Hallman v. Hallman , 124 Pa. 347 ( 1889 )

Opinion,

Mr. Justice Mitchell :

The precise point involved in the present case is, whether a waiver of the debtor’s exemption under the act of 1849, in favor of a lien creditor whose claim is less than $300, enures to the benefit of junior creditors, so as to prevent the debtor from claiming the balance of the exemption after the satisfaction of the senior lien. A perusal of the cases amply justifies the remark of the learned judge below that the question is not free from difficulty.

In Bowyer’s App., 21 Pa. 210, it was decided that the exemption could not be assigned to or waived in favor of a junior lien creditor, while there were prior liens against which it could be claimed. The case was decided in 1853, when the act of assembly was but four years old, and the whole subject was new. The grounds of the decision are not clearly set out, though the opinion was written by that eminent master of the English language, Chief Justice Black. He seems disposed to regard the exemption as a dangerous novelty, likely to be used as an instrument of fraud, and to treat it as a gift of the law for the benefit of the debtor’s family, to be claimed as a whole for that purpose strictly, or not at all; and he expressly excludes from the decision, the question whether a prospective waiver in the instrument evidencing the debt, would be binding if the debtor should, notwithstanding it, afterwards claim the exemption. The germ of the rule finally adopted was, however, contained in the following passage: “ Whatever he does not claim for himself and his family he leaves in the general fund, under control of the court, to be distributed among those who are legally entitled to it; and such distribution is not to be regulated by any wish of his, no matter in what form he may choose to express it.” This passage is the starting point in the long line of cases on the subject.

The next case took a somewhat different turn. In Johnston & Sutton’s App., 25 Pa. 116, the court below following, as it thought, Bowyer’s Appeal, treated a waiver in favor of any creditor as a complete abandonment of the debtor’s claim and made distribution of the fund in the ordinary way, as if no exemption had been claimed. This court, however, reversed the judgment and distributed the fund (which was less than $300), first, to a debt contracted before the act of 1849; secondly, to the judgment of appellants on which there was a waiver, and the balance to the defendant, in disregard of all other liens. The report is extremely defective, and I have taken the schedule of distribution, approved by this court, from the syllabus, as more in accordance with the opinion than the statement of facts, which would indicate that the auditor disregarded the waiver entirely, and awarded the whole balance to the defendant, after payment of the debt contracted before 1849. It nowhere appears with certainty whether the appellants’ judgment on which there was a waiver was the senior or junior lien; but 1 infer that it was the senior, both from the way in which it is set out in the statement of facts, and because, otherwise, the court could hardly have failed to notice and remark upon this part of the ruling in Bowyer’s Appeal. The fund, says Chief Justice Lewis, must be paid to defendant, “unless some of the creditors can show a better claim to it.....Cowden’s judgment was for a debt contracted before the exemption act took effect. It is therefore saved from its operation, and is entitled to be paid out of the money raised. The residue of the money belongs to the debtor, unless he has depraved himself of it by his own act. lie has done so, to the extent of the judgment of Johnston & Sutton.....That debt must therefore be paid out of the fund. These are the only claims upon the fund superior to the right of the debtor under the exemption law. After satisfying them, the residue of the money should be paid to the defendant in the execution. There is no difficulty whatever in arriving at this conclusion. Nothing stands in the way of it, except the principle supposed to have been adopted in Bowyer’s Appeal.” He then proceeds to explain that all that was really decided in that case was, that the claim of exemption had been made too late, and there being no exemption the liens took their regular order of precedence, without reference to any waiver. If the waiver was, as I suppose, on the senior judgment, this case decided the exact point raised in the present, and, except so far as discredited by subsequent criticisms, is authoritative upon it.

