187 A. 481 | Pa. | 1936
Lead Opinion
Argued April 8, 1936; reargued May 25, 1936. The question presented in this case is the constitutionality of the Act of January 17, 1934 (Spec. Sess.), P. L. 243, commonly known as the Mortgage Deficiency Judgment Act, as applied to mortgages contracted before its enactment.1
In every serious financial crisis in the history of our country there has been a legislative recognition of the need of relief for debtors. In the periods of industrial depression which have intermittently retarded our economic progress statutes were passed by various states to facilitate the liquidation of burdensome obligations, especially those arising from mortgages. Sometimes this legislation consisted of moratory laws, delaying proceedings for foreclosure or extending the period of redemption. Sometimes it aimed at the abolition or reduction of deficiency judgments, either by fixing a minimum price for the sale on execution or by providing that the "reasonable" or "fair" value of the property should be allowed as a credit on the debt irrespective of the amount realized. Sometimes courts of equity sought to give relief, in cases in which an adequate price had not been obtained, by refusing confirmation of the sale, or by granting it only on condition that a fair credit be given on the obligation secured by the mortgage.2 In the recent *487 depression resort has been had to practically all of these measures, and acts similar to the one before us have been passed in several states.
On July 14, 1931, defendants borrowed from plaintiffs $12,300, and to secure its repayment executed their judgment bond conditioned for the payment of the loan on or before July 1, 1941, with interest, dues and premiums as therein stipulated. Accompanying the bond was a mortgage covering certain real estate in the Borough of Aliquippa, Beaver County. Because of a default plaintiff on December 27, 1933, caused judgment to be entered on the bond, the real debt being $14,099.93, and on the same day issued a writ of execution under which the mortgaged premises were sold to plaintiff at sheriff's sale on February 5, 1934, for $962.94. Plaintiff failing to ask the court to determine the fair value of the property and to fix the amount of the deficiency judgment, defendants on December 12, 1934, petitioned that the judgment be marked satisfied in accordance with the provisions of the Act of January 17, 1934 (Spec. Sess.) P. L. 243, and the prothonotary thereupon entered satisfaction. On July 22, 1935, plaintiff filed a petition on which the court granted a rule on defendants to show cause why the satisfaction should not be stricken from the record. On October 11, 1935, the court dismissed this petition, from which order plaintiff appeals.
The basis of plaintiff's petition was the alleged unconstitutionality of the Mortgage Deficiency Judgment Act. That act, which is entitled "An Act To protect the owners of mortgaged property during the present emergency by limiting the amount of deficiency judgments during a certain period," provides "That whenever any real property is sold on any execution on the foreclosure of any mortgage, or on a judgment entered on any obligations secured by mortgage, and the sum for which such property was sold is not sufficient to satisfy the debt, interest and costs, the plaintiff or use plaintiff shall, within six months after such sale, petition the court out of *488 which such writ of execution issued to fix the fair value of the property sold. . . . Such petition shall be heard by a judge of such court sitting without a jury, or may . . . be referred to a master for hearing and determination, subject to confirmation by the court: . . .
"At all such hearings any party in interest may introduce in evidence testimony of the fair value of the premises sold at the time of the sale. In the event that the fair value so determined is greater than the price for which the property was sold, the amount of such fair value shall be deducted from the amount of the judgment, interest and costs, and a deficiency judgment entered for the balance.
"If the plaintiff or use plaintiff shall fail to present such petition within six months after such sale, the prothonotary shall, upon application of the defendant or other party in interest, enter satisfaction of such judgment. Such satisfaction shall have the effect of terminating as well the liability of all persons bound by any obligation securing the payment of such mortgage debt."
The act makes provision for notice of the presentation of the petition, and also provides for a jury trial to determine the fair value if either party so desires. By its terms it was to become effective immediately upon its enactment, and remain in force until July 1, 1935.
