Federal Land Bank of Cola. v. Garrison

Full title: FEDERAL LAND BANK OF COLUMBIA v. GARRISON ET AL

Court: Supreme Court of South Carolina

Date published: May 4, 1937

185 S.C. 255 (S.C. 1937)

193 S.E. 308

Opinion

14475

May 4, 1937.

Before OXNER, J., Cherokee, September, 1936. Affirmed.

Writ of certiorari to the U.S. Supreme Court denied October 18, 1937, 82 L.Ed., 22.

Suit by the Federal Land Bank of Columbia against R.F. Garrison and others. From an adverse order defendants appeal.

The decree of the trial Court follows:

On January 12, 1920, the defendant, F.M. Brown, executed and delivered to the plaintiff, the Federal Land Bank of Columbia, a mortgage on certain lands described in the mortgage, complaint, and decree of foreclosure and sale to secure his note for $1,600.00, payable to the plaintiff herein, the terms and conditions thereof appearing in the original note and mortgage filed with the record constituting the judgment roll in this action.

On July 22, 1922, F.M. Brown conveyed the mortgaged premises to J. Eb Jefferies and George D. Jefferies by deed wherein, by express stipulation, the grantees assumed the payment of the mortgage in full and as provided in and by the terms and conditions of said mortgage.

On August 3, 1922, J. Eb Jefferies and George D. Jefferies conveyed the mortgaged premises to T.H. James, who by express stipulations in the deed of conveyance assumed the payment of the mortgage debt.

On October 14, 1922, T.H. James conveyed the mortgaged premises to R.F. Garrison, who likewise expressly assumed the payment of the mortgage debt.

On October 4, 1926, R.F. Garrison conveyed the mortgaged premises to R.W. Garrison, who also assumed the payment of the mortgage debt.

Prior to the commencement of this action, J. Eb Jefferies died leaving a last will and testament in which Mrs. Ethel R. Jefferies was appointed as executrix. This will was duly admitted to probate and the executrix has duly qualified.

The conditions of the mortgage having been broken, an action was commenced by the plaintiff against the defendants, R.W. Garrison, R.F. Garrison, T.H. James, Mrs. Ethel R. Jefferies, as executrix of the last will and testament of J. Eb Jefferies, deceased, George D. Jefferies, and F.M. Brown. All defendants were duly served but, as it appears from the report of the special referee, G.W. Speer, Esq., to whom all issues were referred, the defendants, Mrs. Ethel R. Jefferies, as executrix of the will of J. Eb Jefferies, George D. Jefferies, and F.M. Brown, appeared and filed answers by Messrs. Wolfe Fort, their attorneys. The report of the special referee gives a clear statement of the facts found by him and his conclusions of law respecting the issues made by the answers of the defendants. Their contentions were overruled by the referee, and judgment against all of the defendants for the full amount claimed by the plaintiff was recommended. Thereafter, the matter having come before the Court, a decree of foreclosure and sale was made and judgment rendered therein in favor of the plaintiff against all of the defendants for the full amount due on the mortgage debt, with interest and attorney's fees, etc., amounting to the sum of $2,079.89, together with the costs of the action. The plaintiff, not having waived its right to a deficiency judgment in the event the mortgaged property should fail to realize enough at sale to pay all costs, taxes, and the amount due to the plaintiff, the Court directed that the premises be sold at public auction, as provided by law, on sales day in July, 1936, to the highest bidder for cash, but that the sale be kept open for the statutory period of 30 days for the purpose of giving opportunity to others to bid. At the sale on July, 1936, sales day the plaintiff was the last and highest bidder at the price of $1,200.00. At the expiration of the 30-day period, no other bid having been received, the Clerk of Court executed and delivered to the plaintiff a proper deed of conveyance to the said premises. The Clerk of Court's report of sale shows that, after deducting all costs and expenses of the foreclosure action from the amount of the plaintiff's bid, there remained a deficiency of $1,037.98.

The decree of foreclosure and sale was consented to in writing by the attorneys for the defendants, who appeared and answered.