Next in time came Garrett’s App., 32 Pa. 160, reiterating the rule of Bowyer’s Appeal that a waiver on a junior lien enures to the benefit of the senior, and applying it to executions actually levied on personal property; and McAfoose’s App., 32 Pa.'276, decided at the same term, and in direct conflict. In the latter case, the fund was $300, the first lien, Kenly’s, for $71, the second, two judgments entered on the same day, Arnold’s for $391 with waiver, and Mechling’s for $44 without waiver, but on a debt contracted before the act of 1849. As against the first, or Kenly’s judgment, the debtor claimed his exemption, but there was a question whether the claim was made in time. This court held that it was, allowed the exemption as against Kenly and distributed the fund pro rata between the two junior judgments. “The first question,” says Strong, J., “ is whether, as against Sarah Kenly, under whose execution the property was sold, McAfoose, the debtor, is entitled to take out of court three hundred dollars, in pursuance of the act of April 9, 1849.” He then enters into an examination of the status of a claim of exemption made on a fieri facias levied on land, as to a fund raised under an alias fieri facias and venditioni exponas, and continues: “ The demand of appraisement on the fieri facias was a sufficient compliance by McAfoose with the conditions of the act of 1849. It follows, that she (Kenly) has no claim upon the fund in court as against him, and as the proceeds of the sale do not exceed $300 she is out of the list of legitimate distributees. The litigants are thus reduced to the debtor, and to Arnold, and Mechling” — the junior judgment creditors. Bowyer’s Appeal was not noticed at all, nor does it appear to have been cited, and we might consider that the court regarded it as overruled by Johnston & Sutton’s Appeal, were it not for Garrett’s Appeal in the same volume. As it is, we must suppose that in the burden of the conflict over the status of the claim on the original fieri facias, the effect of the waiver on the junior liens, under Bowyer’s Appeal, was lost sight of by court as well as counsel. In Laucks’s App., 44 Pa. 396, Thompson, J., says, “ McAfoose's Appeal has not the slightest bearing on this doctrine. All that was decided there, was that when one claimed the exemption on a fieri facias he was not obliged to re-assert it on an alias vend: ex.” No doubt this is all that was intended to be decided, and, for all beyond this, the case must be treated as an accidental departure from the line of authorities.

The next case in chronological order is Shelly’s App., 36 Pa. 373, and the elaborate treatment that the subject received from Justice Woodward, indicates that it was not yet considered settled, either in the judicial or the general professional mind. There was a first lien with a waiver, several subsequent liens without waiver, and a last lien with a waiver. The first and last liens, on which there were waivers, amounted to more than the #800 exemption. The court did not refer to this fact specially, but held, following Bowyer’s Appeal, that the waiver on the last judgment enured to the benefit of all the prior judgments without waiver. Several grounds for the decision were discussed at length by Justice Woodward, and of some of them it is enough to say that they have not been found sufficiently strong to be relied upon in subsequent cases. But the rule announced was finally rested on two principles: first, that as to the prior judgments without waiver, the law gave them a certain precedence at the time of their entry, which the debtor could not take away, by a waiver or any other act, in favor of a subsequent creditor ; and, secondly, that as to the prior judgment with waiver, it had a grasp on both funds, the exempt and the unexempt, and the subsequent creditors had an equity to compel its payment out of the exempted fund which they could not reach. In the course of the opinion Justice Woodward refers disparagingly to Johnston & Sutton’s Appeal, as in conflict with Bowyer’s Appeal: see pp. 380, 381; and in Thomas’s App., 69 Pa. 121, Justice Agnew also speaks of Johnston & Sutton’s Appeal as being overruled by Shelly’s Appeal. The opinions in these cases do certainly show a wide divergence of views between the judges who delivered them, upon the general subject of exemption and waiver, but critically examined by the facts and the ratio decidendi finally adopted, the eases are not really in conflict. The senior judgment with waiver, being paid out of the exempted fund, the balance of the #300 may go to the debtor, without disturbing the regular order of precedence among the liens, or disregarding the equity of the later creditors to have the first paid out of the exempted fund. Both Bowyer’s Appeal and Johnston & Sutton’s Appeal may therefore stand harmoniously as authoritative precedents in their respective conditions of facts. And that this was really so held, though the distinction is not definitely pointed out, is shown by Pittman’s App., 48 Pa. 315. In that case the first judgment was before the act of 1849, and there was a waiver on the second and fourth judgments, but none on the third, fifth, or later ones. The auditor held that the first was unaffected in any way by the act of 1849, and must first come out of the gross fund. He then found that the waiver in the fourth enured to the benefit of the third, and proceeded: “ Therefore the third and fourth judgments had an advantage over subsequent judgments (assuming that a waiver in a judgment does not affect the defendant’s right in subsequent judgments), and the application of a well-established principle of equity would require the plaintiffs in these judgments to first exhaust the fund that cannot be reached by the others.” In affirming the judgment, Chief Justice W oodwabd said, “ the auditor applies the principles of law so correctly that we have little more to do than to approve the distribution.”

