Supreme Court

ARK.] . ADAMS V. SPILL:YARDS. • 641 ADAMS v: SPILLYARDS. 4-3087 Opinion delivered June 19, 1933 APPEAL AND ERROR—FINAL ORDER.—ACtS 1933, No. 57, § 2, pro­vides that the plaintiff in foreclosure suits shall not be entitled to a decree unless he shall file a stipulation that he will bid the amount of the debt. Held that an order overruling plaintiffs' motion to enter a decree of foreclosure without such ,stipulation

is final and appealable.. - i. CONSTITUTIONAL LAW—LEGISLATIVE POWER.—The Legislature may exercise its powers subject only to the limitations and restrictions in the Federal and State Constitutions.

3. CONSTITUTIONAL LAW—PRESUMPTION OF. VALIDITY OF ACT.—An act is presumed to be constitutional, and will not be held to be other­wise unless there is a clear conflict between it and the Constitu-tion; all doubts being 'resolved in its favor.

4. -CONTRACTS—WHAT LAWS GOVERN.—Laws in force when and where a contract is made and -to be performed enter into and form a part of it. 5. MORTGAGES—DEFICIENCY JUDGMENT.—The right of a mortgagee to a personal judgment against 'the mortgagor, in case the mort­gaged property fails to bring enough to discharge the mortgage debt, is a part - of the mortgage contract.

CONSTITUTIONAL LAW—IMPAIRMENT OF CONTRACT OBLIGATION.— Acts 1933, No. 57, prohibiting deficiency judgments in mortgage foreclosures, held unconstitutional as impairing the obligation of existing mortgage Contracts. 7. JUDICIAL SALES—CONFIRMATION.—That courts could, not refuse to confirm a judicial sale for mere inadequacy of consideration, ex­cept for fraud, unfairnesS or other inequitEible conduct, was a part of all mortgage contracts executed prior to Acts 1933; No. 57. 8. STATUTES—INSEPARABLE PROVISIO14S.—Acts 1933, No. 57, §§ 34 and 35, authorizing the court to refuse to confirm a mortgage foreclosure for inadequacy of price, in absence of fraud or in-

642- -ADAMS V:SPILLYARDS. • [187 eqUitable conduct, and authorizing appointment of the mortgagor as receiver, held not severable from provisions of -§§ 1 and 2, pro­hibiting deficiency decrees, and hence :the entire, act is -void. 9: MOR ;PGAGES:jAPPLICATION OF STATOTE.—Acti 1933, No. 57, prohib-, iting deficiency judgments, in mortgage" foreclosures, held ina0- licable to mortgages executed after it became effective Appeal from Jefferson Chancety . COurt; H. R. Dicas, Chancellor ; revetsed. Rowell ,rf Rowell, for appellant. Coy M. Nixon, for appellee. J. R. Crocker, anticus curiae. .

Trieber Lasley, amici curiae. MCHANEI, J. Appelfants ate the. owners and hold­ers of certain past-due promissory notes- executed by appellees, secured by a deed of trust on certain real estate in Jefferson County. Suit was filed April '6, 1932, to foreclose, which was met by demurrer.. The court7 overruled the demurrer. January 31, 1933, • and thereafter an answer was filed, adinitting the eXecution and delivery of the notes and deed 'of trust. There was no dispute as to the facts.. On February 25, 1933, act 57 of the Acts of 1933 became a law, and its provisions were invoked by appellees.. The court, in accordance A rVith. the requirements of § 2 of said act, refused to enter a decree of foreclosure to which he found appellants were entitled, unless and until they would enter into and file a stipula­tion that they would. bid Af the sale the amount . .of ; the' judgment, interest and costs. Appellants refused to do this, and filed a motion to .have the decree entered with-out-Such requirement. Tbe court overruled the •inotion, and this appeal followed: . . We think this was a final order from which an appeal lies. The. only question presented- is. the -constitutionality of said act 57 of 1933. We copy it in full as follOws "Section 1. In any foreclosure, in -any court in. the State. of Arkansas. in Which "real estate is involved, the 'real estate securing the loan songht to be foreclosed shall be considered td be the value of the loan made, ir­respective of the amount which may be realized from the sale of such real property.

