American Savings Bank of Marengo v. Willenbrock

Morling, J. *252 *251 The record does not require us to trace de *252 fendant’s homestead rights further back than to his ownership and occupation of 117 acres, prior to the incurring of the debt sued on. It does not appear that any homestead in the 117 acres had ever been platted, but the case was tried upon the theory that a particular 40 acres of that tract was a homestead. The 117 acres were subject to mortgages aggregating in amount $19,175. After the indebtedness to plaintiff was incurred, defendant exchanged the 117 acres for the 40 acres now in controversy. He immediately moved upon, and has ever since with his family occupied, this 40 acres as his home. There was, when defendant acquired it, and still is, upon this 40 acres a mortgage for $4,000, which defendant assumed. At the time of the exchange, defendant gave to the vendor a second mortgage of $527, and later gave a third mortgage of $900, making the total mortgage incumbrance on the 40 in controversy $5,427. Each side produced five value witnesses. The value of the homestead 40 of the 117 acres, according to the average valuation of plaintiff’s witnesses, was $9,200; according to that of defendant’s witnesses, $9,820. The value of the remainder of the 117 acres, taking the average of the opinions given by plaintiff’s witnesses, is $8,791, and according to that of defendant’s witnesses, $10,995. The 117-acre tract was mortgaged to the amount of $19,185. Plaintiff argues that, on the basis of plaintiff’s valuation, the 117-acre tract was mortgaged for more than it was worth, and on the basis of defendant’s valuations, defendant would have an equity of $1,640, which represents the value of defendant’s homestead rights. The 40-aere tract now in dispute is valued by plaintiff’s witnesses at $14,080, or, deducting incumbrances of $4,527, $9,553. By defendant’s witnesses it is valued at $11,640, or, after deducting the incumbrance of $4,527, $7,113. Plaintiff contends that, averaging the testimony, the value of defendant’s equity in his presently owned 40 is $8,348, while the value of his equity in the 40 acres of the 117 acres was only $456, and that, on all of the testimony, the excess of value of the new homestead over that of the old is $7,892. Plaintiff’s contention is that deducting the incumbrances (which it places at $4,527, instead of $5,427) from the $14,080 leaves defendant’s equity in the present homestead $9,553, or deducting it from the $11,640, as valued by defendant’s witnesses, leaves the equity $7,113; that, at most, the *253 value of the old homestead that -went into the new one was $1,640; and that, therefore, the extent of the excess of the value of the present homestead over the value of the former homestead is $7,113, or, at the least, $5,473; and that the new homestead is liable to execution for approximately one of those sums. Homestead exemption is allowed, not for the financial profit, or merely as a margin of financial safety to the debtor. The exemption is for the benefit of the family, to provide wife (or husband), children, and dependents with a home. The exemption is granted, not merely out of grace to the debtor, but as a matter of public policy. The state itself is interested in it. The law allowing the exemption is to be liberally construed, and is not to be pared away by construction, so as to defeat its beneficent, sociological, and economic purpose. The homestead law, as it was last amended and codified, took effect July 4, 1923 (Chapter 237, Acts of the Fortieth General Assembly). Defendant moved on the 117 acres in 1920, and upon the 40 acres in question in June, 1923. Plaintiff claims nothing for the date of the indebtedness to it except its existence before the 40 now involved was acquired, but claims that, because of the incumbrances on the old homestead, the value of the old which entered into the new did not, on any of the evidence, exceed $1,640. We do not pause to discuss the question whether there are any material differences between the present homestead law and that contained in the Code of 1897. By Section 2972, Code, 1897: “The homestead of every family, whether owned by the husband or wife, is exempt from judicial sale, where there is no special declaration of statute to the contrary. ’ ’ This court has not undertaken to define the estate or right created by the homestead law, further than to say in general terms that “more than a mere privilege is created.” Sayers v. Childers, 112 Iowa 677. “It is the right to the enjoyment of the use of the property constituting the homestead and to protection therein during the periods designated, and is founded upon principles of the soundest policy * * *. ” In re Estate of Adams, 161 Iowa 88, 94. *254 Tbe right, from its very nature, consists in the use and enjoyment by the family of the physical property, which, in the ease of a rural homestead, is 40 acres. The law looks not to the particular estate which the homestead claimant may have in the' tract. That estate may be limited in its nature. It may be incumbered. The tract may be as large as necessary to make the property worth the minimum of $500. It is the home, the right to its physical enjoyment, undisturbed by creditors, that is exempt, not merely the particular estate