Plaintiff contends that the act is unconstitutional on the grounds (1) that, as applied to mortgages previously executed, it violates Article I, section 10, of the Constitution of the United States, which provides that "No State shall . . . pass any . . . law impairing the Obligation of Contracts, . . ." and Article I, section 17, of the Constitution of Pennsylvania, that "No . . . law impairing the obligation of contracts, . . . shall be passed"; (2) that it violates the fourteenth amendment to the Constitution of the United States, forbidding any state to deprive a person of property without due process of law; (3) that it violates Article III, section 7, of the Constitution of Pennsylvania, which provides *489 that "The General Assembly shall not pass any local or special law: Authorizing the . . . impairing of liens; . . . or providing or changing methods for the collection of debts, or the enforcing of judgments, or prescribing the effect of judicial sales of real estate"; (4) that it violates Article III, section 3, of the Constitution of Pennsylvania, requiring the subject of an act to be clearly expressed in its title. In view of our opinion as to the first of the reasons thus assigned, it will not be necessary, for purposes of the present case, to consider any of the others.
In determining what constitutes the obligation of a contract, no principle is more firmly established than that the laws which were in force at the time and place of the making of the contract enter into its obligation with the same effect as if expressly incorporated in its terms: McCracken v. Hayward, 2 How. 608, 613; Von Hoffman v. City of Quincy, 4 Wall. 535, 550;Walker v. Whitehead, 16 Wall. 314, 317; Edward v. Kearzey,
What, then, were the rights of a mortgagee under the law of Pennsylvania prior to the passage of the Mortgage Deficiency Judgment Act?
The theory in our state has always been that a mortgage is merely collateral for the payment of some primary obligation, usually a bond: Tubb's Appeal,
From this summary of the Pennsylvania law which governed the bond and mortgage in the present case when those instruments were executed, it is obvious that defendants' obligation was changed materially by the Mortgage Deficiency Judgment Act. Instead of their covenant in the bond to pay "the sum of twelve thousand three hundred dollars, lawful money of the UnitedStates of America" on or before July 1, 1941, plaintiff now was obliged to accept part payment of the debt in cash and part in real estate at a valuation appraised by a judge or jury, or, if such appraisement should fix the "fair value" of the property at an amount equal to or greater than the indebtedness on the bond, plaintiff must be content with receiving only real estate and no "lawful money" whatever.4 Of course, there is no assurance of a mortgagee being able to realize from the property the amount of a valuation placed upon it in accordance *492 with the provisions of the act. The sale price is no longer conclusive between the parties as to the credit to be allowed on the debt, and the amount of the deficiency judgment to which the mortgagee was previously entitled is thus altered to a substantial and, it may be, drastic degree.
Few clauses of the federal constitution have been the subject of more interpretation by the Supreme Court of the United States than that which forbids a state from impairing the obligation of contracts. At first there was confusion arising from a somewhat shadowy distinction between the contract itself and the remedies to enforce it,5 but the decisions have gradually clarified this difficulty, so that the governing principles are now reasonably well defined. Stating them in broad outline, to the extent to which they are here pertinent, they may be summarized as follows:
1. Any law which enlarges, abridges, or in any manner changes the intention of the parties as evidenced by their contract, imposing conditions not expressed therein or dispensing with the performance of those which are a part of it, impairs its obligation, whether the law affects the validity, construction, duration, or enforcement of the contract: Story's Commentarieson the Constitution, Book 3, ch. 34, sec. 1379.
"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. Any law which releases a part of this obligation, must, in the literal sense of the word, impair it." Chief Justice MARSHALL in Sturges v. Crowninshield, 4 Wheat. 122, 197.
2. A mortgage is a contract within the protection of the constitutional provisions against impairment: Breitenbach v.Bush,
3. A judgment for the amount due under a contract remains an obligation of the contract, and it may not be affected by legislation which would impair the antecedent obligation of the contract upon which it is founded. If, therefore, the subsequent law, instead of directly abrogating the contract, unreasonably restricts or oppressively burdens the enforcement of a judgment rendered thereon, it is none the less obnoxious to the constitutional prohibition: W. B. Worthen Co. v. Thomas,
4. The amount of impairment of the substantive obligation of a contract is immaterial. Any deviation from its terms, however slight, falls within the meaning of the constitution: Greene v.Biddle, 8 Wheat. 1, 84; Ogden v. Saunders, 12 Wheat. 213, 256;Walker v. Whitehead, 16 Wall. 314, 318.
