198 A. 115 | Pa. | 1938
This appeal involves the constitutional validity of the Act of July 2, 1937, P. L. 2751, 21 PS section 821a et seq., entitled: "An Act to protect the obligors or guarantors of bonds and mortgages, and owners of property affected thereby, and others indirectly liable for the payment thereof, by prohibiting, for certain periods, the foreclosure sale of mortgaged property at less than its fair market value; and prescribing the method of fixing the fair market value of said property."1 *536
The appellants, as trustees under a will, held a bond and mortgage dated June 19, 1925, in the sum of $9,000, secured on premises in Philadelphia. On July 7, 1937, for default in payment of principal, interest and taxes for the years 1935 and 1936, judgment for $10,512 was entered. August 19, 1937, appellants applied for a writ of levari facias directed to the sheriff to proceed with execution on the judgment. The respondent, prothonotary *537 of the court below, declined to issue the writ on the ground of "the failure of your Petitioners to file a statement in Court releasing the obligors from personal liability or to have the fair market value of the mortgaged premises fixed by the Court upon Petition filed as required by the Act" in question. Appellant then applied for a writ of mandamus requiring respondent to perform his duty. The mortgagor, Richard S. Cross, intervened as a party respondent. The mandamus was refused and this appeal followed.
Appellants present four contentions: (1) that the act is a special law changing the method for collecting debts and enforcing judgments and prescribing the effect of judicial sale of real estate; (2) that, as to this mortgage, the Act violates the impairment of contract clauses of the state and federal constitutions; (3) violates the due process clause of the 14th amendment to the federal constitution, and (4) that the title is defective under Article III, section 3, of the state constitution. The appellees deny these contentions. As the parties seem to agree that the Act is not a moratory statute, it is unnecessary to discuss the nature and extent of the exercise of the power under which so-called emergency legislation of that character is sustained or rejected.
We think the Act is clearly a special law within the prohibited sense. Article III, section 7, of the constitution provides, inter alia, "The General Assembly shall not pass any local or special law . . . providing or changing methods for the collecting of debts, or the enforcing of judgments, or prescribing the effect of judicial sales of real estate." This prohibition deals with three subjects: (1) the method of collecting debts, (2) the method of enforcing judgments and (3) the effect of judicial sales of real estate. The act applies to the entire state and is therefore not a local law; it applies to mortgage debts existing when it was passed or thereafter created. *538
In examining the contentions of the parties, we must consider and apply the now well established test of sustainable classification. In Ayars's Appeal,
"The purpose of the provision under consideration was not to limit legislation, but merely to prohibit the *539 doing, by local or special laws, that which can be accomplished by general laws. It relates not to the substance, but to the method of legislation, and imperatively demands the enactment of general, instead of local or special laws, whenever the former are at all practicable."
As our inquiry is whether the legislature has attempted, for the benefit of a special class of debtors, to change the method of collecting debts or enforcing judgments, we examine what may be regarded as a typical transaction to which the Act would apply, and compare it with other more or less similar transactions to see whether the class, created out of all the debtors in the state, is supported, as appellees must contend, by "a necessity springing from manifest peculiarities, clearly distinguishing those of one class from each of the other classes, and imperatively demanding legislation for each class, separately, that would be useless and detrimental to the others." The typical transaction is the borrowing by one of money from another; the borrower agrees to repay the loan. The agreement to repay may be shown in various ways; it may be (1) oral, or (2) by simple promissory note, or (3) by such note containing a warrant to confess judgment, or (4) by promissory note or notes secured by the deposit of collateral with specific power to sell for default, or (5) the security may be land in the form of a mortgage without an accompanying written obligation (Tonkin v. Baum,
The absence of substantial basis for selecting the special class proposed in the statute, will appear even more clearly, we think, if the typical cases of two borrowers be considered, each having property of the same kind and amount, each in default in repaying a loan of — say $1,000 — one creditor being secured by bond and mortgage, and the other by a bond without a mortgage or by a judgment note which, if under seal, is a bond. Judgment is entered in each case by means of the warrant to do so. Execution is necessary. Each defendant had land of the same value, in one case, mortgaged; in the other, not. What substantial basis can there be for discriminating between the two and allowing the judgment note creditor to resort to the usual method of collecting his debt and enforcing his judgment by immediate execution, and to change that method and deprive the other, or mortgage creditor, of precisely the same right the other lender had and, in addition, subject him to possibly two years' delay, together with a loss of interest and taxes, as provided by the challenged Act? There is nothing to justify the discrimination; to say that one creditor has a mortgage and the other has not, is not sufficient; such a difference is not a "necessity springing from manifest peculiarities, clearly distinguishing those of one class from each of the other classes, and imperatively demanding legislation for each class, separately, that would be useless and detrimental to the others."
