Submitted March 7, 1936.
Decided March 21, 1936.
Constitutional Law — Law Impairing Obligation of Contract — Invalidity of Chapter 120, Laws of 1933. Constitutional Law — When Statute Impairs Obligation of Contracts. 1. Within the meaning of the provision of section 10, Article I, Constitution, declaring that no law impairing the obligation of contracts shall be passed, the remedy subsisting in the state when and where a contract is made and is to be performed is a part of its obligation, and any subsequent law which so affects the remedy as substantially to impair and lessen the value of the contract is, therefore, void. Same — Chapter 120, Laws of 1933, Creating Additional Exemption in Favor of Debtor Held Invalid as Impairing Obligation of Contract. 2. Held, that Chapter 120, Laws of 1933, creating an additional exemption in favor of a debtor who is the head of a family or over sixty years of age to the extent of an automobile of the value of not more than $300, is invalid under section 10, Article I of the Constitution where the judgment on which execution was issued was obtained on a contract antedating the effective date of the Act.
Appeal from District Court, Yellowstone County, in the Thirteenth Judicial District; Stewart McConochie, Judge of the Tenth District, presiding.
Mr. Lawrence E. Gaughan and Messrs. Johnston, Coleman Jameson, for Appellants, submitted a brief; Mr. Gaughan argued the cause orally.
Mr. E.E. Collins, for Respondent, submitted a brief and argued the cause orally.
Prior to 1873 and the decision of Gunn v. Barry, 15 Wall. (U.S.) 610, 21 L.Ed. 212, exemptions, or modifications thereof, had been held not to impair the obligations of pre-existing debts, the early cases having relied upon Chief Justice Taney's dictum in the case of Bronson v. Kinzie, 1 How. (U.S.) 311, 11 L.Ed. 143, decided in 1843. However, this dictum was repudiated in the case of Edwards v. Kearzey, (1878) 96 U.S. 595, 24 L.Ed. 793, wherein Mr. Justice Swayne said: "The remedy subsisting in a state when and where a contract is made and is to be performed is a part of its obligation, and any subsequent law of the state which so affects that remedy as substantially to impair and lessen the value of the contract is forbidden by the Constitution, and is, therefore, void. (See, also, 93 L.R.A., at p. 179, par. b, and 11 R.C.L., at p. 490, par. 2.)
The authoritative decisions of the Supreme Court upon the point under consideration began with that of Gunn v. Barry, supra, where a state constitutional provision and statute of Georgia, which increased the amount of an exemption, was held not only to impair the obligation of a pre-existing judgment, but even to annihilate the remedy. Only recently, sixty years after the case of Gunn v. Barry, the Supreme Court again stated its position in the case of Worthen Co. v. Thomas, 292 U.S. 426, 54 Sup. Ct. 816, 78 L.Ed. 1344, and also reported in 93 A.L.R., at page 173. This case, decided on May 28, 1934, holds that a statutory exemption of life insurance money as applied in the case of debts owing before the exemption was created was an unconstitutional impairment of contract obligations.
