Adams v. Spillyards

• Decision Date: 19 June 1933
• Docket Number: 4-3087
• Parties: ADAMS v. SPILLYARDS
• Court: Arkansas Supreme Court

61 S.W.2d 686

187 Ark. 641

ADAMS v. SPILLYARDS

4-3087

Supreme Court of Arkansas

June 19, 1933

Appeal from Jefferson Chancery Court; H. R. Lucas, Chancellor reversed.

Judgment reversed, and cause remanded.

Rowell & Rowell, for appellant.

Coy M Nixon, for appellee.

R Crocker, amicus curiae.

Trieber & Lasley, amici curiae.

MCHANEY, J. BUTLER, J., concurring. MEHAFFY, J., dissenting. Mr. Justice HUMPHREYS agrees with me that the act should be upheld.

OPINION

MCHANEY, J.

Appellants are the owners and holders of certain past-due promissory notes executed by appellees, secured by a deed of trust on certain real estate in Jefferson County. Suit was filed April 6, 1932, to foreclose, which was met by demurrer. The court overruled the demurrer January 31, 1933, and thereafter an answer was filed, admitting the execution and delivery of the notes and deed of trust. There was no dispute as to the facts. On February 25, 1933, act 57 of the Acts of 1933 became a law, and its provisions were invoked by appellees. The court, in accordance with the requirements of § 2 of said act, refused to enter a decree of foreclosure to which he found appellants were entitled, unless and until they would enter into and file a stipulation that they would bid at the sale the amount of the judgment, interest and costs. Appellants refused to do this, and filed a motion to have the decree entered without such requirement. The court overruled the motion, and this appeal followed.

We think this was a final order from which an appeal lies.

The only question presented is the constitutionality of said act 57 of 1933. We copy it in full as follows:

"Section 1. In any foreclosure, in any court in the State of Arkansas in which real estate is involved, the real estate securing the loan sought to be foreclosed shall be considered to be the value of the loan made, irrespective of the amount which may be realized from the sale of such real property.

"Section 2. When any such foreclosure suits are brought, the plaintiff shall not be entitled to a decree of foreclosure until and unless said plaintiff shall file a stipulation in said cause that he will bid the amount of the debt, interest and costs.

"Section 3. Where any such suits are now pending and sale of said property has been made under decree of courts foreclosing same, and the sale has not been confirmed by the court, the chancellor is hereby directed and it is made his duty to inquire into the amount that said property sold for, and hear testimony thereon in order to ascertain whether or not the purchaser bid the fair market value of said property, and said sale shall not be confirmed until after said hearing, and the Supreme Court of this State shall review the findings of said chancellor on appeal, even though no fraud or inequitable conduct is attributed to any person conducting said sale or any party interested therein.

"Section 4. Where any such suits are filed after the effective date of this act and real property is sold under foreclosure decree, said sale shall not be confirmed by the court until and unless said court has inquired into the amount that said property sold for, and hear testimony thereon in order to ascertain whether or not the purchaser bid the fair market value for said property, and said sale shall not be confirmed until after said hearing, and the Supreme Court of this State shall review the findings of said chancellor on appeal, even though no fraud or inequitable conduct is attributed to any person conducting said sale or any party interested therein.

"Section 5. When any suit seeking the foreclosure of real estate is filed and application is made for the appointment of a receiver, the court shall have the power to appoint the owner of said property as such receiver, and the fact that he is the owner in itself shall not disqualify him to serve in such capacity.

"Section 6. If any part, sentence, section, or paragraph of this act is held to be unconstitutional, the remaining valid parts shall not be affected."