Thereafter and within 90 days from the date of sale, a petition on behalf of the judgment debtors, Mrs. Ethel R. Jefferies, as executrix, George D. Jefferies, and F.M. Brown, was presented to the Clerk of Court, setting forth that the price realized at the sale of the mortgaged premises was less than the true value of the lands, etc., and prayed for an order directed to three disinterested appraisers to appraise the said lands, etc.

This petition sought relief from the deficiency judgment under the provisions of an Act of the General Assembly of South Carolina, May 2, 1933 (38 St. at Large, p. 350), entitled: "An Act to Provide for the Relief of Real Estate Mortgagors and Other Judgment Debtors for Deficiency Judgments in Foreclosure to the Extent of the True Value of the Mortgaged Property, and to Prescribe the Procedure Thereon."

To this petition the plaintiff prepared and served on the attorneys for the petitioning judgment debtors an answer wherein, upon specifications, set out therein, the Act of the General Assembly under which the petitioners seek relief, was unconstitutional, null and void, in so far as it affects the plaintiff whose note and mortgage were executed prior to the enactment of the aforesaid Act, as impairing the obligation of the mortgage contract, in violation of Article 1, § 8, of the Constitution of the State of South Carolina, and Article 1, § 10, of the Constitution of the United States of America; also that said Act is repugnant to the provisions of Article 1, § 17, of the Constitution of South Carolina, which forbids that private property shall be taken for private use without the consent of the owner. A fourth constitutional objection made by the answer is that the said Act, if enforced, deprives the plaintiff of its property without due process of law in contravention of the provisions of Article 1, § 5, of the Constitution of South Carolina, and the Fifth and Fourteenth Amendments to the Constitution of the United States of America, upon grounds stated. In the prayer for relief, the plaintiff prays for judgment: (1) That the petition be dismissed; (2) that the Act of the General Assembly under which petitioners seek relief be adjudged to be unconstitutional, null and void as to the plaintiff; (3) that the petitioners-defendants be adjudged to be estopped by their conduct, inattention, and negligence; (4) for such other and further relief as may be just and proper.

After the service of this answer, an agreement in writing was entered into by and between the attorneys for the plaintiff and for the petitioning judgment debtors, whereby it was agreed that, since the plaintiff has questioned the constitutionality of the aforesaid Act, no further proceedings regarding the appraisal would be taken until the constitutional issues, so far as this case is concerned, shall be first determined, for which purpose the entire record in this cause, including the petition for appraisal and the answer of the plaintiff to said petition, might be used. No appeal was taken from the judgment obtained by the plaintiff against the defendants named herein, hence the liability of the defendants has been finally adjudicated.

By agreement of counsel for the petitioning judgment debtors and for the plaintiff, all issues relating to the constitutionality of the Act of May 2, 1933, were heard by me at Spartanburg on October 5, 1936.

The first issue to be determined is, whether the Act of 1933, under which the defendants-petitioners are seeking relief, is repugnant to the provisions of Section 8, Article 1, of the Constitution of the State of South Carolina, and Section 10, Article 1, of the Constitution of the United States of America. The State Constitution prohibits the General Assembly from enacting any law impairing the obligations of contracts. Section 10, Article 1, of the Constitution of the United States of America provides that no state shall pass any law impairing the obligation of contracts.

The Act involved, which was approved May 2, 1933 (38 St. at Large, p. 350), is entitled: "An Act to Provide for the Relief of Real Estate Mortgagors and Other Judgment Debtors from Deficiency Judgments in Foreclosure to the Extent of the True Value of the Mortgaged Property, and to Prescribe the Procedure Thereon." In substance, it provides that, within 90 days after sale under foreclosure, any defendant, against whom personal judgment has been taken, may apply by petition to the Clerk of Court for an order of appraisal. Upon this petition, the clerk is empowered to issue an order that the property be appraised at its true value as of the date of sale by three disinterested appraisers, who must be freeholders. The petitioner is permitted to designate one appraiser and the judgment creditor a second appraiser. The third appraiser is appointed by the Court. The Act in effect provides that the deficiency judgment, if any, is measured by the difference, if any, between the true value of the property as of the time of sale, and the judgment indebtedness. The statute gives a right of appeal to the Court from the return made by the appraisers.

The three questions above enumerated will be discussed in the order named.