"One of the tests that a contract has been impaired is that its value has by legislation been diminished. It is not, by the constitution, to be impaired at all. This is not a question of degree or manner or cause, but of encroaching in any respect on its obligations, dispensing with any part of its force."Planters' Bank of Mississippi v. Sharp, 6 How. 301, 327. (Italics supplied.)
5. The remedy, or means of enforcing a contract, is a part of its obligation which the constitution protects. The legislature has the power to formulate, alter and suspend modes of procedure, even as to pre-existing contracts, provided that, under the guise of a procedural statute, it does not deprive a party of any substantial right under the contract:Breitenbach v. Bush,
When we read the decisions in order to study their application of these principles and to determine the question of the validity of the present act as measured by their mandates, we must always bear in mind the distinction between legislation which merely postpones the legal vindication of rights and that which curtails or injuriously affects the rights themselves or the efficacy of the remedies provided for their enforcement. Generally speaking, the trend of authority is one of judicial support of a statute the purpose of which is merely to delay redress or shorten periods of limitation in which legal action must be taken, — always provided that the stays granted and limitations imposed are reasonable and definite in duration and that the act safeguards the rights of the party affected during the period in which he is compelled to forego the pursuit of his remedies. A recent authority establishing the constitutionality of this type of legislation is Home Building Loan Association v. Blaisdell,
The still later case of W. B. Worthen Co. v. Kavanaugh,
Stay laws have been passed at various times in Pennsylvania,7 and, where reasonable in their terms, have been upheld by this court. In Chadwick v. Moore, 8 W. S. 49, the act involved was that of July 16, 1842, P. L. 407, which provided that lands taken in execution should be appraised by an inquest, and if they could not be sold at public sale for at least two-thirds of such valuation the sheriff should not make the sale, and all proceedings should thereupon be stayed for a year from the return *497
day of the writ. The act was sustained on the ground that the temporary restraint of the remedy did not unreasonably impair the mortgagee's rights. So, in Breitenbach v. Bush.,
Throughout the states generally, moratory legislation has been sustained or invalidated according to the reasonableness of the statute in regard to the period of extension granted by it and the interim protection of the creditor.9
Turning from cases dealing with a temporary suspension of remedies to decisions concerned with impairment of the creditor's substantive or remedial rights, those in the Supreme Court of the United States are, of course, conclusive as to the construction of the federal constitution. Bronson v. Kinzie, 1 How. 311, and McCracken v. *498 Hayward, 2 How. 608, dealt with statutes of Illinois which provided for an extension of the period of redemption, and further that, when execution was levied on any property, an inquest should be held as to valuation, and the sale should not be consummated unless at least two-thirds of the appraisement was bid for the property. These statutes were held unconstitutional when applied to existing mortgages or judgments. In the McCracken case the court said, p. 613: "If the defendant had made such an agreement as to authorize a sale of his property, which should be levied on by the sheriff, for such price as should be bid for it at a fair public sale on reasonable notice, it would have conferred a right on the plaintiff, which the constitution made inviolable; and it can make no difference whether such right is conferred by the terms or law of the contract. Any subsequent law which denies, obstructs, or impairs this right, by superadding a condition that there shall be no sale for any sum less than the value of the property levied on, to be ascertained by appraisement, orany other mode of valuation than a public sale, affects the obligation of the contract, as much in the one case as the other, for it can be enforced only by a sale of the defendant's property, and the prevention of such sale is the denial of a right." (Italics supplied.)10
In Gantly's Lessee v. Ewing, 3 How. 707, 716, an act of Indiana provided that no real estate should be sold on *499 execution for less than half its appraised value. It was declared to be unconstitutional as applied to pre-existing mortgages.
Howard v. Bugbee, 24 How. 461, was a case in which an Alabama statute authorized a redemption of mortgaged property in two years after the foreclosure sale. It was held invalid as to sales made under mortgages executed prior to the date of its enactment.
