Mutual Building & Loan Ass'n v. Moore

• Decision Date: 11 June 1936
• Docket Number: 1 Div. 907
• Parties: MUTUAL BUILDING & LOAN ASS'N v. MOORE.
• Court: Alabama Supreme Court

169 So. 1

232 Ala. 488

MUTUAL BUILDING & LOAN ASS'N v. MOORE.

1 Div. 907

Supreme Court of Alabama

June 11, 1936

Appeal from Circuit Court, Mobile County; Claude A. Grayson, Judge.

Action on promissory notes by the Mutual Building & Loan Association against Richard E. Moore, as administrator of the estate of R.N. Hudson, deceased. From a judgment of nonsuit on account of adverse ruling on plea of set-off, plaintiff appeals.

Affirmed.

Outlaw & Seale, of Mobile, for appellant.

Coleman Spain, Stewart & Davies, J. W. Gillon, W.H. Woolverton Cabaniss & Johnston, Lange, Simpson & Brantley, Bradley Baldwin, All & White, Stokely, Scrivner, Dominick & Smith, E.H. Dryer, all of Birmingham, and Rushton, Crenshaw & Rushton, of Montgomery, filed briefs amici curiae challenging the act.

Wm. J. Young and Jos. C. Sullivan, Jr., both of Mobile, for appellee.

William S. Pritchard, of Birmingham, filed brief, amicus curia, supporting the act.

FOSTER Justice.

Appellant was plaintiff and sued on certain described promissory notes made by another, and assumed by defendant in the purchase of some property and as set out in the deed.

The only question here raised relates to the sufficiency of a plea of set-off. It alleges that at the time the action was commenced (which was August 26, 1932), plaintiff held two mortgages upon certain described real estate, the possession of which has been delivered to plaintiff (at a time which was since the suit was begun), and seeks to have its fair market value set off against plaintiff's demand by virtue of section 3 of the Act of the Legislature approved June 24, 1935 (Gen.Acts 1935, pp. 184, 185).

A singular omission is the want of an averment that the mortgages were held as security for the debt sued on. But counsel on both sides so treat it, and therefore we will do so.

The plea, it is conceded, is dependent upon the effect of the Act of the Legislature referred to in it, and by express terms invokes the benefits of section 3 thereof.

The act has a preamble in which reference is made to the existence of a severe financial and economic depression, affecting the ability of property owners to meet payment of taxes and payments on mortgage debts, leading to foreclosures and sales at prices much below their real value, resulting in a pressing necessity for legislation in pursuance of the state's continuing and dominant protective policy. In section 9 (page 186), it is declared that the act is an emergency measure to safeguard the vital interests of the state and general welfare and to continue until October 1, 1939, or until the necessity therefor shall, by act of the Legislature, be sooner determined and declared not to exist. It was approved June 24, 1935, long after the institution of this suit.

Section 2 of the act, whose benefits are not sought by the plea, provides in substance (here only referring to mortgages, other matters not set up in the plea), that all actions at law then pending, or which may be thereafter instituted, on a debt secured by a mortgage on real estate, may be stayed by the court until the mortgage has been foreclosed, or if not sooner foreclosed, during the life of the act.

Section 3, whose benefits are here sought, provides that in all such actions, in addition to any other defense, defendant may plead set-off to the debt, in an amount equal to the fair market value of said real estate, to be determined by the court or jury, as the case may be, with no right to judgment over.

This right is not made to be affected by the question of whether the mortgage has been foreclosed, or the acquisition of the property by the mortgagee, or financial ability of the debtor to pay as he agreed.

Section 4 (page 185) provides that to such a suit when the mortgage has been foreclosed, defendant may plead that at the sale the property did not bring its fair and reasonable value, and under such plea he may have credit for its fair and reasonable value; but, by section 5, he is not entitled to a judgment over. Section 6 (page 186) applies to foreclosures in equity.

If we construe the plea to mean, as counsel have argued, that the debt sued on was secured by the mortgages there mentioned, it seeks to invoke the benefit of section 3, alleging, though not necessary by the act, that possession of the property has been delivered by defendant to plaintiff. The only facts, therefore, on which the right to set off the fair market value of the real estate are that plaintiff holds two mortgages on it (presumably to secure the debt sued on), and that defendant has delivered the property to plaintiff.

