Court Opinion

ID: 3618255
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:00:49.4257+00
Date Added: 2024-06-11T07:45:34.833208
License: Public Domain

Our problem is to determine whether section 1083 of the Civil Practice Act, as amended by chapter 510 of the Laws of 1938 (effective April 7, 1938), may be constitutionally applied to proceedings upon the foreclosure of a mortgage executed prior to April 7, 1938.
From time to time Hammond  Carpenter Corporation had secured commercial loans from the plaintiff-appellant, to which it will be convenient to refer as the bank. The payment of those loans was guaranteed by George U. Hammond *Page 24 
and James J. Carpenter, now deceased, whose executors are defendants in this action. As security for his obligation as such guarantor, James J. Carpenter executed and delivered to the bank on December 29, 1932, a mortgage which became the subject of the present foreclosure action when, in 1937, Hammond  Carpenter Corporation failed to pay certain of its loans. By the judgment of foreclosure and sale herein, entered November 15, 1938, the amount due the bank was $18,401.25. At the foreclosure sale which followed on December 16, 1938, the mortgaged premises were purchased by the bank's nominee for $4,000. On January 23, 1939, when the bank applied at Special Term for an order confirming the referee's report of sale and for a deficiency judgment in the amount of $16,162.12 against the estate of James J. Carpenter, deceased, the respondent Hammond, as executor, applied by cross-motion, in connection with the bank's application for a deficiency judgment, for an order fixing the real value of the premises foreclosed upon the ground "that the sale price was wholly inequitable * * *" and that it would be unconscionable to permit the bank to enter a deficiency judgment herein according to its demand. In support of his cross-motion, and in opposition to the bank's motion to confirm the referee's report and for a deficiency judgment, the respondent executor submitted affidavits in which the mortgaged premises were appraised at $11,000. In opposition to the respondent's cross-motion the bank asserted that Special Term was without power to grant the relief sought and submitted an affidavit by a real estate expert appraising the property, on the basis of its income, at $6,500. Thereupon Special Term denied the respondent's cross-motion, granted the bank's application to confirm the referee's report of sale and directed the entry of a deficiency judgment.
Upon appeal to the Appellate Division the order at Special Term was modified by striking therefrom the provision granting a deficiency judgment to the bank and directing that such judgment be vacated. The Appellate Division ruled that section 1083 of the Civil Practice Act, *Page 25 
as amended by chapter 510 of the Laws of 1938, impaired no substantial rights of the mortgagee and, as affecting the remedy of the bank as mortgagee in this foreclosure action, that section 1083 as amended is constitutional and that the bank had made no application at Special Term for a deficiency judgment as required by section 1083.
When the mortgage here in foreclosure was executed on December 29, 1932, and thereafter in the year 1937 when the moneys secured thereby were advanced by the bank, section 1083 of the Civil Practice Act read as follows:
"§ 1083. Judgment for deficiency. If a person who is liable to the plaintiff for the payment of the debt secured by the mortgage is made a defendant in the action, and has appeared or has been personally served with the summons, the final judgment may award payment by him of the residue of the debt remaining unsatisfied, after a sale of the mortgaged property, and the application of the proceeds, pursuant to the directions contained therein."
On April 7, 1938 — prior to the entry of the deficiency judgment herein — chapter 510 of the Laws of 1938 became effective, amending section 1083 by providing that upon any application for a deficiency judgment in a foreclosure action the mortgagee was required to credit on the mortgage debt either the price obtained for the mortgaged premises at the foreclosure sale, as formerly required by section 1083, or the amount which the court might determine, upon affidavits or otherwise, to be the fair and reasonable market value of the mortgaged premises, whichever is higher. The fact is also stressed that, unlike section 1083-a of the Civil Practice Act and kindred moratory legislation which is limited to the period of emergency declared by the Legislature, the 1938 amendment to section 1083 is permanent in character.
The bank, as appellant before us, argues that under the contract provision of the Federal Constitution, the new provisions of section 1083 may not be applied to the mortgage here in foreclosure which was executed before the amendment became effective. In support of its position the bank *Page 26 
invokes the principle that laws affecting either the enforcement or construction of a contract and subsisting at the time and place of its making and the place of its performance, enter into and form a part of the contract itself. (Farmers  MerchantsBank v. Federal Reserve Bank, 262 U.S. 649, 660; New YorkLife Ins. Co. v. Guttag Corp., 265 N.Y. 292, 296.) With this rule as a premise the bank challenges, as violative of section 10 of article I of the Federal Constitution, the 1938 amendment to section 1083 which, it is said, affects adversely the bank's rights by changing the remedy by foreclosure which the statute formerly made available to it as a mortgagee — the principal change being that in arriving at the amount of a deficiency judgment there shall be credited upon the mortgage debt either the market value of the mortgaged property, as determined by the court, or the price obtained therefor at the foreclosure sale, whichever is higher. The vice of the new statute is said to be that it changes the medium of payment of the debt which was agreed upon by the parties to the mortgage prior to the amendment of section 1083 and in practical effect compels the bank as mortgagee to accept in payment of the debt a parcel of real property instead of lawful money of the United States.