that the debtor has in his home. The value is the value of the tract, not the value of the debtor’s interest in it. Yates v. McKibben, 66 Iowa 357. This court said, in Rutledge v. Wright, 186 Iowa 777, 783 : “It is not essential to the acquisition of a homestead, within the meaning of the statute, that the claimant have a perfect or complete legal title. It is essential that he have a sufficient title to justify his occupancy. Occupancy under such a title will justify a claim of homestead right, subject to the limitations of the statute. * * ® It shall not exceed one half an acre in area in a city, nor exceed 40 acres outside a city, except that it may be enlarged to a valuation of $500. In Yates v. McKibben, 66 Iowa 357, it was held that these dimensions and value are to be ascertained on the basis of a fee-simple title, even though the actual title of the claimant be less than a fee-simple title. '* * * The logical corollary of this holding 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. ’ ’ 1 See, also, Perry v. Adams, 179 Iowa 1215; 29 Corpus Juris 844. In the case before us, the estate in the former homestead was, and in the present one is, absolute, not qualified. There were and are merely liens upon the exempt property. The law permits the creation of such liens, but, when created, they do not operate in favor of creditors generally, and are not extended by the law, directly or indirectly, beyond the debt or charge for which they are granted. Defendant’s title to the homestead is *255 good against all the world except the holders of the liens. Specifically, plaintiff in this case is not entitled to favorable consideration because the holders of other debts against defendant have been preferred, and have been given liens upon the present or formerly existing homestead. The plaintiff is barred from pursuing the 40-acre tract in which defendant has the right of homestead exemption, unless the debt to plaintiff antedates defendant's acquisition of the homestead right. Defendant had right of homestead in 40 acres of the 117. He had the right to change his homestead, either by changing its physical limits, as authorized by Section 2981, Code, 1897, et seq., or by acquiring an entirely new homestead with the old, or with its proceeds. Section 2981 reads: “The owner may, from time to time, change the limits of the homestead by changing the metes and bounds, as well as the record of the plat and description, or vacate it, but such changes shall not prejudice conveyances or liens made or created previously thereto, and no such change of the entire homestead, made without the concurrence of the husband or wife, shall affect his or her rights, or those of the children. 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.” This provision of the law is somewhat different from that of its original, as found in Sections 1256 and 1257, Code, 1851, and carried into Sections 2000 and 2001, Code, 1873. In the case before us, there was not merely a change of the limits of the homestead, within the strict purview of these sections, nor is the case merely one of sale of a homestead and using the money derived from it, in whole or in part, in the purchase of another homestead. It is the case of one homestead’s being transmuted by exchange immediately into another. The theory is that the new homestead is a eontinuancé of the old, and the exemption dates from.the acquisition and occupancy as a home of the old. Blue v. Heilprin & Co., 105 Iowa 608, 614; Yates v. McKibben, 66 Iowa 357; Rutledge v. Wright, 186 Iowa 777; Perry v. Adams, 179 Iowa 1215; 29 Corpus Juris 840. This is so though means of the debtor in addition to the old homestead are used in acquiring the new. Lay v. Templeton, 59 Iowa 684; Benham v. Chamberlain & Co., 39 Iowa 358. We reserve, without discussing, the *256 question whether, under the strict language of the statute, and the theory of the exemption, in connection with the fact that there was an exchange of homestead profitable to the debtor, without further investment by him in the property, the court may act on mere opinion evidence of exchange value. See 8 Words & Phrases 7278. As has been noted, the defendant’s right to exemption attached when he acquired and occupied as his home the 40 in the 117 acres. From that date, he might have put on improvements. As to such improvements, defendant’s right to exemption dated from the acquisition and occupancy of the homestead, and from that date, they, as well as the property in the form in which it was first purchased, were exempt. Shaffer Bros. v. Chernyk, 130 Iowa 686, 688; Ebersole v. Moot, 112 Iowa 596, 599. Ebersole v. Moot was an action to subject part of the value of a homestead to the payment of a judgment, and it was argued that, where one occupying a homestead becomes indebted, his exemption is only that which he has at the time, and substantial improvements thereafter made are not, and should not be, exempt, but constitute, pro tanto, subsequent acquisition. It is said: . “Section 2976 does no more than provide that the homestead shall be liable for debts contracted prior to its acquisition. This case does not come within the letter of the provision, nor do we see anything in the spirit of the law to justify us in giving it the construction contended