Brief of Appellants — Richmond Mortgage & Loan Corp. v. Wachovia Bank & Trust Co.

; *e v Ei iF:

ite | ? NOV 14 1525

SUPREME COURT OF THE UNITED’ STATHS coer

OCTOBER TERM, 1936. _

No. 235.

€

RICHMOND MORTGAGE AND LOAN CORPORATION,

‘; _Appellant,

vs. :

WACHOVIA BANK AND TRUST COMPANY anp

ALEXANBRA GARRETT JOHNSTON, Execurors or

tHE Estate or Rosert P. Jounsron, Deceasep. =

APPEAL FROM. THE SUPREME COURT OF THE STATE OF NORTH

\

CAROLINA,

BRIEF OF APPELLANT. -

|

Joun Y. Jorpan, Jr.,

Counsel for Appellant.

Kester Watton, 3 . vane

Of Counsel.

°

v

te 4.

INDEX.

SUBJECT INDEX.

Page

PURITONED OP FOPORE BETO ooo ce sic cc cnenccesvanionsnepancascudecde 1

Statement of jurisdiction ................. Pehetarenas soenevesenns 2

I Oe MNP esas cack dcvancerddenesaedneaedderabibdeds goceee 5

NTN OE OUND a ois signee sun eicauenscesanedbandasedinans 8

Summary of argument ................. arene kLbatenewauerur mes : »

cn nic srvirican edule iealake eld LTTE TOUTE COCO ETT TOP aD ee 12

Point I. The laws in existence at the time the contract was

entered into form a part of the contract. This is also true of

laws relative to the remedy of enforcement ....... Eee T ‘ Eg

Point 11. Under the law as it existed prior to the passage of ihe

Act in question, appellant had the right to foreclose by power

of sale, buy the property ih and sue for deficiency judgment

Without reference tu value of the ee a iit ea a Oa ee ea 13

Point III. After the passage of the Act in question, the law of

North Carolina was changed whereby appellant was required

to accept the fair value of the property as payment on indebt-

oe in lieu of recovery of money en. Raines eked fas 16

on the mnie fubelien substantial contractual rights held

by appellant under its contract and therefore is unconstitu-

ONE ehavsuncus eet Wines nents eau ehabaaeauharesare cts ok, 22

INDEX OF CASEs.

Adams vy. Spillyards, 86 A. oe R. 1493, 61S. W. (2nd) 686........ .. 12, 30

Antoni vy. ae a 107 U.S. 769, 27 LL. Ed. CA kane eecadeks ecco sc at, 27

saber vy. Hanie, 163 N. C. 588. RELL EL ERTL er Pr ene. 10, 16

Bank y. ae viet ag gE ET OT EP Ep yes Ob te 10,15

sarnitz v. Beverly, 163 U. S. Sem Oe My My hse oo ree ae 12, 29

septisaasiebas Descveiaiciile’Boca.a,8 heh. ETE ETT TORRE Ea 8,33

Bronson y. Kinzie, 1 pees ee, On Oe BRO er A. 11,28

Ciladbourn v, Johnston, 119 N. C. 282......-¢..000 0 ciakaean 11, 20

nn ty DO CUM a ie ee nh 2

Cohens y. Virginia, 6 Wheat. a we cg Re hn ene »

Dahnke-Walker Milling Co. vy. mon@erant, 257 0. &. 202. ..........«. 4

Davis v. Life Insurance oc enoriss wanes. bn rkta tA, POPE Cn aaST 11, 20

Dunlop vy. Smith et al., 196 N. ok PE Dae DPN Me a as 10, 16

Edwards y. Kearzey, 96 U. S. 595, 24 L. Ed. 798................. 2, 29, 32

Eubanks y, Bectom, 158 N. C. 230........ Pawn ae ig cata acd eeeiara hy 10, 14

First Carolina’s Joint Stock and Bank v. Stewart et al., 208 N

a See eT rr eae CORRE dogg em end aie Geignn iceee 10, 15

Fiske y. Kansas, 274 U. . 380 Se Pe Pe here tata monte. 4

Flemming v. Borden, a (Mah ae cc uekudaddiween ec eee 10, 14

—8345-C

il INDEX

Page

a Ss es Os nak ooh oh ean aks pave esas 9,13

(aten v. BaGmle, G Wieet, 3, 3 0. Ge. SAGs iw. casa ceccaacaccsas 9,12

eenyes ©. Pace, EM. ©. FOR... cc ciccw ccna “Upenster ehice coe ne 10

og eS RR rar Pa ne inary eer 11, 21,25

Home Building and Lown Association vy. Blaisdell, 290 U. S. 39s,

: 6, 9, 11, 12, 24,30

Howard vy, Bugbec, 24-HMoward 461, 16 LL. Way T58s os oes acc occu TE, 28

insurance Company v. Dey, GOG-N. C. BOG. 6 oo ccc ccc antccaeccesas 10; 15...

ee S. Seee Be SOc cc bx Kee Kd cakes ake ae ak cede eden 10

Kansas City Southern Railway Co. v. Road Improvement District,

SE Es Ms AES AEELN Ac AP RLAD ADEE EOES ESR AEOUKL EER Dae 5

ey WSs. ae As Ss a ka ks xu bau a nd R99 d ee oda aeeke 10,19

CNRS FD, Fee a 1 ks co iv eke new ds Ween enna ecadekexi. 10, 13

Langever v. Miller, 96 A. IL. R. 836, 76S. W. (2d) 1025.............. 12, 31

McCracken v. Hayward, 2 Howard 608, 11 L. Ed. 397............ 11, 23, 2s

EH, es Bea We cia cae ows a xed WERE badG Knee tee 10, 14

POET; SEE, Oe OE os od nice eee eee ees “10,14

Planters Bank y. Sharp, 6 Howard 301, cg Wi 0 A © GR RRS at

Re Crystal Iee and Fuel Company (PD. C. Mont.), ee Fed. 1007. 4. 10

ccna Hes Mc cece, eccigece yet PE, KLEE E EC OLE ES CU OCEC PETTERS C COTE Te 10, 16

Richmond Mtg) & Loan Corp, v. Bank, 210 N.C. 29.0 ......0.000 cee 10

Pe: Sims ee Py a Sv kha 8 oe ae oe eee Kee ee 10, 14

Sturges v. Crowninshield, 4 Wheat. 122, 4 L. Ed. 529....... 9,11, 12. 28, 28

‘Triste Conipany vo Phatison: 200 N: C! GS8 ooo oe bk oc bok eo 9,13

United States, ex rel. Louis A. Von Hoffman vy. City of Quincy, 4 Wall

535, 18 L. Ed. 408....... aeaeacs Aa LkAsy kde panel nee kd heehee nee 12

Vanderbilt v. Bruton Piano Company, 89 A. L. R. 1080, 169 Atl. 177.. 12,31

Walker ¢. Whitehead, 16 Wall. 314, 21 L. Ed. 357.......5...cccccccs 11, 28

W. B. Worthen Company vy. Py caplet re a se ee 41, 26; 2

op ee Se i nr nes ee 10, 14

Woltz ¥. Deposit Company, pe ie ee eee ee 11,19

STATUTES CITED.

Chap. 275, Sec. 3, Public Laws of North Carolina, Session 1933.2, 6, 7, 11, 31

Revised Statutes of North Carolina, Chap. XXXVI, i ae as Saw 10

o

-

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1936

No. 235 |

RICHMOND MORTGAGE AND LOAN CORPORATION,

Appellant,

me Us.

