First National Bank of Turtle Lake v. Bovey, Shute & Jackson, Inc.

191 N.W. 765, 49 N.D. 450, 1922 N.D. LEXIS 77

• Court: North Dakota Supreme Court
• Decided: December 30, 1922
• Status: Published

Opinions

CheistiaNSON, J.

Tbe controversy before us involves tbe ownership and right of possession of certain grain which was grown during the redemption period on certain lands purchased by the plaintiff at a mortgage foreclosure sale.

The facts are not in dispute. Briefly they are as follows: In September, 1915, one Stanley Strupsky, the then owner of a certain 160 acre tract of land in McLean county, in this state, executed and delivered to the plaintiff bank a first mortgage on such land to secure the payment of $1,100. Default having been made in the payment of the debt secured, plaintiff caused the mortgage to be foreclosed by advertisement, pursuant to the power of sale contained therein. The sale was held June 28, 1921. Plaintiff bid the property in for the full amount due for principal, interest, and costs of sale, and received the usual sheriff’s certificate of sale. The defendant, Bovey, Shute & Jackson became the owner of the premises, subject to plaintiff’s mortgage, on January 24, 1921. Defendant, thereafter, leased the premises to one Boyke on the share plan for the year 1921. There is no dispute as to the amount of grain produced under such arrangement, or the amount plaintiff is entitled to recover, if it is entitled to recover at all. The sole question is whether the rights of the parties to this action are controlled by § 7762, Comp. Laws, 1913, or by chapter 132, Laws 1919.

Section 7762, Comp. Laws, 1913, provides: “The purchaser from the time of the sale until a redemption ... is entitled to receive from the tenant in possession the rents of the property sold, or the value of the use and occupation thereof. . . .”

Chapter 132, Laws 1919, amended § 7762, supra, to read as follows: “The debtor under an execution or foreclosure sale of his property shall be entitled to the possession, rents, use, and benefit of the property sold from the date of such sale until the expiration of the period of redemption.”

Plaintiff’s cause of action herein is predicated upon § 7762, supra.' Defendant contends that this statute is no longer in effect; that the rights of the par-ties to this action are not controlled thereby, but that such rights are controlled by chapter 132, Laws 1919. Plaintiff answers the contentions thus advanced as follows: (1) That chapter 132, Laws 1919 was intended to apply only to mortgages executed and delivered after that law became operative; 'and (2) That if said chapter 132 was intended to apply to mortgages which, like the one involved here, was executed and delivered before that statute became operative, it is unconstitutional on the ground that as to such mortgages it impairs the obligations of a contract.

The legislature is forbidden by both the Federal and the state Constitution to pass any “law impairing the obligation of contracts.” U. S. Const. § 10, art. 1; N. D. Const. § 16. While it is true that “in placing the obligation of contracts under the protection of the Constitution, its framers looked to the essentials of the contract more-than to the forms and modes of proceeding by which it was to be carried into execution,” and left to the legislature to prescribe and shape the remedy to enforce it, McCracken v. Hayward, 2 How. 608, 612, 11 L. ed. 397, 399; it is equally true that the legislature may not, under the guise of a statute relating to the remedy, change the substantial rights of the parties. 12 C. J. 1067, 1068; 15 Am. & Eng. Enc. Law, pp. 1055, 1056; Blakemore v. Cooper, 15 N. D. 5, 4 L.R.A.(N.S.) 1074, 125 Am. St. Rep. 574, 106 N. W. 566; Cleveland v. United States, 93 C. C. A. 274, 166 Fed. 677. Under the constitutional inhibition against legislation impairing the obligation of contracts, it is immaterial whether the obligation of a contract is impaired by acting on the remedy or directly upon the contract. Impairment in either case is prohibited. 6 R. C. L. p. 356; E. J. Lander & Co. v. Deemy, 46 N. D. 273, 176 N. W. 924.

In his great work on the Constitution, Story said:

“It is perfectly clear that any law which enlarges, abridges, or in any manner changes the intention of the parties, resulting from the stipulations in the contract, necessarily impairs it. The manner or degree in which this change is effected can in no respect influence the conclusion; for whether the law affect the validity, the construction, the duration, the discharge, or the evidence of the contract, it impairs its obligation, though it may not do so to the same extent in all the supposed cases. Any deviation from its terms by postponing or accelerating the period of performance which it prescribes, imposing conditions not expressed in the contract, or dispensing with the performance of those which are a part of the contract, however minute or apparently immaterial in their effect upon it, impairs its obligation.” Story, Const. 5th ed. § 1385.

