Millsap v. Faulkes

• Decision Date: 16 October 1945
• Docket Number: 46752.
• Citation: 20 N.W.2d 40,236 Iowa 848
• Parties: MILLSAP v. FAULKES et al.
• Court: Iowa Supreme Court

20 N.W.2d 40

236 Iowa 848

MILLSAP v. FAULKES et al.

No. 46752.

Supreme Court of Iowa

October 16, 1945

Crissman & Bleakley, of Cedar Rapids, for appellants.

Donnelly Lynch, Anderson & Lynch and Jordan & Jordan, all of Cedar Rapids, for appellee.

GARFIELD Justice.

On May 27 1944, plaintiff contracted to sell for $8450 a residence property in Cedar Rapids which had been his homestead since 1924. The purchaser paid $500 down and agreed to pay the balance of $7950 when merchantable abstract of title and warranty deed were ready for delivery. A month later the purchaser took possession. In July, 1942, defendant Faulkes had recovered a judgment against plaintiff for $1585. The debt on which the judgment was based arose within two years from its rendition. In March, 1939, plaintiff had mortgaged his homestead for $5500 to a savings and loan association. At the time of trial $3716 was owing the mortgagee. This mortgage was a renewal of prior mortgages, in varying amounts, made commencing in 1929. Prior to the sale of his homestead, plaintiff intended to invest $4950 of the proceeds in another homestead and had at least a tentative oral agreement with a Miss Butcher to purchase her property for that amount.

On June 9 1944, defendant Faulkes caused execution to issue on his judgment and the purchaser from plaintiff (one Larson) to be garnished. Thereupon plaintiff brought this action asking that the proceeds of the sale be held exempt from the Faulkes judgment. (For convenience we treat Faulkes as sole defendant although the sheriff is also a nominal defendant.) Defendant contends that the only portion of the proceeds of the sale which plaintiff may hold exempt from the judgment is the $4950 that plaintiff intends to reinvest in the Butcher property. Plaintiff, however, contends that he is entitled to pay out of the proceeds the amount owing on the mortgage to the savings and loan association and hold the balance exempt for reinvestment in the new homestead.

It appears that plaintiff is obligated for a broker's commission of $422.50 for the sale of his homestead and there are some unpaid taxes against it. The contract obligates plaintiff to pay all liens and incumbrances against the property. It is apparent that if the mortgage indebtedness (not to mention the broker's commission or the taxes) is deducted from the sale price of $8450, the balance will be less than the $4950 necessary to pay for the Butcher property. Plaintiff testified in effect that he knew he could get a loan on the Butcher property for the difference between $4950 and the net proceeds coming to him from the sale to Larson.

The trial court rejected defendant's contention, held that the net proceeds from the sale to Larson, after deducting the amount of the mortgage debt, were exempt to plaintiff for reinvestment in the Butcher property and granted plaintiff the relief prayed for. Defendant has appealed. We affirm the trial court.

It is true, as defendant contends, the general rule is that proceeds from the voluntary sale of exempt property are not exempt in the absence of a statute providing therefor. Union Co. Inv. Co. v. Messix, 152 Iowa 412, 420, 132 N.W. 823, and cases cited; Annos. 1 A.L.R. 483, 119 A.L.R. 467.

Section 10154, Code 1939, so far as material here, provides:

'Where * * * 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.'

Pursuant to the spirit of this statute, we have held on several occasions that one who sells his homestead may for a reasonable time hold the proceeds exempt in order to reinvest in a new homestead to the extent in value of the old. Harm v. Hale, 206 Iowa 920, 924, 925, 221 N.W. 582, and cases cited; Elliott v. Till, 219 Iowa 649, 655, 259 N.W. 460.

Defendant argues that 'the proceeds' from the sale to Larson are $8450, undiminished by the mortgage debt (and that $3500--all above $4950--is liable for the payment of the judgment). To support this argument, defendant relies heavily upon American Sav. Bank v. Willenbrock, 209 Iowa 250, 228 N.W. 295. There defendant traded his old homestead for a new one. Both were incumbered. Plaintiff, an existing creditor, sought to enforce his claim against the new homestead to the extent that it exceeded the old 'in value.' The majority opinion holds that for the purpose of determining such excess in value, to which the creditor could resort, the value of the old homestead was the value of the physical property, without deducting the amount of the incumbrances against it. This conclusion was reached by a liberal construction in favor of the debtor of what is now section 10154 (with some changes not material here.) Obviously, in the Willenbrock case such construction resulted in greater homestead rights to the debtor in the new property and lessened the value of the excess to which the creditor could resort. There it was the creditor who unsuccessfully contended the value of the old homestead was its physical value less incumbrances.

From the majority holding in the Willenbrock case regarding the value of the old homestead, defendant seeks to draw the conclusion that the proceeds of the sale here are the full $8450. But this does not follow. Under the sale contract here, plaintiff is obligated to pay the mortgage to the savings and loan association in order to deliver the property clear of incumbrance. The fair inference is that plaintiff is unable to pay the mortgage except out of the proceeds of the sale. He testified he was unable to keep up the payments on the mortgage or maintain the home. Unless therefore the mortgage is satisfied out of the money paid by Larson, plaintiff is not entitled under his contract to receive the sale price. All that plaintiff can actually receive from the sale is about $4750 (without taking into account the broker's commission or the taxes).

We have no hesitancy in holding under the facts here that the balance of the purchase money over and above the amount of the existing mortgage constitutes 'the proceeds' of the old homestead which plaintiff is entitled to hold exempt for the purpose of reinvesting in a new homestead.

If the sale to Larson at a valuation of $8450 had been subject to the existing mortgage and the contract had provided that plaintiff was to receive only about $4750, there would be no basis for defendant's contention. In such event, clearly the proceeds of the sale would be reduced by the amount of the mortgage and would be...