WACHOVIA BANK AND TRUST COMPANY ayp

ALEXANDRA GARRETT JOHNSTON, Execvrors or

THE _— Rozert P. Jounsron, Decrasep. *

/

7

APPEAL FROM THE SUPREME COURT OF THE STATE OF Nortril

CAROLINA,

BRIEF OF APPELLANT.

Referenee. to Report Below.

The-opinion of the State Supreme Court (R. 35-41) is

reported as ‘‘Richmond Mortgage and Loan Corporation

" t. Wachovia Bank & Trust Company and Alexandra 4.

Johnston, .Executors of Robert P. Johnston, deceased,”’

- 210 N. C. (Advance Sheets), page 29. The same ease is

also reported it 185 8. EB. Rep., 482. _

-No opinion was written in the General County Court of

Buncombe County, where the case originated.

lf

a

een <eme~eat

"Statement of Jurisdiction.

In accordance with Rule XII, the appellant duly filed a

statement showing the jurisdiction of this Court. Consid.-

eration of jurisdiction was postponed to the hearing of the

case on the merits. Appellant submits here a summary

statement of the jurisdiction of this Court, supplementing

the statement heretofore filed.

The jurisdiction of this Court is invoked under Section

237 (a) of the Judicial Code as amended by the Act of

February 13, 1925, Chapter 229, 43 Stat. 937: U. S. Code,

' Ann. Titlé 28, Section 344.

The judgment of the Supreme Court of North Carolina

is a final judgment in a suit under Article 4, Sections 2

and 8 of the Constitution of the State of North Carolina,

and Sections 615, 658, 659, 1412 “and 1413 of the North

Carolina Code. Chavis v. Brown, 174 N. C. 122.

The Statute or Act passed by the Legislature of the

State of North Carolina, the validity of which is drawn in

question and which, it is contended, is, as applied in this

case, unconstitutional and repugnant to Article 1, See-

tion 10 of the Constitution of the United States, is Section -

3, Chapter 275, the Public Laws of North Carolina,

Session 1933, pages 402 and 403 and also shown in the

North Carolina Code of 1935, Ann., Section 2593 (d).

The judgment sought to be reviewed was entered in the

Supreme Court of the State of North Carolina on the 29th

day of April, 1936 (R. 41). The petition for appeal (R.

42), the assignment of errors (R. 42) and the prayer for

reversal (R. 44) were presented to the Chief Justice of the

Supreme Court of North Carolina on the 10th day of July,

1936, and the order allowing said appeal (R. 44) was issued

and the appeal bond approved by him on the said 10th day

of July, 1936. The citation on appeal was signed by him

on the 10th day of July, 1936.

3 -

The case was. brought by appellant, a Virginia. corpora-

tion, to recover judgment in the amount of Four Thou--

sand Five Hundred Thirty-four and 79/100 Dollars (4$4,-

534.79) with interest from June 19, 1933, the balance due on

promissory notes executed by defendants. At the time

defendants executed said promissory notes, they also exe-

cuted a Deed of Trust to a Trustee, pledging as security for

the payment of said promissory notes certain property

located in the County of Buncombe, State of North Caro-

_ lina, the said notes and Deed of Trust were dated and de-

livered on or about August 15, 1928 (R. 11). Upon default

in the payment of the indebtedness, appellant caused the

property pledged as security for said indebtedness to be

sold under power of sale contained in the Deed of Trust,

which sale was held on June 19th, 1933 (R. 12). |

After crediting the amount received from said sale on

the notes, executed by respondents, there remained due the

sum sued for in this action which was instituted on June

Isth, 1934 (R. 1). The defendants in the action se¢ up the

provisions of Section 3, Chapter 275, of the Public Laws of

North Carolina, Session 1933, and the question was sub-

mitted to a jury as to the fair worth of the’ property at the

time and place of the sale, and the jury answered the ver-

dict in the amount of Kight Thousand Dollars ($8,000.00)

(R. 21), and on such verdict the court adjudged that plain-

tiff was entitled to recover nothing of the defendants (R.

8). It was admitted at the trial that’ the property was

purchased directly or indirectly at the foreclosure sale by

the appellant who was then the owner of the indebtednéss

(R. 14). Plaintiff in said action, the appellant herein, filed

pleadings in said cause alleging that Section 3, Chapter 275,.

Public Laws of North Carolina, Session 1933, was repue-

nant to the provisions of Article I, Section 10 of the Con-

stitution of the United States as applied to this appellant,

because the notes sued on, together with the Deed of Trust

4

securing the same, were executed prior to the passage of

said Act (R. 8). The appellant, during the entire trial of

said action, and at each stage of the proceedings, preserved’

its exceptions as to the unconstitutionality of the Act in

question and as applied in this case.

To sustain the jurisdiction of this Court, appellant con-

tends:

First. The judgment appealed from is a final judgment

of the Supreme Court of North Carolina, which is the high-

est court in the State having jurisdiction of the case. The

case drew in question the validity, under the Federal Con-

stitution, of the Statute of North Carolina providing for

the right of a mortgagee to prove ina suit for a deficiency

Judgment the fair or reasonable value of said property as

_a defense and offset and thereby defeat the recover of such

deficiency judgment against the maker 6f the notés, and

iortgagee, either in whole or in part, and such statute was

applied in this ease although appellant’s notes and Deed of

Trust were executed prior to the passage of said Act, and

the judgment of the State Court upheld ‘the validity and

application of the statute.

Second. That the Act in question impairs the obligation

ot a contract entered into prior to the time of its passage,

and as construed in the instant case, is repugnant to the

Federal Constitution. ,

Third. The Supreme Court of the State of North Caro-

lina considered the question as to whether or not the stat-

ute was unconstitutional as applied to this appellant in the

. instant case. |

The following decisions of this Court are believed to sus-

tain jurisdiction of this appeal:

Fiske v. Kansas, 274 U.S. 380, 385 ;

Dahnke-Walker Milling Co. v. Bondurant, 257 U. S$.

282, 288;

5 :

Kansas City Southern Railway Co. v. Road Improve-

ment District, 266 U. S. 379, 385;

Cohens v. Virginia, 6 Wheat. 264, 5 L. Ed..257;

Home Building and Loan Association v. Blaisdell, 290

U.S. 398.

Statement of Case.

This is an appeal from 4 final judgment of the Supreme

Court of the State of North Carolina, affirming the jude-

ment of the Superior Coutt for Buncombe County, which

court affirmed a judgment of the General County Court of

Buncombe County, entered after a trial before the court

and a jury. ;

“On or about August 15, 1928, the respondents borrowed

from the appellat the sum of Eight Thousand Dollars

($8,000.00), and as evidence of said indebtedness executed

their promissory negotiable notes in the aggregate amount

of Hight Thousand Dollars ($8,000.00) (R. 11). As seen-

rity for said indebtedness, respondents also at the same time

executed and delivered a Deed of Trust by the terms of

which respondents pledged as security for said indebted-

hess a house and lot: located i in the City of Ashev ille, State

of North Carolina (R. 11). |

Thereafter, respondents defaulted in the payment of the

indebtedness evidenced by said notes and secured by said

Deed of Trust and appellant called on-the Trustee in said

Deed of Trust to foreclose the said property in accordance

with the power of sale contained in said Deed of Trust, de-

claring the whole of said indebtedness due and payable in

accordance with the terms . said notes and Deed of Trust

(RR. 12).