I have reached the conclusion that the statute thus challenged, when applied to the case at bar, does not impair the contract rights possessed by the bank when the mortgage here in foreclosure was executed. That conclusion has been influenced by an examination of the change in remedies for the collection of a mortgage debt made available to a mortgagee at common law and under statutes prior to the amendment here in question.
Prior to the enactment of the statute from which section 1083 was derived a deficiency judgment could not be had in a foreclosure action. If the proceeds from a foreclosure sale failed to extinguish the mortgage debt and the mortgagee desired to collect any balance due, his only recourse was to an action at law. Finding burdensome the necessity of bringing two actions to collect a mortgage debt, the *Page 27 
Legislature added to the statutory procedure governing foreclosure the permissive measure that a personal judgment for a deficiency might be given in a foreclosure action against any party liable for the mortgage debt. (2 Rev. Stat. [1st ed.] p. 191, §§ 151, 152, 154.) The statute then enacted finally found its place, by transposition and amendment, in the Civil Practice Act as section 1083. (Throop's Code, notes to §§ 1628 and 1630;Frank v. Davis, 135 N.Y. 275, 277, 278; Reichert v.Stilwell, 172 N.Y. 83, 88; Jamaica Savings Bank v. M.S.Investing Co., 274 N.Y. 215, 218-220.) In tracing the history of this statute it is important to our present inquiry to note the language of Chief Judge CULLEN writing for this court in 1910 inRutherfurd Realty Co. v. Cook (198 N.Y. 29, 33): "Before the enactment of those statutes [2 R.S. §§ 151-154] a mortgagee to collect a deficiency was compelled to resort to an action at law after the sale under a decree in equity. This course may stillbe pursued, though leave of the court is necessary for theinstitution of the second action." (Emphasis supplied.)
It is thus seen that the Legislature, while favoring and making provision for the collection of the mortgage debt by one action, did not see fit to abolish the action at common law which remains today as a remedy available to the mortgagee under certain conditions. I find nothing in the 1938 amendment to section 1083 which abolishes the separate common-law action where the mortgage was executed after July 1, 1932. The policy of the Legislature adopted in 1830 finds expression in the present statute, that a deficiency judgment shall be sought in the action for foreclosure. However, if a deficiency judgment is not sought in the foreclosure action "the proceeds of the sale regardless of amount shall be deemed to be in full satisfaction of the mortgage debt and no right to recover any deficiency in any action or proceeding shall exist." This provision indicates that a "right to recover any deficiency" in some other action or proceeding still exists under some circumstances. One of those circumstances is present when the *Page 28 
person liable to the plaintiff for the payment of the mortgage debt is not "made a defendant in the action" and has not "appeared or * * * been personally served with the summons." (§ 1083.) Another circumstance which, with leave of the court (Civ. Prac. Act, § 1078), permits a mortgagee to bring a separate action at law, is present when the person liable for the mortgage debt is joined as a defendant and personally served but there remains a difference between the amount received at the foreclosure sale and the determined value of the property.
Stated otherwise, the change in the law effected by the 1938 amendment does not deprive the mortgagee of the right to receive the full amount of the mortgage debt in the same medium of payment as was afforded to him prior to that amendment. It merely restricts the method previously provided. Then he could demand a deficiency judgment in the foreclosure action or, failing so to demand, there remained for him the right to sue at law subject to leave of the court. (Rutherfurd Realty Co. v. Cook, supra, p. 33.) There being no specific provision in section 1083 as amended extinguishing the action at law, the presumption is that such a right of action remains conditioned upon the provisions of section 1078 and provided the mortgagee has demanded a deficiency judgment in the foreclosure action. The separate action at law for a deficiency is a common-law right. The court must construe strictly a statute which is susceptible of an interpretation in derogation of the common law. I do not think the Legislature intended to destroy the common-law right of action to recover the full deficiency from the party liable who is joined as a defendant and served, and still preserve the right to recover the full deficiency against one who, either because he is without the State or for some other reason, is not joined as a party defendant and served. By the 1938 amendment to section 1083 the Legislature has said that, where a person liable for the mortgage debt is joined as a defendant and is personally served, the mortgagee must seek a deficiency judgment to avoid (1) an adjudication that the proceeds of the foreclosure *Page 29 
sale of whatever amount shall satisfy the mortgage, and (2) forfeiting a right to recover any deficiency in another action. If a deficiency judgment is asked it may be granted in that amount only which equals the difference between the determined value of the mortgaged property and the debt, or the difference between the sale price and the debt, whichever difference is smaller. If there remains a portion of the debt unsatisfied between the amount received at the sale and the determined value, the mortgagee may bring an action at law on the bond, subject to leave being granted by the court under the provisions of section 1078 of the Civil Practice Act. (Rutherfurd Realty Co. v.Cook, supra, p. 33.) The constitutionality of section 1078 of the Civil Practice Act has never been challenged. (Honeyman v.Hanan, 275 N.Y. 382, 392.)
