitutionality (Little River County Board of Education v. Ashdown Special School District, 156 Ark. 549,247 S.W. 70); and where two constructions may be placed on the language of the act the construction will be adopted which will render the statute valid. Booe v. Simms, 139 Ark. 595. 215 S.W. 659. This rule, with that by which a statute is construed to have a prospective effect rather than a retroactive one (Elrod v. Board of Imp., 171 Ark. 848, 298 S.W. 965), makes the statute effective as it relates to suits on mortgages executed after the passage of the act.

Learned counsel appearing as friends of the court, and who contend for the unconstitutionality of the act in its entirety, to my mind recognize the weakness of their position when they evoke visions of economic disaster which may result by reason of its enactment, and when they contend that it has practically dried up the streams of credit, so that home owners are unable to find relief from Federal agencies which, but for the provisions of the act, would lend money in order that the distress of the home owner might be relieved. This is an argument with which we have no concern. It is common school-boy knowledge that questions of policy are for legislative and not for judicial determination. It is possible that it was unwise to enact the law; it may be that good results might flow there from. But whether wise or foolish, good or ill, if this court remains within the restrictions placed by the Constitution on its powers, it can do nothing. The argument made should be addressed to those authorities having the power to redress the wrong, if there be one, and not to us. This court, and all others has always recognized its limitations in these regards and has always refused to encroach on the domain of the Legislature.