The said Trustee advertised said property in accordance

with the terms of the Deed of Trust and the statutory law

of the State of North Carolina and the property was sold

on the 19th day of June, 1933 where and when the said

6

appellant directly or indirectly became the purchaser of

said property for the price of Three Thousand Dollars ( $3.-

000.00); and after the ten day period of redemption, the

property was conveyed in accordance with the terms of

the sale. (R. 12).

‘The net sum realized from the sale of said property was

credited on the notes held by appellant and leaving a bal-

ance due appellant in the sum of Feur Thousand Five

Hundred Thirty-four and 79/100 Dollars ($4,534.79), to-

gether with interest thereon from the 19th day of June,

1933, until paid. (R. 13-21.)

Appellant, on June 18th, 1934, filed suit in the General

County Court of Buncombe County (R. 1), to recover bal- .

ance due on the notes. '

The respondents (defendants below), in their pleading:,

alleged, in substance, the provisions of Section 3, Chap-

fer 275, Public Laws of North Carolina, Session 1933 (Stat-

ute is printed in margin),’ and alleged that the property

at the time and place of sale was fairly worth the amount

of the debt secured by said Deed of Trust (R. 7, para-

* Sec. 3 of Chap. 275, of the Laws of 1933:

‘*When any sale of real estate or personal property

has been made by a mortgagee, trustee, or other per-

son authorized to make the same, at which the

mortgagee, payee or other holder of the obligation

thereby secured becomes the purchaser and takes title

either directly or indirectly, and thereafter such mort-

_ gagee, payee or other holder of the secured obligation,

as aforesaid, shall sue for and undertake to recover a

deficiency judgment against the mortgagor, trustor or

other maker of any. such obligation whose property

has been so purchased, it shall be competent and law-

ful for the defendant against whom such deficiency

judgment is sought to allege and show as matter of

defense and off-set, but not by way of counter-claim,

,

7

graph 4 of Answer of defendants). The appellant (plain-—

tiff below), in reply, alleged that said Act, to-wit: Section

3, Chapter 275, Public Laws of North Carolina, Session

1933, was unconstitutiona] and repugnant to the provisions

of Article I, Section 10, of the Constitution of the United

States because the notes sued on, together with the Deed

of Trust securing the same, were executed prior to the pas-

sage of said Act (R. 8).

At the trial of the cause in the General County Court

issues were submitted to the jury relative to the appellant

becoming the purchaser of the property and the fair worth

of the property at the time and place of sale, to which is-

sues appellant objected and excepted (R. 21). Appellant

also objected and excepted to the charge of the court on

the question of the fair value of the property, and objected

and excepted to the refusal of the Court to render judg-

ment in favor of the appellant on the pleadings, and to the

signing of the judgment as entered in the General County

Court (R. 28-29). Appeal was taken from the General

County Court of Buncombe County to the Superior Court

of Buncombe County, the proper appeal court, and in the

that the property sold was fairly worth the amount of

the debt secured by it at the time and place of sale or

that the amount bid was substantially less than its.

true value, and, upon such showing, to defeat or off-

set any deficiency judgment against him, either in

whole or in part; Provided, this section shall not af-

fect nor apply to the rights of other purchasers or of

innocent third parties, nor shall it be held to affect or

defeat the negotiability of any note, bond or other

obligation secured by such mortgage, deed of trust, or

other instrument; Provided, further, this section shall

not apply to foreclosure sales made pursuant to an

order or decree of court nor to any judgment sought

or rendered in any foreclosure suit nor to any‘ sale

heretofore made and confirmed.”’

SF

<a me e ee

—

8

Superior. Court of Buncombe County, the assignments of

errors from the General County Court were overruled and

the judgment affirmed (R. 31), from which judgment of

the Superior Court of Buncombe County appeal was taken

to the Supreme Court of North Carolina, which court af-

firmed the judgment of the General County Court (R: 41).

There is no technical question of procedure. The sole

question is'whether. the Act in question impaired the obliga-

tion of a coutract entered into by and between appellant

and respondents prior to fle passage of said Act, and was,

therefore, in violation of the Federal Constitution.

Specification of Errors.

The Supreme Court of the State of : rth Carolina

erred in refusing to find Section 3, Chapter 275, of the Pub-

lic Laws of North Carolina, Session 1933, unconstitutional

and repugnant to Article 1, Section 10, of the Constitution

of the United States because, as construed and pastgiete to

this appellant, it results in impairing the obligation of

contract entered into by the respondents and which a

contract is owned by the appellant and which said contract

was entered into and executed prior to the passage of said

above referred to Act.

to

. The Supreme Court of North Carolina erred:in hold-

a Section 3, Chapter 275, of the Public Laws of North’

Carolina, Session 1933, applicable in the above cause he-

cause, as construed and applied to this appellant, it re-

sulted in depriving appellant of a judgment against. the

respondents to which it was entitled-in accordance with thie

laws of the Staté of North Carolina at the time’the contract

which is the subject matter of the action was entered into.

3. The Supreme Court. of North Carolina erred in affirm-

ing the judgment of the Superiar Court and in refusing to

reverse said judgment upon the ground that the said Su-

e

9

perior Court erred in affirming the judgment of the Genera!

County Court denying to the appellant the right to have

judgment rendered in its favor and on the pleadings as

filed in said cause and at the close of all the evidence.

4. The Supreme Court of the State of North Carolina

erred in rendering a final judgment or decree against the

appellant upon the 29th day of April, 1936 in the above

entitled cause.

Summary of Argument.

I. The parties to the contract in question contracted

with reference to the laws at that time in

existence and such laws enter into and form

_ part of the contract. This is true of the laws

then in existence providing remedies to entorce

performance of the contract. .

Home Building and Loan Association vy.

Blaisdell, 290 U. 8.398; +

United States cx Rel, Louis A. Vou Hoff-

man v. City of Quincey, 4 Wall. 535, 18

L. id. 403; ‘

Sturges v. Crowninshicld, 4 Wheat. 122, 4

L. Ed. 529; ;

Green y, Biddle, 8 Wheat. 1, 5 L. Ed. 547;

Bateman vy. Sterrett, 201 N. C. 59;

Green v. Asheville, 199 N. C. 516:

Trust Company v. Hudson, 200 N. C. 688.

I]. Under the law as it existed in North Carolina at

the time the contract was entered into, benefiei-

ary ina deed of trust had the right to foreclose

by power of sale the property pledged as

security, buy it in at the highest bid, eredit the

amount of the purchase price and recover a

2t

Page

12

10

Page

money judgment against,makers for balance

due without reference to value of the property

DN ene as eat eo ee aor 13

Revised Statutes of North Cuvsind Chap-

ter XXXVII, Section 24, page 231;

Kornegay v. Spicer, 76 N. C. 95;

.Shew v. Kall, 119-'N. C. 450;

Flemming v: Borden, 127 NX. C. 214;

Eubanks v. Bectom, 158 N.C. 230;

Hayes v. Pace, 162 N. C. 288;

Monroe v. Fuchtler, 121 N. C. 101;

Wilson v. Vreeland, 176 N. C. 504;

Phipps v. Wyatt, 199 X. @. 727:

First Carolina’s Joint-Stock Land Bank \

Stewart et al., 208 N. C. 139;

Insurance Company v. Dey, 206 N.C. 368;

Bank v. Loughran, 122 NX. C. 668;

Rector v. Lyda, 180 N.C. 5773 7

Baber vy. Hanie, 163 N. C. d8s;

Dunlop v. Smith et al., 196 N.C. 502.