The 1938 amendment to section 1083 does not accomplish as to mortgages executed after July 1, 1932, the result intended by section 1083-a as to mortgages executed prior to that date. Section 1083-a provides that as to mortgages executed prior to 1932: "No judgment shall be granted for any residue of the debt remaining unsatisfied * * * except as herein provided." That provision can only mean, as was pointed out in Honeyman v.Hanan (supra, p. 392), that the statute was "* * * intended to provide an exclusive procedure for the entry of a judgment for any residue of a debt secured by mortgage after sale of the mortgaged premises." Its prohibition applied whether a deficiency was demanded in the foreclosure suit or sought to be recovered by a separate action at law. No such exclusive provision governs procedure under section 1083 in reference to mortgages executed after 1932, as was the mortgage now before us. True it is that the procedure outlined in the 1938 amendment to section 1083 for securing a judgment for any amount of the mortgage debt remaining unsatisfied after the sale of the mortgaged property, is not the same as that in effect at the time the mortgage here in suit was executed. But the mortgagee still retains the right to recover the full deficiency on a mortgage executed after *Page 30 
July 1, 1932, where the person liable was not joined as a defendant and personally served. The mortgagee also retains the right to recover in a separate action, subject to section 1078 of the Civil Practice Act, the difference between the amount recovered in the foreclosure action and the amount of the mortgage debt, provided in the foreclosure action he has joined the person liable as a defendant and served him personally, and has asked for a deficiency judgment pursuant to the amended section 1083.
The difference in the scope and purpose of sections 1083 and 1083-a is indicated by the opening sentence of each. Section 1083 states that the procedure thereby provided for determining the amount of the deficiency shall apply only "If a person who is liable to the plaintiff for the payment of the debt secured by the mortgage is made a defendant in the action, and has appeared or has been personally served with the summons * * *;" whereas section 1083-a provides that "No judgment shall be granted for any residue of the debt remaining unsatisfied * * *" except as therein provided. Admitting that section 1083-a provides an exclusive method of obtaining a deficiency judgment on the foreclosure of mortgages dated prior to July 1, 1932, it is apparent that section 1083 does not apply if the person liable to the plaintiff for the payment of the mortgage debt is not made a defendant in the action or has not appeared or has not been personally served with the summons. In such circumstances section 1083 does not provide the exclusive method for obtaining a deficiency judgment. If the statute is not to be so interpreted but instead is to be understood as providing the exclusive method of obtaining a deficiency judgment where, as in the present case, the party liable is joined and has appeared, then the statute is unconstitutional because it provides for an unreasonable classification of parties defendant and unreasonably discriminates against a party plaintiff who chooses to join as a defendant the party who is liable for the payment of the mortgage debt. *Page 31 
There is no constitutional guaranty that a mortgagee shall always have the right to secure a judgment for the full amountin one action. We have seen that for many years prior to the enactment of section 1083 a mortgagee was adequately protected by procedure which then allowed a separate action at law to collect a deficiency. The mortgagee still retains that right and in addition the right to recover a part or all of the deficiency in the foreclosure action.
Finally I am unable to agree with the decision of the Appellate Division that the bank's motion for leave to enter a deficiency judgment was not a sufficient compliance with section 1083 as amended by chapter 510 of the Laws of 1938, to constitute an application thereunder for such a judgment.
I, therefore, dissent from the view of a majority of the court and favor a modification of the order of the Appellate Division by providing for the remission of the case to Special Term with directions to proceed in accord with the provisions of section 1083 of the Civil Practice Act, as amended by chapter 510 of the Laws of 1938, to determine the fair and reasonable market value of the mortgaged premises as a basis for any deficiency judgment which the application of that statute may warrant, and as modified affirmed, without costs.
LEHMAN, Ch. J., FINCH, RIPPEY, SEARS and CONWAY, JJ., concur with LOUGHRAN, J.; LEWIS, J., dissents in opinion.
Ordered accordingly. *Page 32