Beaver County Building & Loan Ass'n v. Winowich

I dissent from the opinion of the majority. I would hold valid the legislation here in question. The majority opinion makes it appear that this legislation is an impairment of the obligation of contract in violation of the Federal Constitution, and that it contravenes provisions of the State Constitution. An analysis of the provisions of the Act leads me to the opposite conclusion. The Mortgage Deficiency Judgment Act of January 17, 1934, P. L. 243, here in question, does not impair any substantive contractual rights of the mortgagee. The mortgagor's obligation to pay the full amount of the debt is in no way impaired, changed or altered. He remains fully liable therefor. In case of default, the mortgagee may foreclose and proceed to realize the principal sum, plus interest and costs, just as before the Act. The payment of the debt is not postponed one day. All that the Act does is to require the mortgagee to establish and give credit for the "fair value" of the mortgaged premises, before he can proceed against other property of the debtor. As this Court said, speaking of the legislative intent in the passage of this very Act, inEvans v. Provident Trust Company, 319 Pa. 50, 52: "The purpose of the Act is to assure in the interest of a defendant mortgagor, a credit on the judgment according to the fair value of the property bought in by the mortgagee, regardless of the amount bid, very often, a nominal amount." The mortgagee may still obtain a deficiency judgment for any amount by which the principal debt, plus interest and costs, exceeds this "fair value" of the property. The Act merely puts into effect, in times of great economic stress, equitable principles which have long been recognized in the foreclosure of mortgages.

Prior to the enactment of this statute the purpose of the sheriff's sale was to realize by competitive bidding the fair value of the mortgaged premises. The amount so realized was always in relief of or deducted from the judgment. Due to the conditions of the present time there were no purchasers desiring to buy at sheriff's sales and competitive bidding almost completely disappeared. Solely for the purpose of affording a remedy for this situation the Legislature passed this Act. When its provisions are examined closely it is to be seen that a procedural change only is brought about by the requirement that "the plaintiff . . . shall . . . petition the court out of which such writ of execution issued to fix the fair value of the property sold," and to deduct the amount of such fair value from the amount of the judgment, interest and costs before a deficiency judgment may be entered for the balance. It is difficult to understand how it can be declared that this provision goes beyond a mere change in procedure upon the foreclosure of a mortgage. Certainly it cannot be held that the mortgagee has a substantive right, by virtue of the mortgage contract or otherwise, to buy in the property for a nominal or grossly inadequate sum.

The statute here is intended to regulate the remedy for the enforcement of the obligation, and not to impair the obligation itself. We have consistently held that a statute which affects remedial processes only does not impair contractual obligations: West Arch B. L. A. v. Nichols, 303 Pa. 434. The present Chief Justice in the case cited (where was involved the constitutionality of the Act of May 6, 1929, P. L. 1557, permitting the sale of real estate without inquisition) thus stated the principle, (p. 440): "The Act does not violate the constitutional inhibition against impairing the obligations of contracts. It changes the mode of procedure or the remedy by eliminating a part of the requisites." He said (quoting from King v. The Security Co., 241 Pa. 547): "No person has a vested right in any course of procedure, nor in the power of delaying justice, or of deriving benefit from technical and formal matters of pleading . . . and if a statutealters that mode of procedure, he has no other right than toproceed according to the altered mode."

It is well recognized that the State possesses control over remedial processes, and may make changes in methods of procedure without violating the contract clause of the federal constitution. As Mr. Justice HUGHES pointed out in Home B. L.Assn. v. Blaisdell, 290 U.S. 398, quoting from an earlier case (p. 433): "The general doctrine of this court on this subject may be thus stated: In modes of proceeding and forms to enforce the contract the legislature has the control, and may enlarge, limit or alter them, provided it does not deny a remedy or so embarrass it with conditions or restrictions as seriously to impair the value of the right."

Again to make clear my position, it seems to me that this Act is not in derogation of substantial contractual rights, as the majority opinion holds. It merely establishes, as a temporary expedient, during a period of great economic stress, a change in the method of procedure to collect a mortgage debt. The Act is designed to meet the necessities of a declared emergency to prevent the sacrifice of real property throughout the state at mortgage foreclosure sales. History supplies ample precedents in the laws of this state and the decisions of this Court for the enactment and validity of such remedial measures in times of urgent public need. For example, during the crisis and collapse of the credit system in 1842, the legislature passed an act which prohibited for a time sheriff's sales of property for less than two-thirds of its appraised value. The Act (July 16, 1842, P. L. 407) provided that lands taken in execution should be valued and appraised by an inquest of twelve men summoned by the sheriff or coroner; that such valuation or appraisement should be conclusive, and that when "the same cannot be sold at public vendue or outcry for two-thirds ormore of such valuation or appraisement, that then, and in such case the sheriff or coroner shall not make sale of the premises, but shall make return of the same accordingly to the court from which the execution issued, and that thereupon all further proceedings for the sale of such lands, tenements, or hereditaments shall be stayed for one year from and after the return day."

The constitutionality of this Act of 1842 came before this Court in the case of Chadwick v. Moore, 8 W. S. 49, where the Act was upheld in an opinion delivered by Chief Justice GIBSON. He said (p. 52): "To hold that a State Legislature is incompetent to relieve the public from the pressure of sudden distress by arresting a general sacrifice of property by the machinery of the law, would invalidate many statutes whose constitutionality has hitherto been unsuspected."

In this State we have for several hundred years proceeded upon the theory that the real purpose of a public sale in connection with a mortgage foreclosure proceeding is to arrive at the fair value of the mortgaged property. But what is meant by the expression "the fair value of the property"? Recently we defined the meaning of "fair value" as used in this very Act when we said in Market Street National Bank v. Huff, 319 Pa. 286,288, that it was "such sum as the property will sell for to a purchaser desiring to buy, the owner wishing to sell; such a price as a capable and diligent business man could presently obtain from the property after conferring with those accustomed to buy such property; the amount the property would bring at asale on execution shown to have been in all respects fair andreasonable; the fair market value of the property as between one who wants to purchase and one who wants to sell the property."