ARK . ADAMS' V. SPILL YARDS. 643 • "Section 2. • When any such foreclosure suits are brought, the plaintiff shall not be entitled to a decree of foreclosure until -and unless said plaintiff shall file a stipulation in said cause that he will bid•the amount - of the debt, interest and cests; ' , Seetion . 8. -Where any Snell suits are now pending and sale of said propertY has been made under deeree cotirts foreclosing same, and the sale has not been Con­firmed . by the court, the chancellor is hereby directed and it is . Made his duty- to inquire into the amount that said property sold . for, and hear testimony thereon in-order tO ascertain Whether or not -the purchaser bid the fair market value of* said property, and said- sale shall hOi be• confirthed until . after said hearing,. and: the' Suprethe Court' of- this State Shall review the findings of said chancellor on . aPpeal, even 'though no fraud' Or inequitable . conduct is attributed tO any 'person conduct­ing said saloOr anY party interested therein. "Section. 4. Where any such, suits are filed after the, effective date of this act and real property is sold under . foreclosure decree; said . sale•shall not be confirmed by, the. court mitil and . unless said court .has inquired info, the. amount that said ,property . sold for, and heur testimony thereon in , order, to .ascertain whethier Or not the purchaser bid tbe fair market -value for said property, andsaid sale shall not .he confirmed- until after said hear-ing, .and the Supreme Court of this State :shall review the findings of said chancellor on appeal, even though:no -fraud or inequitable Conduct is attributed to any person condneting said sale , or any pary interested therein. • " Section 5. When -any. suit : seeking the foreclosure of real estate -is filed and application is made for the appointment of a receiver,, the court shall have the power to appoint the owner of said- property as- such receiver, and the fact that, he is the . owner in itself shall not-disi qualify him to serve. in such capacity. "Section 6. *If any -part, sentence, Seetion;:or graph .of this act is held to be. unconstitntional, the, maining valid parts shall not be.:affected.'?

644 ADA-MS- I).- SP1LLYARDS. - 1187_ The attack made on the validity of the act- is based on art. 1, § 10, Constitution of the United States, and - art. 2, § 17, Constitution of Arkansas, both prohibiting _ the State from passing any law impairing the obligation of contracts. It is of course well settled that the Consti­tution of this State is "not an enabling, but A restraining act (Straub v. Gordon, 27 Ark. 629), and that the Legis­lature may rightfully exercise its powers subject only to-the limitations and restrictions of the Constitution of the United States and of the State of Arkansas," •as we said in Bush v. Martineau, 174 Ark. 214, 295 S. W. 9, and that an act of the Legislature is presumed to-be constitu-tiOnal and will not be held. by the courts to be:otherwise unless there is a clear conflict between the act and -the Constitution, and that all : doubt should he . resolved in favor of the act. Bush v. Martinea/u, supra, and cases there cited. It is equally well settled that,.if an act runs counter to the plain .provisions of the Constitution, the courts should not hesitate to so declare and hold the act invalid. Another rule which is not open to dispute and is well settled both in this court and the Supreme Court of_ the United States is thus stated in Robards- v. Brown, 40 'Ark. 423': "The laws which are in force at . the time when, and the place where, a contract is made and to be performed enter into and fornd a part of it: This is Only another mode of saying that parties are 'conclusively presumed . to contract with reference to . the existing law." And in Walke r v. Whitehead, 16 Wallace (U. S..) 314,1t iS said : "The laws which exist at the time of the making of a contract and in the place where it is made and to be performed enter into and Make .a part of it. ' This embraces those laws alike which atfect its validity, con-struction, discharge and enforcement. Nothing is more material to the obligation of a contract than the means of its enforcement. The ideas . of . validity and remedy are inseparable, and both are parts of the obligation which is guaranteed by the COnstitution against impair-inent. The obligation of a contract 'is the law which binds the parties to perform their agreement.' Any im­pairment of the obligation of a 'contract—the degree of

