Phinney v. Phinney

Foster, J.

The object of this bill is to enable an attaching creditor of the mortgagor, pending proceedings for foreclosure, to step in, postpone the time for the expiration of the right of redemption, and enable him to fulfill the requirements devolving on the mortgagee, agreeably to c. 129, Laws of 1887.

This statute provides that .in all cases where a debtor has mortgaged real estate to secure the performance of a collateral agreement other than the payment of money, and proceedings have been commenced to foreclose the mortgage and the time of redemption has not expired, a creditor of the mortgagor having attached the mortgagor’s interest may file a bill in equity, and the court is thereupon authorized to ascertain whether there has been a breach of the conditions of the mortgage; and if such is found to be the fact, to pass any order or decree, and thereby enable the creditor, by fulfilling such requirements as the court may impose, to hold the property or such right as may be acquired by virtue of such attachment, for the satisfaction of his claim. And it is therein provided that “pending such proceedings, the right of redemption shall not expire by any attempted foreclosure of such mortgage.” ..;

The mortgage in question was given long prior to this enactment, and was to secure performance of an agreement of the mortgagor to maintain the mortgagees, and the survivor of them, during their natural lives in a comfortable manner according to their station in life, and at their decease to pay their funeral charges.

Proceedings for the foreclosure of this mortgage had been commenced, and the time for redemption had nearly expired when this bill was brought.

The defense interposed by demurrer and pressed upon our consideration, is, that the statute, if retrospective and therefore operative upon this mortgage, is unconstitutional and consequently void so far as this mortgage is in question; that it is in contravention of that provision of the Constitution of the United States which prohibits a state from passing any law impairing the obligation of contracts.

That it was intended to act retrospectively and apply to mortgages existing at the date of its enactment, as well as to such as should thereafter be made, there can be no question.

The contract under consideration falls within the provisions of this act, and the question to be determined is whether the statute in respect to this contract is valid, or whether the legislature in enacting it transcended its power.

The Constitution of the United States (Art. 1, § 10) declares that no state shall pass any law which “impairs the obligation of contracts.” If the act in question, so far as it relates to contracts existing at the date of its passage, is within the inhibition of the Constitution it is, to that extent, inoperative and void. It is insisted that this mortgage, having been given long prior to the act, must be governed by the law then existing both as to its redemption and foreclosure, and that the law in relation to it then in force became a part and parcel of the contract, and so annexed to it that any extension of the time of foreclosure or redemption would impair the obligation guaranteed by the constitution-.

■ It is now well settled that contracts do not derive their obligation solely from the acts and stipulations of the parties independent of existing law. This obligation has vitality and subsists outside of the stipulations expressed by parties in their contracts. And, in accordance with this principle, the highest courts in this country have in very many cases laid down the doctrine, that the laws which subsist at the time and place of the making of the contract, and where it is to be performed, enter into and form a part of it as if they were expressly referred to or incorporated in its terms, embracing not only those laws which affect its validity, construction and discharge, but also those in relation to its enforcement. Von Hoffman v. City of Quincy, 4 Wall. 550. “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.” Edwards v. Kearzey, 96 U. S. 600.

At the time when tins contract was made, the statute law of the state provided specific modes by which the mortgagee of real estate might foreclose his mortgage, after breach of the condition on the part of the mortgagor, and it specifically defined the time in which the mortgagor might redeem the estate after commencement of proceedings under the statute to foreclose the equity. That time, where no express agreement for a shorter period had been inserted in the contract, was a fixed and definite term of three j^ears. At the expiration of that term, if there had been no redemption, the estate would vest in the mortgagee and he would thereby become invested with an indefeasible title. The rights of the mortgagor and mortgagee were well and clearly defined, and existed by positive law. There was no indefinite equity of redemption, created by courts of equity and enforceable in those courts, as in many of the states, (Kennebec & Portland R. R. Co. v. Portland & Kennebec R. R. Co., 59 Maine, 25, 30) but the right of equity and the right of foreclosure were creatures of the statute. The rights of the mortgagee were no less valuable to him than were those of the mortgagor. If existing and secured to him, from the nature of the contract and the laws in force at the time of its execution, those rights were as inviolable as were those of the mortgagor.

