Barnitz v. Beverly
163 U.S. 118 (1896)

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U.S. Supreme Court

Barnitz v. Beverly, 163 U.S. 118 (1896)

Barnitz v. Beverly

No. 863

Submitted April 18, 1896

Decided May 1896

163 U.S. 118

ERROR TO THE SUPREME COURT

OF THE STATE OF KANSAS

Syllabus

The state statute which authorizes the redemption of property sold upon foreclosure of a mortgage where no right of redemption previously existed, or which extends the period of redemption beyond the time formerly allowed, cannot constitutionally apply to a sale under a mortgage executed before its passage.

On November 1, 1885, George A. Kirtland executed to Martha Barnitz several promissory notes covering a principal debt of $1,500 and interest, payable semiannually for five years at the rate of eight percent per annum, and after maturity

Page 163 U. S. 119

at the rate of twelve percent per annum. These notes were secured by a mortgage of the same date upon a quarter section of land in Shawnee County, Kansas. The principal note and the last note for interest not having been paid, an action was commenced, on January 21, 1893, in the District Court of Shawnee County by Martha Barnitz to recover on said unpaid notes and to foreclose the mortgage. John L. Beverly and others were made codefendants with Kirtland. On July 7, 1893, a judgment was rendered against Kirtland for the sum of $2,113.46 and costs, and against him and the other defendants for the foreclosure of the mortgage and the sale of the mortgaged premises. Appraisement having been waived, the judgment, pursuing the laws of Kansas, provided for a stay of execution for six months, and that interest should run at the rate of twelve percent per annum. On January 9, 1894, an order of sale was issued, and on February 12, 1894, the mortgaged property was sold thereunder at sheriff's sale to Martha Barnitz for the sum of $2,000. On February 16, 1894, a motion was filed in the district court for a confirmation of the sale, and this motion came on for hearing on February 26, 1894, when Beverly appeared and claimed to be the owner of the premises by virtue of conveyances since the date of the mortgage, and to be in possession thereof in good faith by a tenant, and asked the court to order the sheriff to execute to the purchaser only a certificate of purchase, as provided for by chapter 109 of the Laws of Kansas of 1893. The sale was confirmed, and Beverly's motion was overruled, and the court ordered that the sheriff should execute to the purchaser, Martha Barnitz, a deed for the premises.

John L. Beverly took the case on error to the supreme court of the state, and that court, on April 30, 1895, affirmed the judgment of the district court. A motion for a rehearing was subsequently allowed (the membership of the supreme court having been in the meantime changed), and on December 7, 1895, the supreme court reversed and set aside its previous decision and judgment, reversed the judgment and ruling of the district court, and directed that a sheriff's deed should not be executed to the purchaser, but that a certificate

Page 163 U. S. 120

of purchase should be given, as provided for by chapter 109 of the Laws of 1893.

To this judgment of the Supreme Court of Kansas a writ of error was sued out from this Court.

Chapter 109 of the Laws of 1893 is as follows:

"SEC 1. After sale by the sheriff of any real estate on execution, special execution, or order of sale, he shall, if the real estate sold by him is not subject to redemption at once, execute a deed therefor to the purchaser, but if the same is subject to redemption, he shall execute to the purchaser a certificate containing a description of the property and the amount of money paid by such purchaser, together with the amount of costs up to said date, stating that unless redemption is made within eighteen months thereafter according to law, that the purchaser or his heirs or assigns will be entitled to a deed to the same, provided that any contract in any mortgage or deed of trust waiving the right of redemption shall be null and void."

"SEC. 2. The defendant owner may redeem any real property sold under execution, special execution, or order of sale at the amount sold for, together with interest, costs, and taxes, as provided for in this act, at any time within eighteen months from the day of sale as herein provided, and shall in the meantime be entitled to the possession of the property, but where the court or judge shall find that the lands and tenements have been abandoned or are not occupied in good faith, the period of redemption for defendant owner shall be six months from the date of sale, and all junior lien holders shall be entitled to three months to redeem after the expiration of said six months."

"SEC. 23. Real estate once sold upon order of sale, special execution, or general execution shall not again be liable for sale for any balance due upon the judgment or decree under which the same is sold, or any judgment or lien inferior thereto, and under which the holder of such lien had a right to redeem within the fifteen months hereinbefore provided for."

"SEC. 24. The holder of the certificate of purchase shall be

Page 163 U. S. 121

entitled to prevent any waste or destruction of the premises purchased, and for that purpose the court, on proper showing, may issue an injunction, or when required to protect said premises against waste, appoint and place in charge thereof a receiver, who shall hold said premises until such time as the purchaser is entitled to a deed, and shall be entitled to rent, control and manage the same, but the income during said time, except what is necessary to keep up repairs and prevent waste, shall go to the owner or defendant in execution, or the owner of its legal title."

"SEC. 25. The provisions of this act shall apply to all sales under foreclosure of mortgage, trust deed, mechanics' lien, or other lien, whether special or general, and he terms of redemption shall be the same."

