Hagberg v. Alaska Nat. Bank, 3580

• Decision Date: 27 October 1978
• Docket Number: No. 3580,3580
• Citation: 585 P.2d 559
• Parties: A. E. HAGBERG and Carl Burnett, Appellants, v. ALASKA NATIONAL BANK, Appellee.
• Court: Alaska Supreme Court

Page 559

585 P.2d 559

A. E. HAGBERG and Carl Burnett, Appellants, v. ALASKA NATIONAL BANK, Appellee.

No. 3580.

Supreme Court of Alaska.

Oct. 27, 1978.

Warren C. Colver, Anchorage, for appellants.

Hoyt M. Cole, G. Rodney Kleedehn, Cole, Hartig, Rhodes, Norman & Mahoney, Anchorage, for appellee.

OPINION

Before BOOCHEVER, C. J., and RABINOWITZ, CONNOR, BURKE and MATTHEWS, Justices.

MATTHEWS, Justice.

In 1976, the law pertaining to deed of trust sales, AS 34.20.070, was amended to permit the obligor under a note secured by a deed of trust to terminate a non-judicial deed of trust sale by paying all arrearages except those due because the acceleration clause ¹ in the note has been exercised. ² Prior law required payment of the full indebtedness when acceleration clauses were exercised. The question in this case is whether application of the 1976 amendment to deeds of trust executed before but foreclosed after the amendment became effective is prohibited by the contract clause of the Federal Constitution, which provides: "No state shall . . . pass any law impairing the Obligations of Contract. ³

I

This case is here on an appeal from the Superior Court's denial of a preliminary injunction seeking to stop a non-judicial deed of trust foreclosure sale. The order is not a final judgment and the appeal is therefore improper. ⁴ However, we treat the appeal as a petition for review under Appellate Rules 23 and 24, limited to the issue of the application of the 1976 amendment of AS 34.20.070(b) to this case, because a controlling question of law is presented on which there is substantial ground for difference of opinion and present review will materially advance the ultimate termination of the litigation. ⁵

Alaska National Bank is the holder of a note in the principal sum of $247,197.76 which is secured by a deed of trust executed in 1975 covering two parcels of real estate. The note provides for interest at ten percent to begin on October 1, 1976 and for installment payments of $2,059.99 commencing December 1, 1976, and to continue monthly until November 30, 1977, when higher installments are due. The maker of the note, William Wester, made the first payment and no others. On April 7, 1977, the trustee under the deed of trust recorded a notice of default and sale, scheduling a non-judicial foreclosure sale. The default clause of the notice stated that the breach for which default was declared was non-payment and that the amount presently due was $247,197.76 plus accrued interest thereon which was erroneously stated to be at the rate of thirteen percent from July 1, 1975. Wester then sold his interest in the properties to appellants who sued to enjoin the sale. They sought and were refused a temporary injunction pending litigation.

Appellants claimed in their August 1977 motion for a preliminary injunction that Wester had tendered the payment arrearages on several occasions, but the bank had refused them. ⁶ They also claimed that the bank had refused to state the amount of arrearages and that a representative of the bank had stated to appellants' counsel that the bank would not accept payment of just the arrearages, but would insist on payment of the entire amount of the note. ⁷ The bank did not controvert these contentions. Both the sale and the hearing on the motion for preliminary injunction were scheduled for Monday, August 15, 1977. On Friday, August 12, the bank advised appellants' counsel that the arrearages were $78,489.71 plus attorney's fees and on August 15 the bank filed an affidavit to that effect which does not show how that figure was reached. The appellants disputed this calculation and were unable to pay it in the short time before the sale. ⁸ The sale was stayed until August 22 by the Superior Court to give appellants an opportunity to seek relief in this court. We conditioned a stay pending litigation on, among other things, bringing current all payments due on the property. This condition was not fulfilled and the sale was held on August 22. The bank purchased the property for an offset bid of $281,000.

II

The bank's position on appeal is that it had no duty to accept merely the amount of the arrearages after it had begun the non-judicial foreclosure process. It claims that to apply the 1976 amendment to AS 34.20.070(b) to a deed of trust executed before the effective date of that amendment would violate the contract clause of the Federal Constitution. ⁹

Cases interpreting the contract clause of the Federal Constitution make a distinction between contract rights and contract remedies. A remedy may be modified as long as the result does not unreasonably affect the value of the right. Chief Justice Hughes, writing for the court in Home Building & Loan Ass'n. v. Blaisdell, 290 U.S. 398, 430, 54 S.Ct. 231, 237, 78 L.Ed. 413, 424 (1934), summarized the law on this subject.

Chief Justice Marshall pointed out the distinction between obligation and remedy. Sturges v. Crowninshield, supra (4 Wheat. p. 200 (17 S.Ct. 122), 4 L.Ed. 550). Said he: "The distinction between the obligation of a contract, and the remedy given by the legislature to enforce that obligation, has been taken at the bar, and exists in the nature of things. Without impairing the obligation of the contract, the remedy may certainly be modified as the wisdom of the nation shall direct." And in Von Hoffman v. Quincy, supra (4 Wall. pp. 553, 554 (71 U.S. 535), 18 L.Ed. 409, 410) the general statement above quoted was limited by the further observation that "It is competent for the States to change the form of the remedy, or to modify it otherwise, as they may see fit, provided no substantial right secured by the contract is thereby impaired. No attempt has been made to fix definitely the line between alterations of the remedy, which are to be deemed legitimate, and those which, under the form of modifying the remedy, impair substantial rights. Every case must be determined upon its own circumstances." And Chief Justice Waite, quoting this language in Antoni v. Greenhow, 107 U.S. 769, 775, 2 S.Ct. 91, 27 L.Ed. 468, 471, added: "In all such cases the question becomes therefore, one of reasonableness, and of that the legislature is primarily the judge."

We find no violation of the contract clause by the application of the 1976 amendment to pre-existing deeds of trust. An obligor on a note must still pay the principal and interest and, in case of default, the beneficiary is still entitled to foreclosure and to his costs. The beneficiary is deprived of his right to insist on payment of the entire debt as a condition to stopping the non-judicial foreclosure process where the overdue amount is brought current and costs are paid. However, the defaulting obligor may bring his payments current and stop the non-judicial foreclosure as a matter of right only twice; the third time the beneficiary may insist on payment in full. This modification does not reduce the value of a beneficiary's note or the security ensuring payment in any perceptible way. The contract clause of the Constitution is "intended to preserve practical and substantial rights, not to maintain theories." ¹⁰ The amendment does no more than codify a form of relief from forfeiture which courts have often exercised. ¹¹

The Supreme Court of the United States has upheld statutory changes having far more impact on contract rights than the present ones do. For example, in East New York Savings Bank v. Hahn, 326 U.S. 230, 66 S.Ct. 69, 90 L.Ed. 34 (1945), a statute suspending mortgage foreclosures for the tenth consecutive year was sustained. In El Paso v. Simmons, supra note 10, state land sale contracts allowed contract purchasers an unlimited time within which to...