Ill. The Act in question, passed after the execution

of the contract, changed the law of North Caro-

lina whereby the beneficiary in a deed of trust

and after foreclosure under power of sale is re-

quired to accept the fair value of the property

as payment on the indebtedness in Jieu of re-

covery of money judgment.. 1 16

Re Crystal Ice and Fucl Ponpeas (D. «

Mont.), 283 Fed. 1007;

Richmond Mortgage and Loan Corporation

v. Bank, 210 N. C. 29;

Jones v. Williams, 155 N. C. 179;

Koonce v. Fort, 204 N. C. 426;

11

: Page

Woltz v. Deposit Company, 206 N. C: 239:

Chadbourn v. Johnston, 119 N. C. 282 ;

Davis v. Life Insurance Company, 197 N.C.

617;

Chapter 210, Piblic Laws of North Caro-

lina, Session 1933, North Carolina Code,

Section 2593 (b), (e), (a), (e) and (f);

Maywood v. Bank, 207 N. C. 695.

IV. The passage of the law in question, while acting

only on the remedy, impaired substantial con.

tractual rights held by appellant under its con-

tract, and therefore is unconstitutional 2s ap-

pied in tite case 5 es van 22

Sturges v. Crowninshield, 4 Wheat. 22,4

L. Ed. 529; —_

McCracken v. Hayward, 2 Howard 608, 11

L. Ed. 397;

Home Building and Loan Association vy.

Blaisdell, 290 U. S. 398;

Planters Bank vy. Sharp, 6 Howard 301, 12

L. Ed. 447;

Haywood vy. Bank, 207 X. C. 65:

NW. B. Worthen Company v. Kavanaugh,

295 U. S. 56; . ;

Antoni v. Greenhow, 107 U.S. (69, 27 L. Ed.

468 ;

Bronson vy. Kinzie, 1 Howard 311,11 L. Ed.

143;

Howard v. Bugbee, 24 Howard 461, 16 LL.

Kid. 753; :

Walker vy. Whitehead, 16 Wall. 314, 21.

L. Ed. 357;

12

Edwards v. Kearzey, 96 U. S. 595, 24 L. Ed.

793 ;

Barnitz v. Beverly, 163 U.S. 118, 41 L. Hd.

93 ; —

Adams vy. Spillyards, 86 A, L. R. 1493, 61

S. W. (2nd) 686;

Vanderbilt v. Bruton Piano Company, 89

A. L. R. 1080, 169 Atl. 177;

Langever v. Miller, 96 A. La. R. 836, 76S. W.

(2nd) 1025.

ARGUMENT.

Point I.

The: parties to the contract in question contracted with

reference to the laws at that time in existence and such

laws enter into auu form part of the contract. This is true

of the laws then in existence providing remedies to enforce

performance of the contract.

The above set forth principle of law is so firmly estab-

lished in this Court that argument is unnecessary. Quot-_

ing from Home Building and Loan Association v. Blaisdell,

290 U.S. 398, at page 430:

‘*The laws which subsist at the time and place of

the making of a contract and where it is to be -per-

formed enter into and form a part of it as if they were

expressly referred to or incorporated in its terms.

This principle embraces alike those which affect its

validity, construction, discharge ‘and enforcement.’’

United States ex Rel, Louis A. Von Hoffman v.

City of. Quincy, 4,Wall, 535, 18 L. Ed. 403, 408;

Sturges v. Crowninshield, 4 Wheat, 122, 4 L. Ed.

029, 549; .

Green v. Biddle, 8 Wheat. 1, 5 L. Ed. 547.

13

This is also true with regard to contracts and as con-

strued by the Supreme Court of North Caroliua. We quote

from Bateman v. Sterrett, 201 N. C., 59, 61:-

‘‘But it is also true that the laws in force at the time

of the execution of a contract enter into and become a

part of the convention of the parties.’’

Green v. Asheville, 199 N. C. 516, 520;

Trust Company v. Hudson, 200 N. C. 688, 690.

Point II.

Under the law as it existed in North Carolina at the time

the contract was entered into, beneficiary in-a deed of trust

had the right to foreclose by power of sale the property

pledged as security, buy it in at the highest bid, credit the

amount of the purchase price and recover a money judg-

-ment against makers for balance due without reference to

value of the property foreclosed.

Deeds of Trust and mortgages with power of sale origi-

nated in the State of North Carolina from the common law.

We first find that the Deed of Trust, also the mortgage, was

protected by the registration laws of the State of North

Carolina and as shown in the Revised Statutes of North

Carolina, Chapter XXXVII, Section 24, page 231, and

Which revised statutes went into effect on January Ist,

1838. The first discussion we find of foreclosure by power

_of sale is’ in the case of Kornegay v. Spicer, 76 N. C. 95.

Quoting from this case, page 97:

‘‘A mortgage with a power of sale is a trust(ee), in

the first place, to secure the payment of the debt se-

. cured by the mortgage, and, in the second place, for

the mortgagor, as to the excess. The idea of allowing |

the mortgagee to foreclose the equity of redemption by

a sale made by himself, instead of a decree for fore-

closure and a sale made under the order ofthe court, .

was yielded to, after great hesitation, on the ground

14

that, in a plain case, when the mortgage debt was

agreed on and nothing was to be done except to sell the

land, it would be a useless expense to force the parties

to come into equity when there were no equities to be

adjusted, and the mortgagor might be reasonably as-

sumed to have agreed to let a sale be made after he

should be in default.’’

‘Since ihe last-above decision, such powers of sale have

been recognized in the following cases:

Shew v. Kall, 119 N. C. 450, 453;

Flemming v. Borden, 127 N. C. 214, 217;

Eubanks v. Bectom, 158 N. C. 230. ©

Also, from time to time, and since the Revised Statutes

of North Carolina, supra, went into effect, various statu-

tory laws have been passed by our Legislature regulating

and controlling the foreclosure of Deeds of Trust under

powers of sale.

It is also the established law in the State of North Caro-

lina that the beneficiary in a Deed of Trust made to a

trustee and for the purpose of securing an indebtedness

has the right to bid in the property at a sale held by such

trustee. We quote from Hayes v. Pace, 162 N. C. 288, 292:

‘‘We do not controvert the proposition, supported

by abundant authority, that the owner of a debt secured

in-a deed in trust made to a third party as trustee

with power of sale, may lawfully bid and purchase at

the sale, where there is no allegation or evidence of

fraud or collusion between the creditor and the trustee.”

Monroe v. Fuchtler, 121 N. C. 101;

Wilson v. Vreeland, 176 N. C. 504;

Phipps v. Wyatt, 199 N. C. 727.

It has also been a well-established principle of law in

the State of North Carolina, that, after foreclosure under

power of sale in a Deed of Trust or mortgage, the holder

lo

of the Deed of Trust or notes representing the indebtedness

might recover a money judgment against the maker of the

notes and Deed of Trust by suit in law and for the balance

unpaid, after giving credit for the price for which the prop-

erty was sold at such foreclosure sale.

