Federal Land Bank of Wichita v. Story

1988 OK 52, 756 P.2d 588, 1988 Okla. LEXIS 51, 1988 WL 42529

• Court: Supreme Court of Oklahoma
• Decided: May 3, 1988
• Docket: 68077
• Status: Published

Opinions

DOOLIN, Chief Justice.

The question presented on appeal is whether the trial court erred by finding unconstitutional the Oklahoma Mortgage Foreclosure Moratorium Act, 62 O.S.Supp. 1986, §§ 492, 493. We find the Act unconstitutional on its face as a violation of the Contracts Clause of the United States and Oklahoma Constitutions, and as a violation of Article II, § 6, of the Oklahoma Constitution.

In 1986, in response to a limited economic emergency in the State of Oklahoma, the legislature passed the Oklahoma Mortgage Foreclosure Moratorium Act, 62 O.S.Supp. 1986, §§ 492, 493, which provides:

FARM CREDIT SYSTEM [NEW]

§ 492. Definitions

As used in this act:

1. “Farm Credit System” means the Farm Credit System as defined in the Farm Credit Act of 1971, P.L. 92-181, as amended;

2. “Federal Land Bank” means a federal land bank within the Farm Credit System pursuant to the provisions of the Farm Credit Act of 1971, P.L. 92-181, as amended;

3. “Federal Land Bank Association” means a federal land bank association which is within the Farm Credit System pursuant to the provisions of the Farm Credit Act of 1971, P.L. 92-181, as amended; and

4. “Capital Corporation” means the Federal Credit System Capital Corporation as defined in the Farm Credit Amendments Act of 1985, P.L. 99-205. § 493. One year deferment on certain foreclosure actions

There is hereby declared a period of deferment of not longer than one (1) year from the date of the enactment of this act, during which time the Federal Land Bank of Wichita and any Federal Land Bank Association are prohibited from initiating a foreclosure action in the courts of this state. However, nothing in this act shall prohibit the Capital Corporation

from initiating a foreclosure action from and after this date so long as the Capital Corporation has determined that the loan or loans held by the borrower or borrowers are ineligible for restructuring assistance.

Added by Laws 1986, c. 188, § 2, emerg. eff. May 21, 1986.

The Act remained in effect from May 21, 1986, until May 21, 1987. On August 7, 1986, the Federal Land Bank of Wichita filed a mortgage foreclosure action in the District Court of Craig County, Oklahoma, against Jim and Margie Story [landowners]. The landowners sought shelter from the foreclosure by invoking protection of the Act and filed a motion to dismiss. On October 23, 1986, the trial court found the Act unconstitutional. On November 6, 1986, the State intervened as provided by 12 O.S.Supp.1984, § 2024(D) and was given until November 17, 1986, to respond. The State’s brief was timely filed. Without allowing the State to present evidence and argument in support of the constitutionality of the Act, the trial court, on November 17, 1986, affirmed its earlier ruling. Further proceedings were stayed pending interlocutory appeal by the landowners. The State filed a petition for a Writ of Certiora-ri.

Before the parties could fully brief the question of the Act’s constitutionality for our review, the Act expired by its own terms. Review of the constitutionality of the Act is now moot. The State urges that mootness should not act as a bar to review because of the great public interest in the question. We agree to review the constitutionality of the Act for two reasons. First, the economic conditions which prompted passage of the Act still exist in Oklahoma. The legislature may at any time revive the Act to protect landowners from foreclosure by the Federal Land Bank. The renewed Act may again expire before the question of its constitutionality can reach this Court for review. Mootness will not act as a bar when the challenged event is “capable of repetition yet evading review.”¹ We find such a condition here. Second, ten appeals have been consolidated for review.² In each case, the trial judge found the Act unconstitutional and stayed further proceedings pending interlocutory review. We have an obligation to rule on the constitutionality of the Act so that these trials may resume and proceed in an orderly fashion based upon our decision today. We therefore grant certiorari, finding that special and important reasons exist for such grant.³

As a preliminary matter, the State argues that the trial court erred in refusing to allow the State to present evidence and argument in support of the constitutionality of the Act. We agree. Title 12 O.S. Supp.1984, § 2024(D),⁴ imposes an affirmative duty on the trial court to permit the State to intervene and present evidence and argument on the question of the constitutionality of a statute. We find the error harmless, however, because the Act is unconstitutional on its face. No amount of argument or evidence could be presented by the State which would erase the plain wording of the statute.

