Vanderbilt v. Brunton Piano Co.

• Decision Date: 23 November 1933
• Docket Number: No. 197.,197.
• Citation: 169 A. 177
• Parties: VANDERBILT v. BRUNTON PIANO CO. et al.
• Court: New Jersey Supreme Court

169 A. 177

VANDERBILT

v. BRUNTON PIANO CO. et al.

No. 197.

Court of Errors and Appeals of New Jersey.

Nov. 23, 1933.

Syllabus by the Court.

1. The provisions of chapter 82, P. L. 1933 (Comp. St. Supp. §§ 134—48, 134—49), setting up fair market value as a single, self-sufficient, resistless fact in reduction of a deficiency on a mortgage debt as fixed by a foreclosure sale under chapter 170, P. L. 1880, p. 255, 3 Comp. St. 1910, p. 3420, § 47, do not constitute a remedy of substantially like sort and character with that existing in the Court of Chancery where a confirmation of sale may be withheld if to confirm would work gross inequity.

2. Chapter 82, P. L. 1933 (Comp. St. Supp. §§ 134—48, 134—49), in so far as it affects a pre-existing contract, involves a right and not a mere procedure.

3. Chapter 82, P. L. 1933 (Comp. St. Supp. §§ 134—48, 134—49), is such a restriction and limitation upon a mortgagee's right of recovery on a bond under chapter 170, P. L. 1880, p. 255, as amended chapter 147, P. L. 1881, p. 184 (3 Comp. St. 1910, p. 3421, § 48), as to be an impairment of a pre-existing contract, and therefore and to that extent in conflict with article 1, § 10, subd. 1 of the Constitution of the United States, and with article 4, § 7, par. 3 of the Constitution of the state of New Jersey.

4. Chapter 82, P. L. 1933 (Comp. St. Supp. §§ 134—48, 134—49), may not, with respect to pre-existing contracts, be sustained as an exercise by the Legislature of the police power.

Appeal from Supreme Court.

Action by Arthur T. Vanderbilt, trustee in liquidation, against Brunton Piano Company and others. From an adverse judgment, defendants appeal.

Affirmed.

Hannoch & Lasser, of Newark (Herbert J. Hannoch, of Newark, of counsel), for appellants.

Merritt Lane, of Newark, for respondent.

Sol Phillips Perlman, of Trenton, amicus curire.

CASE, Justice.

The action is at law to recover from the obligors on the bond the deficiency remaining due on the mortgage debt after crediting thereon the proceeds of the sale had in chancery in the foreclosure proceedings. The answer, in so far as now relevant, rests strictly and exclusively upon chapter 82, Pamph. Laws 1933 (Comp. St. Supp. §§ 134—48, 134— 49), amendatory of an act entitled "An act concerning proceedings on bonds and mortgages given for the same indebtedness and the foreclosure and sale of mortgaged premises thereunder," approved March 12, 1880, 3 Comp. St. 1910, p. 3420, § 47 et seq. The amendment was passed not merely after the making of the bond in suit, but subsequent to the conclusion of the proceedings in chancery to foreclose, and subsequent also to the institution of the present action on the bond. Mr. Justice Parker, sitting below, struck the answer for the reason that the amendatory statute was unconstitutional in so far as it related to the right to enforce mortgage contracts made and delivered prior to the enactment. Defendants appeal, and present the constitutional question as the single issue.