In a late case, that of First Carolina’s Joint-Stock Land

Bank v. Stewart et al., 208 N. C. 139 (1935), the Supreme

Court of North Carolina held, in a cause of action almost

identical to that alleged in the instant case, that -defenses

interposed by the defendants were immaterial and irrele-

vant and should be stricken out and upheld a judgment for

deficiency after sale in a Deed of Trust. Quoting from this

case, page 140:

‘It would seem from the allegations in their answer

that the defendants were dealt with harshly by the

plaintiff, but the court is without power to give them

relief in this action. The plaintiff does not in this

action invoke the equitable powers of the court. It js

content to have only its legal remedy.”’

Of course, had the plaintiff gone into a court of equity

asking for foreclosure of the property under a strict fore-

closure it would have been subject to equitable defenses.

Also, in the case of Insurance Company v. Dey, 206 N. C.

368, a cause of action almost identical to that alleged, in

the instant case was upheld and a demurrer filed to such

action was. overruled. ,

Quoting from Bank v. Loughran, 122 N. €. 668, 674:

SAnd Bostick occupies the position of mortgagee

, of these lands as security for the payment of six notes,

/ with a power to sell from the defendant; the notes not

being paid, and Bostick as mortgagee .selling under

the power and applying the money on the. debt as

directed in the power; the money arising from the

sale not being sufficient to pay the debt secured? can

it be contended that the mortgagor, the defendant in

this case, would not be liable to a personal judgment

16

for the balance of the debt? We’ can see no reason

why he is not. So while this case upon the facts stated

seems to be new, it is susceptible of solution upon

well-established principles of law.”’

‘Galiae from Rector v. Lyda, 180 N. C. 577, 578:

-. “The doctrine of equity is that when the grantee in

a deed assumes the payment of the mortgage debt he

is to be regarded as the principal debtor, and the mort-

gagor occupies the position of a surety; and the mort-

gagee is permitted to resort to the grantee to recover

the deficiency after applying the proceeds of a sale of

the mortgaged premises, and this by the equitable rule

that the creditor is entitled to the benefit of all the

collateral securities which his debtor has obtained to

reinforce the principal obligation.’’

Baber v. Hanie, 163 N. C..588;

Dunlop v. Smith et al., 196 N. C. 502.

While we have no cases in North Carolina passing on

the point, an investigation fails to show where, by any

principle of law or decision in the State of North Caro-

lina, prior to the passage of the Act in question, it could

be urged that the fair’value of the property foreclosed

under a power of sale in a Deed of Trust could be pled

and proven as an offset to defeat the rights of the mort-

gagee or beneficiary in a Deed of Trust te recover in an

action for deficiency judgment.

Point III.

The Act in question, passed after the execution of the

contract, changed the law of North Carolina whereby the .

beneficiary in a deed of trust and after foreclosure under

power of sale is required to accept the fair value of the

property as payment on the indebtedness in lieu of recovery

of money judgment.

In Point II, we discussed and showed the rights of a

beneficiary in a Deed of Trust, prior to the passage of the

Act in question. We will now discuss the rights and reme-

1/

dies left to a beneficiary in a Deed of Trust after the pas-

sage of the Act, the validity of which is drawn in question.

Attention is called to the wording of the statute in ques-

tion, and as follows:

_— ‘‘It shall be competent)and lawful for the defendant

-—“ against whom such defi¢iency judgment is sought to

allege and show as matter of defense and offset, but

' not by way of counter-claim, that the property sold was

fairly worth the amount of the debf secured by it at

the time and place of sale, or that the amount paid was

substantially less than its true value and upon such

showing, to defeat or offset any: deficienty judgment

against him, either in whole or in part.’

It will be noted that the words ‘‘fair worth’’ and true

value’? are used. It is noted that the words ‘‘market

value”’ or ‘‘salable value’’ are not used. The question then

arises, What‘is ‘‘fair worth’’ or ‘‘true value’’?) We submit

that it was the purpose of the Legislature in the passage

of this law to attempt to give to the mortgagors credit for

the value of the-property, taking into consideration what

it should be worth under ordinary circumstances where

you have a person willing to sell and a purchaser willing to

buy. In other words, it was the direct purpose of the pas-

sage of this Act, as gathered from the terms of it, to pre-

vent the makers of mortgages from being held responsible

for the depreciated value of the property, and which came

about from the depressed market for real estate all over

the country and particularly at the location of this property

since the year 1930.

This was not the intention of the parties, or the contract

of the parties, at the time it was entered into in the vear

1928. Under the terms of the contract, the makers of the

obligation agreed that if they defaulted in the payment, -

the property could be put up and sold after thirty days’

notice, under the statutory law of the State of North Caro-

18

lina, to the highest bidder and, if necessary, that such

highest bidder ‘be the beneficiary in the Deed of Trust,

and that thereafter they would be personally liable for any

balance due. The Legislature came to their assistance by

virtue of the terms of this Act and changed that agreement

by saying, irrespective of what anyone is willing to pay

for the property at such foreclosure sale, you will be en-

titled to receive credit for what ‘the property should be’

worth under normal circumstances, and this without re-

ward to the economic conditions prevailing at the time of

the sale.

As was stated in re Crystal Ice and Fuel Company

(D. C. Mont.), 283 Fed. 1007, 1009: ‘

‘*Salable value and fair valuation are not synony-

mous.”’

In other words, the direct, result of the passage of the

_Act in question and the force and effect of the judgment

rendered in this cause was that.the appellant was forced

to accept a valuation of the property, not what it could be

sold for at that date, in lieu of money as payment of the in-

debtedness ‘which it held. _ :

But the point is raised in the opinion of the Supreme

Court of North Carolina, 210 N. C. 29, page 34:

‘‘Nor does -the statute hinder, delay or defeat, in

whole or in part, the right of the creditor to enforce

such obligation by an action instituted by him against

his debtor in a court of competent jurisdiction.’’

It will, therefore, be necessary to discuss what the rights’ ‘|

of the beneficiary in -the Deed of Trust would be in a

‘‘court of competent jurisdiction. ’’

‘It has always been held, under the common law of the

State of North Carolina, that an equity court had juris-

diction over the foreclosure of indebtednesses secured by

19

mortgages or Deeds of Trust. However, in such court of

equity, the Court is not bound by the terms of the contract

existing between the parties, particularly with reference

to the foreclosure and the procedure looking to that end. |

Quoting from Jones v. Williams, 155 N. C. 179, page 191:

‘Its (the Court’s) power to foreclose is not derived

from the power of sale in the mortgage. It could

decree foreclosure if the instrument contained no such

power. The court acts under its general equity juris-

diction and proceeds to grant relief irrespective of the

stipulations contained in the power of sale. It pur-

sues its own course and practice without any restraint

by reason of the pewer of sale contained in the Deed,

so as to administer the rights of the parties accord-

ing to law and its own equitable procedure, acting

under its own powers and jurisdiction and not by

virtue of any contractual power eiven in the mort-

sage or deed of trust.’’

(Quoting from Koonce v. Fort, 204 N. C. 426, 430:

‘There is nothing in the statute which deprives thé’

court of its power to prescribe the terms upon which

land or other property shall be sold under its orders,

judgments or decrees.’?~ :

Quoting from Woltz v. Deposit Company, 206 N. C. 239,

241:

“““Vhen ‘a sale has been made under a judgment

or decree of a court of competent jurisdiction, the sale

must ordinarily be reported to and confirmed by the

court, before it can be consummated by a conveyance

of the property. In that case, the sale will not be con-

firmed, and a conveyance of the property ordered, un-

less it is made to appear to the court that the sale’ was

‘fairly conducted, and the amount bid for the property

its reasonable value.’’ .