ARK.] ADAMS V. SPILLYARDS. 645 impairment is iminaterial—is within the prohibition of the Constitution." . . It becomes material then to inquire as --to the rights of mortgagees of real estate at the . tiine 'and:.prier:te the effective date Of said act 57 . .in forecleSure proceeds-ings. in chancery courts. They had the right nnder exiSt­ing law to have a judgnient on the obligation : in 'clefatilt •after service and issue joined after. 90 days Or anY day. court was in session after default in pleading,. and a -condemnation of the real , estate covered by.the mortgage. to be soldand applied to the payment of . the' debt, interest and costs. If not sold for a sufficient sum fo CoVer, there was a deficiency judgment upon .which execution could issne as at law. Foreclosure sales Of teal estate could not be set aside and , confirMation refused for mere in­adequacy of Consideration, but only for frand or otber inequitable conduct in. the . inatter of rthe sale, ceuPled -with gross inadequacy of consideration. Nor could, .sale be postponed 'more than six months. There was no pro-_ visiOn of law declaring that "the real estate securing-the loan sought to be foreClosed shall , be considered 'to . be-the value of the loan made, irrespective • of the . amount which may be realized from the sale of snCh property," -nor that . the plaintiff should "file a stipulatiOn in .said cause that he will bid the amount of the debt, interest. and costs," until aet 57 was enacted. It frequently happen.s, though not . the general cuStom, that loans are made. and •real estate security taken when both parties know that the security is of 1es value than the Joan, and ..it fre­quently . happens .that . loaus . -ore , Made on . beth . real and per'Sonal property as security. In 'either event, underOet 57, in order to foreclose on the real estate in the chanCery court, the mortgagee would haVe to relinquish the - per­sonal responsibility of the mortgagor as well as the per­sonal property covere.d -by the mortgage, for , "the real estate * *-* shall be considered to-be the Value of the loan made," and he must file a stipulation that he will bid for it the full- amount Of the -judgrnent, interest and Costs. This too in the face of the- fact that the lean was made more on the moral risk than on the real estate security

646 . - - --ADA-Ms- V. --81ILL 1VARDS. - - 1187 in the one case, and more on the- personalty securing the loan than the real estate in the other: The , -undisputed • effect of. §§ -1 and 2 of the act is to prohibit deficiency judgments in mortgage foreclosures in chancery courts, a legal possible right inherent in all existing. Arkansas mortgages at the effectiVe date of the act, which ;was a part of tbe mortgage contracts themselves. This per­sonal liability • was a part of the contract because author: ized by - law at the time . of execution and in tbe place of 'performance. The principal object of act 57 was to take away from the mortgagee that right, and of necessity violates - the obligations of all existing. mortgage con-tracts. Sections .3 and 4 undertake to change the rule many tithes announced by this Court, : and of : long dura: tiOn, that the court cannot refuse to . confirm a judicial sale for mere inadequacY of CenSideration except for fraud, unfairness or some other inequitable' conduct of the sale. See, Marten v. Jirkoi)sky, ‘ 174 Ark. 417, 205 'S. W. 365; Free v. Harris, 181 Ark. 647; 27 S. -W, (2d)10. This was the law as' to all existing.' mOrtgages, became.. a part of them, and related to a stibstuntial , remedy to col­lect the debt 's for Which.. they. .were given. Section 6 at­tempts to make tbe owner or mortgagor 'eligible .. for . ap-POintment.as . receiver; in the event a receiver is sought. Such was not the law .theretofore... -By §.8613, Crawford & itoses' Digest, `.`Nio party or attorney, or Terson in­terested in an action shall be appointed receiVer therein." This section has long been.the . law for a- time the -mem-ory of man runneth not .to the contrary, for this court held in Cook : v. Martin,-75 Ark. 40, 87 S. W. 625,.that it was de:laratory . of 'the commodlaw. We think this sec-tiOn, as well as §§ 3 and 4, woUld not have been adopted without §§ 1 and . 2, and the.' act is' therefore not sever: able, and we cannot sustain any part thereof, as provided in. § 6. We think this case. is.ruled by that of Robards V. Brokn, • 40 Ark. 423. -In . .that case .Scott mid wife and Robards and wife in' 1874. executed .to one Ward as tyuS­tee a deed of trust on- lands to secure tho payment of sundry debts. Power, was.given the trustee in-the instru-