The question of the constitutionality of said Act has given me much concern. I am not unmindful of the purpose prompting its passage, nor of the hardship in some instances it was designed to remove. The Courts will take judicial notice of the world-wide financial crisis which has existed during the last few years, and that it has been difficult to sell real estate, or other property, at a fair price, either at public or private sale; that due to financial reverses almost common to all, prospective purchasers at judicial sales who were willing and able to pay a reasonable price for property offered for sale, have been few, and usually the mortgagee was about the only bidder; that in many instances the property was bought in at a somewhat nominal price, resulting in large deficiency judgments. I am also not unmindful of the well-settled rule that an Act of the Legislature is presumed to be constitutional, and will not be held by the Courts to be otherwise unless its unconstitutionality is shown beyond a reasonable doubt. However, 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.

With these principles in mind, I approach consideration of the first question.

In speaking of the constitutional provision forbidding the enactment of any law impairing the obligation of a contract, in Martin v. Saye, 147 S.C. 433, 145 S.E., 186, 191, the Court said: "`The obligation of a contract consists in its binding force on the party who makes it. This depends on the laws in existence when it is made; these are necessarily referred to in all contracts, and forming a part of them as the measure of the obligation to perform them by the one party and the right acquired by the other. There can be no other standard by which to ascertain the extent of either, than that which the terms of the contract indicate, according to their settled legal meaning; when it becomes consummated, the law defines the duty and the right, compels one party to perform the thing contracted for, and gives the other a right to enforce the performance by the remedies then in force. If any subsequent law affect to diminish the duty or to impair the right, it necessarily bears on the obligation of the contract in favor of one party, to the injury of the other: hence any law, which in its operation amounts to a denial or obstruction of the rights accruing by a contract, though professing to act on the remedy, is directly obnoxious to the provisions of the Constitution.' McCracken v. Hayward, 2 How. [608], 612, 11 L.Ed., 397. `The objection 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 effects in it. Any deviation from its terms, by postponing or accelerating the performance which it prescribes, imposing conditions not expressed in the contract, or dispensing with the performance of those which are, however minute or apparently immaterial in their effect upon the contract of the parties, impairs its obligation.'"

It is therefore material to inquire as to what were the rights of the mortgagee prior to the enactment of the legislation. When the mortgage was executed the mortgagee had a right upon default upon the part of the mortgagor to foreclose the mortgage, have the property sold at public auction, and a judgment for the deficiency, if any. He had a right to demand payment of the mortgage debt in lawful money. He was not bound to purchase the property at its true value. Such was not the agreement between the parties. What are his rights since the enactment of this legislation and what obligation is imposed upon him? By the terms of the Act, upon foreclosure, he is required, in establishing a deficiency judgment, to account for the property at its true value, either by bidding in the property himself at that price or assuming the burden of securing a bidder who will do so. In effect, he is required to accept the property at its true value in payment, in whole or in part, of the mortgage debt, although the contract and the established remedy for its enforcement gave him the right to require payment in lawful money. To secure a deficiency judgment, in part at least, the medium of payment is charged from that of money to that of property. If, at the time of making the loan, he looked primarily to the financial ability of the mortgagor to respond to a judgment for the mortgage debt and was less concerned with his security and was not interested in purchasing the security at any price, under the terms of the Act he must accept the property at its true value upon foreclosure sale or secure a purchaser who will do so, although conditions may be such that a purchaser cannot be secured to pay any such price and the mortgagee may have to wait an indefinite length of time to secure such purchaser. Meanwhile, the mortgagee has become the owner of the property which originally he was not interested in at any price.

It is true that Courts of equity have always reserved the right to fix terms and conditions of sales, to set aside sales under certain circumstances, and refuse to confirm sales when the price received was unconscionably low, but such procedure is entirely different from that proposed in the Act now assailed. It is not contended that the property in question was bid in by the mortgagee at an unconscionably low price, and the matter does not come before me on the question of confirmation of the sale.

The language of the Court in the case of State v. Carew, 13 Rich. (47 S.C.L.), 498, 91 Am. Dec., 245, would seem to be conclusive. That case involved the constitutionality of the "Stay Laws," enacted during the Civil War. These Acts undertook to prevent an officer from serving or executing any mesne or final process for the collection of money during a certain period. In an elaborate opinion, now regarded as one of the leading cases in the country on the subject, these Acts were declared unconstitutional, as impairing the obligation of contracts.