It will be seen from the above referred to leading cases

on this subject that the foreclosure of a Deed of Trust in

O10 ;

an Equity Court is an entirely different procedure from

that of the foreclosure-by a trustee under the power of

sale. It iss an’ equitable proceedings and subject to all--

equitable defenses. It hinders and delays the beneficiary

from the prompt compliance under the terms of the Deed

of Trust. The sale may be made upon any conditions that

the court sees fit to prescribe. The confirmation of the

sale as to price is within the equitable discretion of the

court... Also, the granting of the recovery for any balance

due is within the equitable discretion of the court. The

contract entered into by and between the parties is not in-

terpreted as written, but is interpreted - acéording to.

equitable principles. While we do not condemn the use of

these équitable powers, or, for .one minute question the

wisdom of their protection to mortgagors, at the same

time the parties entered into a contract where, by the

laws as they then existed, the beneficiary had the right-to

enforce its contract without subjecting itself to this course

of procedure.

It is also true that in strict foreclosure in a Court of

Kquity in the State of North Carolina it is necessary to

bring in all junior lienors, devisees of a deceased mort-

gagor and any other persons claiming any interest in the

title to the property involved in order to secure a clear.

title from the Court. Chadbourn v. Johnston, 119 N. C.

282; Daris v. Life Insurance Company, 197 N. C. 617.

The respondents contend that appellant has been deprived

of no remedy because, while it is true that prior to the Act

of 1933, appellant could have foreclosed under the power

of sale and obtained a deficiency judgment, yet the re-

spondents always had the right to go into a Court of Equ ty,

secure a restraining order and have the property foreclosed

under the direction and decree of an Equity Court and ac-

cordingly appellant has not been damaged by the Act of

- 1933..- a |

21

But, appellant was deprived of a remedy by the Act of

1933, because, under that Act it could have sold under the

power of sale and obtained a deficiency Judgment, and as

the only complaint respondents make is that the property

did not bring a fair price, they could have only enjoined

the sale and thrown the foreclosure into an Equity Court

on that ground, and on that ground an Equity Court would

not have taken jurisdiction.

This point has been directly decided by the Supreme

Court of North Carolina in a late ease, that of Haywood

. Bank (1935), 207 N. C. 695. In this action, plaintiffs

ee an cquitable restraining order restraining the fore-

closure of a deed of trust. Among the grounds alleged

was that the deed of trust was foreclosed at such time as

the property would not bring its full and fair market value,

and was therefore detrimental to all interested parties. The

Court, in speakine of this allegation, said the following:

“There is left only the allegation that if the deed of

trust was foreclosed at this time the property would

not bring its full and fair market Value, and neither

the levislation growing out of present financial emer-

eeney nor the decisions of this Court authorize or sus-

“tain injunetive relief for the reason that the time is

not auspicious for a sale. To so hold would pra¢ti-

cally nullify the system of securing indebtedness by

mortgages and deeds of trust en land now, and for

Nay Vears past, in general and- -accepted use. :

‘It appears from the record that the note secured

by the deed of trust is past due and’ unpaid, that those

Who héld th: equity of redemption have ratified and

confirmed the execution of the said note and deed of

trust, and that demand for payment has been made,

and that-there is nq allegation of fraud, restraint, op-

pression, or usury. in the transaction, or of insolvency

of the cestui que tr ust or trustee.

\

\

~

99

‘“We are constrained to hold, on the record, that the

restraiming order should be dissolved, and it: is so or-

dered.

From the above we think it clearly established by the

law of North Carolina that an equity court, in so far as re-

straining the sale of property under a power of sale by the

trustee, has no authority to grant any relief on the ground

of fair value of the property, or the price bid at said sale..

Therefore, appellant contends that, prior to the passage of

the Act of 19838, it had a substantial contract right to pro-

ceed by power of sale and deficiency without any interfer-

ence of a Court of Equity on the only grounds contended

for by the respondents in this cause.

Pornt IV.

The passage of the law in question, while acting only on

the remedy, impaired substantial contractual rights held

by appellant under its contract, and therefore is unconsti-

tuti onal as applied in this case.

We do not think that it ean be piiteniben that there was

not a change or alteration in thesremedy whereby the con-

tract in question might be enforced. No doubt, however,

it will be contended that the change of remedy was such

change and alteration as was within the right of the State

Legislature to control. |

The appellant insists, however, that the obligations of its

contract were impaired in that the impairment was pred-

icated on a law which annulled, abolished and abrogated a

very substantial contractual right which it held under the

contract. This substantial right was to sue’ for deficiency,

after foreclosure by power of sale, without accounting for

the ‘‘fair worth’’ of the property so foreclosed.

The change in the remedy produced by the passage of the

Act released a part of the obligation which bound the

23

makers of the deed of trust and note. Quoting from

Sturges v. Crowmshield, 4 Wheat. 122, 4 L. Ed. 029, 549:

‘‘A contract is an agreement in which a party under-

takes to do, or not to do, a particular thine. The law

binds him to perform his undertaking, and this is, of

course, the obligation of his contract. In the ease at

bar, the defendant has given his promissory note to

pay the plaintiff a sum of money on or before a certain

day. The contract binds him to pay that sum on that .

day; and this is its obligation. Any law which re-

leases a part of this obligation, must, in the literal

sense of the word, impair it.’’

The passage of the Act in question diminished the duty.

which the obligors owed under the contract, and further-

more obstructed the rights accruing to the obligee. Quot-

ing from WeCracken v. Hayward, 2 Howard 608, 11 L. Ed.,

97, 399:

‘“Therg can be no other standard by which to aseer-

tain the extent of either, than that which the terms of

the contract indicate, according to their. settled legal

meaning’; when it becomes consummated, the law de-

fines the duty and right, compels one party to perform

the thing contracted for, and gives the other the right

to enforce the performance by the remedies then in

force. If any subsequent law affect to diminish thé

duty, or to impair the right, it necessarily bears on the !

obligation of the contract, in favor of one party, to the +

injury of the other; hence any law, which in its opera- \

tion amounts to a denial or obstruction of the rights

accruing by a contract, the .ch professing to act only

on the remedy, is directly obnoxious to the prohibition |

of the Constitution.’? -

ee

It is not thought necessary to cite or quote all the cases i

decided by this Court touching upon this all-important i

question of what impairs the obligation of a contract, but

we believe the gist of these decisions may be well summed

|

D4

up in the few words contained.in Home Building and Loan

\

te

e

Lssociation Vv. Blaisdell, 290 U.S. 398, 431: r\

‘‘The obligations of a contract are impaired by law

which renders them invalid or releases or extinguishes

them—and, impairment, as above noted, has been pred-

ieated of laws which, without destroying contracts,

derogate from substantial contractual rights.’’

As was stated in Pianters Bank v. Sharp, 6 Howard 301,

O27, 12 L. Kd. 447, 458:

‘One of the tests that a contract has been impaired

is, that its value has by legislation been decreased. It

ix not, by the Constitution, to be impaired at all. This

is not a question of degreé or manner or cause, but ot

encroaching in any respect on its obligation, dispensing

with any part of its foree.’’ :

The appellant is willing ‘to test the impairment of its con-

tract by the passage of the law in question by the above rule,

and let us consider the value of this contract before and

after the passage of the Act. Before the passage of the

Act, the holder of the notes and a deed of trust had the right

to demand payment upon default and to have the property

inunmediately advertised for foreclosure by the trustee, and

at the sale of said property to bid.it in at the highest bid,

take the property for whatever it might bring at the sale

and thereafter sue for and recover a money judgment for

the balance due. This.completed one of the means of en-

forcement. It was expeditious, complete and economical.

