Federal Land Bank of Wichita v. Story

• Decision Date: 03 May 1988
• Docket Number: No. 68077,68077
• Citation: 756 P.2d 588,1988 OK 52
• Parties: The FEDERAL LAND BANK OF WICHITA, Wichita, Kansas, A Corporation, Appellee, v. Jim STORY, et al., Appellants, and State of Oklahoma ex rel. Robert Henry, Attorney General of the State of Oklahoma, Intervenor-Appellant.
• Court: Oklahoma Supreme Court

Page 588

756 P.2d 588

1988 OK 52

The FEDERAL LAND BANK OF WICHITA, Wichita, Kansas, A Corporation, Appellee, v. Jim STORY, et al., Appellants, and State of Oklahoma ex rel. Robert Henry, Attorney General of

the State of Oklahoma, Intervenor-Appellant.

No. 68077.

Supreme Court of Oklahoma.

May 3, 1988.

Certiorari to the District Court of Craig County; William J. Whistler, District Judge.

The Federal Land Bank of Wichita brought a mortgage foreclosure action in the District Court of Craig County, Oklahoma, and the landowners sought shelter from the foreclosure under the Oklahoma Mortgage Foreclosure Moratorium Act, 62 O.S.Supp.1986, §§ 492, 493. The trial court found the Act unconstitutional. The State intervened and timely filed a brief. Without hearing evidence or argument by the State, the trial court affirmed its earlier ruling that the Act is unconstitutional. The landowners and the State appeal.

AFFIRMED.

Crowe & Dunlevy by Clyde A. Muchmore, Harvey D. Ellis, Jr., Oklahoma City, for appellee.

R. Theodor Stricker, Gentry, Ark., for appellant Landowners.

Robert H. Henry, Atty. Gen. by Kathlyn A. Rhodes, Asst. Atty. Gen., Oklahoma City, for intervenor-appellant.

DOOLIN, Chief Justice.

The question presented on appeal is whether the trial court erred by finding unconstitutional the Oklahoma Mortgage Foreclosure Moratorium Act, 62 O.S.Supp.1986, §§ 492, 493. We find the Act unconstitutional on its face as a violation of the Contracts Clause of the United States and Oklahoma Constitutions, and as a violation of Article II, § 6, of the Oklahoma Constitution.

In 1986, in response to a limited economic emergency in the State of Oklahoma, the legislature passed the Oklahoma Mortgage Foreclosure Moratorium Act, 62 O.S.Supp.1986, §§ 492, 493, which provides:

FARM CREDIT SYSTEM [NEW]

§ 492. Definitions

As used in this act:

1. "Farm Credit System" means the Farm Credit System as defined in the Farm Credit Act of 1971, P.L. 92-181, as amended;

2. "Federal Land Bank" means a federal land bank within the Farm Credit System pursuant to the provisions of the Farm Credit Act of 1971, P.L. 92-181, as amended;

3. "Federal Land Bank Association" means a federal land bank association which is within the Farm Credit System pursuant to the provisions of the Farm Credit Act of 1971, P.L. 92-181, as amended; and

4. "Capital Corporation" means the Federal Credit System Capital Corporation as defined in the Farm Credit Amendments Act of 1985, P.L. 99-205.

§ 493. One year deferment on certain foreclosure actions

There is hereby declared a period of deferment of not longer than one (1) year from the date of the enactment of this act, during which time the Federal Land Bank of Wichita and any Federal Land Bank Association are prohibited from initiating a foreclosure action in the courts of this state. However, nothing in this act shall prohibit the Capital Corporation from initiating a foreclosure action from and after this date so long as the Capital Corporation has determined that the loan or loans held by the borrower or borrowers are ineligible for restructuring assistance.

Added by Laws 1986, c. 188, § 2, emerg. eff. May 21, 1986.

The Act remained in effect from May 21, 1986, until May 21, 1987. On August 7, 1986, the Federal Land Bank of Wichita filed a mortgage foreclosure action in the District Court of Craig County, Oklahoma, against Jim and Margie Story [landowners]. The landowners sought shelter from the foreclosure by invoking protection of the Act and filed a motion to dismiss. On October 23, 1986, the trial court found the Act unconstitutional. On November 6, 1986, the State intervened as provided by 12 O.S.Supp.1984, § 2024(D) and was given until November 17, 1986, to respond. The State's brief was timely filed. Without allowing the State to present evidence and argument in support of the constitutionality of the Act, the trial court, on November 17, 1986, affirmed its earlier ruling. Further proceedings were stayed pending interlocutory appeal by the landowners. The State filed a petition for a Writ of Certiorari.