The eleventh section of the Act shows that the special class created in the first section was not even intended to include all mortgage judgment creditors, but that another class of mortgage creditors should continue entitled *541
to use the existing method of collecting debts. Section 11 provides: "The provisions of this act shall not apply to the foreclosure of any mortgage held by any Federal Land Bank or the Federal Farm Mortgage Corporation, if, at the time of said foreclosure, the United States of America owns a majority of the capital stock of such bank or corporation." In the brief of the appellee section 11 is referred to in these words: "Not being affected by section 11 the appellant therefore cannot attack the constitutionality of the act now before this court" citing Com. ex rel. v. Reese,
Our attention has not been called to any federal law requiring the commonwealth to give a more favorable remedy to corporations whose stock is owned in whole or in part by the United States than is given to residents of the commonwealth. We have held that corporations *542
whose stock is held by or for the federal government are subject to the process of the state courts: Haines v. Lone StarShipbuilding Co. et al.,
Defective classification resulting in special legislation is illustrated in many reported cases. We shall refer to some of them. It has been held that a statute authorizing a prothonotary or a sheriff to sue before a justice of the peace for fees that had accrued during his term of office was the arbitrary creation of a special class; we said: "It is a special Act, in that it is designed for a particular purpose, and is applicable only to particular persons, and to them only for a limited period. In the special and restricted range of its operation, it undertakes, among other things, to regulate the practice before justices of the peace; it changes the method of collecting certain specified debts due and owing to particular persons during a certain period only; it extends the powers and duties of justices of the peace and constables; it changes the rules of evidence in the particular cases to which alone it applies. In these and other particulars it is clearly in conflict with the constitutional provisions above quoted":Strine v. Foltz et al.,
Many of the legislative efforts to change the method of collecting debts have been in the field of mechanics' liens:Vulcanite Portland Cement Co. v. Allison,
At the risk of unduly prolonging this opinion we make another quotation from that case as an enlightening parallel to the illustration, suggested above, of the two borrowers, one giving his bond or judgment note for $1,000 and the other executing a bond and mortgage for that sum. At page 387, ELKIN, J., said: "There are no manifest peculiarities in the class of creditors mentioned in sec. 28 to create a necessity which imperatively demands legislation for that particular class. As an illustration of the preference given to the special class of creditors to which sec. 28 applies, let us assume that appellant company furnished 100 barrels of cement to the defendant, which were used in the building constructed by the garnishee as contractor, and that a rival cement company furnished the same amount of cement to the defendant, intended to be used in the construction of the building, but in fact not so used, and which remained the personal property of the defendant at the time of the institution of this proceeding. In such a case the appellant company, under the provisions of sec. 28, could become a preferred creditor by attaching the fund due from the owner or contractor, while the rival cement company could only be a general creditor of the debtor, in this instance a subcontractor. In personal actions of *545 this character there is no imperative necessity which would justify the singling out of a special class of creditors from the general creditors of a debtor. The liens of mechanics and material men against the building into which their labor and materials entered are protected by the settled policy of our law for more than a century, but there is no necessity, imperative or otherwise, for extending the system so as to prefer this class of creditors in personal actions."
