Connecticut Mutual Life Insurance Company v. Cushman/Opinion of the Court

In Brine v. ''Ins. Co.'' 96 U.S. 627, it is decided- reversing the practice which had obtained for many years in the circuit court of the United States sitting in equity in Illinois that the state law giving to a mortgagor of real estate the privilege, within 12 months after a decree of foreclosure, and to his judgment creditors within three months thereafter, of redeeming the premises, is a substantial right, and constitutes a rule of property, to which the circuit court must conform.

In anticipation, however, of the difficulties which might attend exact conformity, in every case, to the local statutes, the court, in the Brine Case, said:

'It is not necessary, as has been repeatedly said in this court, that the form or mode of securing a right like this should follow precisely that prescribed by the statute. It the right is substantially preserved or secured, it may be done by such suitable methods as the flexibility of chancery proceedings will enable the court to adopt, and which are most in conformity with the practice of the court.'

The decision in that case doubtless suggested to the circuit court the necessity of adopting definite rules in relation to redemptions from sales under its own decrees. Hence, the rules to which reference has already been made. They were established by an order of court entered July 11, 1878.

As the determination of the present case depends upon their construction and effect, those rules are given in full in the margin.

However this difference may be regarded in the courts of Illinois when administering the statutes by which they are created and their jurisdiction defined and limited, (Litter v. People, etc., 43 Ill. 188; Stone v. Gardner, 20 Ill. 309; Durley v. Davis, 69 Ill. 134,) we entertain no doubt of the power of the federal court to adopt its own modes or methods for the enforcement of the right of redemption given by the local law. The substantial right given, first, to mortgagors, their representatives, and grantees, and then to the judgment creditors of such mortgagors or their grantees, was to redeem the property sold within the time specified. Whether the redemption is by the one or the other class, the money is for the benefit of the purchaser at the decretal sale. When the amount going to him is secured by payment into the hands of some responsible officer, the obsect of the law, both as respects the purchaser at the decretal sale and the party redeeming, is fully attained. Redemption is effected when, by payment of the redemption money into proper hands, the purchase at the decretal sale is annulled, and the way opened for another sale. The federal court, as indicated by its rules, preferred that the money, if not paid directly to the purchaser, should, by payment through its clerk, come directly under its control for the benefit of the purchaser. where the sale of mortgaged premises is under a decree of the federal court, and the execution of the judgment creditor, who seeks to redeem is from a state court, there is an evident propriety in requiring the money going to the purchaser at the decretal sale to be paid through the clerk of the federal court into its registry. The necessity for such a regulation is not so urgent where the judgment creditor's execution is from the federal court; but we perceive no objection to extending the regulation to that class of cases. Under the operation of the rules in question the records of the federal court will, in all cases, show whether the right of the purchaser to a deed has been defeated by redemption. Can it be said that the mode prescribed by the federal court for securing the money going to the purchaser impairs his substantial rights? It he less secure than he would be if the money is paid to the officer having the execution? Clearly not. The substantial right given by the statute to the purchaser is that the redemption money be secured to him before the benefit of his purchase is taken away, and the substantial right given to the party redeeming is that the redemption becomes complete and effectual upon his payment of the required amount. The particular mode in which the money is paid or secured by the latter for the benefit of the former is not of the substance of the rights of either. The mode or manner of payment belongs, so far as the federal court is concerned, to the domain of practice, the power to regulate which, in harmony with the laws of the United States and the rules of this court, as might be necessary and convenient for the administration of justice, is expressly given by statute to the circuit courts. Rev. St. § 918.

In the conclusions thus indicated we are only giving effect to former decisions. In Brine v. ''Ins. Co., supra'', it was, as we have seen, distinctly ruled, touching these local statutes, that the federal court-preserving substantially the right of redemption could pursue its own forms and modes for securing such right. The same doctrine, in effect, is announced in Allis v. ''Ins. Co.'' 97 U.S. 144. That case arose under a statute of Minnesota which allowed the defendant in a foreclosure proceeding to redeem within 12 months after the confirmation of the sale. The decree ordered the master, on making sale, to deliver to the purchaser a certificate stating that unless the property be redeemed within 12 months after the sale, he would be entitled to a deed. This departure from the letter of the statute was held not to be material, since substantial effect was given to the right to redeem within one year. The court said: 'In the state coarts, where the practice undoubtedly is to report the sale at once for confirmation, the time begins to run from that confirmation. But if, in the federal court, the practice is to make the final confirmation and deed at the same time, it is a necessity that the time allowed for redemption shall precede the deed of confirmation. There is here a substantial recognition of the right to redeem within 12 months.' It results that the objection taken to the rules established by the court below must be overruled.