Tbe provision in the Federal Constitution prohibiting a state from passing any law impairing the obligation of contracts has been considered by the United States Supreme Court in many cases. In Sturges v. Crowninshield, 4 Wheat. 197, 198, 4 L. ed. 549, opinion by Mr. Chief Justice Marshall, it was said: “What is the obligation of a contract, and what will impair it? It would seem difficult to substitute words which are more intelligible, or less liable to misconstruction, than those which are to be explained. A contract is an agreement in which a party undertakes to do, or not to do, a particular thing. The law binds him to perform his undertaking, and that is, of course the obligation of his contract. . . . Any law which releases a part of this obligation must, in the literal sense of the word, impair it. . But it is not true that the parties have in view only the property in possession when the contract is formed, or that its obligation does not extend to future acquisitions. Industry, talents, and integrity constitute a fund which is as confidently trusted to as property itself. Future acquisitions are, therefore, liable for contracts; and to release them from this liability impairs their obligation.” And in Planters’ Bank v. Sharp, 6 How. 327, 12 L. ed. 458, opinion by Mr. Justice Woodbury, the court said: “One of the tests that a contract has been impaired is, that its value has by legislation been diminished. It is not, by the Constitution, to be impaired at all. This is not a question of degree or manner or cause, but of encroaching in any respect on its obligation,— dispensing with any part of its force.” The language quoted from these two opinions was quoted with approval by the United States Supreme Court in the late ease of Bank of Minden v. Clement, 256 U. S. 126, 65 L. ed. 857, 41 Sup. Ct. Rep. 408.

In applying these rules the Supreme Court of the United States has held that the law in force at the time a mortgage is executed, with all the conditions and limitations it imposes, is the law which determines the force and effect of a mortgage; and, consequently, that changes in the laws imposing conditions and restrictions on a mortgagee in. the enforcement of his right, and which affect its substance, are invalid as impairing the obligation, and cannot prevail. Von Hoffman v. Quincy, 4 Wall. 535, 18 L. ed. 403; Bronson v. Kinzie, 1 How. 311, 11 L. ed. 143; Brine v. Hartford F. Ins. Co. 95 U. S. 627, 24 L. ed. 858; Barnitz v. Beverly, 163 U. S. 118, 41 L. ed. 93, 16 Sup. Ct. Rep. 1042; Bradley v. Lightcap, 195 U. S. 1, 49 L. ed. 65, 24 Sup. Ct. Rep. 748. Thus it is held a statute which extends the period of redemption, or gives a right of redemption where no such right previously existed, impairs the obligation of a mortgage executed before its enactment. Barnitz v. Beverly, 163 U. S. 118, 41 L. ed. 93, 16 Sup. Ct. Rep. 1042, supra; Howard v. Hugbee, 24 How. 461, 16 L. ed. 753; Gantly v. Ewing, 3 How. 707, 11 L. ed. 794; Bronson v. Kinzie, 1 How. 311, 11 L. ed. 143, supra; Bradley v. Lightcap, supra. The rule announced by the Federal Supreme Court has been applied by many state courts in dealing with the same or analogous questions. Haynes v. Tredway, 133 Cal. 400, 65 Pac. 892; Malone v. Roy, 134 Cal. 344, 66 Pac. 313; Travellers Ins. Co. v. Brouse, 83 Ind. 62; Swinburne v. Mills, 17 Wash. 611, 61 Am. St. Rep. 932, 50 Pac. 489; Hollister v. Donahoe, 11 S. D. 497, 78 N. W. 959; Paris v. Nordburg, 6 Kan. App. 260, 51 Pac. 799; Muller v. McCann, 50 Okla. 710, 151 Pac. 621; Turk v. Mayberry, 32 Okla. 66, 121 Pac. 665.

In Bradley v. Lightcap, supra, opinion by Mr. Chief Justice Fuller, it Avas said:

“Confessedly subsequent laws, which in their operation amount to the denial of rights accruing by a prior contract, are obnoxious to constitutional objection.”