It was the right of the mortgagee, the order in chancery confirming sale having been duly made and still subsisting, to recover the deficiency in an action upon the bond. That was his right, arising from his contract, under the 1880 statute (as amended chapter 147, P. L. 1881, p. 184 [3 Comp. St. 1910, p. 3421, § 48]), supra, which provided that a creditor holding a bond and mortgage, given for the same debt, must in proceeding to collect first foreclose the mortgage, but that if, at the foreclosure sale, the premises should not sell for a sum sufficient to satisfy the debt, interest, and costs it would then be lawful to proceed on the bond for the deficiency. The deficiency was the amount by which the debt, as adjudged by the Court of Chancery in the foreclosure decree, exceeded the proceeds from the sale conducted by that court. Murray v. Pearce, 95 N. J. Law, 104, 112 A. 314. The 1880 statute was effective when the contract was made, and that statute therefore entered into the contract without need for express stipulation to that effect. Bronson v. Kinzie, 1 How. 311, 11 L. Ed. 143. The mortgagee instituted such an action on the bond and then, and not until then, came the 1933 amendment. That amendment provides that the obligor may, by his answer in an action on the bond for the deficiency, dispute the amount of the deficiency and—not in the forum which conducted the sale, but in the action at law on the bond—raise an issue on the "fair market value of the mortgaged premises at the time of the sale under the foreclosure proceedings," whereupon the court which is trying the action on the bond, sitting with or without a jury, shall assess the "fair market value" and determine the deficiency by deducting that value from the debt. There can be no doubt that the amendment substitutes the "fair market value" determined in the subsequent action on the bond in place of the proceeds of the sale in foreclosure as the credit to be allowed the debtor in reduction of the debt. It is apparent that when an obligee on a bond has, as an incident to his contract, the right to recover a liquidated sum, first by receiving the proceeds from the sale of the pledged property and supplementarily by a personal action, and a statute is thereafter passed, the direct effect of which is to provide an opportunity to the debtor for reducing the sum recoverable, his contract is impaired. It might well happen in a given case that under the questioned statute the entire right sued upon in the law action would dissolve.

We are considering the statute. It is unimportant that the foreclosure sale in the case at bar was to the mortgagee himself. The statute applies, without disinction, whether the sale be to the mortgagee or to a third party, and the statute is incapable of dissection so that it may be held to apply in the one instance and not in the other. There is no legal obligation upon a mortgagee either to bid up, or to bid in, the property at the foreclosure sale, and the impairment of his contract is the more obvious when the property is struck off to a third person at a figure less than that subsequently fixed in the action on the bond as the "fair market value." In such a posture the mortgagee has no further recourse to the property itself; the property is gone with no right of redemption in him. He is compelled to forfeit a part of the debt which his contract, valid and enforceable when made, gave him; at least his remedy for enforcing the contract has been taken away. On the first assumption, his contract is impaired. On the second, he is deprived of a remedy. The law that accomplishes the former of these results is in conflict with both the Federal and the State Constitutions, and one that accomplishes the latter is in conflict with the State Constitution. In truth, the taking away of the remedy in the supposed instance is inseparably combined with an equivalent to the taking away of the right itself. Our attention is called by the appellants to Rahway v. Munday, 44 N. J. Law, 395, at page 414, where this court said that our State Constitution, in providing that the Legislature should not pass a law depriving a party of any remedy for enforcing a contract which existed when the contract was made, appeared to add little, if any, force to the inhibition against a law impairing the obligation of a contract; as to which it may be observed that in our view little, if any, force need be added in the present instance, and, further, that the language was based on the opinion expressed by the United States Supreme Court in Louisiana v. New Orleans, 102 U. S. 203, 206, 26 L. Ed. 132, that "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. * * * Any authorization of the postponement of payment, or of means by which such postponement may be effected, is in conflict with the constitutional inhibition." This passage was quoted in Baldwin v. Flagg, 43 N. J. Law, 495, 503, which, though a Supreme Court case, is one of our most frequently cited decisions and has always stood as the law.

The statutory setting up of fair market value, standing stark and alone, as a self-sufficient, resistless fact in reduction of an otherwise collectible debt is such a restriction and limitation upon the mortgagee's right of recovery as to be an impairment of a pre-existing contract, and therefore, and to that extent, in conflict with article 1, § 10, subd. 1 of the Constitution of the United States, which provides that "no State shall * * * pass any * * * Law impairing the Obligation of Contracts, * * *" and with article 4, § 7, par. 3 of the Constitution of the state of New Jersey, which provides that "The legislature shall not pass any * * * law impairing the obligation of contracts, or depriving a party of any remedy for enforcing a contract which existed when the contract was made." Baldwin v. Flagg, supra; Wilkinson v. Rutherford, 49 N. J. Law, 241, 8 A. 507; Coddington v. Bispham, 36 N. J. Eq. 574, 580; Morris v. Carter, 46 N. J. Law, 260, 267.

The appellants contend, first, that the statute does not offend the Constitution because, as they claim, a remedy of substantially like sort and character already exists in equity, and, second, that the statute establishes a measure of damages and is therefore merely procedural; citing Newark Savings Institution v. Forman, 33 N. J. Eq. 436. That decision, we think, is...