The next question to be examined is whether there could be an effectual redemption except by payment of the amount bid, with interest at 10 per cent., the rate prescribed by statute at the date of the mortgage. Redemption was made upon the basis of the amendatory act of 1879 reducing the rate of interest in such cases to 8 per cent. The contention of the company's counsel is that that act cannot be applied without impairing the obligation of its contract. What was that contract? In what did its obligation consist? By the contract between the mortgagor and mortgagee, the former became bound to pay, within a certain time, the mortgage debt, with the stipulated interest of 9 per cent. up to final decree, if one was obtained, and with six per cent. thereafter, as prescribed by statute when the mortgage was given. Rev.St.Ill. 1874, p. 614. Certainly the obligation of that contract was not impaired by the act of 1879, for it did not diminish the duty of the mortgage to pay what he agreed to pay, or shorten the period of payment, or interfere with or take away any remedy which the mortgagee had, by existing law, for the enforcement of its contract.

The statute, in force when the mortgage was executed, prescribing the rate of interest which the amount paid or bid by the purchaser should bear, as between him and the party seeking to redeem, had no relation to the obligation of the contract between the mortgagor and mortgagee. The mortgagor might, perhaps, have claimed that his statutory right to redeem could not be burdened by an increased rate of interest beyond that prescribed by statute at the time he executed the mortgage. But, as to the mortgagee, the obligation of the contract was fully met when it received what the mortgage and statute, in force, when the mortgage was executed, entitled it to demand. The rights which the purchaser at the decretal sale, if one was had, was not of the essence of the mortgage contract, but depended wholly upon the law in force when the sale occurred. The company ceased to be a mortgagee when its debt was merged in the decree, or, at least, when the sale occurred. Thenceforward its interest in the property was as purchaser, not as mortgagee. And to require it, as purchaser, to conform to the terms for the redemption of the property as prescribed by statute at the time of purchase, does not, in any legal sense, impair the obligation of its contract as mortgagee. It assumed the position of a purchaser, subject, necessarily, to the law then in force defining the rights of purchasers.

But it is insisted that the value of the mortgage contract was impaired by a subsequent law reducing the interest to be paid to a purchaser at decretal sale; this, upon the assumption that the probability of the debt being satisfied by the decretal sale of the property was lessened by reducing the interest which any purchaser could realize on his bid in the event of redemption. In other words, the reduction by a subsequent statute of the interest to be paid to the purchaser would, it is argued, necessarily tend to lessen the number of bidders seeking investments, and thereby injuriously affect the value of the mortgage security.

In support of this proposition counsel cite several decisions of this court in which it is ruled that the objection to a law, as impairing the obligation of a contract, does not depend upon the extent of the change it affects; that the laws in existence when a contract is made, including those which affect their validity, construction, discharge, and enforcement, enter into and form a part of it, measuring the obligation to be performed by one party, and the rights acquired by the other; and that one of the tests that a contract has been impaired is that its value has been diminished, when the constitution prohibits any impairment at all of its obligation. Green v. Biddle, 8 Wheat. 1; McCracken v. Hayward, 2 How. 612; Planters' Bank v. Sharp, 6 How. 301; Edwards v. Kearney, 96 U.S. 601.

These decisions clearly have no application to the case now before the court. The laws with reference to which the parties must be assumed to have contracted, when the mortgage was executed, were those which in their direct or necessary legal operation controlled or affected the obligations of such contract. We have seen that no reduction of the rate of interest, as between the purchaser of mortgaged property at decretal sale and the party entitled to redeem, affected, or could possibly affect, the right of the insurance company to receive, or the duty of mortgagor to pay, the entire mortgage debt, with interest as stipulated in the mortgage up to the decree of sale. And the result of the sale in this case shows that the company, as mortgagor, has received all that it was entitled to demand. The reduction of the rate of interest by the act of 1879 was by way of relief to the mortgagor and his judgment creditors, and, in no sense, an injury to the mortgage. When that act was passed there was no person to answer the description or to claim the rights of a purchaser; consequently, no existing rights were thereby impaired. That the reduction of interest to be paid to the purchaser would lessen the probable number of bidders at the decretal sale, and thereby diminish the chances of the property bringing the mortgage debt, are plainly contingencies that might never have arisen. They could not occur unless there was a decretal sale, nor unless the mortgagee became the purchaser; and are too remote to justify the conclusion, as matter of law, that such legislation affected the value of the mortgage contract.

One other point remains to be considered. It is said that the rules of the circuit court requiring payment to the purchaser of interest at the rate of 10 per cent., were never modified by any order. The court below, we suppose, proceeded upon the ground that the interest to be paid to the purchaser by the party redeeming was of the substance of the rights of both; consequently that the change in that respect, made by the state law prior to the decretal sale, proprio vigore, effected a laodification of the rule without a formal order. In that view we concur.

For the reasons given the decree below should be affirmed, and it is so ordered.