Sewer Improvement District No. 1 v. Delinquent Lands

I regret that I cannot agree with the majority opinion in this case. It seems to me that we have departed from the ancient and modernlandmarks of judicial construction and interpretation of statutes, and entered upon the sea of uncertainty, an exigency to meet what is thought to be an emergency. But emergency does not create power.

Under the law as it existed prior to the passage of act 278 of 1933, property owners in municipal improvement districts had thirty days in which to pay their assessments after the date of the notice required to be given by the collector and published by him. Section 5671, Crawford Moses' Digest. If not paid within that time, the collector was required to add a penalty of 20 per cent. to the delinquents and immediately make a return of delinquents to the board of improvement. Section 5673, Id. The board was required straightway to bring a suit against delinquents to enforce collection of such assessments. Section 5674, Id. In case of personal service, which the law requires (5677, Id.), defendants were given 5 days to appear and answer, and upon default a decree was required to be then rendered against the property for the amount of the assessment, penalty, costs and attorney's fee. Section 5678, Id. In case the defendant property owner is a nonresident or unknown, 15 days constructive service is required before default decree. Section 5679. In case of decree for the board, property owners were given 10 days in which to pay, but, if not paid in that time, the property was ordered sold upon 20 days' notice. Section 5684, Id. If an appeal were prosecuted by any property owner, he was given 20 days to file his transcript with the clerk of the Supreme Court. Section 5687, Id. The Supreme Court was required to advance the case and determine it at the earliest date practicable, usually three weeks. So, it will be seen, that, from the time the assessment list was delivered to the collector until a sale of the delinquent property could be had, only 65 days were required in which to sell on personal service and 75 days on constructive service, in case there was no appeal to the Supreme Court, in which case only abort 50 days more were required. Act 278 changes all this in the following particulars: Instead of thirty days for collection by the collector, the time is extended to 90 days at the expiration of which time 3 per cent. penalty is added instead of 20 per cent., and, instead of making an immediate return of delinquents, the collector is required to wait 90 days more to make such return. Section 1, act 278. Instead of five days' personal service in which to appear and answer, before default, the time is extended to six months. If no answer, default may be had at that time. Section 2, act 278. Constructive service is the same. Section 3, Id. Instead of 10 days given in the decree after default in which to pay before sale, the time is extended to twelve months, and then upon six months' notice instead of 20 days. Section 4, Id. So it will be seen that the very minimum time in which to effectuate a foreclosure and sale under act 278 is 900 days. The sections relating to appeals have all been repealed.

Under the statute as it existed prior to 1933, property owners had five years in which to redeem from such sales, (5644, Crawford Moses' Digest), but the tax purchaser was given the right of possession from the date of confirmation until redemption without accounting for rents and profits. Section 5642, Id. This latter section was repealed by act 129, Acts 1933, p. 375. The five-year redemption period was changed to four years. Act 252, Acts 1933, p. 790. The repeal of the provisions relative to speedy appeals would require all cases in the future to take the course of any other appeal. Instead of 20 days to file a transcript on appeal as given by 5687, six months could now be taken, and, instead of advancing the case on the docket, it would take the usual course, 40 days to appellant, 30 days to appellee and 7 days for reply, or a total of 77 days before it would be subject to submission under the rules of this court after being docketed.

Now, when appellant district was formed and sold bonds, the law was as heretofore stated prior to act 278, and the other acts mentioned. Instead of a speedy method of enforcing payment of taxes on assessments, one which forcibly encouraged prompt payment, a slow and dilatory system is substituted, one which encourages taxpayers to become delinquent.

But the majority opinion says this "affects only the remedy in the enforcement of contracts, and has nothing to do with the contract itself." Let us see if this statement is correct. It must be admitted as a fundamental right of both the district and its bondholders to pay and have paid the obligations of the district at the time and in the manner provided in the contract between them. This can only be accomplished by prompt collection of taxes on assessed benefits which were so fixed and bond maturities so arranged that the annual collections would meet the bond interest and maturities. Under the new act, No. 278, unless all the property owners, or substantially all, voluntarily pay their improvement taxes, bonds and coupons will necessarily become delinquent, as they are not required to pay for a period of two and one-half years before sale, with four years for redemption after sale, and then a penalty of only 3 per cent. (not per annum) is permitted for nonpayment. This not only affects the remedy, but, in my opinion, virtually destroys it, and is therefore unconstitutional.

This is not a new question in this court. As said in the early case of Burt v. Williams, 24 Ark. 91: "The constitution prohibits the passage of any law that impairs the obligation of contracts, and it is well-settled that any law which destroys the remedy for enforcing a contract, or so obstructs the remedy as to make the contract valueless, or greatly lessen its value, impairs its obligation. A right without a remedy to declare it is not a valuable right; a contract that cannot be enforced has no legal obligation; and one that was enforcible by law when made, but which cannot be compelled to be performed, by the law for its performance being repealed, or being so changed or clogged as materially to diminish its worth, has suffered from unconstitutional legislation."

