American Sav. Bank v. Willenbrock , 209 Iowa 250 ( 1929 )

I am sorry not to agree with my associates. It seems to me they are so fundamentally wrong that a dissent on this occasion is justifiable. Consequently, I hereby enter my protest against the majority opinion.

Appellee fixes the value of the old homestead, after deducting the incumbrances, at $1,640; while that of the new, after subtracting the liens, is $7,113. Assuming, without deciding, that appellee's figures regarding the equities in the respective properties are correct, then it is found that such value of the old was $1,640, and that of the new, $7,113. Thus, subtracting the one from the other, the amount of the new homestead subject to execution, according to appellant's theory, is $5,473: that is to say, appellee exchanged his old homestead, subject to incumbrances, for a new one, also bearing mortgages. So the controversy arises concerning the extent of appellee's exemption in the newly acquired property, under those facts and circumstances. He insists, and the majority hold, that the value of the old homestead is to be determined regardless of incumbrances. Settlement of the dispute must be found in Section 10154 of the 1924 Code, which reads:

"Where there has been a change in the limits of the homestead, or a new homestead has been acquired with the proceeds of the old, the new homestead, to the extent in value of the old, is exempt from execution in all cases where the old or former one would have been."

There is contemplated in that statute a valuation; in fact, the word "value" is used. Hence, when a new homestead is obtained in exchange for the old, there must be a comparison of values between the old and the new. The lawmakers contemplated that there might be differences between the value of the old and the new. By what standard, then, is this measurement to be made? Some light is thrown upon this subject by the very language of the statute itself. Therein, it is said:

"Where * * * a new homestead has been acquired with theproceeds of the old [the italics are ours], the new homestead, to the extent in value of the old, is exempt from execution * * *."

Manifestly, it is understood there that the proceeds of the old, or its equivalent, will procure the new. See Harm v. Hale,206 Iowa 920; Benham v. Chamberlain Co., 39 Iowa 358. Proceeds are of the old and value is of the old. Obviously, it was the legislative thought that, if the proceeds of an old homestead were used to procure a new, the debtor should be protected to the full extent thereof. Acquisition of the new is to be through the proceeds of the old. Those proceeds, the statute contemplates, shall procure the new. Consequently, it is the procuring value of the proceeds from the old that is material. Any portion or value of the new homestead not procured with the proceeds of the old, or the equivalent thereof, was not within the purview of the exemption legislation. Undoubtedly that is so, because, when the debtor enters the field of commerce, he must give value for value. In order to procure, he must exchange value. For, without such value, there could be no procuring. This means the reasonable and ordinary commercial value of the old homestead. Forsooth, that is the only value thereof that can be measured with any degree of uniformity and certainty, for the practical purposes of the statute. That is the only value which will procure.

When the new purchaser takes possession of the old homestead, the former exemption, so far as he is concerned, has no value. Only one value is present for such purchaser, and that is the actual worth of the land. If, then, the realty is incumbered by a mortgage, the purchase price must be reduced to that extent. Therefore, the proceeds of such sale which the debtor would have to put into the new property must represent the net amount after deducting the lienable indebtedness. Said net remainder would be the proceeds which the debtor could invest in the new homestead. "Value of the old," therefore, because of its arrangement with the other divisions of the statutory section, must relate and refer to those proceeds. A different construction will be uncommercial, impractical, and unworkable. As employed in the statute, the word "value" must relate to the purchasing or the exchange power, because no other value would procure. Wherefore, the old homestead, so far as procuring possibilities are concerned, is limited to the equity for which the business man of the world is willing to make an exchange. Some indication of this is at least suggested in the following cases: Sargent v.Chubbuck, 19 Iowa 37; Paine v. Means, 65 Iowa 547; Blue v.Heilprin Co., 105 Iowa 608; Shaffer Bros. v. Chernyk, 130 Iowa 686. Paine v. Means, supra, declares:

"The farm consisted of 160 acres, of the value of $2,000. The incumbrances on it amounted to $1,200. The purchaser took it subject to these incumbrances, and the property in questionrepresents the difference between the whole value and theincumbrance." (The italics are ours.)

Also, Blue v. Heilprin Co., supra, indicates:

"The statute, in such a case as this, exempts only to the extent in value of the old homestead; and therefore the otheritems which entered into the payment for the property cannot beconsidered, to enlarge the exemption." (The italics are ours.)