The attack made on the validity of the act is based on art. 1, § 10, Constitution of the United States, and art. 2, § 17, Constitution of Arkansas, both prohibiting the State from passing any law impairing the obligation of contracts. It is of course well settled that the Constitution of this State is "not an enabling, but a restraining act (Straub v. Gordon, 27 Ark. 625), and that the Legislature may rightfully exercise its powers subject only to the limitations and restrictions of the Constitution of the United States and of the State of Arkansas," as we said in Bush v. Martineau, 174 Ark. 214, 295 S.W. 9, and that an act of the Legislature is presumed to be constitutional and will not be held by the courts to be otherwise unless there is a clear conflict between the act and the Constitution, and that all doubt should be resolved in favor of the act. Bush v. Martineau, supra, and cases there cited. It is equally well settled that, if an act runs counter to the plain provisions of the Constitution, the courts should not hesitate to so declare and hold the act invalid. Another rule which is not open to dispute and is well settled both in this court and the Supreme Court of the United States is thus stated in Robards v. Brown, 40 Ark. 423: "The laws which are in force at the time when, and the place where, a contract is made and to be performed enter into and form a part of it. This is only another mode of saying that parties are conclusively presumed to contract with reference to the existing law." And in Walker v. Whitehead, 83 U.S. 314, 16 Wall. 314, 21 L.Ed. 357, it is said: "The laws which exist at the time of the making of a contract and in the place where it is made and to be performed enter into and make a part of it. This embraces those laws alike which affect its validity, construction, discharge and enforcement. Nothing is more material to the obligation of a contract than the means of its enforcement. The ideas of validity and remedy are inseparable, and both are parts of the obligation which is guaranteed by the Constitution against impairment. The obligation of a contract 'is the law which binds the parties to perform their agreement.' Any impairment of the obligation of a contract--the degree of impairment is immaterial--is within the prohibition of the Constitution."

It becomes material then to inquire as to the rights of mortgagees of real estate at the time and prior to the effective date of said act 57 in foreclosure proceedings in chancery courts. They had the right under existing law to have a judgment on the obligation in default after service and issue joined after 90 days or any day court was in session after default in pleading, and a condemnation of the real estate covered by the mortgage to be sold and applied to the payment of the debt, interest and costs. If not sold for a sufficient sum to cover, there was a deficiency judgment upon which execution could issue as at law. Foreclosure sales of real estate could not be set aside and confirmation refused for mere inadequacy of consideration, but only for fraud or other inequitable conduct in the matter of the sale coupled with gross inadequacy of consideration. Nor could sale be postponed more than six months. There was no provision of law declaring that "the real estate securing the loan sought to be foreclosed shall be considered to be the value of the loan made, irrespective of the amount which may be realized from the sale of such property," nor that the plaintiff should "file a stipulation in said cause that he will bid the amount of the debt, interest and costs," until act 57 was enacted. It frequently happens, though not the general custom, that loans are made and real estate security taken when both parties know that the security is of less value than the loan, and it frequently happens that loans are made on both real and personal property as security. In either event, under act 57, in order to foreclose on the real estate in the chancery court, the mortgagee would have to relinquish the personal responsibility of the mortgagor as well as the personal property covered by the mortgage, for "the real estate * * * shall be considered to be the value of the loan made," and he must file a stipulation that he will bid for it the full amount of the judgment, interest and costs. This too in the face of the fact that the loan was made more on the moral risk than on the real estate security in the one case, and more on the personalty securing the loan than the real estate in the other. The undisputed effect of §§ 1 and 2 of the act is to prohibit deficiency judgments in mortgage foreclosures in chancery courts, a legal possible right inherent in all existing Arkansas mortgages at the effective date of the act, which was a part of the mortgage contracts themselves. This personal liability was a part of the contract because authorized by law at the time of execution and in the place of performance. The principal object of act 57 was to take away from the mortgagee that right, and of necessity violates the obligations of all existing mortgage contracts. Sections 3 and 4 undertake to change the rule many times announced by this court, and of long duration, that the court cannot refuse to confirm a judicial sale for mere inadequacy of consideration except for fraud, unfairness or some other inequitable conduct of the sale. See Marten v. Jirkovsky, 174 Ark. 417, 295 S.W. 365; Free v. Harris, 181 Ark. 644, 27 S.W.2d 510. This was the law as to all existing mortgages, became a part of them, and related to a substantial remedy to collect the debts for which they were given. Section 5 attempts to make the owner or mortgagor eligible for appointment as receiver, in the event a...