Does the legislative act, upon which this bill is founded, so affect the rights of the mortgagee that the obligation of his contract is impaired, and thus entitle him to protection at the hands of the court ?

While it is not intended to disturb the proper application of the principle, that a state to a certain extent and within proper bounds may regulate the remedy, yet if by subsequent enactment' it so changes the nature and extent of existing remedies as materially to impair the rights and interests of a party in a contract, this is as much a violation of the compact as if it absolutely destroyed his rights and interests. The constitutional prohibition.) secures from attack not merely the contract itself, but all the essential incidents which render it valuable and enable its owner to enforce it.

Thus it was said in the case of the Planter’s Bank v. Sharp, 6 How. 301: “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 maimer or cause, but of encroaching in any respect on its obligation, — dispensing with any part of its force.” The doctrine is also there asserted that if, in professing to alter the remedy only, the rights of a contract itself are changed or impaired it comes within the spirit qf the constitutional prohibition, and when the remedy is entirely taken away, or clogged “by condition of any kind, the right of the owner may indeed subsist and be acknowledged, but it is impaired.” “And the test, as before suggested,” remark the court, “is not the extent of the violation of the contract, but the fact that in truth its obligation is lessened, in however small a particular, and not merely altering or regulating the remedy alone.”

In Louisiana v. New Orleans, 102 U. S. 206, Mr. Justice Fields in the course of the opinion says: “The obligation of a contract, in the constitutional sense, is the means provided by law by which it can be enforced, — by which the parties can be obliged to perform it. Whatever legislation lessens the efficacy of those means impairs the obligation. If it tend to postpone or retard the enforcement of the contract, the obligation of the latter is to that extent weakened.” See also Green v. Biddle, 8 Wheat. 84.

The result arrived at in all the decisions, bearing upon this question, seems to be that the legislature may alter or vary existing remedies, provided that in so doing, their nature and extent is not so changed as materially to impair the rights and interests of parties to existing contracts.

This rule, while somewhat vague and unsatisfactory, is the most certain general one of which the nature of the subject admits. The difficulty arises in its application to particular cases, and distinguishing between what are legitimate changes of remedy and those which impair the obligation of contract. Every case must be determined, in a great degree, by its own circumstances.

In a leading case upon this point in the United States court, Bronson v. Kinzie, 1 How. 311, the distinction between legislation affecting the remedy only, and that which transcends the constitutional limit, is carefully given. In that case, as in this, the legislation pertained to the extension of time for the redemption of mortgages. A mortgage was executed in Illinois containing a power of sale under a decree of foreclosure. Subsequently, an act of the legislature was passed giving the mortgagor twelve months, and any judgment creditor of the mortgagor fifteen months, within which to redeem the mortgaged property from a judicial sale; and prohibiting its sale for less than two-thirds of its appraised value. The courtheld the actvoid as applied to mortgages executed prior to its passage. It was contended in argument in support of the act, as in the case now before us, that it affected only the remedy of the mortgagee, and did not impair the contract. But the court replied that there was no substantial difference between a retrospective law declaring a particular contract to be abrogated and void, and one which took away all remedy to enforce it, or encumbered the remedy with conditions that rendered it useless or impracticable to pursue it. The language of Chief Justice Taney, who delivered the opinion of the court, in reference to that statute has an appropriate bearing upon the case before us, and therefore we can not forbear quoting it: “This brings us to examine the statutes of Illinois which have given rise to this controversy. As concerns the law of February 19,1841, it appears to the court not to act merely on tbo remedy, but directly upon the contract itself, and to engraft upon it new conditions injurious and unjust to the mortgagee. It declares that, although the mortgaged premises should be sold under the decree of the court of chancery, yet that the equitable estate of the mortgagor shall not be extinguished, but shall continue for twelve months after the sale ; and it moreover gives a new and like estate, which before had no existence, to the judgment creditor, to continue for fifteen months. If such rights may 'be added to the original contract by subsequent legislation, it would be difficult to say at what point they must stop. An equitable interest in the premises may, in like manner, be conferred upon others; and the right to redeem may be so prolonged, as to deprive the mortgagee of the benefit of his security, by rendering the property unsaleable for anything like its value. The law gives to the mortgagor, and to the judgment creditor, an equitable estate in the premises which neither of them would have been entitled to under the original contract; and these new interests are directly and materially in conflict with those which the mortgagee acquired when the mortgage was made. Any such modification of a contract by subsequent legislation, against the consent of one of the parties, unquestionably impairs its obligations, and is prohibited by the constitution.”