As pointed out above, in normal times the amount the mortgaged property would bring at public vendue or outcry was, as this Court said, "in all respects fair and reasonable," and the method of sale by the sheriff was equitable alike to mortgagor and mortgagee. Unfortunately this method as a means of determining fair value has completely broken down. Sheriff's sales have been attended principally by the attorneys for the execution plaintiffs, and they have bid in the property for costs and taxes. In the case of Market Street National Bank v.Huff, supra, it appears from the opinion of the court below, as found in 21 Pa. D. C. 157, that the real estate in question was sold to the attorney on the writ for the sum of $50.00. The court found that the fair value of the premises was $28,727.00. The method of determining the value by a sheriff's sale having temporarily proved inadequate due to the extraordinary economic situation, in its place the Act has substituted the deliberate judgment of the court as to the fair value of the property totide over the emergency.

That the Legislature, in the exercise of the sovereign power of the state, has authority to meet the public need by the present statute, which is reasonable and appropriate to the emergency, seems to me too clear for argument. To permit the mortgagee to take advantage of distressing conditions, when a sale is really no sale at all, is contrary to all legal and equitable principles.

This Court recognized the inequity to which I refer when it said in White's Estate, 322 Pa. 85, 90: where the mortgaged premises had been sold for $50.00 at sheriff's sale on August 4, 1930, at the beginning of the present financial crisis, and the balance of the obligation reduced to a personal judgment, "This is indeed a harsh situation and an attempt has been made to afford a remedy in such cases by the provisions of the Act of January 17, 1934, P. L. 243, and those of the Act of July 1, 1935, P. L. 503. Unfortunately for this estate the rights of the parties had become fixed prior to the passage of the Acts mentioned."

The foundation upon which this legislation rests is that it is expressly intended, as such measures in the past have been, as emergency legislation. This view finds support in the words of Mr. Chief Justice HUGHES in the Blaisdell case, supra, at page 439, where he said: "And if the state power exists to give temporary relief from the enforcement of contracts in the presence of disasters due to physical causes such as fire, flood or earthquake, that power cannot be said to be non-existent when the urgent public need demanding such relief is produced by other and economic causes."

It cannot, then, with reason be asserted that the act in question is unconstitutional because the state lacks the power to provide for the temporary relief of mortgage debtors to the extent that the mortgagee must give adequate credit for what he has already taken before proceeding against other property of the mortgagor. The Supreme Court of the United States recently held that the state possessed such reserve power, which, as I see it, is the power to protect the vital interests of its citizens against the state-wide sacrifice of real estate, the destruction of all real estate values, and the financial disaster inevitably involved in oppressive outstanding deficiency judgments. In W. B. Worthen v. Thomas, 292 U.S. 426,432, the Court said: "We held in Home Building and Loan Assn. v. Blaisdell [supra] that the constitutional prohibition against the impairment of the obligation of contracts did not make it impossible for the state, in the exercise of its essential reserved power, to protect the vital interests of its people. The exercise of that reserved power has repeatedly been sustained by this court as against a literalism in the construction of the contract clause which would make it destructive of the public interest by depriving the state of its prerogative of self protection."

It seems to me that the Act in question should be placed in the same category with those Acts of Congress and laws of other states which have been sustained by reason of the emergency 5character of the legislation. I need only refer to a few of these, such as the so-called "rent cases" (Block v. Hirsh,256 U.S. 135; Marcus Brown Hold. Co. v. Feldman, 256 U.S. 170); the "gold clause" case (Norman v. Baltimore Ohio R. R. Co.,294 U.S. 240); the Minnesota mortgage moratorium law (Blaisdell case, supra).

In most of the cases cited in the majority opinion, wherein the various state Deficiency Judgment Acts were held unconstitutional, the Acts were more drastic and unreasonable in their provisions than is the Act now before us. In Adams v.Spillyards, 61 S.W.2d 686, 187 Ark. 641, the statute of Arkansas in effect abolished deficiency judgments by providing that the mortgaged property should be considered to be of the value of the loan without regard to the amount realized at the foreclosure sale. In Vanderbilt v. Brunton Piano Co.,169 A. 177, 111 N.J. Law 596, and Langever v. Miller,76 S.W.2d 1025, 124 Tex. 80, it clearly appears from the opinions that the Acts considered were not passed as emergency legislation nor limited in their duration. In Atlantic Loan Co. v.Peterson, 182 S.E. 15, 181 Ga. 266, the Court points out that the Georgia statute does not purport to be emergency legislation, and therefore, expressly refrained from deciding whether or not emergency legislation limited to a definite period might be sustained as constitutional. In Kresos v.White, 54 P.2d 800, the Arizona Act was more stringent in its provisions than our Pennsylvania Act, and, as the Court says in its opinion (p. 801), "The practical effect of this statute is to do away with deficiency judgments."

These cases construing Acts so different in their provisions from the one now before us, are not analogous, nor are they at all authoritative on the question here involved. At least they should not be followed by this Court. However, in New York, in the case of Klinke v. Samuels,190 N.E. 324, 264 N.Y. 144, a statute almost identical in substance with the Pennsylvania Act was held constitutional, the Court citing and relying upon the decision of the United States Supreme Court in the Blaisdell case, supra.

I am strongly opposed to what has been referred to as a "literalism in the construction of the contract clause" of the Constitution where emergency conditions make necessary a relief measure of the character of this legislation. I would sustain the constitutionality, both state and federal, of the Act in question.