The plea does not allege that the mortgage has been foreclosed, nor that by it or any other conveyance or proceeding a good title to the land was passed to the mortgagee, clear of prior incumbrances. It does not allege that by the mortgage it was agreed that payment could be made in any way or manner except in money.

None of such allegations are required by section 3 to make the plea available. So that under its provisions it is good matter of set-off to the amount of the fair market value of the real estate, though a good title did not pass by the mortgage, and though the mortgagor still has the equity of redemption, and though the agreement was to pay the debt in money only, and the mortgagee has done nothing to justify a counterclaim ordinarily necessary to sustain a plea of set-off, nor otherwise violated any right of the mortgagor, all in respect to a claim which arose by contract made before the act came into being, and a suit on it then pending.

Section 10 of article 1 of the Constitution of the United States ordains that no state shall pass a "law impairing the Obligation of Contracts." Section 22 of the Alabama Constitution is that no "law impairing the obligations of contracts" shall be passed by the Legislature. Section 95 of the Alabama Constitution is that "There can be no law of this state impairing the obligation of contracts by destroying or impairing the remedy for their enforcement."

Since the beginning of the financial depression referred to in our act now under consideration many states have enacted moratory statutes which have been considered by the state and national courts of last resort. Since they must be measured by section 10 of article 1 of the National Constitution, as well as our own to the same effect, the decisions of the United States Supreme Court construing section 10, as applied to such statutes are controlling on us.

The first decision of that court during the period now under consideration was Home Building & Loan Association v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 232, 78 L.Ed. 413, 88 A.L.R. 1481. It dealt with a statute of Minnesota approved April 18, 1933 (Laws 1933, c. 339), and a synopsis of it, so far as here material, is thus stated by Chief Justice Hughes, who wrote the opinion: "We are here concerned with the provisions of part 1, § 4, authorizing the district court of the county to extend the period of redemption from foreclosure sales 'for such additional time as the court may deem just and equitable,' subject to the above-described limitation. The extension is to be made upon application to the court, on notice, for an order determining the reasonable value of the income on the property involved in the sale, or, if it has no income, then the reasonable rental value of the property, and directing the mortgagor 'to pay all or a reasonable part of such income or rental value, in or toward the payment of taxes, insurance, interest, mortgage *** indebtedness at such times and in such manner' as shall be determined by the court."

It is there shown that the question he was dealing with was the provision allowing the court to extend the period of redemption from foreclosure sales. The mortgage had been foreclosed under power of sale, and under the law then applicable the period of redemption was one year, which was extended in the state court under authority of the act under consideration.

The Chief Justice writing emphasizes the fact that "the statute does not impair the integrity of the mortgage indebtedness"; nor "the validity of the sale or the right of a mortgagee-purchaser to title in fee, or his right to obtain a deficiency judgment, if the mortgagor fails to redeem within the prescribed period," and that "aside from the extension of time, the other conditions of redemption are unaltered"; and that during the extended period the mortgagee-purchaser has, so far as rental value is concerned, the equivalent of possession.

The question considered was whether the act to that extent impaired the obligations of contracts. It was said "Emergency does not create power," but "may furnish the occasion for the exercise of power," and "may afford a reason for the exertion of a living power already enjoyed." The contract clause is also said to be "not an absolute one and is not to be read with literal exactness like a mathematical formula," so as not "to assign to contracts, universally, a literal purport, and to exact from them a rigid literal fulfilment." And that "nothing can be more material to the obligation than the means of enforcement. *** The ideas of validity and remedy are inseparable, and both are parts of the obligation, which is guaranteed by the Constitution against invasion." But "without impairing the obligation of the contract, the remedy may certainly be modified as the wisdom of the nation shall direct," provided "no substantial right secured by the contract is thereby impaired," with no attempt to fix definitely the line beyond which legislation may not extend, "and impairment, as above noted, has been predicated of laws which without destroying contracts derogate from substantial contractual rights." But not...