Before the parties could fully brief the question of the Act's constitutionality for our review, the Act expired by its own terms. Review of the constitutionality of the Act is now moot. The State urges that mootness should not act as a bar to review because of the great public interest in the question. We agree to review the constitutionality of the Act for two reasons. First, the economic conditions which prompted passage of the Act still exist in Oklahoma. The legislature may at any time revive the Act to protect landowners from foreclosure by the Federal Land Bank. The renewed Act may again expire before the question of its constitutionality can reach this Court for review. Mootness will not act as a bar when the challenged event is "capable of repetition yet evading review." ¹ We find such a condition here. Second, ten appeals have been consolidated for review. ² In each case, the trial judge found the Act unconstitutional and stayed further proceedings pending interlocutory review. We have an obligation to rule on the constitutionality of the Act so that these trials may resume and proceed in an orderly fashion based upon our decision today. We therefore grant certiorari, finding that special and important reasons exist for such grant. ³

As a preliminary matter, the State argues that the trial court erred in refusing to allow the State to present evidence and argument in support of the constitutionality of the Act. We agree. Title 12 O.S.Supp.1984, § 2024(D), ⁴ imposes an affirmative duty on the trial court to permit the State to intervene and present evidence and argument on the question of the constitutionality of a statute. We find the error harmless, however, because the Act is unconstitutional on its face. No amount of argument or evidence could be presented by the State which would erase the plain wording of the statute.

Article I, § 10, cl. 1, of the United States Constitution restricts the authority of a State from passing "any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts...." Article II, § 15, of the Oklahoma Constitution provides "No bill of attainder, ex post facto law, nor any law impairing the obligation of contracts, shall ever be passed."

In reviewing any question concerning impairment of contracts prohibited by Federal and State Constitutions, certain threshold questions must be addressed. First, is the impairment the result of State action? The Contracts Clause acts as a restriction on State power, but does not apply as a restriction on the exercise of Federal power. ⁵ Nor, by definition, does the Contracts Clause apply to the impairment of contracts by individuals or corporations. State remedies are available for private impairment of contracts. Here, the Act was passed by the legislative branch of State government and state action is indeed present. Second, are existing contracts impaired or are prospective contracts impaired? The Contracts Clause does not inhibit prospective impairment of contracts, such as is done for instance in the Statute of Frauds. Only impairment of existing contracts is prohibited. ⁶ In the instant case, the Act prohibits foreclosure on mortgages existing prior to the Act. Thus, the Act impairs existing contracts.

The original intent of the Contracts Clause was to prevent the States from passing debtor relief laws, but the Contracts Clause has since been used in other contexts. ⁷ We, therefore, next determine whether the impairment is of public contracts or private contracts.

If the State is a party to the contract and the State impairs its own contractual obligation, we determine whether the State has impermissibly bargained away one of its police powers. If not, we then look to the degree of impairment and to the necessity and reasonableness of the repealing legislation and whether it promotes an overriding police power interest. ⁸

If the impaired contract is private in nature, we first determine if the State law effects a substantial impairment of the contractual relationship. If so, the State must then identify a significant and legitimate public interest to justify the impairment. The third step of the inquiry is "whether the adjustment of the rights and responsibilities of contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislature's adoption." ⁹ In the cases at bar, the State is not a party to these contracts. The cases before us are private contracts secured by a mortgage. The actions are foreclosures filed by the mortgagee against the mortgagor. We find the Act prohibiting mortgage foreclosure actions by the Federal Land Bank to be a debtor relief law.

The Act under review is a mortgage foreclosure moratorium. Our review is simplified by stare decisis, for we previously addressed this identical issue in State ex rel. Roth v. Waterfield, 167 Okl. 209, 29 P.2d 24 (1933).

In 1933, responding to a national economic emergency (the Great Depression) the Oklahoma legislature passed the Oklahoma Mortgage Moratorium Act. ¹⁰ Section 1 of the Act extended the time to answer and postponed trial and judgment when answer had been filed in any pending action on the effective date of the Act for nine months in any mortgage foreclosure action. For all actions filed after the effective date of the Act, Sections 2 and 3 of the Act vested district courts with judicial discretion to grant continuances during a period of two years on a case-by-case basis where it was necessary to accomplish the purposes of the Act; required the owner to pay accruing interest and all taxes on the property; required the mortgagor to pay a reasonable rental value to the mortgagee for the period of continuance, such reasonable rental to be determined by the court; and empowered the court to "make such other requirements as will reasonably compensate and...