Portland Sav. Bank v. Landry

• Decision Date: 21 April 1977
• Citation: 372 A.2d 573
• Parties: PORTLAND SAVINGS BANK v. Patricia M. LANDRY.
• Court: Maine Supreme Court

Page 573

372 A.2d 573

PORTLAND SAVINGS BANK v. Patricia M. LANDRY.

Supreme Judicial Court of Maine.

April 21, 1977.

Perkins, Thompson, Hinckley & Keddy by D. Brock Hornby, James R. Flaker, Portland, for plaintiff.

Verrill Dana Philbrick Putnam & Williamson by John W. Philbrick, Portland, for defendant.

Jensen Baird Gardner Donovan & Henry by Merton G. Henry, Portland, for amicus curiae.

Before DUFRESNE, C. J., and WEATHERBEE, ^* POMEROY, WERNICK and ARCHIBALD, JJ.

ARCHIBALD, Justice.

On October 1, 1975, an alternative procedure for the foreclosure of real estate mortgages became effective. P.L.1975, ch. 552, §§ 6321-25 (14 M.R.S.A. §§ 6321-25). The newly adopted act provided that such mortgages could be foreclosed by instituting a civil action in either the Superior or District Courts. ¹ Section 6322 authorizes redemption 'within 90 days of the date of the judgment' that a breach exists, establishing the amount of the arrearage, and authorizes the mortgagee to sell the property unless the debt is paid within ninety days. The act also requires the mortgagee to account to the mortgagor for any surplus received following the foreclosure sale.

On September 21, 1972, the defendant executed a conventional real estate mortgage, running to the plaintiff, as security for her promissory note of $17,100.00 which bore interest at 7 1/2%. The plaintiff on October 14, 1975, instituted a civil action in the District Court seeking the relief authorized by the newly enacted statute. By her responsive pleading the defendant admitted that the mortgage was then in default. On a motion for summary judgment the District Court entered a 'judgment of foreclosure and sale' from which the defendant seasonably appealed. ²

The issue is brought into sharp focus by the defendant's asserted affirmative defense, namely:

'Title 14 M.R.S.A., Sec. 6321 et seq. are unconstitutional as applied to the Defendant, in that said statutory provisions unlawfully abridge the statutory time of redemption in effect at the time of the giving of the mortgage by the Defendant to the Plaintiff, and therefore impaired the obligations of the contract between the parties. ³ (Emphasis supplied.)

We sustain the appeal.

Public Laws of 1975, ch. 552, by reducing the basic redemption period to ninety days, broke sharply with the traditional period of redemption in the State of Maine. From 1837 until 1907 the period of redemption, by whatever method foreclosure was accomplished, remained at three years. See R.S. 1903, ch. 92, §§ 4, 7. Public Laws of 1907, ch. 163, §§ 1, 2, reduced the period of redemption under any of the acceptable methods of foreclosure to one year, and this period was retained in all the statutory revisions thereafter and remains the same today except when foreclosure is sought under the provisions of P.L.1975, ch. 552. ⁴

As we have previously pointed out, we are concerned only with the constitutionality of the 1975 act as applied to the foreclosure of the defendant's mortgage which had been executed three years prior to the 1975 enactment.

Article I, § 10 of the United States Constitution provides in pertinent part:

'No State shall . . . pass any . . . Law impairing the Obligation of Contracts . . ..'

In its Declaration of Rights the Constitution of Maine, art. I, § 11, contains a similar provision.

It is well settled that the law in effect at the time of the execution of a contract becomes part of that contract. See, e. g., Canal National Bank v. School Administrative District, 160 Me. 309, 203 A.2d 734, 739 (1964); Phinney v. Phinney, 81 Me. 450, 460 (1889). Historically, it has been held that the legislature may modify the remedies available to contracting parties but cannot, constitutionally, alter the substantive obligations of the parties. Richmond Mortgage & Loan Corp. v. Wachovia Bank & Trust Co., 300 U.S. 124, 128, 57 S.Ct. 338, 81 L.Ed. 552 (1937); Waterville Realty Corp. v. City of Eastport, 136 Me. 309, 313, 8 A.2d 898, 900 (1939). However, not every act that affects existing contracts contravenes constitutional principles. Barton v. Conley, 119 Me. 581, 112 A. 670, 672 (1921), aff'd 260 U.S. 677, 43 S.Ct. 238, 67 L.Ed. 456 (1923). The appropriate test in determining whether legislation impairs contractual obligations was stated in Phinney v. Phinney, 81 Me. at 461, quoting Louisiana v. New Orleans, 102 U.S. 203, 206-07, 26 L.Ed. 132 (1880):

'The obligation of a contract, in the constitutional sense, is the means provided by law by which it can be enforced,-by which the parties can be obliged to perform it. Whatever legislation lessens the efficacy of the means impairs the obligation. If it tend to postpone or retard the enforcement of the contract, the obligation of the latter is to that extent weakened.'