for. * * # This particular question has not been determined by this court. We do not think, however, that plaintiff’s claim can be sustained. The court found the homestead to be of the value of $1,000, and the value of the improvements thereon to be $700. It seems to us to be a proper legal inference, from the provisions of the law as to homestead rights, that the owner may make expenditures thereon and improvements thereto necessary to its preservation and suitableness for homestead occupation. The law on this subject has always received liberal construction in favor of the homestead occupant, out of considerations of public policy and the very humane and beneficent purpose that inspired the enactment of the law. This liberality of construction should not lead to the granting of rights not within the spirit and purpose of the enactment. That a homestead should be adequate to the needs of a family is so *257 clearly within the spirit of the law that it would hardly be questioned ; and we think it to be a part of the homestead right that the owner may so maintain it that it is, in a reasonable sense, a home for the family, as to its capacity and conveniences, and that to this end changes may be made from time to time, "and the expenditures, therefore, are protected as a part of the homestead right. The evidence is not before ns, and we have no reason to assume in this ease any improper expenditures.” As the statute exempts the new homestead only to the extent of the value of the old, in respect to debts incurred between the acquisition of the first and that of the second, improvements on the new homestead cannot be taken into account in determining the value of the old. Blue v. Heilprin & Co., 105 Iowa 608, 614. Plaintiff relies upon a sentence in Paine v. Means, 65 Iowa 547: “Nor are we informed as to how the value of the homestead right was affected by the incumbrances. It is impossible, therefore, to determine that the property in question represents the value of the homestead right in the farm * * ®.” But nothing was adjudicated in that case contrary to the principles announced in those herein cited. It is a necessary deduction from Rutledge v. Wright, 186 Iowa 777, supra, that payments on the purchase price made after the acquisition of the homestead exemption may not be deducted from the value of the homestead tract, though made after the debt to which it is sought to subject the homestead was incurred; and this doctrine is fully sustained by principle and authority. In First Nat. Bank v. Glass, 25 C. C. A. 151 (79 Fed. 706), the circuit court of appeals for this circuit, speaking through Judge Sanborn, said: “An insolvent debtor may use with impunity any of his property that is free from the liens and the vested equitable interests of his creditors, to purchase a homestead for himself and his family in his own name. If he takes property that is not exempt from judicial sale, and applies it to this purpose, he merely avails himself of a plain provision of the Constitution or the statute, enacted for the benefit of himself and his family. He takes nothing from his creditors by this action in which they *258 have any vested, right. The Constitution or statute exempting the homestead from the judgments of creditors is in force when they extend the credit to him, and they do so in the face of the fact that he has this right. Nor can the use of property that is not exempt from execution to procure a homestead be held to be a fraud upon the creditors of an insolvent debtor, because that which the law expressly sanctions and permits cannot be a legal fraud. Jacoby v. Distilling Co., 41 Minn. 227, 43 N. W. 52; Kelly v. Sparks, 54 Fed. 70; Sproul v. Bank, 22 Kan. 338; Tucker v. Drake, 11 Allen 145; O’Donnell v. Segar, 25 Mich. 367; North v. Shearn, 15 Tex. 174; Cipperly v. Rhodes, 53 Ill. 346; Randall v. Buffington, 10 Cal. 491. When the appellees sold their farm in Nebraska, and bought and took possession of their homestead in Kansas, the bank had acquired no lien and no specific equitable interest in any of the property of its debtor. It was his simple contract creditor, and it had no vested right in either his property or his residence. He had the right to change his residence from one state to another, and to secure for himself a homestead in any state where he chose to live. If, therefore, he had taken the conveyance of his homestead in Kansas in his own name, it would have been exempt from the judgment of the appellant. ’ ’ In In re Wilson, 59 C. C. A. 100 (123 Fed. 20, 22), the circuit court of appeals for the ninth circuit said: "But the decided weight of authority sustains the doctrine that, where a homestead exemption is allowed by state law, an insolvent debtor may, out of the proceeds of a failing business, either purchase a homestead, or pay off an existing incumbrance thereon, and hold the same against the claims of his creditors, whether proceedings to subject the same to his debts be instituted under the state laws or under the national bankruptcy act. The reason assigned for this rule is that all persons dealing with or giving credit to such a debtor must be presumed to do so with a knowledge of the homestead exemption law and in view of the right of the' debtor to place his property in the form of such homestead, and thereby beyond the reach of their demands. ’ ’ See, also, 27 Corpus Juris 447; Crosby v. Anderson, 49 Utah 167 (162 Pac. 75). Nor can the creditor defeat this right, or re *259 duce in extent the homestead interest, by himself paying the in-cumbrance or the balance of the purchase price. Hansen v. Mauss, 40 Utah 361 (121 Pac. 605); Libbey v. Davis, 68 N. H. 355 (34 Atl. 744) ; 29 Corpus Juris 845. This is in harmony with the general rule that the conversion of nonexempt property into exempt property does not, of itself, invest the creditor with any right to follow the exempt property. 