# Brief of Appellants — Richmond Mortgage & Loan Corp. v. Wachovia Bank & Trust Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386010_0122%3A3 ## Record - **Collection:** Supreme Court brief - **Document type:** Brief of Appellants - **Published:** January 1, 1937 - **Citation:** 300 U.S. 124 ## Text ; *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 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 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386010_0122%3A3. Public record. Not legal advice.