No purchasing value existed in the old homestead except the net equity after deducting incumbrances.

Clearly, the legislature had in view the procuring or purchasing value. Resultantly, when it referred to the value of the old homestead, it must have been that worth by which the owner could repurchase a new homestead. Beyond a peradventure of a doubt, exemption statutes are to be liberally construed; yet that does not mean that, under the guise of liberal construction, there can be put into the law that which the legislature had never intended should be there. Exemptions arise and exist only because of a statute. Farmers Elev. Livestock Co. v. Satre,196 Iowa 1076, thus explains:

"Appellee relies, to sustain the judgment, upon the propositions that exemption statutes are liberally construed * * *. It may be stated as the universal rule that exemption statutes are liberally construed in favor of the debtor. But, as we said in Voris v. West, 180 Iowa 138: `* * * it is not for this court to say that the legislature intended a larger grant of exemptions than is given by the plain wording of the statute.'"

Without a statute authorizing the particular exemption, none exists. Liberal construction will not permit adding that which the legislature failed to supply. An exemption will not be allowed merely and solely because it is claimed.

Within the provisions of the law, even under liberal construction, it is manifest that the meaning of value, as herein presented, is in harmony with the purpose and intention of the legislation. After the value of the old property has been thus fixed, the same principles will apply to the new, in arriving at its worth.

To repeat, the mortgage indebtedness on the old homestead shall be deducted in arriving at the value thereof, and likewise, the incumbrances on the new homestead property must be subtracted in arriving at its worth. Anything else would result in unfairness. An illustration will suffice. Assume that appellee's old homestead was worth $10,000, free and clear of all liens and incumbrances. But the total worth of the new homestead is $20,000, on which there is a mortgage of $10,000, leaving the net value of $10,000. Appellee actually put $10,000 in the new homestead, and, omitting the mortgage thereon, there is an equity therein to that extent. Thereby appellee is permitted to have his equity in the new homestead, representing the value of the old, exempt from execution. Completing the contrast, it will be found that the opposite consideration will demonstrate the necessity of figuring the net worth of the new homestead, as well as the old. If, as assumed, appellee's old homestead was worth $10,000, and he put that amount into the new, which was incumbered by a mortgage of $10,000, but nevertheless contained an equity of the same amount, then, in order for appellee to save his homestead exemption, it would be necessary to preserve that equity in the new. So, if the entire value of the new is to be figured, in that event, regardless of the incumbrances, appellee would lose his investment of the old homestead proceeds, because the creditors would take the $10,000 equity in the new, and appellee would have nothing left but the incumbered portion thereof. Obviously, therefore, it is necessary to subtract the incumbrance on the new homestead in arriving at its value, just the same as on the old. Such method of valuation is eminently fair to the homestead debtor, because, under that theory, he can preserve his exemption. On the other hand, he is prohibited from speculating under the guise of mysterious homestead values at the expense of the creditor.

Furthermore, courts everywhere recognize that, in making a given pronouncement, reference must be had to the statute under consideration. What might be value under one legislative provision would not be under another. Again, one phase of the law will bring forth the court's discussion which could not be applied to another, due to the different legislative intention. Upon this basis, the authorities referred to by the majority can be readily distinguished. They cite Yates v. McKibben, 66 Iowa 357. However, that case did not discuss Section 10154, now under consideration, but rather, it referred to what is at present Section 10136 of the Code, relating to the extent of homesteads. The latter provision is:

"* * * otherwise it [the homestead] must not contain in the aggregate more than forty acres, but if * * * its value is less than five hundred dollars, it may be enlarged until it reaches that amount."

In the Yates case, the claimant sought to hold 80 acres of land, because he owned only a life estate therein. His argument was that the value of his life estate in the entire 80 did not exceed $500. Nevertheless, the court said:

"When we speak of the value of land, reference is always had, unless our language be qualified, to the realty held in fee simple absolute."

Underlying that conclusion was the argument that, if the claimant prevailed, he would be entitled to a greater benefit than a homestead debtor who actually owned the fee-simple title. Quite different are the provisions of the statute under which such decision was reached, and those of the legislation now before us. Plainly, the Yates case was referring to the property's value, in order to fix the extent of the exempt territory under a specific legislative enactment. Repetition of the thought is here made that even said value was to be fixed for the purpose of limiting the homestead extent. Opposing the question of extent is that of value. Paramount in the present discussion is value, as distinguished from extent. Essentially different considerations must control.