27 Corpus Juris 440. It is a necessary conclusion that the homesteader, after his right of exemption accrues, may pay for the property, may pay off liens upon it; and the fact that he does so does not bring forward the date from which his right of exemption to the tract as an entirety accrues, nor would such fact confer on the creditor the right to impose upon the homestead liability to the amount of such expenditures made after the incurring of the debt to him. And if he cannot follow the property because incumbrances have been paid, he cannot use the incumbrances to reduce the value of the homestead. If the homesteader and his wife agree to pay out of the proceeds of the sale of the homestead a debt which they owe, or if they agree to pay commission for its sale, or if there is a tax lien.upon it or a valid mechanics’ lien or a judgment for a debt antedating the homestead, and these have to be paid from the proceeds, it would not be said that the value of the homestead would be reduced thereby. The homesteader thereby would forego enjoyment of the full value as exempt, but the value itself would not be diminished. It can make no difference that he voluntarily makes these matters a lien. The value of the homestead is (as respects such matters) the value of the physical property, not the value of the owner’s estate in it or the amount that the owner will enjoy from its sale. If the owner is able to sell for $50 or $5,000 more than the value given by witnesses, the sale price would be the best evidence of value, for value is determined by what the property will bring. What it actually brings, undiminished by sums paid out of the proceeds, is the value; and the value, or so much of the value as goes into the new homestead, determines the amount of the exemption of the new. It results that the value of defendant’s homestead in the 40 of the 117 acres on the basis of the average of valuations by plaintiff’s witnesses was $9,200, and on that by defendant’s witnesses, $9,820. On the evidence, the court is of the opinion *260 that the value of the old homestead and the amount to which the new is exempt from execution on judgment on the indebtedness to plaintiff is $9,500. Plaintiff has or claims no lien upon this 40 acres save as it may be permitted to obtain a judgment lien as a result of entry of judgment herein on the notes sued on, otherwise discharged in bankruptcy. The incurring of the indebtedness sued on antedated the acquisition of the land in question, which appears to have been June 26, 1923. The judgment which plaintiff seeks is one “limited to a specific íien upon” the 40 acres. He asks that special execution issue for the sale of such real estate to satisfy the judgment. On December 20, 1924, defendant filed voluntary petition in bankruptcy, and was adjudged a bankrupt December 22, 1924. On January 13, 1925, defendant filed petition for discharge, proceedings on which were, on March 10, 1925, stayed “until after the determination of this litigation in the state court, or until such further time as ordered * * #.” The petition in the present suit was filed March 13, 1925. There are on the land in question throe mortgages antedating the proceedings in bankruptcy: one of $4,000, dated March 9, 1923, one of $545, dated June 6, 1923, and one of $900, dated February 27, 1924. The principal of the indebtedness and some interest at least have not been paid. The land is subject, therefore, to contract liens amounting to $5,427, besides accumulated interest. Plaintiff’s procedure here is dictated by the pendency of the bankruptcy proceedings and the contracting by the bankrupt of the indebtedness involved prior to the acquisition of the present homestead. The homestead is exempt to the extent in value of $9,500. Our statutes do not prescribe the procedure for ascertaining and subjecting the excess in value of the new homestead over the value of the old homestead. The statute merely provides in this connection that: “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.” Section 2981, Code of 1897. Plaintiff appeals to equity, and whether or not he is entitled *261 to relief in equity and the extent thereof must be determined on general principles of equity jurisprudence. By the express provision of the statute, “the homestead of every family * * ® is exempt from judicial sale, where there is no special declaration of statute to the contrary. ’ ’ Code of 1927, Section 10150 (Code of 1897, Section 2972). Independently of a favorable result of this action, plaintiff has no lien upon this land. By the recovery of judgment herein, plaintiff would acquire no lien upon the homestead. Lamb v. Shays, 14 Iowa 567. The homestead involved here is the 40-aere