Case Name: BANK OF ORANGEBURG v. KOHN
Court: Supreme Court of South Carolina
Jurisdiction: South Carolina
Decision Date: 1898-03-24
Citations: 52 S.C. 120
Docket Number: 
Parties: BANK OF ORANGEBURG v. KOHN.
Judges: 
Reporter: South Carolina Reports
Volume: 52
Pages: 120–129

Head Matter:
BANK OF ORANGEBURG v. KOHN.
Two-Fund Doctrine — Constitution of 1895 — Remedies.—Sec. 28, art. III., of the Constitution of 1895, abrogating the two-fund doctrine as applied to homesteads, is not retroactive, does not apply to judgments obtained before adoption of the Constitution, and is not amere incident of the remedy. Mr. Chief Justice McIver dissents on the latter point.
Before Witherspoon, J., Orangeburg, April, 1897.
Action by Bank of Orangeburg v. Matilda E. Kohn, Daniel Miller & Co. and Elhart, Joyner & Co. The following is the Circuit decree:
All of the issues in the above case were referred to a special referee, and the cause came on to be heard upon the exceptions by the defendant, Mrs. Matilda E. Kohn, to the report of the special referee, dated November 13th, 1896. The plaintiff instituted this action February 6th, 1896, to foreclose two mortgages of real estate, one executed by the defendant, Matilda E. Kohn, to the Orangeburg Building and Doan Association, dated March 1st, 1892, and duly assigned to the plaintiff in July, 1895. The other mortgage executed by the said defendant to the plaintiff bank on the 18th of July, 1895. The defendant, Matilda E. Kohn, was at the date of the said mortgages, and is still, a married wo man, and her husband does not own any real estate. These mortgages were duly recorded, and embrace the entire real estate of the defendant, Matilda E. Kohn, including her homestead. On the 23d of September, 1895, Daniel Miller & Co. and Elhart, Joyner & Co. obtained judgments in the Court of Common Pleas for Orangeburg County against the defendant, Matilda E. Kohn, on accounts for goods sold between the 7th day of January, 1895, and the 21st of May, 1895. On the 29th day of May, 1896, Daniel Miller & Co. and Elhart, Joyner & Co., judgment creditors of Matilda E. Kohn, by leave of Court, were permitted to intervene and to be made parties defendants in this action. The only issue presented by the pleadings arises between the defendant, Matilda E. Kohn, and her codefendants, Daniel Miller & Co. and Elhart, Joyner & Co., judgment creditors, as to the application of the equitable two-fund doctrine to this case under the Constitution of 1895. The defendants, judgment creditors, contend that the plaintiff bank, as mortgagee, should be first required to exhaust the homestead of the defendant, Matilda E. Kohn, in satisfaction of its debt, before going on the balance of the land embraced in its mortgages on which said judgment creditors only have liens by virtue of their judgments. The defendant, Matilda E. Kohn, contends that the two-fund equitable doctrine was abrogated by section 28, article III., of the Constitution of this State, adopted December 4th, 1895, to take effect January 1st, 1896; and that the Court is now without authority to apply said two-fund doctrine to this case. After finding and reporting as matter of fact the amount due the plaintiff, secured by the said two mortgages, the referee concludes as matter of law that the plaintiff is entitled to a judgment of foreclosure. The referee further concludes that the equitable two-fund doctrine is applicable to this case, and that the plaintiff should first be required to exhaust the homestead of Matilda E. Kohn, in satisfaction of plaintiff’s debt and the costs of this action, and that any surplus of the proceeds of sale should then be applied, pro rata, to the judgments of the defendants, Daniel Miller & Co. and Elhart, Joyner & Co., against Matilda E. Kohn. The exceptions of the defendant, Matilda E. Kohn, in various forms, allege that the special referee erred in concluding as matter of law that the equitable two-fund doctrine is applicable to this case, and in not concluding as matter of law that said doctrine has been abrogated by the Constitution of 1895, and that the Court now has no authority to apply said doctrine in cases of this character. The provision of the Constitution relied upon in support of the exceptions, is to be found in the fifth proviso to section 28, article III., which reads as follows: “Provided, further, that no waiver shall defeat the right of homestead before assignment, except it be by deed of conveyance or by mortgage, and only as against the mortgage debt; and no judgment creditor, or other creditor whose lien does not bind the homestead, shall have any right or equity to require that a lien which embraces the homestead and other property, shall first exhaust the homestead.” As the judgments were obtained against Mrs. Kohn prior to the adoption of the Constitution of 1895, upon contracts antedating said Constitution, to sustain the exceptions of Mrs. Kohn, the provision of the Constitution, above quoted, must be construed to have a retroactive effect. Would such construction violate the provision of the Constitution of this State or the Constitution of the United States, which prohibit the passage of laws “impairing the obligation of contracts?” The same rule applies in the construction of constitutional provisions as would apply to the construction of statutes. The first object should be to ascertain the intent of the lawmakers in adopting the provision in question, if it can be discovered in the instrument.