In the same volume, 220 Pa., at page 603, 69 A. 1117, is reported Vulcanite Paving Co. v. Philadelphia Rapid TransitCo., holding that the legislature lacked power to provide a special method by fi. fa. to collect a lien filed against the property of the transit company. Taylor v. Carnegie Institute,
Passing from the mechanics' lien cases, we may note the effort in 1915, P. L. 261, to provide an attorney of record with a lien for compensation for his services upon his client's cause of action. The statute was held invalid, notwithstanding that, for some purposes, classification of particular trades, professions or occupations may be made. The court referred to the distinction "that the basis for classification must be reasonable and proper and founded upon a real, and not merely artificial, distinction between the members of the class and the general public, and based upon 'a necessity springing from manifest peculiarites, clearly distinguishing those of one class from each of the other classes, and imperatively *546
demanding legislation for each class, separately, that would be useless and detrimental to the others' ": Laplacca et ux. v. P.R. T.,
In Com. v. Casey,
Examples of proper classification may be found, inter alia, in Miller v. Myers,
It is as much a change in method of collecting a debt, or enforcing a judgment, to deprive a creditor of resort to an existing method by arbitrarily placing him in a special class, to whom the method is not available, as it is to give to members of a special class a remedy theretofore not available, as in the mechanics', the lawyers', or the throwsters' lien cases. At this point, perhaps, particular reference may be made to the relation of appellants to the transaction which resulted in the debt and judgment in their favor, and to the manner in which the provisions of the Act would bear upon their general fiduciary responsibility. The appellants are trustees. Trustees are limited by law in their investments unless given enlarged powers by deed or will. First mortgages on real estate are among the investments permitted. If the Act were valid a trustee could not enforce his contract without assuming the responsibility of releasing and discharging (in the words of the first section) "the obligors and guarantors and any other parties liable, *548 directly or indirectly, on the mortgage debt and the owners of the property affected thereby from all personal liability on the mortgage debt, interest, costs, taxes, and municipal claims," or of taking the risk of having the court prevent execution for a period that may extend as long as two years; during that period (and it is a possibility which the trustee would have to consider) no income would be received for his cestui que trust, and, which would be still worse, the mortgaged property might meanwhile be sold for delinquent taxes. If the trustee sought to take possession for default, his right might be resisted and a long time elapse before an ejectment could be concluded. The trustee's conduct in either event might, and doubtless would, subject him to a defense of his conduct in proceedings at the audit of his account. The effect of the proposed classification would make it impracticable for trustees to invest in mortgages of real estate. These considerations are mentioned as important in determining whether there is any "necessity springing from manifest peculiarities, clearly distinguishing those of one class [i. e., persons holding mortgages as security] from the other class [creditors loaning on the security of bonds or judgment notes] and imperatively demanding legislation for each class, separately, that would be useless and detrimental to the other."
Reference was made in the argument to special remedies available to mortgage creditors ever since colonial times, as basis for the recognition, since the constitution of 1874, of the continued legislative power to deal specially with such creditors notwithstanding the prohibition against special legislation in Article III, section 7. But the contention cannot be accepted, for the same reason that a similar contention was rejected when it was proposed to extend the right of lien for labor and materialmen beyond what they had been prior to the adoption of the constitution. *549
Obtaining judgment in rem on two returns of nihil habet is one method; obtaining judgment in personam is another. The act changes the method of enforcing the mortgage creditor's judgment in personam without making the same change in the method by which other judgments for debt are enforced.
Our conclusion that this Act is invalid does not disable the legislature from enacting moratory legislation if it should be found desirable.4 Such legislation, if general in application, may of course be sustained if consistent with other constitutional limitations. The Act of 1842, P. L. 407, considered in Chadwick v. Moore, 8 W. S. 49 (1844) was a general law applying to all judgment creditors, not to a special class, although the constitution then in effect contained no prohibition against special legislation; the court declined to hold the Act invalid as impairing the obligation of contracts in the circumstances stated by GIBSON, C. J. The case does not, as suggested in appellee's argument, sustain the class legislation of the Act of 1937; it has nothing to do with that subject. Nor does our conclusion that this act is invalid leave judgment debtors — not only mortgage judgment debtors but all such debtors — at the mercy of execution creditors. As early as Patterson v. Patterson,
"Where the order is to stay the execution indefinitely, as it is the final adjudication of one's right, it is the subject of revision, otherwise the party might be deprived of his judgment, or, what is the same thing, the fruits of it, without remedy.
"Whilst the power to stay execution of a judgment is necessary to prevent injustice, it should never be exercised unless the case is plain, and the equity of the party asking the interposition of the court is free from doubt or difficulty." In that case relief appears to have been granted upon the defendant's entering security to protect the plaintiff. The power was exercised in Cake v. Cake,
Having reached this conclusion on appellant's first contention, it is unnecessary to discuss the others.
The order appealed from is reversed, the record is remitted for further proceeding not inconsistent with this opinion; each side to pay its own costs.