tract, to the extent in value of $9,500. Our statute does not give the plaintiff the right to sell the land including the homestead. The question was suggested, but not decided, in Shaffer Bros. v. Chernyk, 130 Iowa 686. The property to the extent in value of $9,500 is homestead, and therefore to that extent, by the clear language of the statute, exempt from judicial sale, as held in Lamb v. Shays, 14 Iowa 567. Any judgment rendered herein would not be a lien upon the tract up to $9,500 of its valuation. The tract to the extent of the value of $9,500 cannot be sold, under execution or other judicial sale. In Harrison v. First Nat. Bank (Tex. Civ. App.), 224 S. W. 269, 274, it is suggested that the entire tract may be sold, for the purpose of segregating the value of the excess from the exempted value; but it is said that the sale of the exempted interest would be only for the purpose of partition. Such procedure, however, has no support in the statute in this state. In Clement v. First Nat. Bank (Tex.), 259 S. W. 561, it is said that equity requires that the excess in value “be ascertained, and if possible, the excess segregated from the homestead before sale is made. To require less would likely result in injustice, and a sacrifice of both the homestead and the excess. At public sale, no one would be justified in bidding without some definite knowledge of the value of what was actually being sold. If the property is not susceptible of partition, so that the homestead may be segregated from the excess, and only the excess be sold, it should at least be determined what per cent of the value of the whole property is subject to sale, and this definite interest be offered for sale.” This is the procedure which the parties to this suit in substance have adopted. The value of the 40 acres as an entirety is, according to plaintiff’s witness, $14,080, and according to defendant’s witnesses, $11,640. We are of the opinion that the value *262 cannot be placed higher than $13,000. Deducting the homestead exemption leaves the excess in value which could be subjected to the lien of a judgment, $3,500. Technically, therefore, a judgment would be a lien on a 7/26ths interest in the tract. Defendant had the right to, as he did, impose upon the entire tract the liens of the three mortgages which have been referred to. Those liens would be prior to the lien plaintiff is asking for. Plaintiff has no ground of complaint because of the imposition of such liens or such preference to other creditors, and makes none. By Section 2976, Code of 1897, it is provided that the homestead may be sold for debts “created by written contract by persons having the power to convey, expressly stipulating that it shall be liable, but then only for a deficiency remaining after exhausting all other property pledged by the same contract for the payment of the debt.” Section 10155, Code of 1927. If equity were to grant to plaintiff, therefore, the execution which it seeks, the plaintiff would have to sell the 7/26ths interest in the 40 subject to the three existing liens, amounting to $5,427, which defendant has the right to have paid first out of the 7/26ths interest. The value of this 7/26ths interest does not exceed $3,500. The prior debts against it are not less than $5,427. Defendant has no other property, and is in bankruptcy. The mortgages, if paid at all, must be paid from the proceeds of the land in controversy. Equity will not exercise its powers for the purpose of establishing a merely abstract right which one of the parties may, through the exercise of discretion which the law gives him, nullify, or one which will merely inflict an injury on the defendant, or will accomplish no useful purpose. Equity will not act in the merely vain exercise of power. Leffler v. City of Burlington, 18 Iowa 361; Rust v. Conrad, 47 Mich. 449 (11 N. W. 265, 267, 41 Am. Rep. 720); 21 Corpus Juris 159; 10 Ruling Case Law 369. The defendant is in bankruptcy. His application for discharge has been stayed by the bankruptcy court for the purpose of permitting plaintiff to proceed with this present litigation. Plaintiff, in thus appealing for suspension of defendant’s rights under the bankruptcy act, and in appealing to the conscience of the chancellor, must show a substantial right and a substantial benefit to be obtained from the intervention of the court of equity. Plaintiff is asking equity to grant it a specific lien on the land involved here, and to issue special execu *263 tion for its sale. Such lien and special execution would, by tbe mere exercise of the right which defendant and his family have in his homestead, a right which he is insisting upon, avail the plaintiff nothing, unless it should be that plaintiff might bid in. the 7/26ths interest in the property, and in some way secure the enforcement of the mortgages, and indirectly, because of defendant’s financial helplessness, consume the homestead, which fi is public policy to preserve for defendant and his family. In such circumstances, the court should exercise its equitable discretion in denying the merely technical, valueless, and possibly oppressive relief sought. — Affirmed. Evans and Wagner, JJ., concur. Albert, C. J., and Stevens and Favidle, JJ., specially concur. De Graff, Kindig, and Grimm, JJ., dissent.