And in Jacoway v. Denton, 25 Ark. 625, it is said: "A contract is an agreement in which a party undertakes to do or not to do a particular thing. The law binds him to perform his undertakings, and this is of course the obligation of his contract. In the case at bar, the defendant has given his promissory note to pay the plaintiff a sum of money on or before a certain day. The contract binds him to pay that sum on that day, and this is its obligation."

Also in Leach v. Smith, 25 Ark. 247, it is said: "The objections to a law on the ground of its impairing the obligation of a contract can never depend upon the extent of the change which the law affects in it. Any deviation from its terms, by postponing or accelerating the period of its performance, imposing conditions not expressed in the contract, and dispensing with those which are, however minute or immaterial in their effect upon the contract of the parties, impairs its obligation."

The above is a quotation from Green v. Biddle, 8 Wheaton (U.S.) 84, and immediately following is a quotation from Ogden v. Sanders, 12 Whart. 256, that "it is perfectly clear that a law which enlarges, abridges, or in any manner changes the intention resulting from the stipulation of the contract, necessarily impairs it."

Again in Oliver v. McClure, 28 Ark. 555, this court said: "A State law, passed subsequently to the execution of a mortgage, which declares that the equitable estate of the mortgagor shall not be extinguished for twelve months after a sale under a decree in chancery, and which prevents a sale, unless two-thirds of the amount at which the property had been valued by appraisers shall be bid therefor (as applied to prior contracts), is within the clause of the tenth section of the first article of the Constitution of the United States, which prohibits a State from passing a law impairing the obligation of contracts."

In the recent case of Adams v. Spillyards, 187 Ark. 641,61 S.W.2d 686, 86 A.L.R. 1493, after reviewing former decisions on the question of impairing the obligation of contract, this court, among other things, said: "The attack made on the validity of the act is based on article 1, 10, Constitution of the United States, and article 2, 17, of the Constitution of Arkansas, both prohibiting the State from passing any law impairing the obligation of contracts. * * * We said in Bush v. Martineau,174 Ark. 214, 295 S.W. 9, 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. * * * 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 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 Wall. 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. 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.'" To the same effect are the decisions of the Supreme Court of the United States. U.S. v. City of Quincy, 4 Wall. 535; Sturges v. Crowninshield, 4 Wheat. 122; Bronson v. Kinzie, 1 How. 311; McCracken v. Hayward, 2 How. 608; Port of Mobile v. Watson,116 U.S. 289, 6 S. Ct. 398.

In Port of Mobile v. Watson, supra, the court said: "Therefore the remedies for the enforcement of such obligations assumed by a municipal corporation, which existed when the contract was made, must be left unimpaired by the Legislature, or, if they are changed, a substantial equivalent must be provided. Where the resource for the payment of the bonds of a municipal corporation is the power of taxation existing when the bonds were issued, any law which withdraws or limits the taxing power and leaves no adequate means for the payment of the bonds is forbidden by the Constitution of the United States, and is null and void."

Barnitz v. Beverly, 163 U.S. 118, 16 S. Ct. 1042, is a very interesting case on the subject and so much in point, I feel justified in quoting from it at length. It was there said: "Without pursuing the subject further, we hold that a statute which authorizes the redemption of property sold upon foreclosure of a mortgage, where no right of redemption previously existed, or which extends the period of redemption beyond the time formerly allowed, cannot constitutionally apply to a sale under a mortgage executed before its passage.

"Let us briefly apply the conclusion thus reached to the facts of the present case. The plaintiff was the holder of several promissory notes, dated November 1, 1885, secured by a mortgage of the same date upon a tract of land in Shawnee County, Kansas. The mortgage contained an express waiver of an appraisement of the real estate. Default in payment having ensued, the suit was brought, praying that the mortgaged premises should be sold according to law, without appraisement, that the proceeds arising from the sale should be applied to the payment of the indebtedness due the plaintiff, and that the defendants should be forever barred and precluded of any right of redemption.

"Under the law as it existed at the time when the mortgage was made, after a foreclosure and sale of the mortgaged premises, the purchaser was given actual possession as soon as the sale was confirmed and the sheriff's deed issued. Thereafter the mortgagor or the owner had no possession, title, or right in any way to the premises.

"Under the new law the mortgagor shall have eighteen months from date of sale within which to redeem, and, in the meantime, the rents, issues, and profits, except what is necessary to keep up repairs, shall go to the mortgagor or the owner of the legal title, who in the meantime shall be entitled to the possession of the property. The redemption payment is to consist, not of the mortgage debt, interest, and costs, but of the amount paid by the purchaser, with interest, cost, and taxes.