There were no means, prior to the Act of 1933, by which

the carrying out of this procedure could be delayed or

hindered by the maker of a note and obligor on the grounds

that the property would not bring its fair value, Lecause

a Court of Equity, upon application for a restraining order

to prevent the sale or to prevent confirmation of the sale,

\

20

would not take jurisdiction on this ground. Haywood v.

Bank, 207 N. C. 695. a ae

> What were the rights of the appellant after the passage

of the Act? It could still foreclose under the power of sale;

bid in the property and either stop there or proceed to re-

cover a deficieney Judgment. However, it was then met

with a jury verdict as to the fair value of: the property, and

whatever amount might be adjudicated as a fair value

must be credited on the notes instead of payment in money.

If appellant did not elect to take its chances as to what the

property would bring at the sale under the power and as to

what a jury verdict might be as to the amount it would

credit on the notes as fair value of the property, it could

then go into a Court of Equity and ask for foreclosure

under the equitable powers of the Court. In this proceed-

ings, the terms of the contract with regard to the sale of the

property, the terms of the sale, the time of the sale, the rea-

sonableness of the bid made for the property, which would

in turn mean the reasonableness of the aniount which it

would collect as deficiency would all be within the equitable

discretion of the Court. It would also be forced to bring in

all parties who might have an interest in the land sought to

be foreclosed. To complete its possession of the property

under such procedure, was fraught with various obstacles,

delay, hindrances and what influence the economic condi:

tions might have in the conscience of the Court.

Let us assume further that from the vears 1928 to 1934

there had been a great depreciation in property values, and,

as illustrated by the record in this case, property on which

Kight Thousand Dollars ($8000.00) was loaned jn 1928 was

sold in 1933 after due advertisement at public sale, and the

last and highest bid thereon was Three Thousand Dollars

($3000.00), and that, therefore, it was apparent that. the

property did not have a salable value comparable to the

26

amount of indebtedness at the time of default. Would any

investor, business man or other person consider a contract

as valuable after the passage of the Act in question as he

would have considered it prior thereto? In reality, after

the passage of the Act, any purchaser of the contract would

be buying a lawsuit with very little chance of complete re-

covery and he would have every reason to believe that he

was going to take a loss on the face value of such contract.

We believe a statement contained in W. B. Worthen Com-

pany v. Kavanagh, 295 U. 8. 56, 62, quoted as follows:

‘“‘What controls our judgment at such times is the

underlying reality rather than the form or label. The

changes of remedy now challenged as invalid are to be

viewed in combination, with the cumulative signifi-

cance that each imparts to all. So viewed, they are

seen to be an oppressive and unnecessary destruction

of nearly all the incidents that give attractiveness and

value to collateral security.’

is very pertinent to the instant case.

Let us view the matter from the standpoint of the obligors

in said contract. Under the law as it existed at the time

of the execution of this contract, the obligors were spurred

by every motive of self-interest to pay their obligation,

otherwise they knew the property might be foreclosed

promptly and they would be liable for the difference be-

tween what the property brought at public sale and the

amount of the debt. They also knew that they could not.

-prevent such action on the sole ground that the property

would not bring its fair value at the time of such sale.

(207 N. C. 695.) Therefore, it behooved them to make

_every effort to keep the obligation in good standing and

to prevent such foreclosure. After the passage of the-Act,

the obligors felt secure in permitting a default to occur.

If sued for a money judgment without foreclosing the

27

property, they had the benefit of. the security until such

time as it might be fairly worth the indebtedness against

it. If sued ina Court of Equity for foreclostire under the

powers of the Court, they knew that they could delay any

positive action for an indeterminable period and contest

over the reasonable value of the property ; that further,

if the beneficiary foreclosed -by power of sale, they would

be in still better circumstances by getting credit, not for

what the property would sell for at such foreclosure sale

but what it was fairly worth.

Was not the position of the obligors, the respondents in

this case, greatly changed, all to their adv antage, and was

not this the real intention of the Legislature in the passage

of this Act? If they did obtain an adv antage under the

contract by the passage of the law in question and to the

derogation ef a substantial right of the appellant, then ean

it be said that the contract’ was not devalued, its efficacy

lessened and its force depleted?

It has been said throughout the various lines ot -author-

ity bearing on this subject that every case must be deter-

mined upon its own circumstances. Quoting from Antoni

v. Greenhow, 107 U. S. 769, 775; 27 L. Ed. 468, 471:

‘‘It is competent for ‘the states to change the form of

the remedy, or to modify it otherwise, as they may see

fit, pr ovided no substantial r ight secured by the contract

is thereby i impaired. No attempt has been made to fix

definitely the line between alterations of the remedy,

which are to be deemed legitimate, and those which,

under the form of modifying the remedy, impair sub-

‘stantial rights. Every case must be determined upon

its own circumstances. ‘Whenever the result last men-

tioned is produced, the Act is within the Cea

of the Constitution and, to that extent, void.”

Taking into consideration the points discussed hereto-

fore as to the rights of the appellant prior to the passage

28

of the Act in question, and the rights. left to him after the

passage of the Act, it is contended that this case falls within

that class of cases heretofore decided by this Court as being

within the prohibition, a few of which are referred to as

follows:

In Bronson vy, Kinzie, 4-Howard, 311, 316, 11 L. Ed. 143,

145, a mortgage was executed in Illinois containing a power

of sale. Subsequently an Act of the Legislature was passed

which required mortgaged premises to be sold for not less

than two-thirds of their appraised value, and allowed the

mortgagor a year after the sale to redeem. It was held

that the statute, by thus changing the pre-existing remedies,

impaired the obligation of a contract and was, therefore,

void. |

In McCracken v. Hayward, 2 iets 608, 11 L. Ed. 597,

399, a statutory provision that personal property should

not be sold undér exeeution for less than’ two-thirds of its

appraised value was adjudged, so far as it affected prior

contracts, to be void for the reason that it impaired. the

obligation of the contract.

In Sturges _ Crowninshield, 4 Wheat. 122, 4 L. Ed.

529, 549, it was held that a State insolvent or bankrupt law

was inoperative as to contracts which existed prior to its

passage. , 7

In. Howard v. eens. 24 Howard 461, 16 L. Ed. 793, 1

was held that an act passed by a State after the nee

‘of a mortgage was inoperative and void as impairing the

obligation of a contract where it was attempted to give an

extension of {wo years after the sale under the mortgage in

which the mortgagor might: redeem the land.

In Walker v. Whitehead, #6 Wall. 314, 21 L. Kd. 357, this

Court held unconstitutional a Georgia statute requiring

the plaintiff, suing on a contract, to prove as a condition

precedent to recovery in his favor that all legal taxes

29 .

chargeable by law thereon had been paid since the making

of the contract, and that such act was an impairment of

the obligation of a contraet.