ARK.] ADAMS V. SPILLYAI1DS. • 647 ment to sell the lands and distribute *the proceeds On cer-tain, contingencies. In 1880 the trustee advertised and sold the lands under . the power containect in the deed Of s trust to Brown- who paid his bid • and received his con-veyance. The .sale was made Without regard to the act of ;March 17, 1879, which provided that at such sales the property, real or personal, - should not be sold for less than two-thirds of the appraised Value s ; proVided it should not apply to sales of property for the purchase money thereof ; and if real property was not sold at the first offering, 'another . offering • might be 'made twelVe months thereafter, and sold• to the highest bidder with­out reference to the appraisement ; and provided fur-- ther that' real property so sold-might be redeemed hy the mortgagor at any time within one year from the. sale by payment of the sale , pride with 10 per bent. interest ancl bosfs of sale.. It also provided for appointment of appraisers. Within, one year from the date:of sale Ho-bards sought to redeem by tendering the amount. re­quired by the act. Brown refused the:money tendered, Robards withheld possession, and Brown brought eject-ment. Robards .defended under the act of 1879 on the ground that.it was not appraised and sold in compliance. therewith, and that he had the right thereunder to • re-deem. This court denied the right as did the lower Lourt. • . It was theye aid:-``As.this raises a, federal qUes-tion, the interpretation:which the Supreme Court . of the United States has- placed ,upon 'that clause, of the Con­stitution which prohibits the :.States from, passing laws impairing the obligatiOn. of ..contracts is of: controlling. influence with. us: And. we find that in Bronson•v.Kinzie, I. Howard 311, this precise question was presented. It was there decided; after the, mOst. mature deliberation, Chief Justice TANEY delivering the. opinion of the court, that both the appraisement and the' redemption clause of a- similar , act, passed . by the ..LegislatUre • of -.Illinois, were Unconstitutional, as-applied to mortgages previously. executed." McCracken v.. HoywO od, ,* 2 'Howard 608 ;. Gantly's Lessees v. Ewing, 3 - HoWard 707 ; Howard v.' Bugbee, 24 Howard. 461, were cited - to the same effect.

- 048- ADAMS V.- SPILLYARDS. [187 The court in the Robards case continued: "The Con­stitution . forbids all, laws alike which affect the validity, construction,.- -discharge and enforcement of contracts: The State. may . change legal remedies, forms .of action, of pleading and of process, the times of holding courts, etc., and may shift jurisdiction from one court to an-other. Ancl such changes may have the incidental effect of delaying the pollection of debts. But the Legislature cannot, .under the guise of legislating upon the remedy, in effect, impair the obligation of contracts. The idea of right -and remedy are so intimately asSociated as often to he- inseparable.. Now any legislation which deprives a party of a . remedy substantially as efficient as that which existed at the making of the contract .does impair its obligatory force.." .Citing a number of cases from the Supreme. Court of the United States. We cannot see any distinction in principle between that .case and this. There the subsequent statute- - re­quired appraisement, and sale. for two-thirds the ap­praised value'; whereas here the statute arbitrarily says the land shall be considered to be the value of the loan, without regai'd' to 'sale price, although it might in fact be- many times More or less than the 'loan. In that -case. the land must beSold for two-thirds the appraised value; whereas here it is required to bring the . amount of the loan regardless of all other corisiderations. In that- case one Could finally, after one year from-the first offering, if 'it failed tO bring the required amount, have a sale to the -highest bidder without . regard* to appraisement;. whereas, - -here, it the mortgagee is unwilling to file the stipulation -required by . § 2, he can never have a decree of foreclosure or of sale, and can never- realiZe anything froin -the-security under- foreclosure in court. In that case it was held that the right to redeem within one year rendered the statute unconstitutional and void, the court saying:• "Common. sense- and observation' teach us that the right to sell at once the entire fee simple in-lands and to give the purchaser immediate possession is worth.more and will be- more likely to produce the mortgage debt than the restricted right of selling a con-