It is stated in 11 R.C.L., at page 490, as follows: "A statute which diminishes in any respect the property which a creditor may seize should not be given effect as to pre-existing debts." It is further stated in 12 Cal. Jur., at page 333, as follows: "A statute increasing the exemption of debtors is void to the extent that it is applied to contracts made prior to its enactment." It is likewise stated in 25 C.J., at page 14, that "where an exemption has been conferred or the amount of an existing exemption increased, the law in force at the time the debt was contracted will, according to the great weight of authority, control as to the debtor's right of exemption, and not that which is in force when the exemption is claimed. This is in accord with the well recognized principle that the obligation of existing contracts is impaired by statutes materially extending the amount and character of the debtor's exemptions." (See, also, Love v. First Nat. Bank, 228 Ala. 258, 153 So. 189; Hair v. Ramsey, 165 Tenn. 149, 53 S.W.2d 381; Alexander v. Kilpatrick, 14 Fla. 450; Shipp v. Smith, 76 Ga. 1; Millay v. White, 86 Ky. 170, 5 S.W. 429; Lavillebeuvre v. Frederic, 20 La. Ann. 374; Tillotson v. Millard, 7 Minn. 513, 82 Am. Dec. 112; Johnson v. Fletcher, 54 Miss. 628, 28 Am. Rep. 388; Lessley v. Phipps, 49 Miss. 790; Carlton v. Watts, 82 N.C. 212; Pittman's Appeal, 48 Pa. 315; De la Howe v. Harper, 5 S.C. 470; Ex parte Hewett, 5 S.C. 409; Sundback v. Griffith, 7 S.D. 109, 63 N.W. 544; Harris v. Austell, 2 Baxt. (Tenn.) 148; Homestead Cases, 22 Gratt. (63 Va.) 266, 12 Am. Rep. 507; In re Heilbron's Estate, 14 Wn. 536, 45 P. 153, 35 L.R.A. 602.)
That the remedy is part of the obligation has been distinctly settled in the case of Gunn v. Barry, supra, as follows: "The legal remedies for the enforcement of a contract, which belong to it at the time and place where it is made, are a part of its obligation." (See, also, Edwards v. Kearzey, supra.)
Exemption statutes have a humanitarian purpose and their provisions must be liberally construed in favor of the debtor for whose benefit they were enacted. ( Oregon Mortgage Co. v. Dunbar, 87 Mont. 603, 289 P. 559, 73 A.L.R. 113.) No small confusion has prevailed among the decisions as to the power of a state to create or increase exemptions of property from execution or attachment for previously contracted debts. On principle, exemption laws relate merely to the value of the remedy for the enforcement of contracts and do not impair the obligation of contracts nor take away all remedy for their enforcement. (12 C.J. 1075, sec. 748, and note 79; Kirkman v. Bird, 22 Utah, 100, 61 P. 338, 83 Am. St. Rep. 774, 58 L.R.A. 669.) Furthermore, such laws, to the extent that they are reasonable, may well be sustained as being within the police power of the state to protect its citizens from being deprived of the means of subsistence and of earning a livelihood, and all contracts may be considered as made with reference to this power of the legislature, in the exercise of a reasonable discretion, to create or increase such exemptions (12 C.J. 1075, and note 80; Bronson v. Kinzie, supra; Kirkman v. Bird, supra; Home Building Loan Assn. v. Blaisdell, 290 U.S. 398, 434, 54 Sup. Ct. 231, 78 L.Ed. 413, 88 A.L.R. 1481.)
There is a clear distinction drawn between rights and remedies, between the legal obligation of a contract and the proceeding appointed by law for its enforcement. Whatever belongs to the obligation of the contract, that is, to its validity, construction, effect and discharge, is governed by the law in existence at the time it was made, and enters into and forms a part of it, and follows it wherever it may be sought to be enforced. But the remedy is, for the most part, the act of law-making power providing a mode of redress for the wrong occasioned by the breach of the contract. It does not necessarily constitute a part of the obligation of the contract; and, except in cases of peculiar character, it is subject to the right of modification or repeal, within the perogative of the legislature.
In the case of Funkhauzer v. Preston Co., decided by the Supreme Court of the United States on December 4, 1933, reported in 48 L.Ed. 125, the court was dealing with the question of interest on unliquidated damages. In discussing this subject the court said: "To enact laws providing remedies for a violation of contracts, and to alter or enlarge those remedies from time to time" is within the competency of the legislature. ( Waggoner v. Flack, 188 U.S. 595, 23 Sup. Ct. 345, 47 L.Ed. 609.) The mere fact that such legislation is retroactive does not bring it into conflict with the guaranties of the federal Constitution ( League v. Texas, 184 U.S. 156, 161, 22 Sup. Ct. 475, 46 L.Ed. 478, 481), and when the action of the legislature is directed to the enforcement of the obligations assumed by the parties and to the giving of suitable relief for nonperformance, it cannot be said that the obligations of the contract have been impaired. The parties make their contract with reference to the existence of the power of the state to provide remedies for enforcement and to secure adequate redress in case of breach. ( Henley v. Myers, 215 U.S. 373, 30 Sup. Ct. 148, 54 L.Ed. 240.)