“In Bronson v. Kinzie, 1 How. 311, 11 L. ed. 143, the statute object' ed to gave the mortgagor twelve months to redeem after the sale, and Mr. Chief Justice Taney said: ‘It declares that, although tthe mortgaged premises shall be sold under the decree of the court of chancery, yet that the equitable estate of the mortgagor shall not be extinguished, but shall continue for twelve months after the sale; and it moreover gives a new and like estate, which before had no existence, to the judgment creditor, to continue for fifteen months. If such rights may be added to the original contract by subsequent legislation, it would be difficult to say at what point they must stop. . . . Any such modification of a contract by subsequent legislation, against the consent of one of the parties, unquestionably impairs its obligations, and is prohibited by the Constitution.’ ”

And many state courts have held that a statute which alters the rights of the mortgagor and mortgagee as regard the right to possession of the premises, or the rents or the value of the use and occupation, during the year of redemption, cannot be applied constitutionally to mortgages executed and delivered before its enactment. Swinburne v. Mills, 17 Wash. 611, 61 Am. St. Rep. 932, 50 Pac. 489; Canadian & A. Mortg. & T. Co. v. Blake, 24 Wash. 102, 85 Am. St. Rep. 946, 63 Pac. 1100; Travellers Ins. Co. v. Brouse, 83 Ind. 62; Blackwood v. Van Vleet, 11 Mich. 252; Mundy v. Monroe, 1 Mich. 68.

In Swinburne v. Mills, supra, tbe court said: “The Constitution prohibits the passing of laws which impair the obligation of a contract. The practical question then is, What is an impairment of a contract? Webster’s definition of Impair’ is, ‘To make worse; to diminish in quantity, value, excellence, or strength; to deteriorate.’ Then, if the value of a contract is deteriorated or lessened by the passage of an act, the obligation of the contract is most certainly impaired. The question arises, Was the contract of this mortgagee deteriorated or made less valuable by the passage of this act ? It is a principle of law so often enunciated and so uniformly maintained that the law which is in existence at the time a contract is made becomes a part of the contract that it would be idle to cite authorities on that proposition or to further mention it.”

Let us apply these principles to the facts in this case. The law in existence at the time plaintiff received the mortgage from Strupsky expressly provided that the purchaser at a foreclosure sale “from the time of the sale until a redemption is entitled to receive from the tenant in possession the rents of the property sold, or the value of the use and occupation thereof.” See. 7162, supra. The mortgagee, his assigns, or their legal representatives, might fairly and in good faith purchase the premises or any part thereof. Comp. Laws, 1913, § 8053. The parties in contracting contemplated the possibility of a foreclosure, and inserted a power of sale in the mortgage. Under the law in existence at the time the mortgage was executed, plaintiff knew that in event it became necessary to foreclose the mortgage and to bid in the premises, it would obtain a certificate of sale which would entitle it not only to a sheriff’s deed at the end of the redemption period, but which also would entitle it to receive from the tenant in possession the rent of the property, or the value of the use and occupation thereof, from the time of the sale until a redemption was made; and if there was no redemption then during the period allowed therefor. Can it be said that the taking away of this right did not diminish the value of plaintiff’s mortgage? It seems to ns, there can be only one answer to that question. The facts in this case bear quite positive testimony that the right-possessed by plaintiff under § 77 62, supra, and which defendant claims was taken away from the plaintiff and vested in the defendant by chapter 132, Laws 1919 was one of value. At the time the action was tried in the district court the period of redemption had not expired. In fact, more than four months of the redemption period remained at the time judgment was entered. If defendant had desired to do so, it could of course have redeemed. Yet it did not see fit to do so. The only thing which it deemed of sufficient value to defend was the right to the rent which the tenant in possession of the premises owed and was required to pay to someone. In other words, in this case the right to recover rent seems to have been of greater value than the right to redeem.

It does not follow, however, that chapter 132, Laws 1919, is unconstitutional. If, as the trial court held, it was the intention of the legislature that chapter 132, Laws 1919, should apply only to mortgages executed and delivered after it became operative, then of course, no constitutional objection exists.

The legislature is presumed to have intended to enact a valid law. And “when reasonably possible, a statute must be so construed as to uphold its validity. Indeed a statute must be construed, if fairly possible, so as to avoid not only the conclusion that it is unconstitutional, but also grave doubts on that score. In other words, in testing the constitutionality of a statute, the language must receive such construction as will conform it to any constitutional limitation or’ requirement, if it is susceptible of such interpretation; and the statute and the constitutional provisions must be read together and so harmonized as to give effect to both when this can be consistently done.” 12 C. J. 787, 788. And “statutes which, if applied to existing contracts would impair their obligation, will, if possible, be construed as prospective so as to sustain their validity and avoid conflict with the constitution.” 2 Lewis’s Sutherland Stat. Constr. 2d ed. p. 1191. See also 6 R. C. L. p. 79.