Article I, § 10, cl. 1, of the United States Constitution restricts the authority of a State from passing “any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts....” Article II, § 15, of the Oklahoma Constitution provides “No bill of attainder, ex post facto law, nor any law impairing the obligation of contracts, shall ever be passed.”

In reviewing any question concerning impairment of contracts prohibited by Federal and State Constitutions, certain threshold questions must be addressed. First, is the impairment the result of State action? The Contracts Clause acts as a restriction on State power, but does not apply as a restriction on the exercise of Federal power.⁵ Nor, by definition, does the Contracts Clause apply to the impairment of contracts by individuals or corporations. State remedies are available for private impairment of contracts. Here, the Act was passed by the legislative branch of State government and state action is indeed present. Second, are existing contracts impaired or are prospective contracts impaired? The Contracts Clause does not inhibit prospective impairment of contracts, such as is done for instance in the Statute of Frauds. Only impairment of existing contracts is prohibited.⁶ In the instant case, the Act prohibits foreclosure on mortgages existing prior to the Act. Thus, the Act impairs existing contracts.

The original intent of the Contracts Clause was to prevent the States from passing debtor relief laws, but the Contracts Clause has since been used in other contexts.⁷ We, therefore, next determine whether the impairment is of public contracts or private contracts.

If the State is a party to the contract and the State impairs its own contractual obligation, we determine whether the State has impermissibly bargained away one of its police powers. If not, we then look to the degree of impairment and to the necessity and reasonableness of the repealing legislation and whether it promotes an overriding police power interest.⁸

If the impaired contract is private in nature, we first determine if the State law effects a substantial impairment of the contractual relationship. If so, the State must then identify a significant and legitimate public interest to justify the impairment. The third step of the inquiry is “whether the adjustment of the rights and responsibilities of contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislature’s adoption.” ⁹ In the cases at bar, the State is not a party to these contracts. The cases before us are private contracts secured by a mortgage. The actions are foreclosures filed by the mortgagee against the mortgagor. We find the Act prohibiting mortgage foreclosure actions by the Federal Land Bank to be a debtor relief law.

The Act under review is a mortgage foreclosure moratorium. Our review is simplified by stare decisis, for we previously addressed this identical issue in State ex rel. Roth v. Waterfield, 167 Okl. 209, 29 P.2d 24 (1933).

In 1933, responding to a national economic emergency (the Great Depression) the Oklahoma legislature passed the Oklahoma Mortgage Moratorium Act.¹⁰ Section 1 of the Act extended the time to answer and postponed trial and judgment when answer had been filed in any pending action on the effective date of the Act for nine months in any mortgage foreclosure action. For all actions filed after the effective date of the

Act, Sections 2 and 3 of the Act vested district courts with judicial discretion to grant continuances during a period of two years on a case-by-case basis where it was necessary to accomplish the purposes of the Act; required the owner to pay accruing interest and all taxes on the property; required the mortgagor to pay a reasonable rental value to the mortgagee for the period of continuance, such reasonable rental to be determined by the court; and empowered the court to “make such other requirements as will reasonably compensate and adequately protect the mortgagee during the period of delay.”¹¹

In Waterfield we found Section 1 of the Act to be unconstitutional as an impairment of contract prohibited by the Contracts Clauses of the Federal and State Constitutions. We further found Section 1 to be a violation of Article II, § 6, of the Oklahoma Constitution. Sections 2 and 3 of the Act, however, were found to be a constitutional exercise of the police power. Using the severability clause found in Section 8 of the Act, we struck Section 1 from the Act and allowed the remaining Sections to stand.