"SEC. 26. The sheriff shall at once make a return of all sales made under this act to the court, and this Court, if it finds the proceedings regular and in conformity with law and equity, shall confirm the same and direct that the clerk make an entry upon the journal that the court finds that the sale has in all respects been made in conformity to law, and order that the sheriff make to the purchaser the certificate of sale or deed provided for in section 1 of this act."

MR. JUSTICE SHIRAS, after stating the facts in the foregoing language, delivered the opinion of the Court.

No provision of the Constitution of the United States has received more frequent consideration by this Court than that which provides that no state shall pass any law impairing the obligation of contracts. This very frequency would appear to have rendered it difficult to apply the result of the court's deliberations to new cases differing somewhat in their facts from those previously considered.

Page 163 U. S. 122

This record discloses that in the present case, the Supreme Court of Kansas filed two opinions in which, after elaborate reviews of the decisions of this Court, opposite conclusions were reached. The case was twice argued and decided. On the first hearing, a majority of that court held, expressing its views in an opinion by Chief Justice Horton, that chapter 109 of the Laws of Kansas of 1893 did not apply to contracts made before its passage, and that if it did so apply, the law was void as respects prior contracts because it impaired their obligations.

A change in the membership of the court having taken place, a rehearing was had and it was held by a majority of the court, speaking through Chief Justice Martin, that the act in question was applicable and valid in the case of contracts made before and after its passage. Beverly v. Barnitz, 55 Kan. 451, 466.

It is the last decision which is brought before us for review. Insofar as it construes the act to be applicable to prior contracts, we are, of course, bound by that decision. Whether, when so construed, the act is valid is a question open for our consideration.

The decisions of this Court are numerous in which it has been held that the laws which prescribe the mode of enforcing 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 enforcement are valid, because they impair its obligation within the meaning of the Constitution of the United States. But it will be sufficient for our present purpose to mention a few only.

Bronson v. Kinzie, 1 How. 311, holds that a state law, passed subsequently to the execution of a mortgage, which declares that the equitable estate of the mortgagor shall not be extinguished for twelve months after a sale under a decree in chancery and which prevents any sale unless two-thirds of the amount at which the property has been valued by appraisers shall be bid therefor is within the clause of the Constitution of the United States which prohibits a state from passing a law impairing the obligation of contracts. In

Page 163 U. S. 123

this case, the court dealt with the contention, usually made on these occasions and which is relied on by the defendant in error in the present case, that the law was a regulation of the remedy, and did not directly affect the contract, and Chief Justice Taney said:

"Whatever belongs merely to the remedy may be altered according to the will of the state, provided the alteration does not impair the obligation of the contract. But if that effect is produced, it is immaterial whether it is done by acting on the remedy or directly on the contract itself. In either case, it is prohibited by the Constitution."

And he quoted the language of the Court in Green v. Biddle, 8 Wheat. 75:

"It is no answer that the acts of Kentucky now in question are regulations of the remedy, and not of the right to the lands. If these acts so change the nature and extent of existing remedies as materially to impair the rights and interests of the owners, they are just as much a violation of the compact as if they directly overturned his rights and interests. . . . If the remedy afforded be qualified and restrained by conditions of any kind, the right of the owner may indeed subsist and be acknowledged, but it is impaired and rendered insecure according to the nature and extent of such restrictions."

Proceeding to apply these principles to the case before him, the Chief Justice further said:

"It was the plaintiff's absolute and undoubted right, under an ordinary mortgage deed, if the survey was not paid at the appointed day, to go into the court of chancery and obtain its order for the sale of the whole mortgaged property, if the whole is necessary, free and discharged from the equitable interest of the mortgagor. This is his right by the law of the contract, and it is the duty of the court to maintain and enforce it without any unreasonable delay."

"When this contract was made, no statute had been passed by the state changing the rules of law or equity in relation to a contract of this kind. None such, at least, has been brought to the notice of the Court, and it must therefore be

Page 163 U. S. 124

governed, and the rights of the parties under it measured, by the rules as above stated. They were the laws of Illinois at the time, and therefore entered into the contract, and formed a part of it without any express stipulation to that effect in the deed. Thus, for example, there is no covenant in the instrument giving the mortgagor the right to redeem by paying the money after the day limited in the deed and before he was foreclosed by the decree. Yet no one doubts his right or his remedy, for, by the laws of the state then in force, this right and this remedy were a part of the law of the contract without any express agreement by the parties. So, also, the rights of the mortgagee, as known to the laws, required no express stipulation to define or secure them. They were annexed to the contract at the time it was made, and formed a part of it, and any subsequent law impairing the rights thus acquired impairs the obligations which the contract imposed."