The American & English Encyclopaedia of Law (vol. 26, p. 640) says:

“There is a presumption in favor of the constitutionality of a statute, and in accordance therewith, when a statute is susceptible of two constructions, one of wbicb supports the act and gives it effect and the other renders it unconstitutional and void, the former will be adopted, even though the latter may be the more natural interpretation of the language used.”

But even as to those statutes which the legislature may constitutionally give retrospective effect, there is no presumption that such effect was intended. The presumption is to the contrary. The rule declared by our statute is that no law like chapter 132, Laws 1919, is “retroactive unless expressly so declared.” Comp. Laws, 1913, § 7320. See also E. J. Lander & Co. v. Deemy, 46 N. D. 273, 176 N. W. 926. The statute is merely a declaration of a well-recognized rule of construction. Eor it is well settled that

“Statutes will be construed to operate prospectively only, unless an intent to the contrary clearly appears. It is said: 'That a law will not be given a retrospective operation unless that intention has been manifested by the most clear and unequivocal expression.’ And in another ease: 'The rule is that statutes are prospective, and will not be construed to have retroactive operation unless the language employed in the enactment is so clear it will admit of no other construction.’ The rule is supported by numerous cases. The rule is especially applicable where the statute, if given a retrospective operation, would be invalid, as impairing the obligation of contracts or interfering with vested rights. The principle that all statutes are to be so construed, if possible, as to be valid, requires that a statute shall never be given a retrospective operation when to do so would render it unconstitutional, and the words of the statute admit of any other construction. It is always presumed that statutes were intended to operate prospectively and all doubts are resolved in favor of such a construction.” Lewis’s Sutherland, Stat. Constr. 2d ed. § 642.

See also 6 B. C. L. 78.

The supreme court of Minnesota says:

“It is well-settled rule that laws are not to be construed retrospectively, or to have a retrospective effect, unless it shall clearly appear that it was so intended by the enacting body, and unless such construction is absolutely necessary to give meaning to the language used.” Brown v. Hughes, 89 Minn. 150, 153, 94 N. W. 439.

See also Adams & F. Co. v. Kenoyer, 17 N. D. 302, 308, 16 L.R.A.(N.S.) 681, 116 N. W. 98; Blakemore v. Cooper, 15 N. D. 5, 19, 4 L.R.A.(N.S.) 1074, 125 Am. St. Rep. 574, 106 N. W. 566; 8 Cyc. 731; 12 C. J. 721; 6 R. C. L. p. 78; E. J. Lander & Co. v. Deemy, 46 N. D. 273, 176 N. W. 927.

Chapter 132, Laws 1919, contains no express declaration that it shall apply to existing mortgages. If it is applied to a mortgage executed and delivered prior to its passage it will give to such mortgage a different legal effect as regards the respective rights of the mortgagor and the mortgagee, in event the mortgage is foreclosed and the mortgagee becomes purchaser at the foreclosure sale. That is quite forcibly demonstrated here. At the time the mortgage involved in this case was executed and delivered the rights of the mortgagee under the mortgage and their existing provisions of law were: In case of default, the mortgage might be foreclosed by advertisement; the mortgagee had a right to purchase at the sale; if he purchased he would be entitled to receive from the tenant in possession of the property the rents, or the value of the use and occupation thereof, from the time of the sale until redemption was made; and if there was no redemption then during the period allowed for redemption. See, Geo. B. Clifford & Co. v. Henry, 40 N. D. 604, 169 N. W. 508. In this case there was a default. The power of sale was exercised. The mortgagee purchased at the foreclosure sale, and received the usual certificate of sale; but' if chapter-132, Laws 1919, is applicable then it has taken away from the mortgagee the right to receive rent or the value of the use and occupation of the premises sold, and vested this right in the mortgagor’s successor in interest. It would seem that if the legislature had intended that the striking change proposed to be made by chapter 132, Laws 1919, as regards the right to rent or the value of the use and occupation during the redemption period, should apply as well to mortgages then existing as to those thereafter made, it would have “expressly so declared.”

Judgment affirmed.

Birdzell, Ch. J., concurs.