Subsequent to our decision in Water-field, the United States Supreme Court issued its opinion in Home Building & Loan Association v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413 (1934), in which the Supreme Court sustained the Minnesota Mortgage Moratorium Act. On petition for rehearing,¹² we compared the 1933 Oklahoma Act to the Minnesota Act and applied the principles enunciated in Blaisdell. We again found that Sections 2 and 3 of the Oklahoma Act passed constitutional muster “as being within the reserved power of the state, and a reasonable exercise of that power devoted to a legitimate end in view of the existing emergency need.”¹³ We upheld our earlier decision that Section 1 of the Act constituted a constitutionally prohibited impairment of contract, because “[t]he three subdivisions of section 1 each grant an arbitrary and capricious extension of time amounting to a taking of private property without any provision whatever for compensation to or protection of the rights of the mortgagee.”¹⁴ Finding no conflict between Waterfield and Blaisdell, we refused to grant the petition for rehearing.

The 1986 Mortgage Moratorium Act closely parallels Section 1 of the 1933 Act, by absolutely prohibiting the Federal Land Bank from initiating a foreclosure action in any Oklahoma court during the life of the Act. Title 62 O.S.Supp. 1986, §§ 492, 493, do not provide for judicial determination of whether the circumstances justify application of the moratorium, nor do these sections grant discretion to the trial court in determining the length of the continuance. The Act fails to provide for the protection of the mortgagee by requiring the payment of taxes, interest, or fair market rental by the mortgagor during the continuance. The Act further fails to grant the trial court the power to prevent waste or otherwise protect the mortgagee during the period of delay. Stare decisis dictates that 62 O.S.Supp.1986, §§ 492, 493, are unconstitutional on their face as a violation of the Contracts Clause under Federal and State Constitutions. The Act is a further violation of Article II, § 6, of the Oklahoma Constitution for failure to provide a speedy and certain remedy for every wrong and injury without delay.¹⁵

The State argues that Section 493 provides for an alternate remedy which justifies a finding that the Act is not an impairment of contract. The State relies on Richmond Mortgage & Loan Corp. v. Wachovia Bank & Trust Co., 300 U.S. 124, 57 S.Ct. 338, 81 L.Ed. 552 (1937), in which the Supreme Court found:

The Legislature may modify, limit, or alter the remedy for enforcement of a contract without impairing its obligation, but in so doing, it may not deny all remedy or so circumscribe the existing remedy with conditions and restrictions as seriously to impair the value of the right. The particular remedy existing at the date of the contract may be altogether abrogated if another equally effective for the enforcement of the obligation remains or is substituted for the one taken away.¹⁶

Section 493 prohibits any Federal Land Bank from initiating a mortgage foreclosure action in state court during the life of the Act. The Capital Corporation may, however, bring a foreclosure action “so long as the Capital Corporation has determined that the loan or loans held by the borrower or borrowers are ineligible for restructuring assistance.” The State argues that the mortgagee is provided an alternate remedy because they may sell the mortgage to the Capital Corporation, which, in turn, has access to the state courts to file a foreclosure action.

In the instant cases, the Federal Land Bank elected to file foreclosure actions in state court and did not exercise the alternative remedy by assigning these mortgages to the Capital Corporation. Whether the Capital Corporation has the authority under 12 U.S.C. §§ 2001-2276, (Supp.1986) to bring a foreclosure action in state court on mortgages assigned to it by a Federal Land Bank is not a question before us, because the Capital Corporation is not a party to these actions. Therefore, what the Capital Corporation could, or would, do is purely speculative and will not be considered.

In Blaisdell, the Supreme Court found the contracts clause would not be construed to “permit the state to adopt as its policy the repudiation of debts or the destruction of contracts or the denial of means to enforce them.”¹⁷ “That,” the Court held, “would impair the contract instead of merely delaying enforcement while compensating the creditor for the delay.”¹⁸ In the instant case, the so-called alternative remedy requires the mortgagee to divest itself of all contractual rights by assigning the mortgage to a third party [the Capital Corporation] who may, in its own right, bring a mortgage foreclosure action. State action which forces such a divestment to gain access to state court destroys the mortgagee’s contractual rights. The statute denies all remedy to the mortgagee during the life of the Act. The alternative remedy is neither equally effective for the enforcement of the obligation nor does it substitute for the remedy taken away.

Finally, the State argues that the extent of the farm economic emergency justifies the legislature’s action. The current emergency pales in comparison to that which existed during the Great Depression. In any event, the quantum of emergency is not the test; rather, the test is whether the state’s action is a reasonable exercise of the police power devoted to a legitimate end in view of the emergency.