In Gunn v. Barry, 15 Wall. 610, a creditor obtained a judgment lien on his debtor's property at a time when the law of Georgia allowed to debtors only a small exemption of land owned by them. The state adopted a new constitution which provided for a larger exemption. It was declared, as to this creditor, to be an impairment of his contractual rights.11
Barnitz v. Beverly,
In Bradley v. Lightcap,
The situation in W. B. Worthen Co. v. Kavanaugh,
In Louisville Joint Stock Land Bank v. Radford,
"Statutes for the relief of mortgagors, when applied to pre-existing mortgages, have given rise, from time to time, to serious constitutional questions. The statutes were sustained by this court when, as in Home Building Loan Association v.Blaisdell,
While it is true that none of the cases thus summarized is wholly analogous to the present one, they lead fairly to the conviction that a statute which compels a mortgagee to accept real estate at an appraised valuation, in place of money, as a part liquidation of the mortgagor's obligation on the bond, must, as applied to pre-existing mortgages, be held to be unconstitutional if the obvious trend of these decisions in the Supreme Court of the United States is to be followed. This conclusion is strengthened by the almost complete unanimity of state courts in striking down recent legislation curtailing the rights of mortgagees, — some of it practically identical with the act now under consideration.
A statute in Arkansas provided that in foreclosure proceedings the mortgaged property should be considered *503
to be of the value of the loan, irrespective of the amount which might be realized at the sale, thus in effect abolishing deficiency judgments. It also undertook to change the rule that a court will not refuse to confirm a judicial sale merely because of inadequacy of price. It was held to violate the obligations of pre-existing mortgage contracts: Adams v.Spillyards,
A statute in California limited recovery to the difference between the amount of the debt and the fair market value of the real estate at the time of the sale. The act was declared to be unconstitutional: Bennett v. Superior Court of Los AngelesCounty,
An act of New Jersey which provided for the deduction of the fair market value from the debt, was invalidated, as to pre-existing contracts, in Vanderbilt v. Brunton Piano Co.,
A statute in Texas provided that where the mortgagor could show that the property was sold on foreclosure for less than its actual value there should be allowed on the deficiency judgment a credit of the difference between the actual value and the sale price. The court declared it unconstitutional:Langever v. Miller,
Georgia enacted a law precluding the entry of a deficiency judgment unless the foreclosure sale was confirmed on a finding that the property brought its true market value. As to mortgages executed before its passage it was held invalid inAtlantic Loan Co. v. Peterson, 182 S.E. 15,
An act of Arizona took away the right to a deficiency judgment unless the mortgagee was able to prove that the value of the property when the mortgage was executed was not in excess of the amount remaining due on the debt after the foreclosure sale, or that the depreciation in value was caused by some act of the mortgagor; if he established such proof he could recover a deficiency judgment for the difference between the value of the property when the mortgage was given and the amount due on the debt. This act was declared unconstitutional in Kresos v. White, Superintendent of Banks,
New York is apparently the only state which has sustained the validity of a mortgage deficiency judgment act similar to the Pennsylvania statute. The act temporarily stayed foreclosures and suits to recover the mortgage indebtedness if interest and taxes were paid. It also provided for a deficiency judgment to be fixed at the time of confirmation of the sale, allowing a credit for the market value of the property as determined by the court, or the sale price, whichever might be the higher. In actions to recover the indebtedness secured by the mortgage the debtor was to be allowed to set off the "fair and reasonable market value" of the property. In a brief opinion on the question of constitutionality, unsupported by any citation of authorities, the court upheld the act: Klinke v. Samuels,
The change wrought by the Pennsylvania Mortgage Deficiency Judgment Act is one not merely of remedy but of substance. Whereas before its enactment the mortgagee after a sale on foreclosure had the important right to a judgment measured by the difference between the debt and the net proceeds realized from the sale, by the terms of the act this judgment is reduced by substituting the "fair value" of the property for the price obtained at the sale as the amount of the credit to be allowed. Incidentally it may be noted that in the use of the term "fair value" there is introduced an indefinite and to some extent meaningless standard. The amount of the credit can be measured only in terms of money into which the property may presumably be converted, and to fix a realizable money value, as distinguished from a use or rental value, is practically impossible unless the phrase "fair value" be held to be synonymous with fair market value. It was so construed inMarket Street National Bank v. Huff,
The facts in the present case do not call for a discussion of a further obviously untenable feature of the act, — that apparently the mortgagee must allow the "fair value" credit on his judgment even if he does not himself purchase the property at the foreclosure sale. In that event the mortgagee receives no consideration, either in money or real estate, for the enforced credit given by him to the mortgagor as representing a part payment which has no basis whatever in fact.