I have failed to find anything in the Constitution of 1895 that would indicate that the framers intended that it should have a retroactive effect, and thereby alter or affect the preexisting relation or situation of parties. It is an inflexible rule that a statute will be construed as prospective and operating in futuro only, unless the intention of the legislature to give it a retroactive effect is expressed in language too clear and explicit to admit of a reasonable doubt. 3 Am. & Eng. Enc., page 757, and note to page 680. It is provided that the Constitution of 1895 shall be in force and effect from and after the 31st day of December, in the year 1895. Could a retroactive effect be given to the proviso of the Constitution of 1895, above quoted, as relating to this case, as contended, without violating the constitutional provision prohibiting the passing of laws impairing the obligation of contracts? Whatever belongs merely to the remedy may be altered at the will of the State, provided the alteration or change does not impair the validity of existing contracts. If the alteration or change has such effect, it is immaterial whether it is done by acting upon the remedy or directly upon the contract itself. In either event, it is prohibited by the Constitution. It is the violation of the legal as distinguished from a moral obligation, which is referred to in the constitutional prohibition. 'The obligation of the contract consists in its binding force on the party who makes it. This depends upon the laws in existence when it is made. These are necessarily referred to in all contracts, and form a part of them as the measure of the obligation to perform them by the one party and the right acquired by the other. The legal remedies for the enforcement of a contract which belong to it at the time and place when made are a part of its obligation, as if they were expressly referred to or incorporated in its terms. Edwards v. Kearsey, 96 Otto, 601; Gunn v. Barry, 15 Wall., 620; Cooley, p. 348. Chancellor Kent says: “The better doctrine is, that all effectual remedies affecting the interest and rights of the owner, existing when the contract was made, become an essential ingredient in it, and are parcel of the creditor’s right, and ought not to be disturbed.”
The foregoing views have been adopted by our own Court in the case of the State v. Carew, 13 Rich., 498. The judgment creditors, under our decisions, acquired the right to the application of the equitable two-fund doctrine upon the facts existing at the time that they obtained their respective judgments against Mrs. Kohn, before the adoption of the Constitution of 1895, and I do not think that the fact that tliey did not intervene in this action until after the adoption of said Constitution can affect such right. The right to have the equitable two-fund doctrine applied is sometimes the last resort of the judgment creditor, and is, therefore, to be regarded as a substantial right, and, under the authority cited, is a part of the contract.
I conclude as matter of law that the provision of the Constitution of 1895 cannot be held to have a retroactive effect, and that said provision does not apply to this case. It is, therefore, ordered and adjudged, that the exceptions of the defendant, Mrs. Matilda E. Kohn, to the report of the special referee in the above case, dated November 13th, 1896, be overruled, and that the finding by the referee as matter of fact and the conclusion by said referee as matter of law be confirmed and be made the judgment of this Court.