Chief Justice Hughes delivered the opinion of the court in the Blaisdell Case, supra, and reviewed the prior cases on the subject at length. He quoted from Von Hoffman v. The City of Quincy, where that court said, "It is competent for the state 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. No attempt has been made to fix definitely the line between alterations of the remedy, which are to be deemed legitimate, and those which, under the form of modifying the remedy, impair substantial rights. Every case must be determined upon its own circumstances. In all such cases the question becomes, therefore, one of reasonableness and of that the legislature is primarily the judge." (See, also, Cusic v. Douglas, 3 Kan. 123, 87 Am. Dec. 458; Kirkman v. Bird, supra; Folsom v. Asper, 25 Utah, 299, 71 P. 315; Beverly v. Barnitz, 55 Kan. 466, 42 P. 725, 49 Am. St. Rep. 257, 31 L.R.A. 74; State ex rel. Rankin v. District Court, 70 Mont. 322, 225 P. 804; Bullard v. Smith, 28 Mont. 387, 72 P. 761; Continental Oil Co. v. Montana Concrete Co., 63 Mont. 223, 207 P. 116.)
It seems to be settled beyond dispute that a reasonable amount of personal property may be exempted and that a state legislature may regulate at pleasure the modes of proceedings in its courts in relation to past contracts as well as to future.
The provisions of Chapter 120 of the Laws of 1933 do not change the obligation of contract, and they are therefore not unconstitutional, since the legislation affects only the remedy in a reasonable manner. It limits the exemption to a certain amount and to certain people; namely, to heads of families and people over sixty years of age, all of which we submit is a reasonable piece of legislation, and does not materially affect the rights of the citizens of the state to collect on their contracts, but is intended to give encouragement to those who are destitute, and to those who are old, in order that they may be kept from becoming a burden on society, and is well within the police power of the state.
In December, 1933, the defendant Chris Hoe secured a judgment against the plaintiff Daisy Rieger, a woman over sixty years of age, on a promissory note dated January 27, 1933, for $180, and in execution thereof the defendant Earl Wilson, as constable, seized, and, over the plaintiff's claim of exemption, sold an automobile of the agreed value of $150. The plaintiff then brought action against Hoe, Wilson, and the National Surety Corporation, Wilson's bondsman, for damages, which action resulted in a judgment for the plaintiff and against the defendants for the sum of $150, with interest and costs. The defendants have appealed from the judgment.
The sole question presented is as to whether or not the [1, 2] automobile sold was exempt from execution under the provisions of Chapter 120, Laws of 1933, effective March 14, 1933, in view of the fact that the judgment was obtained on a contract antedating the effective date of the Act creating a new exemption, to-wit: "In addition to all other exemptions, the following property is exempt from execution, where the debtor is the head of a family, or over sixty years of age: One truck or automobile of the value of not more than Three Hundred Dollars."
Our Constitution (sec. 11, Art. III) declares that "no ex post facto law nor law impairing the obligation of contracts * * * shall be passed by the legislative assembly," and the federal Constitution contains a like prohibition (sec. 10, Art. I).