This decision has since been repeatedly affirmed.

The case of McCracken v. Hayward, 2 How. 611, arose the following year under the same statute law of Illinois, and the same question was involved as in Bronson v. Kinzie, supra, except that it arose upon the sale of real estate upon execution. The court arrived at the same conclusion as in the former case.

The same is true in the case of Gantley's Lessee v. Ewing, 3 How. 716, which arose under a similar statute in Indiana, and the court there held that the legislature could not, by such a law, impair or defeat the obligation under the disguise of regulating the remedy.

The question was again before the court in Howard v. Bugbee, 24 How. 461, upon a statute of Alabama allowing a judgment creditor of a mortgagor to redeem the land within two years after a sale under a decree of foreclosure of the mortgage, and the decision of the court, in accordance with the foregoing principles of the cases cited, was, that the statute was unconstitutional as impairing the obligation of the contract of mortgages, as to all such mortgages as were in existence when the statute was enacted.

In various forms and numerous cases the principle has come before the courts, but the doctrine established by the decisions, to which we have referred, has been firmly adhered to by the supreme court of the United States, and the courts of last resort in most of the states. Additional authorities might be cited indicating the judicial sentiment and opinion upon this question. Malony v. Fortune, 14 Iowa, 417, and Cargill v. Power, 1 Mich. 369, where an extension of time for the redemption of a pre-existing mortgage was held unconstitutional; Blair v. Williams, 4 Litt. (Ky.) 34, a law extending the time of a replevin bond beyond that in existence when the contract was made, held unconstitutional; Gunn v. Barry, 15 Wall. 610, and Edwards v. Kearzey, 96 U. S. 595, where it was so held in relation to statutes exempting from sale on execution any substantial part of the debtor’s property not so exempt at the time the debt was contracted; Brine v. Ins. Co., 96 U. S. 627, 637, laws in existence in regard to real estate, when a contract is made in relation thereto, including the contract of mortgage, enter into and become a part *of such contract. See also Ex parte Christy, 3 How. 328; Clark v. Reyburn, 8 Wall. 322; Walker v. Whitehead, 16 Wall. 317, 318; Kring v. Missouri, 107 U. S. 233; Memphis v. United States, 97 U. S. 293; Seibert v. Lewis, 122 U. S. 284, 294; Butz v. City of Muscatine, 8 Wall. 575; Mobile v. Watson, 116 U. S. 305; Curran v. State of Arkansas, 15 How. 319.

In the case last cited, it was said by the court that “it by no means follows, because a law affects only the remedy, that it does not impair the obligation of the contract. The obligation of a contract, in the sense in which those words are used in the constitution, is that duty of performing it, which is recognized and enforced by the laws. And if the law is so changed that the means of legally enforcing this duty are materially impaired, the obligation of contract no longer remains the same.”

It is however argued in support ol the statute before us, that it violates no constitutional provision, and several decisions are cited in support of the plaintiff’s position.

The principal one is that of Von Baumbach v. Bade, 9 Wis. 559, where the court held that a general statute permitting defendants in actions to foreclose mortgages to have six months to file answers, and requiring six months’ notice before sale on decree, was valid even as to pending actions, although under former practice the defendant had but twenty days. The court, notwithstanding, admitted the correctness of the doctrine laid down by the supreme court in Bronson v. Kinzie, McCracken v. Hayward, and Curran v. State of Arkansas, but said that the ease did not come within either of those decisions; that the remedy of the mortgagee, as it previously existed was in all its parts substantially continued, and that no new conditions were ingrafted upon it. “A complete and substantial remedy was left them,” remark the court in conclusion, “according to the course of justice, as it was administered before its passage, the only difference being that it was less expeditious, but not so much so as materially to affect or diminish their rights.”