Likewise, the majority refer to Rutledge v. Wright, 186 Iowa 777. Yet the problem there solved did not embrace the elements controlling in the case at bar. Permission in the Rutledge case was granted a debtor to perfect and complete his title to a homestead, and then hold the entire estate exempt from execution. Included within the language of that case are these words:

"The logical corollary of this holding [Yates v. McKibben,66 Iowa 357] is that, to the extent of the area permitted by the statute, a homesteader with an imperfect and incomplete title may yet acquire the homestead right within the statutory limit, and may thereafter perfect or complete his title to the homestead area. Likewise, he may improve his homestead and add to its value. The date of the acquisition of the homestead is not thereby changed."

Everything there said related to the original homestead held by the debtor. This situation is foreign to the one contained in the statute before us. Analysis will quickly indicate this. With the exception of the legislation now under consideration, value, generally speaking, is immaterial. Homestead exemption, regardless of value, includes 40 acres of farm lands (with the exception of the $500 valuation contained in the statute quoted). Extent, therefore, and not value, is there the criterion. Undoubtedly the legislature contemplated a fee-simple title for that extent of land. Explanation for Yates v. McKibben andRutledge v. Wright, supra, and similar decisions, is thus afforded. A contrast of the principle involved in those citations and that under consideration here results in a striking difference. There, extent alone was material; yet here, value is the important thing, and extent is unimportant. That is due to the distinctions between the controlling statutes. The one provides for extent, and the other for value. Obviously, if the homestead once attaches, so that the entire property is exempt, the owner thereof may add to the value by improvements or through the payment of incumbrances. That is true because the original property is exempt. When once exempt, it is always so, until the exemption is waived or lost through some manner contemplated by law, as said in the Rutledge case. If the property is thus exempt, it remains in that status regardless of improvements or the payment of incumbrances. The reason therefor is that the improvements were placed upon, or the incumbrances removed from, exempt property. Hence the property is just as exempt with the improvements on and the incumbrances off as it was originally. In other words, total exemption carries with it the right to improve, and pay off incumbrances. However, as before stated, that principle does not control the present controversy, because here the property in question is not entirely exempt. One case presents an instance of total exemption, and the other of mere partial exemption. This property is exempt only to the extent that the value of the old homestead procured the new. Therefore, the portion sought by the appellant was never exempt, because that part or portion exceeds the value of the exempt property used to procure the new homestead. The partial exemption arose through the exchange process. In order to have the new property entirely exempt, its value must not exceed the old by which it was procured. What value? Manifestly, exchange, purchasing, or procuring value, and none other. Said value is the only one with which the exchange can be accomplished by the use of the old homestead. Without that purchasing power, a new homestead could not be procured, and the old could never be exchanged. Necessarily, then, the value of the old must be that which will permit and enable the procurement of the new. No other value is provided for in the statute, and none other could have been within the contemplation of the legislature. Eliminating that definition of value, the statute will become, in practice, a nullity; because, without that conception of the old homestead worth, there never could be the procurement of the new. Such is true for the reason that no man would exchange new property for a value which was not in the old.

Sales and exchanges are practical affairs, and must be made, theoretically at least, upon sound business considerations. Everyday commercial sagacity would prevent the transfer of the new for anything except the equity of the old. We cannot attribute to the legislature a foolish or impractical intention. Hence, they must have meant that the equity of the old homestead alone should be exempt in the new.

Uncertainty and doubt are cast by the majority upon the homestead law, because they even suggest that estimated values cannot be considered at all. How would the majority make applicable the statute they have discussed? Evidence of value is received in the courts every day in numerous matters relating to the administration of civil and business affairs. Why should there be an exception here? Doubtless at the execution sale the proceeds of the new homestead over and above the incumbrances should first be applied to the debtor's exemption therein, for it is the surplus which can be taken by his creditors.

According to the majority's theory, the creditor could not realize on his judgment in any event until after the new homestead ceased, by abandonment, waiver, or otherwise. In fact, the majority would make the creditor a sort of a tenant in common with the homesteader in the new property. There is no basis in the statute for any such procedure, and I am sure the bar generally will be very much surprised to learn that such is the pronouncement of this court.

De GRAFF and GRIMM, JJ., join in this dissent.