In Edwards v. Kearzey, 96 U. 8. 595, 24 L. Ed. 793, 796,

this Court held that an act of the State of North Carolina

increasing the exemption to which a debtor was entitled

was unconstitutional and invalid as applied to a pre-exist-

ing debt. Quoting from this decision:

‘‘The obligation of a contract includes everything

within its obligatory scope. -Among these eleménts

nothing is more important than the means of enforee-

ment. This is the breath of its vital existence. With-

out it, the’ contract, as such, in the view of the law,

ceases to be, and falls into the class of those ‘imperfect

obligations’, as they are termed, which depend for

their fulfillment upon the will and conscience of those

» upon whom they rest. The ideas of right and remedy

are inseparable.’’

In Barnitz v. Beverly, 163 U. S. 118, 127, 41 L. Ed. 93,

100, this Court held a law of Kansas invalid as applied to

a sale under’ a mortgage executed before its passage

whereby the period of redemption from sale under a mort-

gage was extended for a period of eighteen months. Quot-

ing from this case:

‘‘At all events the decisions of this Court are nu-

merous that the laws which prescribe the mode of en-

forcing a contract, which are in existence when it is

made, are so far a part of the contract that no changes

in these laws which seriously interfere with that en-

forcement are valid, because they impair its obligation

within the meaning of the Constitution of the United

States.’’ |

In W. B. Worthen Company v. Kavanaugh, 295 U.S. 56,

this Court held that a law of the State of Arkansas extend-

ing the time for various steps in a proceeding to enforce

30

payment of an assessment and other restrictions, was in-

valid and-unconstitutional as impairing the obligation of a

. contract theretofore entered into. °

The case of Home Building and Loan Association y.

Blaisdell, 290 U. S. 398, may be distinguished in that this

caseWas decided on the groumts of an emergency, but in

that case we quote the following, page 445:

'/ **As already noted, the integrity of the mortgage

_< indebtedness is not impaired; interest continues to

run; the validity of the sale and the right of a mort-

gagee purchaser to title or to obtain a deficiency judg-

ment, if the mortgagor fails to redeem within the ex-

tended period, are maintained.’’

It has been found that in at least seventeen States vari-

ous laws have been passed within the past few years at-

tempting to limit, regulate or cut off rights of the mort-

gagees to deficiency judgments. Several of these cases

have been ruled on by their respective Supreme Courts. In

the case of Adams v. Spillyards, 86 A. L. R. 1493, 61 S. W.

(2nd) 686, the Supreme Court of the State of Arkansas

held that such act was unconstitutional, and quoting from

that case, page 1497:

‘‘This, too, in the face of the fact that the loan was

made more on the moral risk than on the real estate

security in the one case, and more on the personalty

securing the loan than the real estate in the other. The

undisputed effect of Sections 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 the mortgage contracts

themselves. This personal liability was.a part of the

contract because authorized by law at the time of exe- .

cution and in the place of performance. The principal

31

object of Act No. 57 was to take aw ay from the mort-

vagee that right, and of necessity violates the obliga-

tions of all existing = contracts.’’

Also in the case of Vanderbilt v. Bruton Piano C ompany,

x9, A. L. R. 1080, 169 Atl. 177, the Supreme Court of New

Jersey ruled on a similar Act and quoting from this case,

page 1084: | .

a ii. *, “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-exist-

ing contract, and therefore, and to that extent, in con-

flict with Article 1, Section 10, of the Constitution of

the- United States. "

In the case of Langever v. Miller, 96 A. L. R. 836, 76S. W.

(2nd) 1025, the Supreme Court of the State of Texas held

that an Act similar and almost identical to that in the in-

stat case- was unconstitutional.

It is to be borne in mind that the Act in question, which

ix Section 3, Chapter 275, Publie Laws of X ‘orth Carolina,

Session 1933, is not predicated upon any emergency, or is

uot concerned with any relief to a debtor during the de-

pression. It is not temporary in its nature, it is final, com-

plete and permanent. It is not restrictive to properties oc-

cupied by thesmortgagor. The law is equally applicable to

properties both for speculative purposes, for investment or

oth @Fwise,

Appellant respectfully submits that within the strength

of the decisions of this Court, as set forth in the following

lassage, it is entitled to have its contract upheld without

the interference of the passage of the Act of 1933. Quoting’

from Edwards v. Kearzey, 96 U. S. 595, 611, 24 L. Ed. 793,

797:

‘* *Pédlicy and humanity’ are dangerous guides in the

discussion of a legal preposition. He who follows

them far is apt to bring back the means of error and

delusion. The prohibition contains no qualification,

‘and we have no judicial authority to interpolate any,

Our duty is simply to execute it.’’

Point V.

The judgment should be reversed.

Respectfully submitted,

JoHN Y. JorDAN, JR.,

Counsel for Appellant.

Kester WALTON,

Of Counsel for Appellant.

t

(8345-C)

. Te Ta

“a ' FILE ( ,OPY Giftco -Supres.e Court, U.S

:; FrilLeED

| JUb 23 1936

SUPREME COURT OF THE UNITED hehe BSkone CROPLEY

CLERK. °

.

OCTOBER TERM, 1936

Ss

No. 235

RICHMOND MORTGAGE AND LOAN CORPORATION,

Appellant,

“6 vs.

WACHOVIA BANK & TRUST COMPANY anp ALEX-

ANDRA GARRETT JOHNSTON, Execurors or THE

Estate oF Rosert P. Jounstron, Deceasen.

—

~ APPEAL FROM THE SUPREME COURT OF THE STATE OF NORTH

c » ¢

CAROLINA.

STATEMENT OPPOSING JURISDICTION AND

MOTION TO DISMISS.

RTD WET Wty Pp? S) ts

'j :

—~R. R. Witiiams,

S. G. Bernarp,

Counsel for Appellant.

She gi & = Se

4

INDEX.

Supyect INDEX.

Statement opposing jurisdiction. ...........6seeeeeee- beasceesesa

Motion to dismiss......... Fe, GARR Rope Se Da PP a

TABLE OF CASES CITED.

Crane v. Hablo, 208 U. 8. 142... ...cccce ese eeeeeeeeeeeeeceneees

National Surety Co. v. Architectural Decorating Co., 226 U. 8. 276..

Oshkosh Water Works Co. v. Oshkosh, 187 U. S. 487.......... ee

Waggoner v. Flack, 188 U. 8. 505... 0.6.66 cece eee eee e eee e ee ennees

STATUTES CITED.

Public Laws of North Carolina for the year 1933, at pages 402 and

403, Chapter 27%, Geethem B..cccccccccccsicccccccccscascsccecesss

8034-C

ow ew

Oot NL

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1936

No. 235 |

‘RICHMOND MORTGAGE AND LOAN CORPORATION,

aa: Appellant.

WACHOVIA BANK & TRUST COMPANY anv ALEX-

ANDRA GARRETT JOHNSTON, Execurtors or THE

Estate oF Rospert P. Jonnston, DECEASED,

Appellees.

STATEMENT OF MATTERS MAKING AGAINST THE

JURISDICTION OF THE. COURT.

The appellees respectfully present the following matters

and grounds making against the jurisdiction of the Court

to entertain this appeal: .

1.

It is respectfully submitted that no substantial Federal

question arises upon this appeal for that the statute en-

acted by the Legislature of the State of North Carolina

at its legislative session of 1933, being Section 3 of Chapter

275 of the Public Laws of North Carolina: for the Year

1933, at pages 402 and 403, is as follows :

‘“‘Sec. 3. When any sale of real estate or seneauatl

property has been made by a mortgagee, trustee, or