It has been argued that the Mortgage Deficiency Judgment Act provides merely for a new method of appraising the value of the mortgaged property; that formerly this was accomplished by a sheriff's sale, but, since that instrumentality has been rendered worthless for the purpose by reason of the emergency conditions, some other system had to be adopted; that therefore the change is merely an innocuous one of remedy. This argument, however, is not founded upon fact, because it was never true that the object of a sheriff's sale was to fix a valuation of the property; its only purpose was to execute a writ of sale in order that the mortgagee might, through the agency of a public official, convert the collateral security held by him into cash and thus realize whole or partial payment of the debt.
It is contended that it is unfair to allow a mortgagee, under existing conditions, to bid in the mortgaged property for a nominal sum, thereby unjustly enriching himself by acquiring the security and at the same time retaining the right to collect what might amount to almost the entire debt from other property of the mortgagor. It may be questioned whether mortgagees in many cases have been able to realize more from both acquisition of the property and collection on the bond than the amount *508 of the debt, interest and costs. Even if, however, as a bidder at the foreclosure sale, a mortgagee obtains the property at a cheap price, he accomplishes this, as already stated, in an independent capacity and not as mortgagee; as a purchaser he obtains the same title as might have been acquired by any member of the general public in competitive bidding.14 Moreover, if the system of foreclosures in use does bring about undesirable results, it may be corrected by the parties originally contracting to adopt the appraisement method (assuming that an investor could be induced to loan money on the security of a mortgage with such a provision), or, as to future mortgages, by appropriate legislation. But as to existing mortgages the constitutions of nation and state alike prohibit any such impairment of the mortgagee's rights.
Defendants argue that plaintiff cannot question the constitutionality of the provision of the act that the fair value is to be allowed as a credit, because plaintiff's judgment was not actually subjected to such reduction; plaintiff having allowed a period exceeding six months to elapse without petitioning the court to fix the fair value, the judgment was marked satisfied in accordance with another provision of the act. It is claimed, therefore, that it is only of the latter that plaintiff can complain, but that such provision is merely equivalent to a statute of limitations and as such is constitutional. This contention is specious, for it overlooks the fact that plaintiff could not prevent the time limitation from obliterating its judgment except by submitting to the unconstitutional alternative of petitioning for the fixing of *509 a reduced deficiency indebtedness. The penalty for refusing to accept a partial loss of a contractual right was thus the deprivation of the right altogether.
It is urged that the act gains validity by reason of its being limited in duration. But while the temporary suspension of a right may be justified under certain conditions, the Mortgage Deficiency Judgment Act during its period of operation acts permanently and finally upon the rights of the mortgagees affected by it. A statute which, though in operation only for a brief period, compels a creditor during that time to accept less than the amount due, or in a different kind of payment, is, as to him, as definitive in its effect as if it were permanently in force. So, under the present act, a mortgagee whose judgment is marked satisfied, or improperly reduced in amount, has no possibility of relief thereafter, and profits nothing by the shortness of time to which the act is limited. His contractual rights are irrevocably impaired. The real test is not the duration of the act, but whether the result which it brings about in a given case is permanent or temporary.