"In other words, the act carves out for the mortgagor or the owner of the mortgaged property an estate of several months more than was obtainable by him under the former law, with full right of possession, and without paying rent or accounting for profits in the meantime. What is sold under this act is not the estate pledged (described in the mortgage as a good and indefeasible estate of inheritance, free and clear of all incumbrance), but a remainder — an estate subject to the possession, for eighteen months, of another person who is under no obligation to pay rent or to account for profits.

"The 23rd section of the act should not be overlooked, providing that real estate once sold upon order of sale, special execution, or general execution, shall not again be liable for sale for any balance due upon the judgment or decree under which the same is sold, or any judgment or lien inferior thereto, and under which the holder of such lien had a right to redeem.

"Obviously this scheme of foreclosure renders it necessary for the mortgagee to himself bid, or procure others to bid, the entire amount of the mortgage debt, and thus, in effect release the debtor from his personal obligation.

"We, of course, have nothing to do with the fairness of the policy of such enactments as respects those who choose to contract in view of them. But it seems impossible to resist the conviction that such a change in the law is not merely the substitution of one remedy for another, but it is a substantial impairment of the rights of the mortgagee as expressed in the contract. Where, in a mortgage, an entire estate is pledged for the payment of a debt, with right to sell the mortgaged premises free from redemption, can that be valid legislation which would seek to substitute a right to sell the premises subject to an estate or right of possession in the debtor or his alienees for eighteen months?" * * *

"When we are asked to put this case within the rule of those cases in which we have held that it is competent for the States to change the form of the remedy or to modify it otherwise, as they may see fit, provided no substantial right secured by the contract is thereby impaired, we are bound to consider the entire scheme of the new statute, and to have regard to its probable effect on the rights of the parties.

"It is contended that the right to redeem, granted by the new statute, only operates on the purchaser and not on the mortgagee as such. This very argument was foreseen and disposed of in Bronson v. Kinzie, 42 U.S. (1 How.) 319, where this court said:

"It (the new act) declares that although the mortgaged premises should be sold under the decree of the court of chancery, yet that the equitable estate of the mortgagor shall not be extinguished, but shall continue for twelve months after the sale; and it moreover gives a new and like estate, which before had no existence, to the judgment creditor to continue for fifteen months. If such rights may be added to the original contract by subsequent legislation, it would be difficult to say at what point they must stop. An equitable interest in the premises may, in like manner, be conferred upon others; and the right to redeem may be so prolonged as to deprive the mortgagee of the benefit of his security by rendering the property unsalable for anything like its value. This law gives to the mortgagor and to the judgment creditors (meaning creditors other than the mortgagee) an equitable estate in the premises, which neither of them would have been entitled to under the original contract; and these new interests are directly and materially in conflict with those which the mortgagee acquired when the mortgage was made. Any such modification of a contract by subsequent legislation, against the consent of one of the parties, unquestionably impairs its obligations, and is prohibited by the Constitution.

"The judgment of the Supreme Court of Kansas is reversed, and the cause remanded to that court with directions for further proceedings not inconsistent with this opinion."

In the opinion of the majority it appears that the decision of the Supreme Court of the United States in the recent case of Home Building Loan Ass'n v. Blaisdell, was of controlling influence. As I read this case, it has no bearing on this, and is not at all in point. The Minnesota statute, there under consideration, was temporary in character, expiring of its own terms May 1, 1935, and purported to be an emergency measure for a short period of time. There the court was given the power to determine the necessity for the delay and to require the owner to pay a reasonable rental for retaining possession in the event delay was decreed. Here the measure is permanent in character, and it is no answer to say that the Legislature may repeal it when the occasion for its enactment has ceased to exist. And no right to possession or to the rents and profits is accorded during the more than two years' delay, in addition to the four years allowed for redemption. The act of 1915, heretofore referred to, did give the right of possession, but the same Legislature that enacted act 278 of 1933 also repealed the statute giving such right by act 29. If, as indicated in the majority opinion, an improvement district may have a receiver appointed for all delinquent property in the district under the authority of chapter 150, Crawford Moses' Digest, I think they have dug up a bunch of snakes that will be harder to kill than the job St. Patrick had in Ireland. That chapter, dealing with the powers of courts of equity to appoint receivers has been the law since January 15, 1857, except 8611 to 8615, inclusive, which are parts of the Civil Code, and up to this time it has never been invoked in a proceeding to collect delinquent taxes in improvement districts. Moreover, it could not be invoked under the provisions of 8612 relating to mortgaged property, as the court has jurisdiction to appoint a receiver under this section only "where it appears that the mortgaged property is in danger of being lost, removed or materially injured, or that the condition of the mortgage has not been performed, and that the property is probably insufficient to discharge the mortgage debt." Undoubtedly the kind of mortgage referred to is the ordinary mortgage given to secure a personal indebtedness and not a lien upon the benefits assessed against property in an improvement district.

It is therefore clear to my mind that act 278 of 1933 is unconstitutional and void as to all contractual obligations of improvement districts created prior to the passage of said act.

I am authorized to say that Mr. Justice SMITH concurs in this dissent.