Shelly’s Appeal settled the law as to the effect of a waiver upon prior judgments, and has been uniformly followed: Laucks’s App., 44 Pa. 895; Pittman’s App., 48 Pa. 315; Thomas’s App., 69 Pa. 120; Jimison’s App., 13 W. N. 25.

The last named case, Jimison’s Appeal, requires examination, as it was chiefly upon its supposed authority that FutHey, J., ■decided Taylor v. Webb, 2 Chester Co. Rep. 16, which the learned judge below followed in the present case. The fund was raised by an assignee’s sale under the act of February 17, 1876. The first lien was a judgment for $300 with waiver, and there were later judgments without waiver. In assigning his land for the benefit of his creditors, the debtor had reserved $300 exemption for himself, and the assignee’s account claimed credit for that amount paid the assignor. The court disallowed the credit, and held that the $300 exemption must go to pay the first judgment, in relief of the junior judgments (see opinion in Jameson’s Est., 1 Chester Co. Rep. 49), and this was affirmed on appeal. The syllabus in 1 Chester Co. Rep. is too broad, and some of the expressions in the opinion of this court seem to be equally general, but read in connection with the facts, this case is but the ordinary application of the rule established by Shelly’s appeal.

This rule being thus conceded, we have still the consideration of the effect of a waiver on subsequent judgments. None of the cases, except Johnston & Sutton’s Appeal, raised this question, and, notwithstanding the criticisms made upon it, that case has never been overruled on its condition of facts. We are of opinion that it was well decided, and rests on sound reason. A debtor may not alter the established priority of liens, nor deprive a later creditor of his equity to have senior liens paid out of a fund that they can reach, but he cannot; but short of those results, there is no good reason why he may not waive exemption in favor of one creditor, or more especially in favor of a small debt. “ A waiver of the exemption in favor of one creditor is not ipso facto a fraud on others..... There is therefore no good reason for striking down the debtor’s exemption in favor of a creditor to whom he has made no concession, and in a case involving no question of distribution: ” Agnew, J., in Thomas’s App., 69 Pa. 121. In the present case the waiver was on a judgment for only $70. It may be that a waiver was the debtor’s only means of getting that particular loan, and he might well afford to waive his privilege to an extent that would still leave him more than three fourths of his exemption fund. No other creditor is postponed thereby, or the fund for the payment of his debt lessened. The preferred creditor and the debtor together get only what the debtor alone would have got without the waiver. Why should the arrangement be set aside in favor of one who is in no wise injured by it, contrary to the real intent of the parties, and contrary also to the general spirit of the statute? In Shelly’s Appeal, Justice Woodward inclines to regret that the court had not denied the capacity of the debtor to waive the exemption at all (as' has been held in some states), but without going that far, we can certainly say with reason that we will not compel him to waive the whole when he only meant to waive a part, and when no one has been injured by Ms act.

The result of tMs somewhat prolonged discussion of the authorities may be summed up finally in the following rules, with which no authority carefully examined on its facts is in conflict, and which are believed to rest on sound reasoning' and settled principles of law:

First; a waiver as to any lien will enure to the benefit of all prior liens; on the principle that a debtor cannot alter the precedence settled by law.

Secondly; a waiver as to any lien will enure to the benefit of subsequent liens, so far as to compel the waiver-creditor to resort first to the exempted fund; on the principle of the equity of creditors having one and two funds, respectively, under their control.

Thirdly; a waiver will not enure to the benefit of subsequent liens, beyond its own amount; so that if the waiver-judgment is less than $300, the balance will go to the debtor claiming his exemption, and this on the broad ground that men may do what they will with their own, provided they do not contravene the settled rules of law, or impair the rights of others.

In accordance with the views herein expressed, the judgment is reversed, and now judgment is entered on the case stated for defendant, with costs, and the record remitted.