Nor is there greater merit in the argument that the act is nothing more than a moratory law, because a mortgagee was not obliged to foreclose while it was in force and thereby to subject himself to its illegal provisions. Even if it were to be admitted that a stay of foreclosure sales for eighteen months (the period of duration of the act) without any qualifications or conditions imposed upon mortgagor or terre-tenant, would not be invalid, the act does not in terms provide for such a stay nor purport to delay action in any manner. There is no indication of an intention of the legislature to compel mortgagees to postpone or abstain from foreclosures or evictions. The act seeks only to control the amounts of deficiency judgments in personam. It would be unprecedented legal doctrine to hold that, although its provisions are unenforceable, the only recourse of a creditor is to wait until the objectionable act expires. Being unconstitutional *510 in its requirement of the crediting of the "fair value" on the judgment, it cannot gain the attribute of validity by providing for its own limitation. There is an obvious difference between an act the purpose and express provision of which is the prescription of a reasonable and safeguarded stay, and one which attempts to accomplish an illegal deprivation of the substantive rights of a creditor, even if its invalid operation is only for a temporary period. To sanction a contrary view would be to permit the legislature to enact legislation by the device of a continuity of statutes which, if fused into one, would admittedly be prohibited by the constitution. In this very case a statute was enacted on July 1, 1935, P. L. 503, the date of expiration of the original act, which in substance renews the provisions of the Act of January 17, 1934, placing still greater restrictions upon recovery of the mortgage indebtedness, and effective until June 30, 1937; it provides in section 11 that "This act shall be deemed and shall be construed to be a continuation of the provisions of the act, approved the seventeenth day of January, 1934, . . . and all rights vested, or duties or obligations imposed, or rights forfeited under the provisions of said act, shall be deemed continued, so vested, imposed or forfeited under this act and enforceable under this act, notwithstanding the expiration of said act of January seventeenth, 1934, by its own limitation."
A plea of justification as emergency legislation is invoked in defense of the statute. It is urged that the exigencies of the times require a certain degree of obliviousness to the mandates of the constitution and to the decisions which have construed them. Under our constitutional system, however, emergency cannot create a power nor diminish restrictions:Ex Parte Milligan, 4 Wall. 2, 120, 121; Wilson v. New,
Finally, it is claimed that this act is an exercise of the police power and as such overrides all barriers that otherwise might be sufficient to invalidate it. It is true, generally speaking, that the obligations of contracts cannot be allowed to impede the exercise of the police power, which is always paramount: Manigault v. Springs,
If it seem harsh in a period of economic adversity to deny to the state the power to give relief to debtors even though to some extent contractual obligations may thereby be impaired, it must be remembered that the chief purpose of the constitutional prohibition was to protect the integrity of contracts especially in those times when the temptation to yield to a policy of repudiation might be intensified by an era of financial depression. A careful reading of American history covering the period of the articles of confederation reveals the fact that it was the practice by the states, at that time of grave economic distress, of enacting repudiatory legislation, — in some instances treating creditors as veritable outlaws,17 — that led to the insertion in the constitution of the clause against the impairment of contracts. *513 That clause did much to restore public and private confidence and reinvigorate commercial intercourse.18
While a court faced with the task of interpreting the constitution should do so in the broad spirit appropriate to the generality and permanency of that instrument, and while it should also be realistic in facing current conditions, it would be recreant to its duty if it sanctioned the whittling away of constitutional restrictions because of a belief, however well-founded, in the temporary desirability of such action. Whatever validity the Mortgage Deficiency Judgment Act of 1934 may have as to mortgages executed after its passage, it is violative both of the federal and state constitutions when applied to the contractual rights of plaintiff in the present case.
The order of the court below dismissing plaintiff's petition to strike off the satisfaction entered upon its judgment against defendants is reversed; the rule is reinstated and is herewith made absolute.
Unconstitutional: Alliance Trust Co., Ltd., v. Hall,
Concurrence Opinion
I concur in the result reached by the majority. It is true that the Mortgage Deficiency Judgment Act was passed in relief of mortgage debtors and that it should not be set aside unless clearly violative of a constitutional provision. That the act does conflict with the fundamental law, however, is conclusively demonstrated in the majority opinion. Unless we are to subject all contracts to legislative control or supervision the act must fall. This result does not, in my judgment, prevent mortgage debtors from securing substantial relief in another form of procedure equally as beneficial as that provided by the act in question. Appellee's counsel could have petitioned the court below to set aside the sheriff's *514
sale for gross inadequacy in price such as would in law amount to a fraud on the debtor's right. While mere inadequacy in price where there is competitive bidding would not be sufficient to cause the court to act (Cake v. Cake,
Dissenting Opinion
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,
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,
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,
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 *518 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,
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,
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,
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,
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,
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 *522
Court. However, in New York, in the case of Klinke v. Samuels,
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.