Accord, Canal National Bank v. School Administrative District, 160 Me. 309, 203 A.2d 734, 740 (1964). Thus, where a statute lessens the value of a contract to the parties, the constitutional prohibition has been violated. See Bank of Minden v. Clement, 256 U.S. 126, 128, 41 S.Ct. 408, 65 L.Ed. 857 (1921); Barton v. Conley, 119 Me. 581, 112 A. 670, 672 (1921), aff'd, 260 U.S. 677, 43 S.Ct. 238, 67 L.Ed. 456 (1923).

Whether a statute which reduces a mortgagor's period of redemption is constitutional has not been directly decided by the United States Supreme Court. However, in Barnitz v. Beverly, 163 U.S. 118, 16 S.Ct. 1042, 41 L.Ed. 93 (1896), the Court was confronted with a constitutional attack on a statute which increased the redemptive period available to mortgagors. In invalidating the statute as applied to mortgages executed prior to its effective date, the Court stated:

'(W)e hold that a statute which authorizes the redemption of property sold upon foreclosure of a mortgage, where no right of redemption previously existed, or which extends the period of redemption beyond the time formerly allowed, cannot constitutionally apply to a sale under a mortgage executed before its passage.'

163 U.S. at 129, 16 S.Ct. at 1046. Accord, Worthen Co. v. Kavanaugh, 295 U.S. 56, 55 S.Ct. 555, 79 L.Ed. 1298 (1935); Brine v. Insurance Co., 96 U.S. 627, 24 L.Ed. 858 (1877); Howard v. Bugbee, 65 U.S. (24 How.) 461, 16 L.Ed. 753 (1860); Bronson v. Kinzie, supra.

In Phinney v. Phinney, supra, this Court relied on Bronson v. Kinzie, supra, in striking down a statute which expanded the right of redemption for creditors of a mortgagor.

In Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413, the Court upheld a Minnesota statute which temporarily extended the period of redemption available to defaulting mortgagors. The case arose in the context of 'the Great Depression' of the 1930s, and it is now recognized that the Court's holding in Blaisdell was based on the emergency which then existed. See W. B. Worthen Co. v. Thomas, 292 U.S. 426, 432-33, 54 S.Ct. 816, 78 L.Ed. 1344 (1934); Waterville Realty Corp. v. City of Eastport, supra.

There are, however, a series of Supreme Court cases which, at first glance appear to hold that a state may modify a mortgagor's right of redemption without offending constitutional requirements.

Aikins v. Kingsbury, 247 U.S. 484, 38 S.Ct. 558, 62 L.Ed. 1226 (1918), involved a contract to purchase state land. After the contract had been executed, a new statute was enacted which changed the right of the purchaser to redeem the property after default. In upholding the statute the Court stated 'The right of the State to foreclose such a contract for default in payment, and the right of the purchaser to redeem after a default decree, relate to the remedy as distinguished from the obligation of the contract, and both of these rights are constitutionally subject to modification by the State, within limits which were not exceeded in the act before us . . ..'

247 U.S. at 487-88, 38 S.Ct. at 559, citing Waggoner v. Flack, 188 U.S. 595, 23 S.Ct. 345, 47 L.Ed. 609 (1903); Wilson v. Standefer, 184 U.S. 399, 22 S.Ct. 384, 46 L.Ed. 612 (1901).

More recently, in City of El Paso v. Simmons, 379 U.S. 497, 85 S.Ct. 577, 13 L.Ed.2d 446 (1965), the Court upheld a Texas statute which reduced the period within which a purchaser of state lands may reinstate his claim after forfeiture. A 1910 statute permitted reinstatement at any time after forfeiture. In 1941 the Texas legislature reduced this reinstatement period to five years after forfeiture. If the purchaser did not cure his default, the land was to be sold, and the proceeds from the sale deposited in the school fund. 379 J.S. at 498, 85 S.Ct. at 578. The Court did not concern itself with whether the right of reinstatement was a mere 'remedy' or an 'obligation.' 379 U.S. at 506, 85 S.Ct. at 582-83, n. 9. Rather, the Court employed a balancing test in determining whether the statute contravened the contract clause. In upholding the validity of the statute the Court recognized

'the State's vital interest in administering its school lands to produce maximum revenue and in utilizing its properties in ways best suited to the needs of a growing population. The uncertainty of land titles, the massive litigation to which this gave rise, and the pattern of sale and forfeiture were quite costly to the school fund and to the development of land use. Timeless reinstatement rights prevented the State from maintaining an orderly system of land sales and the resultant confusion impeded the effective disposition of lands and utilization of mineral wealth within them.'

379 U.S. at 515-16, 85 S.Ct. at 587-88.

Plaintiff-appellee suggests that the holding in El Paso v. Simmons, supra, should control the disposition of this case.

We do not understand El Paso v. Simmons to say that a state may at will reduce the period of redemption available to a defaulting mortgagor without violating the provisions of the contract clause. A state certainly has an important interest in disposing of public lands. In El Paso v. Simmons, supra, as in Aikins v. Kingsbury, su...