The Supreme Court of the United States in Bronson v. Kinzie, 1 How., 311, 11 L.Ed., 143, held invalid an Illinois statute, preventing a sale under a decree in chancery, unless two-thirds of the amount at which the property had been valued by appraisers should be bid therefor, as applied to existing mortgages, as infringing the contract impairment clause.

McCracken v. Hayward, 2 How., 608, 11 L.Ed., 397, involved a statute which provided that an execution sale should not be made of property unless it would bring two-thirds of its value according to the opinion of three householders. The Court followed the Bronson case and held the statute invalid on the same ground.

These two cases of the United States Supreme Court are directly in point and were cited with approval in State v. Carew, supra.

It is urged by defendant that these cases are no longer controlling in view of the recent decision in Home Building Loan Association v. Blaisdell, 290 U.S. 398, 54 S.Ct., 231, 241, 78 L.Ed., 413, 88 A.L.R., 1481. It is true that in that case the Court exhibited a more liberal attitude in upholding the reserved powers of the state to safeguard the economic structure upon which the public welfare depends, and stated "There has been a growing appreciation of public needs and of the necessity of finding ground for a rational compromise between individual rights and public welfare." The Minnesota statute involved in the above case was passed solely as an emergency measure, remaining effective only during such period. It authorized the Court under certain conditions to extend the period for redemption from foreclosure sales for such additional times as the Court might deem just and equitable, but in no event beyond May 1, 1935, and suspended during such period the right to maintain an action for a deficiency judgment, and during the period of extension required the mortgagor to pay all or a reasonable part of the income or rental value of the property, as fixed by the Court, toward payment of the mortgage debt, interest, taxes, and insurance, at such time and in such manner as determined by the Court. In describing the effect of the Act the Court said: "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 Act in question is of an entirely different character from the Minnesota statute. In the above case the Court discussed the cases of Bronson v. Kinzie, supra, and McCracken v. Hayward, supra, but, so far as applicable to a statute of the character now involved, they were not overruled.

For an interesting note on the Blaisdell case, see Harvard Law Review (Feb., 1934), p. 660.

A careful review of the recent decisions in other jurisdictions show that almost without exception Acts similar to the one in question have been held unconstitutional. Most of these decisions were also rendered after the decision in the Blaisdell case, upon which defendant so strongly relies. I shall briefly review some of them.

In Langever v. Miller (Tex.Civ.App., June, 1934), 73 S.W.2d 634, the Court held a Texas statute passed in 1933, which is almost identical with our statute, unconstitutional as impairing obligations of a contract. The Texas statute required credit on deficiency judgment on foreclosure of difference between price of mortgaged property at foreclosure sale and its actual value, where mortgagor could show property was sold at less than actual value. The Court held that the Texas statute was clearly distinguishable from that involved in Home Building Loan Association v. Blaisdell, supra.

In Vanderbilt v. Brunton Piano Co. (November, 1933), 111 N.J. Law, 596, 169 A., 177, 179, 89 A.L.R., 1080, the Court had under consideration a 1933 New Jersey Act, which substituted fair market value of property in place of proceeds of foreclosure sale, as a credit to be allowed debtor in the reduction of debt. The Court held that such statute constituted impairment of pre-existing contract and could not be sustained as exercise of police power. The following language of the Court is applicable to the statute in question:

"It is next said that the constitutionality of the statute may be sustained under the police power; and the burden of this argument assumes that the act was passed simply to save mortgagors from oppressive suits in the present financial emergency.

"As has been already stated, the appellants rely wholly and exclusively upon the statute; and the statute neither purports to be directed towards an emergency nor limits the application of the enactment either in field or in time. Its purview is absolute, final, and permanent. It extends to all classes of property — homes, business properties, speculative ventures, everything. According to its terms it is in force henceforth and forever. If effective now, it will be just as effective after, and entirely regardless of, the passing of the emergency. * * *

"We may take judicial notice of the financial emergency that now presses upon so many people in so much of the world, but we may not read into the statute a limited duration that is neither expressed nor implied therein, nor do we subscribe to the intimation that an emergency automatically lifts all constitutional restraints. The statute does not grant a stay or a delay, and therefore does not deal with the question of a moratorium. The subject-matter of the point under discussion does not save the statute from the fault laid against it."

