Beaver County Bldg. & Loan Ass'n v. Winowich

• Court: Pennsylvania Supreme Court
• Writing for the Court: STERN, Justice
• Citation: 187 A. 481,323 Pa. 483
• Parties: BEAVER COUNTY BUILDING & LOAN Ass'n v. WINOWICH et ux.
• Decision Date: 05 October 1936

187 A. 481
323 Pa. 483

BEAVER COUNTY BUILDING & LOAN Ass'n
v.
WINOWICH et ux.^*

Supreme Court of Pennsylvania.

Oct. 5, 1936.

187 A. 482

Appeal No. 117, March term, 1936, from order and judgment of Court of Common Pitas, Beaver County, at No. 77, March term, 1934, D. S. B.; William A. McConnel, Judge.

Proceeding by the Beaver County Building & Loan Association against Nicholas Winowich and wife, wherein the plaintiff caused a judgment to be entered on a judgment bond executed by defendants and issued writ of execution under which mortgaged premises securing the bond were sold. The plaintiff having failed to ask the court to determine the fair value of property and to fix the amount of deficiency judgment, defendants petitioned that judgment be marked satisfied. From an order dismissing plaintiff's petition on which the court granted a rule on defendants to show cause why the satisfaction entered by the prothonotary should not be stricken from the record, plaintiff appeals.

Order reversed, and rule reinstated and made absolute.

Argued before KEPHART, C. J., and SCHAFFER, MAXEY, DREW, LINN, and STERN, JJ.

Charles McC. Barrickman, of Beaver, Charles H. Kennedy, of New Brighton, Ralph E. Smith, of Ambridge, and Thomas C. Buchanan and Buchanan & Barrickman, all of Beaver, for appellant.

M. E. Rowley, W. D. Craig, H. E. Craig, and Craig & Rowley, all of Aliquippa, for appellees.

Charles J. Margiotti, Atty. Gen., Edward Friedman, Dep. Atty. Gen., and George W. Keitel, Asst. Dep. Atty. Gen., for the Commonwealth.

Homer H. Swaney, of Beaver Falls, amicus curiæ for Pennsylvania League of Building & Loan Ass'ns.

STERN, Justice.

The question presented in this case is the constitutionality of the Act of January 17, 1934 (Sp.Sess.)P.L. 243 (21 P.S. §§ 806 and note, 807), 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 or 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

187 A. 483

the obligation secured by the mortgage.² In the recent 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 $14,099.95, 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 (Sp.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," (Act Jan. 17, 1934, Sp.Sess., P.L. 243) 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 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." Section 1 (21 P.S. § 806).

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 1, § 10, of the Constitution of the United States, which provides that "No State shall * * * pass any * * * Law impairing the Obligation of Contracts," and article 1, § 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 3, § 7, of the Constitution of Pennsylvania, which provides that "The General Assembly shall not pass any local or special law; Authorizing the * * * impairing of liens: * * * or

187 A. 484

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 3, § 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, 11 L.Ed. 397; Von Hoffman v. City of Ouincy, 4 Wall. 535, 550, 18 L.Ed. 403; Walker v. Whitehead, 16 Wall. 314, 317, 21 L.Ed. 357; Edward v. Kearzey, 96 U.S. 595, 607, 24 L.Ed. 793; Barnitz v. Beverly, 163 U.S. 118, 127, 16 S.Ct. 1042, 41 L.Ed. 93; Hooker v. Burr, 194 U.S. 415, 420, 24 S.Ct. 706, 48 L.Ed. 1046; W. B. Worthen Co. v. Kavanaugh, 295 U.S. 56, 60, 55 S.Ct. 555, 556, 79 L.Ed. 1298, 97 A.L.R. 905.

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 Estate, 161 Pa. 252, 254, 28 A. 1109; White's Estate, 322 Pa. 85, 89, 185 A. 589. As between the parties, both at law and in equity, it is a conveyance only so far as necessary to render the instrument effective as a security. Corporation for Relief of Poor Ministers v. Wallace, 3 Rawle, 109, 130; Wilson v. Shoenberger's Executors, 31 Pa. 295; Harper v. Consolidated Rubber Co., 284 Pa. 444, 451, 131 A. 356; Bulger v. Wilderman & Pleet, 101 Pa.Super. 168, 171; Artisti-Kote Co. v. Benefactor Building & Loan Association (CCA.) 64 F.(2d) 407, 408. The obligee could proceed either in personam or in rem. If in personam he could resort to all the property of the debtor not protected by exemption laws, and for this purpose could issue one execution after another until the full amount of the debt was realized. If the obligee chose to proceed by foreclosure of the mortgage, the sum realized at the sale on execution was credited against the indebtedness, and the mortgagee could then pursue his debtor on the bond for the balance. It was immaterial to the mortgagee's rights whether he himself or some third person became the purchaser of the mortgaged property at the sheriff's sale. White's Estate, 322 Pa. 85, 89, 185 A. 589. As such...