From this decree the defendant, Matilda E. Kohn, appeals.
Messrs. Izlar Bros., for appellant,
cite: Judgment creditors have no right to require plaintiff to exhaust homestead: Con. 1895, art. III., sec. 28; 22 Stat., 191. Sec. 28, art. III., Con. 1895, is not in violation of U. S. Con.: 74 Am. Dec., 168; 11 Am. Dec., 799; 12 Wheat., 213. This right pertains to the remedy alone: 16 S. C., 498; 14 Rich., 154; 4 Wheat., 122; 12 Wheat., 370. Whatever belongs to the remedy may be altered by legislation: 107 U. S., 766; 4 Wall., 534; 11 S. C., 309; 16 S. C., 29.
Messrs. Glaze & Herbert, contra, for Daniel Miller & Co.,
cite: Creditor is entitled to two fund doctrine, unless deprived by Con. 1895: 47 S. C., 136; 18 S. C., 431; 33 S. C., 151; 41 S. C., 426; 42 S. C., 426. Ncc. 28, art. III., Con. 1895, not retroactive: ITS. C., 73; 30 S. C., 388; 31 S. C., 6; 7 Cranch, 399; 7 Johns., 477; 13 Rich., 277; 2 Rich. Kq., 43; 31 S. C., 6. If retroactive, it is in violation of U. S. Con.: 15 Wall., 610; 96 Otto, 601; 5 S. C., 125; 13 Rich., 498; 21 S. C., 378; 30 S. C., 386; 41 S. C., 109; 45 S. C., 65; 47 S. C., 448. Homestead exemptions only apply to future contracts: 5 S. C., 126; 21 S. C., 375; 41 S. C., 109; 47 S. C., 448; 45 S. C., 65; 15 Wall., 610.
Messrs. Dibble & Dantzler, contra, for Rlhart, Joyner & Co.,
cite: Two-fimd doctrine disctissed in 18 S. C., 425; 33 S. C., 142; 41 S. C., 47; 47 S. C., 136. ConstiUitionalprovision not retroactive: 34 W. Va., 524; 7 John., 502; 1 Bay, 179; 13 Rich., 276; 9 S. C., 293; 11 S. C., 73; 18 S. C., 481; 30 S. C., 388. This provision, if retroactive, would be contrary to U. S. Con.: 15 Wall., 610; 6 How., 301; 102 U. S-, 206; 1 How., 312; 75 Mich., 274; 13 Rich., 498; 11 S. C., 79; 9 S. C., 294; 30 S. C., 385. Homestead exemptions mtist be construed according to laws in force at time of execution of contract: 5 S. C., 126; 21 S. C., 375; 25 S. C., 391; 41 S. C., 109; 45 S. C., 61; 47 S. C., 448.
March 24, 1898.

Opinion:
The opinion of the Court was delivered by
Mr. Justice Gary.
The facts of this case are set out in the decree of his Honor, Judge Witherspoon, which will be incorporated in the report of the case. The Circuit Judge decided that what is commonly known as the two-fund doctrine was not abrogated by sec. 28, art. III., of the new Constitution, as to creditors whose judgments were recovered before the adoption of the said Constitution. Mrs. Matilda E. Kohn, the homestead claimant, appealed upon exceptions which will be set out in the report of the case.