In Adams v. Spillyards (June, 1933), 187 Ark. 641, 61 S.W.2d 686, 86 A.L.R., 1493, a somewhat similar statute was likewise held unconstitutional.

In Klinke v. Samuels (April, 1934), 264 N.Y., 144, 190 N.E., 324, 326, the Court of Appeals of New York had under consideration a 1933 New York Act which in effect stayed temporarily foreclosure and legal action to recover the indebtedness, provided interest and taxes were paid, the stay to be effective until July 1, 1934, and not longer. The stay did not apply where default occurred in payment of interest or taxes. It further provided that the deficiency judgment should be measured by crediting the fair market value of the property on the debt. The Court sustained the Act, as not impairing the obligation of a contract, on the ground that it was enacted as an emergency measure, "reasonably seeking only temporary relief." The Court stated: "The limitation upon the remedy in both or all instances is until July 1, 1934," and that "after next July all remedies, so far as these present laws apply, will again be open to the mortgage creditor." Meanwhile, interest and taxes had to be paid. The statute in question is, quite different. While it was passed during a time of emergency, the Act itself does not disclose that it was passed as an emergency measure. It is not limited in duration to the emergency. There is no limitation. It is not temporary, but was passed as a continuing, permanent enactment of policy with reference to deficiency judgments. It is not within the province of this Court to write into the Act any emergency features. The Act must be considered as it is written.

Recent decisions from other jurisdictions are in harmony with the principles established in the cases cited above. In the case of Atlantic Loan Company v. Peterson, 181 Ga. 266, 182 S.E., 15, the Supreme Court of Georgia held to be unconstitutional, as affecting pre-existing contracts, an Act of the Legislature of the State of Georgia which precluded a deficiency judgment in foreclosure actions, unless the sale is confirmed on finding that the mortgaged property brought at sale its true market value. The Georgia Court cites many decisions from Federal and state Courts. In Beaver County Building Loan Association v. Winowich et al., 323 Pa., 483, 187 A., 481, 921, the Supreme Court of the State of Pennsylvania, on October 5, 1936, held an Act of the Legislature of the State of Pennsylvania, passed in 1934, unconstitutional as impairing the obligation of existing contracts. The Act, in substance, limited the amount for which a deficiency judgment might be entered by deducting the fair value of the property from the amount of the judgment instead of the proceeds of sale. This was a drastic departure from the law in force when the contract was executed. The opinion of the Court cites numerous decisions from state and Federal Courts.

I have reached the conclusion, therefore, that the Act now assailed is unconstitutional, as applicable to real estate mortgages existing at the time the Act was passed, in that it impairs the obligation of such mortgage contracts. I deem it unnecessary to pass on the other issues raised in the answer of the plaintiff to the petition.

It is therefore ordered, adjudged, and decreed:

1. That the Act of the General Assembly of the State of South Carolina, approved May 2, 1933 (38 St. at Large, p 350), entitled "An Act to Provide for the Relief of Real Estate Mortgagors and Other Judgment Debtors from Deficiency Judgments in Foreclosure to the Extent of the True Value of the Mortgaged Property, and to Prescribe the Procedure Thereon," is unconstitutional, null and void, as impairing the obligation of the mortgage contract involved in this case, which was executed prior to the enactment of the said statute.

2. That the petition of the defendant-petitioner herein be denied, and the petition be, and is hereby, dismissed.

3. That the plaintiff is hereby given leave and authority to enter judgment against all the defendants herein for the amount of the deficiency shown by the report of sales, made by the clerk of this Court, with lawful interest thereon from the date of sale.

4. That the costs of this proceeding be taxed against the defendants, Mrs. Ethel R. Jefferies, as executrix of the last will and testament of J. Eb Jefferies, and George D. Jefferies, the Court having been informed that the name of the defendant, F.M. Brown, was withdrawn from the petition, and that judgment for said costs be entered against the two remaining petitioners above named.