ARK.] ADAMS V. SPILLYARDS. 649 ditional interest in lands.. Thus- the 'law, if extended to previous mortgages, would curtail and materially em-•arrass the creditor's' right to subject the entire inter­est of the debtor in the property to the' payment of the 'debt intended to be secured.' So •this l.court . held .that - because the act denied the right to .sell the entire est, and withheld froin Sale the equity of redenaption for one Tear, the act. was void as to existing mortgages,.and correctly so:- Here the act-prohibits any deeree for'sale, except plaintiff stipulate to pay the full-amount of the debt, etc., and prohibits any confirmations, even for the amount of the debt, intereSt and . costs, -until 'after the court has ascertained froth evidence' on a , hearing-that• Such athount. was "the fair :market value of -the prop-erty:" In other words, if -the court should 'determine that the. amount bid at the sale was not "the. fair' Mar­ket value of the property," it would have the right and poWer to 'disapprove the sale, "even thongh no .fraud or 'inequitable conduct is: attributed to . any person •con-ducting said sale or any party interested the'rein," and even .though the plaintiff, filed the .required stipulation and did bid the amount of the judgment, , interest . and coSts.- Sections 3 'and 4 'o provide. 'This cOmrsarison of the act under conSideration with that discussed Robards : v. Brown, suka, ..is- made : Lfor the-nuric•ose of shoWing, Which it •does, that the former; : presents a clearer ease of violation' Of the • obligation 'of ; contracts than did the : latter; and 'we desire to -say' that we again approve What 'was said in Robat'cls Brown, and that it is supported by many- decision's of the Su­preme Court of the United'States--, both Tirior' and subse quent thereto. We therefore 'hold that. said uct. 57;'US applied to * existing contracts,•:is void., - Now, as to jts application to future . contracts, or fp mortgages and deeds of trUst on real estate executed subsequent to the effectiVe date of,:the act, we think a - careful examination of •the act itself discloses' that it-has: no application to the foreclosure of such. contracts or mortgages. If doe.s not; in eipress-te'rms• apply to fore­closures on mortgages and deeds of trust on:real : estate

650-- .ADAMS V.' SPILLYARDS. [187 - to be hereaftei . executed, but apparently to foreclosures on contracts • already in . existence. • In fact, the Words "mortgage" or "deed of trust" - are 'nowhere used in the act. Foreclosures on real estate are several times mentioned, - -and fOreclostires on mechaniCs ? liens arid purchase money liens are . covered as well as Mortgages and deeds of trust. • The eVident purpose of :the Legis­lature waste reli67o*a , present Condition 'by applying the poultice of tbe act to the sore spot of deficiency judg­ments in foreclosures - of mortgages,. 'caused • by decline in realty values. • .They made it exijressly applicable to cases of foreclosure now pending and sales already made but not confirmed, which could not possibly have reference to future contracts, (section 3) ; and- also to " suits filed after the. effective date of this act and real propdrty is sold under foreclosure decree of courts foreclosing same, said sale shall not be , confirmed,!' etc. The whole con-text, we think, Shows the. Legislature was dealing with what it deemed_ a temporary emergency. Another mat-ter,, not without force in determining this question, .is that House Bill No. 270, by .Gates, of Cleveland, was introduced and . passed both Houses almost simultane­ously with the Senate bill, which beCame aCt, 57, which prohibited _deficiency: judginents in mortgage foreclos-ures, but by .its express terms in _§ 2; apiplied only te future contracts. It was introduced in the House . Jan-nary 26 a:nd finally' passed both Hou'ses on February.13.- Whereas act -57 was 'introduced in -the Senate January 18, -and finally passed both Houses February 10. The former was vetoed by the GoVernor, -and the lattCr be-carne a law without 'his signatiire: Evidently the Legis­lature thought tbe previsions' of the bill, which became act 57, were not broad- enough-to pre-vent deficiency judg­ments on future contracts, and introduced and passed House Bill 270 to cover the apparent defect. Before concluding, we desire to call attention to the case of Dennis v. Moses, 18 Wash. 537, 52 Pac. 33, hold: ing unconstitutional an act of that State, entitled, "An act relating to deficiency judgments." We cannot re view this case, nor the many -others -in both this State