The first question raised by the exceptions which we will consider is, whether the foregoing provision of the Constitution was intended to be retroactive. The section just mentioned contains, amongst other provisions relative to the right of homestead, the following proviso, to wit: "That no waiver shall defeat the right of homestead before assignment, except it be by deed of conveyance or by mortgage, and only as against the mortgage debt, and no judgment creditor or other creditor whose lien does not bind the homestead shall have any right or equity to require that a lien which embraces the homestead and other property, shall first exhaust the homestead." The following recital and subdivisions are contained in sec. 11 of art. XVII.: Section 11. "That no inconvenience may arise from the change in the Constitution of this State, and in order to carry this Constitution into complete operation, it is hereby declared: First. That all laws in force in this State, at the time of the adoption of this Constitution, not inconsistent therewith and constitutional when enacted, shall remain in full force until altered or repealed by the General Assembly, or expire by their own limitation Second. All writs, actions, causes of action, proceedings, prosecutions, and rights of individuals, of bodies corporate and of the State, when not inconsistent with this Constitution, shall continue as valid. Third. The provisions of all laws which are inconsistent with this Constitution shall cease upon its adoption, except that all laws which are inconsistent with such provisions of this Constitution as require legislation to enforce them, shall remain in force until such legislation is had. Fifth. All recognizances, obligations, and all other instruments entered into or executed, before the adoption of this Constitution, to the State, or to any county, township, city or town therein, and all fines, taxes, penalties, and forfeitures due or owing to this State, or to any county, township, city or town therein, and all writs, prosecutions, actions, and proceedings, except as herein otherwise provided, shall continue and remain unaffected by the adoption of this Constitution. All indictments which shall have been .found, or may hereafter be found, for any crime or offense committed before the adoption of this Constitution, may be prosecuted as if no change had beed made, except as otherwise provided herein." The intention of this section was, first, to prevent, as far as possible, any inconvenience that might arise by reason of the changes in the new Constitution; second, that the provisions of the present Constitution should not affect the laws, proceedings, rights, &c., which were not inconsistent with it at the time of its adoption; third, that laws which were inconsistent with it, but required legislation to enforce them, should not be affected by the present Constitution until such legislation was had; and, fourth, that all laws inconsistent with the present Constitution, except those that required legislation to enforce them, should cease upon the adoption of the said Constitution.
It is conceded that constitutions, like statutes, are always to be construed as acting prospectively only, unless by express language or necessary implication, it is apparent that the intention was otherwise. It is contended, however, that the two-fund doctrine in force in this State at the time the present Constitution was adopted was inconsistent with the proviso hereinbefore mentioned, and was wholly abrogated by the third subdivision just set out, even as to creditors whose judgments were recovered before the adoption of the new Constitution, or, in any event, when the act carrying into effect the said proviso was approved, to wit: 9th March, 1896 (Acts of 1896, page 190). In other words, it is contended that the said proviso was intended to have a retroactive effect. The words in the third subdivision: "The provisions of all laws which are inconsistent with this Constitution shall cease upon its adoption," are, in effect, the usual repealing words of a statute, and have no reference to the question whether it was intended to be prospective or retroactive in its operation. The desire to prevent inconvenience, by reason of the changes in the present Constitution, and the provision in the fifth subdivision, that "all writs, prosecutions, actions and proceedings, except as herein otherwise provided, shall continue and remain unaffected by the adoption of this Constitution," are significant as showing an intention not to interfere with existing rights. In fact, this spirit is manifested throughout the entire Constitution. It is also argued that the words, "no judgment creditor" or other creditor, in the said proviso, manifest an intention to apply its provisions to all judgments, whether then in existence or thereafter recovered. The words, "or other creditor," may mean a mortgagee, but, in any event, there is nothing in the proviso showing an intention to make its provisions retroactive. As it has been shown that there was no intention to give the said proviso a retroactive effect, the exceptions raising the question, which we have just considered, are overruled.
It is also contended that the two-fund doctrine is a mere incident of the remedy, and that it does not become a right úntil proceedings are instituted in which it can be asserted. For this reason, it is argued that it should be denied in this case, even if the said proviso is not given retroactive force. We cannot sustain this view. It is true, the opportunity to assert the right was not afforded the judgment creditors until proceedings in foreclosure were instituted, but the right to assert the equity, whenever an opportunity was afforded them, existed before the Constitution was adopted.
These views render unnecessary a consideration of the other questions raised by the exceptions.
It is the judgment of this Court, that the judgment of the Circuit Court be affirmed.