Hollway v. Sherman, 12 Iowa, 282, is also cited. This was a case where the statute, regulating the foreclosure of mortgages by proceedings in equity, gave the defendant nine months additional in which to file an answer. The court admitted that it was unable to fix with precision the dividing line betweeii acts strictly remedial, and those impairing the obligation of contracts, and held the law valid inasmuch as it “simply gave to the defendant an enlarged time for answering, leaving the remedy of the plaintiff in all other respects just as it existed under the previous law.”

Nor does the case of Bridgeport Savings Bank v. Eldridge, 28 Conn. 556, to which our attention has also been called, militate against the doctrine enunciated in the decisions of the United States supreme court before cited. It was a case where a second mortgagee had acquired by foreclosure the right of redemption after the time allowed to redeem had expired under a decree of foreclosure; it was simply a question whether sufficient ground was shown for opening a decree of the court of equity, and whether a court of equity possesses the power of reopening a decree of foreclosure and extending the time of redemption. The court there say, — that this power is inherent in the court that made the decree, is too well settled to need citation of authorities.

It will be noticed that in these decisions the foreclosure was under proceedings in equity where the court of chancery was authorized to decree foreclosure, — a proceeding which has never existed in this state. K. & P. R. R. Co. v. P. & K. R. R. Co., 69 Maine, 31. As we have remarked, foreclosure in one of the modes provided by law is fixed by positive statute enactments, and does not depend upon any decree of the chancellor. It is not subject to that decree of flexibility, both as to time and process, which exists in those 'jurisdictions where foreclosure proceedings are relegated to courts of equity. The remedies there are more elastic than under a system where the time of redemption is known and understood to be for a fixed and definite term. So long as we maintain that the remedy, furnished by the laws at the time the contract is entered into, constitutes a part of the obligation ('Walker v. Whitehead, 16 Wall. 314) so long must we see that it is not materially impaired by any disguise of remedial legislation. The doctrine of remedy must not affect the doctrine of rights. The latter is superior to the former, and guaranteed not only by the federal but every state constitution.

While we admit the difficulty, in some cases, of determining whether the change in the remedy has thus materially impaired the rights and interest of the creditor, we do not think any such p difficulty exists in this case. The act in question abrogates a right which the defendant had as mortgagee, at the time the mortgage was given, of a fixed and definite period for the foreclosure of the mortgagor’s equity. By tins act, that which was Lbefore certain is rendered uncertain. It expressly provides that pending proceedings between the mortgagor and any of his creditors who may have a claim against him, and who may see fit to enforce it by attachment and subsequent bill in equity, the right of redemption shall not expire by any attempted foreclosure of such m ortgage. Litigation upon such a claim may be protracted^ for months or even years. If the claim is a valid one, then an ecpiitablo interest is conferred upon one, other than the mortgagor, with rights against the mortgagee of paying such damages as a court of equity may assess, and fulfilling requirements which, as in this case, by the terms of the mortgage contract devolved upon the mortgagor to fulfill personally. Bryant v. Erskine, 55 Maine, 156; Eastman v. Batchelder, 36 N. H. 141, 149; Clinton v. Fly, 10 Maine, 296. Tbe right of redemption and the time‘t for foreclosure may thus be so prolonged as materially to diminish the security of the mortgagee, notwithstanding he maybe allowed) possession of the premises. The lights conferred upon the judgment creditor are directly in conflict with the rights of the mortgagee acquired when the mortgage was made.

“If such rights may be added to the original contract by subsequent legislation,” said the court in Bronson v. Kinzie, supra, “it would be difficult to say at what point they must stop.”

The conclusion to which we have arrived in reference to this statute, as applied to pre-existing contracts, renders any further consideration of the case unnecessary.

Demurrer sustained.

Peters, C. J., Daneorth, Libbey, Emery and Haskell, JJ., concurred.

Case Details

Case Name: Phinney v. Phinney

Court Name: Supreme Judicial Court of Maine

Date Published: Apr 15, 1889

Citation: 17 A. 405

Court Abbreviation: Me.