Emergency does not create power. Emergency does not increase granted power or remove or diminish the restrictions imposed upon power granted or reserved. The Constitution was adopted in a period of grave emergency. Its grants of power to the federal government and its limitations of the power of the States were determined in the light of emergency, and they are not altered by emergency.¹⁹

We find that Section 493 operates as “an arbitrary and capricious extension of time amounting to a taking of private property without ... compensation ... or protection of the rights of the mortgagee.” Therefore, Section 493 is not a reasonable exercise of the police power devoted to a legitimate end in view of the emergency.

Lest the reader think our decision too harsh, one thought must firmly be kept in mind: “We must never forget, that it is a constitution we are expounding_a constitution intended to endure for ages to come, and, consequently, to be adapted to the various crises of human affairs.”²⁰ Nothing we say today prevents the State from redrafting the Mortgage Foreclosure Moratorium Act, provided the new act is a reasonable exercise of the police power in conformity with the principles announced herein.

The decision of the trial court should be, and hereby is, AFFIRMED. The cases are remanded for further proceedings not inconsistent with this opinion.

HARGRAVE, V.C.J., and SIMMS, OPALA and ALMA WILSON, JJ., concur. HODGES, LAVENDER and SUMMERS, JJ., dissent. KAUGER, J., disqualified.

1 . Roe v. Wade, 410 U.S. 113, 125, 93 S.Ct. 705, 713, 35 L.Ed.2d 147 (1973). See also, Marquette v. Marquette, 686 P.2d 990, 992 (Okl.Ct.App.1984).

2 . Appeal No.’s 68,077; 68,683; 68,684; 68,872; 68,874; 68,902; 68,903; 68,917; 69,035; and 69,-036.

3 . Rules of the Court of Appeals, Rule 3.13A.

4 . D. INTERVENTION BY STATE OF OKLAHOMA. In any action, suit, or proceeding to which the State of Oklahoma or any agency, officer, or employee thereof is not a party, wherein the constitutionality of any statute of Oklahoma affecting the public interest is drawn in question, the court shall certify such fact to the Attorney General of Oklahoma and shall permit the State of Oklahoma to intervene for presentation of evidence, if evidence is otherwise admissible in the case, and for argument on the question of constitutionality. The State of Oklahoma shall, subject to the applicable provisions of law, have all the rights of a party and be subject to all liabilities of a party as to court costs to the extent necessary for a proper presentation of the facts and law relating to the question of constitutionality.

5 . Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 732 n. 9, 732-733, 104 S.Ct. 2709, 2719 n. 9, 2719-20, 81 L.Ed.2d 601 (1984). See also: 11 USCA § 1 et seq. Bankruptcy, and Frazier-Lemke Act of Aug. 28, 1935, 11 USCA § 203.

6 . Ogden v. Saunders, 25 U.S. (12 Wheat.) 213, 6 L.Ed. 606 (1827).

7 . Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398, 427-28, 54 S.Ct. 231, 235-36, 78 L.Ed. 413 (1934).

8 . United States Trust Company of New York v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977).

9 . Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411-12, 103 S.Ct. 697, 704-05, 74 L.Ed.2d 569 (1983).

10 . The text of the 1933 Act may be found at 29 P.2d at 25-26.

11 . Id. at 32.

12 . 29 P.2d at 33.

13 . Id. at 38.

14 . Id.

15 . See also Moses v. Hoebel, 646 P.2d 601 (Okla.1982).

16 . 300 U.S. at 128-29, 57 S.Ct. at 339.

17 . 290 U.S. at 439, 54 S.Ct. at 240.

18 . City of El Paso v. Simmons, 379 U.S. 497, 526, 85 S.Ct. 577, 593, 13 L.Ed.2d 446 (1965) (Black, J., dissenting); See also United States Trust Co. of New York v. New Jersey, supra, note 8, 431 U.S. 1, at 19, n. 17, 97 S.Ct. 1505, at 1516, n. 17.

19 . Waterfield at 29 P.2d 36, quoting Blaisdell 290 Ü.S. at 425, 54 S.Ct. at 235.

20 . Blaisdell at 443, 54 S.Ct. 242, quoting Chief Justice Marshall in McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 407, 415, 4 L.Ed. 579 (1819) (citations omitted) (emphasis in the original).