In support of the judgment, the plaintiff asserts that exemptions affect the remedy, rather than the obligation of the contract, and that the rule adopted by the Supreme Court of the United States is that "the remedy may be changed or modified, but not destroyed. The rights of the creditor which existed at the making of the contract must not be interfered with nor defeated, nor must he be seriously embarrassed in the remedy, beyond what he would have been had the law remained unchanged." Under this rule it has been held that the following changes in the remedy for the enforcement of contracts do not violate the prohibition of the federal Constitution: Providing for the forfeiture of lands on nonpayment of deferred payments on the purchase price ( Waggoner v. Flack, 188 U.S. 595, 23 Sup. Ct. 345, 47 L.Ed. 609), changing the method of procedure ( Henley v. Myers, 215 U.S. 373, 30 Sup. Ct. 148, 54 L.Ed. 240), and extending the period of redemption from foreclosure sale ( Home Building Loan Assn. v. Blaisdell, 290 U.S. 398, 54 Sup. Ct. 231, 238, 78 L.Ed. 413, 88 A.L.R. 1481). While the matters to which reference is made may affect the remedy, they do not reduce the fund from which the judgment may ultimately be satisfied, and, therefore, do not impair any substantial rights secured by the contract.
Plaintiff contends that this rule extends to uphold laws increasing exemptions after a contract has been entered into. On this contention reliance is placed upon the decision in Bronson v. Kinzie, 1 How. 311, 11 L.Ed. 143, and a few decisions of state courts following that decision, on the authority of which cases it is said in 12 C.J. 1075: "On principle, exemption laws relate merely to the value of the remedy for the enforcement of contracts, and do not impair the obligation of contracts nor take away all remedy for their enforcement"; but in the same section of that work it is later said: "The rule now established by the United States Supreme Court, however, is that laws materially extending exemptions from attachment and execution are, so far as they relate to previously contracted debts, unconstitutional, as impairing the obligation of contracts by destroying the remedy in material respects," citing Kener v. La Grange Mills, 231 U.S. 215, 34 Sup. Ct. 83, 58 L.Ed. 189; Edwards v. Kearzey, 96 U.S. 595, 607, 24 L.Ed. 793; Gunn v. Barry, 15 Wall. 610, 21 L.Ed. 212. On a more careful analysis, perhaps, than that given the decision in Bronson v. Kinzie by the author of the text in Corpus Juris, it is said: "Based on the dictum of the Supreme Court of the United States [ Bronson v. Kinzie] several early cases may be found to the effect that a statute exempting property from execution may be applied to pre-existing contracts without impairing the obligation of contracts under the federal Constitution. But subsequent decisions of the Supreme Court make it quite clear that a statute materially increasing exemptions is invalid; and this rule has been followed by the state courts. In fact it would seem that a statute which diminishes in any respect the property which a creditor may seize should not be given effect as to pre-existing debts." (11 R.C.L. 490, and cases cited.)
In the recent case of W.B. Worthen Co. v. Thomas, 292 U.S. 426, 54 Sup. Ct. 816, 818, 78 L.Ed. 1344, 93 A.L.R. 173, the Supreme Court declared, concerning the exemption from execution of money received from life insurance policies: "Such an exemption, applied in the case of debts owing before the exemption was created by the legislature, constitutes an unwarrantable interference with the obligation of contracts in violation of the constitutional provision." ( Gunn v. Barry, supra, Edwards v. Kearzey, supra, and Bank of Minden v. Clement, 256 U.S. 126, 41 Sup. Ct. 408, 65 L.Ed. 857.) In Edwards v. Kearzey, the court declared: "The remedy subsisting in the state when and where a contract is made and is to be performed is a part of its obligation, and any subsequent law of the state which so affects that remedy as substantially to impair and lessen the value of the contract is forbidden by the Constitution, and is, therefore, void. * * * The ideas of right and remedy are inseparable. `Want of right and want of remedy are the same thing.'"
"While it is competent for the legislature to change the form of remedy, if it can do so without impairing the obligation of contracts, a statute increasing the exemption of debtors is void to the extent that it is applicable to contracts made prior to its enactment." (12 Cal. Jur. 333.)
The judgment is reversed and the cause remanded to the district court of Yellowstone county, with direction to dismiss the action.
MR. CHIEF JUSTICE SANDS and ASSOCIATE JUSTICES STEWART, ANDERSON and MORRIS concur.