Messrs. Wolfe Fort, for appellant, cite: Proper party to contest constitutionality of act: 186 S.C. 514; 12 C.J., 1057; 259 U.S. 114; 66 L.Ed., 852; 42 Sup. Ct. Rep., 434. Contracts: 12 C.J., 1057; 205 U.S. 59; 79 L.Ed., 1302; 290 U.S. 398; 78 L.Ed., 413; 88 A.L.R., 1481; 86 A.L.R., 1507; 249 N.W., 893; 287 U.S. 251; 77 L.Ed., 288; 87 A.L.R., 721; 12 L.Ed., 535; 166 U.S. 685; 41 L.Ed., 1165; 256 U.S. 135; 65 L.Ed., 865; 16 A.L.R., 165; 256 U.S. 170; 65 L.Ed., 877; 258 U.S. 242; 66 L.Ed., 595. Equal protection of the laws: 256 U.S. 135; 65 L.Ed., 865; 170 U.S. 283; 42 L.Ed., 1037; 184 U.S. 329; 46 L.Ed., 569; 223 U.S. 59; 56 L.Ed., 350; 280 U.S. 146; 74 L.Ed., 775.

Messrs. Hall, Vassey Hall, for respondents, cite: Impairment of obligation of contract: 108 S.C. 475; 125 S.C. 131; 136 S.C. 144; 149 S.C. 386; 149 S.C. 163; 179 A. 459; 47 P.2d 331; 54 P.2d 712; 104 A.L.R., 385; 82 S.E., 617; 182 S.E., 15; 96 U.S. 595; 24 L.Ed., 793; 102 U.S. 203; 26 L.Ed., 132; 147 S.C. 447; 96 A.L.R., 836; 135 U.S. 662; 34 L.Ed., 304; 28 L.Ed., 574; 147 S.C. 433; 182 S.E., 15; 108 S.C. 475.

May 4, 1937. The opinion of the Court was delivered by

MR. CHIEF JUSTICE STABLER.

The well-considered decree of Judge Oxner, which we approve and adopt, and which will be reported, states fully and in detail the facts out of which this controversy arose, making a restatement of them here unnecessary. Also, the questions presented by the appeal, and argued at the bar of this Court, were considered and correctly decided by the Circuit Judge, whose conclusions as to the main issue are fully sustained by the authorities which he cites; and we can add but little, if anything, without repetition, to what he has said.

As to the fine distinction sometimes attempted to be drawn between the obligation of contracts and the remedies for their enforcement, referred to in argument of counsel here, see Martin v. Saye, 147 S.C. 433, 145 S.E., 186, 191; Edwards v. Kearzey, 96 U.S. 595, 24 L.Ed., 793; Langever v. Miller, 124 Tex., 80, 76 S.W.2d 1025, 96 A.L.R., 836. The following from the Kearzey case is quoted with approval by this Court in Martin v. Saye: "The obligation of a contract includes everything within its obligatory scope. Among these elements nothing is more important than the means of enforcement. This is the breath of its vital existence. Without it, the contract, as such, in the view of the law, ceases to be, and falls into the class of those `imperfect obligations,' as they are termed, which depend for their fulfillment upon the will and conscience [of those] upon whom they rest. The ideas of right and remedy are inseparable."

Since the hearing of this appeal, our attention has been called to the case of Richmond Mortgage Loan Corporation v. Wachovia Bank Trust Company, 300 U.S. 124, 57 S.Ct., 338, 339, 81 L.Ed., 552, 108 A.L.R., 886. We have examined that decision but do not think that it lends any support to the contentions of the appellants here. It was there held that the Legislature might modify or alter a remedy for enforcement of a contract without impairing its obligation, but in so doing it may not "so circumscribe the existing remedy with conditions and restrictions as seriously to impair the value of the right"; and that the "remedy existing at the date of the contract may be altogether abrogated if another equally effective for the enforcement of the obligation remains or is substituted for the one taken away."

The order appealed from is affirmed.

MESSRS. JUSTICES BONHAM, BAKER and FISHBURNE concur.

MR. JUSTICE CARTER did not participate.