"This brings us to examine the statutes of Illinois which have given rise to this controversy. As concerns the law of February 19, 1841, it appears to the court not to act merely on the remedy, but directly upon the contract itself, and to engraft upon it new conditions injurious and unjust to the mortgagee. It declares that although the mortgaged premises should 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 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. An equitable interest in the premises may in like manner be conferred upon others, and the right to redeem may be so prolonged as to deprive the mortgagee of the benefit of his security by rendering the property unsalable for anything like its value. This law gives to the mortgagor and to the judgment creditor an equitable estate in the premises which neither of them would have been entitled to under the original contract, and these new interests

Page 163 U. S. 125

are directly and materially in conflict with those which the mortgagee acquired when the mortgage was made. 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."

In McCracken v. Hayward, 2 How. 608, there came for consideration the validity of a law of the State of Illinois providing that a sale shall not be made of property levied on under an execution unless it should bring two-thirds of its valuation according to the opinion of three householders. The opinion of the Court was pronounced by Mr. Justice Baldwin, in the course of which he used the following language:

"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. Annulling all state legislation which impaired the obligation, it was left to the states to prescribe and shape the remedy to enforce it."

"The obligation of a contract consists in its binding force on the party who makes it. This depends on the laws in existence when it is made. These are necessarily referred to in all contracts, and forming a part of them as the measure of the obligation to perform them by the one party, and the right acquired by the other. There can be no other standard by which to ascertain 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 defines the duty and the right, compels one party to perform the thing contracted for, and gives the other a right to enforce the performance by the remedies then in force. If any subsequent law affect to diminish the 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 operation amounts to a denial or obstruction of the rights accruing by a contract, though professing to act only on the remedy, is directly obnoxious to the prohibition of the Constitution. . . . The obligation of the contract between the parties in this case was to perform the promises

Page 163 U. S. 126

and undertakings contained therein. The right of the plaintiff was to damages for the breach thereof, to bring suit and obtain a judgment, to take out and prosecute an execution against the defendant till the judgment was satisfied, pursuant to the existing laws of Illinois. . . . Any subsequent law which denies, obstructs, or impairs this right by superadding a condition that there shall be no sale for any sum less than the value of the property levied on, to be ascertained by appraisement, or any other mode of valuation than a public sale, affects the obligation of the contract, for it can be enforced only by a sale of the defendant's property, and the prevention of such sale is the denial of a right. The same power in a state legislature may be carried to any extent, if it exists at all. It may prohibit a sale for less than the whole appraised value, or for three-fourths, or nine-tenths, as well as for two-thirds, for if the power can be exercised to any extent, its exercise must be a matter of uncontrollable discretion in passing laws relating to the remedy which are regardless of the effect on the right of the plaintiff."

In Howard v. Bugbee, 24 How. 461, a statute of the State of Alabama authorizing a redemption of mortgaged property in two years after the sale under a decree by bona fide creditors of the mortgagor was held unconstitutional and void as to sales made under mortgages executed prior to the enactment. It was contended that the law did not affect the mortgage contract, but only enlarged the time at the completion of which the purchaser at the mortgage sale would acquire an indefeasible title, and that the new law only operated as between the purchaser and bona fide creditors of the mortgagor. But this Court through Mr. Justice Nelson, recognized the cases of Bronson v. Kinzie and McCracken v. Hayward as applicable to and decisive of the case.

Brine v. Insurance Company,96 U. S. 627, is worthy of notice because in that case the Court had occasion to apply the principles of previous cases, announced in protection of the rights of creditors, to the case of a mortgagor whose land had been ordered by the Circuit Court of the United States for the Northern District of Illinois to an immediate sale, in

Page 163 U. S. 127

disregard of a law of the state in existence at the time the mortgage was executed, which allowed to the mortgagor twelve months to redeem after a sale under a decree of foreclosure, and to his judgment creditor three months after that.

The view of the trial court was that remedy of an immediate sale by decree of the circuit court of the United States sitting in equity was not affected by the state statute. But this Court held, through Mr. Justice Miller, that all the laws of a state existing at the time a mortgage or any other contract is made which affect the rights of the parties to the contract enter into and become a part of it, and are obligatory on all courts which assume to give a remedy on such contracts; that the construction, validity, and effect of contracts are governed by the place where they are made, and are to be performed, if that be the same -- that it is therefore said that these laws enter into and become a part of the contract. In the opinion, it was said:

"There is no doubt that a distinction has been drawn, or attempted to be drawn, between such laws as regulate the rights of the parties and such as apply only to the remedy. It may be conceded that in some cases such a distinction exists. In the recent case of Tennessee v. Sneed,96 U. S. 69, we held that so long as there remained a sufficient remedy on the contract, an act of the legislature changing the form of the remedy did not impair the obligation of the contract. But this doctrine was said to be subject to the limitation that there remained a remedy which was complete and which secured all the substantial rights of the party. At all events, the decisions of this Court are numerous that the laws which prescribe the mode of enforcing 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 enforcement are valid, because they impair its obligation within the meaning of the Constitution of the United States."

The learned Justice, in enforcing his argument, quoted largely from the opinion of Chief Justice Taney in the case of Bronson v. Kinzie as expressing truly "the sentiment of the

Page 163 U. S. 128

Court as it was then organized, as it is organized now, and as the law of the case.

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