Worthen Co Board of Com Rs of Street Improvement Dist No 513 of Little Rock, Ark v. Kavanaugh

Decision Date01 April 1935
Docket NumberNo. 556,556
Citation97 A.L.R. 905,79 L.Ed. 1298,295 U.S. 56,55 S.Ct. 555
PartiesW. B. WORTHEN CO. ex rel. BOARD OF COM'RS OF STREET IMPROVEMENT DIST. NO. 513 OF LITTLE ROCK, ARK., et al., v. KAVANAUGH
CourtU.S. Supreme Court

Supreme Court looks to laws in force at making of contract to determine obligation thereof (Const. art. 1, § 10).

Messrs. A. W. Dobyns and G. B. Rose, both of Little Rock, Ark., for appellants.

Mr. John W. Newman, of Little Rock, Ark., for appellee.

Mr. Justice CARDOZO delivered the opinion of the Court.

Municipal improvement districts organized under the laws of Arkansas are empowered to issue bonds and to mortgage benefit assessments as security therefor. Street Improvement District, No. 513, of Little Rock, Ark., acted under the power thus conferred. On July 1, 1930, it issued bonds, payable to bearer, in the amount of $31,000, and made a mortgage to a firm of bankers as trustee for the bondholders. Accompanying the mortgage was a copy of the assessment of benefits stating in detail the amount of benefits assessed against each piece of property within the improvement district. Some of the bonds were in default on January 1, 1934, for nonpayment of principal and interest. This suit was brought by the trustee and also by representative bondholders to foreclose the assessments upon the lots of delinquent owners and for other relief. The right to maintain the suit is undisputed. The controversy hinges upon the terms of the decree.

At the execution of the bonds and mortgages, the statutes of Arkansas contained provisions well planned to make these benefit assessments an acceptable security. Under the statutes then in force, lot owners had thirty days for payment of assessments, the time to run from the date of a notice required to be published by the collector. Crawford & Moses' Digest, § 5671. If payment was not made within that time, the collector was to add a penalty of 20 per cent., and make immediate return of delinquents to the Board of Commissioners. Section 5673. The duty was then imposed upon the Commissioners to bring foreclosure suits at once. Section 5674. In case of personal service, the defendant was to be required to appear and respond within five days after service. Section 5678. The decree when granted was to add to the assessment the 20 per cent. penalty, costs, and attorneys' fees. Section 5678. In case of constructive service, publication was to becompleted within fifteen days, the cause was to be made ready for hearing within fifteen days thereafter, and a decree was to be rendered as in case of actual service. Section 5679. If the sum adjudged was not paid within ten days, the property was to be sold upon twenty days' notice. Section 5684. The property owner was given time to redeem upon payment of the purchase price, with interest at 10 per cent. if the land had a rental value, and if it had none, then with interest at 20 per cent. Section 5644. The time for redemption was either two years or five; there being uncertainty in that respect as to the meaning of the statute. In any event, the purchaser was to be let into possession at once upon the approval of the sale, and was not to be accountable for rents upon redemption. Section 5642. If there was an appeal from the decree, the Supreme Court was to advance the cause upon its docket, and give a hearing and decision at as early a date as practicable. Section 5686. The transcript was to be filed in the office of the clerk within twenty days after the rendering of the decree appealed from (section 5687), and no appeal was to be prosecuted if that condition was not fulfilled. Section 5689.

In March, 1933, the Legislature of Arkansas passed three acts (Nos. 278, 252, and 129, pp. 868, 790, 375), which made over the whole plan to enforce the payment of assessments. Under Act No. 278, the time for payment after notice was enlarged from thirty days to ninety; the penalty was reduced from 20 per cent. to 3 per cent.; the return of the delinquent list, which till then had to be made forthwith, was to be withheld for another ninety days; the time to appear and answer after personal service, which had formerly been five days, was changed to six months; if service was constructive, there was to be publication for six months (instead of fifteen days), and another six months was to elapse before the cause was to be heard. The decree when rendered was to give still another twelve months for payment (instead of ten days as theretofore) and an additional six months after the new default before the property could be sold. There were to be no costs or attorneys' fees, and only a 3 per cent. penalty. There was also a repeal of the provisions for the expediting of appeals. Under Act No. 252, the time for redemption was fixed at four years from the sale, and the rate of interest (formerly 10 per cent. or 20 per cent.) was reduced to 6 per cent., the statute reciting that the law previously in force did not provide an adequate period of redemption from land sales for delinquent taxes in municipal improvement districts. Finally, under Act No. 129, there was a repeal of section 5642, under which a purchaser had been given the right to go into possession during the term allowed for redemption and to hold such possession without accountability for rents. Coupled with the repeal was the declaration of an emergency, which was stated to endanger the peace, health, and safety of a multitude of citizens.

Upon the hearing of the foreclosure suit the trustee and the bondholders contested the validity of these statutory changes, and demanded a decree in accordance with the law theretofore in force. The changes were attacked as an unconstitutional impairment of the obligation of contract (United States Constitution, art. 1, § 10), as well as upon other grounds. The validity of the new acts was upheld by the Chancery Court, and thereafter on appeal by the Supreme Court of the state. 75 S.W.(2d) 62. Cf. Sewer Improvement District, No. 1, of Wynne v. Delinquent Lands, 188 Ark. 738, 68 S.W.(2d) 80. Three judges dissented. The case is here upon appeal. Judicial Code, § 237, 28 U.S.C. § 344 (28 USCA § 344).

To know the obligation of a contract we look to the laws in force at its making. Sturges v. Crowninshield, 4 Wheat. 122, 197, 4 L.Ed. 529; Home Building & Loan Association v. Blaisdell, 290 U.S. 398, 429, 54 S.Ct. 231, 78 L.Ed. 413, 88 A.L.R. 1481. In the books there is much talk about distinctions between changes of the substance of the contract and changes of the remedy. Von Hoffman v. City of Quincy, 4 Wall. 535, 18 L.Ed. 403; Louisiana ex rel. Ranger v. New Orleans, 102 U.S. 203, 26 L.Ed. 132; Barnitz v. Beverly, 163 U.S. 118, 16 S.Ct. 1042, 41 L.Ed. 93; cf. Home Building & Loan Association v. Blaisdell, supra, at pages 429, 434 of 290 U.S., 54 S.Ct. 231, where the cases are assembled. The dividing line is at times obscure. There is no need for the purposes of this case to plot it on the legal map. Not even changes of the remedy may be pressed so far as to cut down the security of a mortgage without moderation or reason or in a spirit of oppression. Even when the public welfare is invoked as an excuse, these bounds must be respected. W. B. Worthen Co. v. Thomas, 292 U.S. 426, 433, 54 S.Ct. 816, 78 L.Ed. 1344, 93 A.L.R. 173, distinguishing Home Building & Loan Association v. Blaisdell, supra. We state the outermost limits only. In stating them we do not exclude the possibility that the bounds are even narrower. The case does not call for definition more precise. A catalogue of the changes imposed upon this mortgage must lead to the conviction that the framers of the amendments have put restraint aside. With studied indifference to the interests of the mortgagee or to his appropriate protection they have taken from the mortgage the quality of an acceptable investment for a...

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