Northern Sav. & Loan Ass'n v. Kneisley, 26786.

• Decision Date: 01 February 1938
• Docket Number: 26786.
• Citation: 193 Wash. 372,76 P.2d 297
• Court: Washington Supreme Court
• Parties: NORTHERN SAVINGS & LOAN ASS'N v. KNEISLEY (PACIFIC NAT. BANK OF SEATTLE et al., Garnishees.

76 P.2d 297

193 Wash. 372

NORTHERN SAVINGS & LOAN ASS'N v. KNEISLEY (PACIFIC NAT. BANK OF SEATTLE et al., Garnishees.

No. 26786.

Supreme Court of Washington, En Banc.

February 1, 1938

Appeal from Superior Court, King County; Malcolm Douglas, Judge.

Action by the Northern Savings & Loan Association against Lydia V Kneisley, a widow, on a note and to foreclose the mortgage securing it, wherein the plaintiff obtained a judgment and a deficiency judgment and thereafter sued out writs of garnishment directed to the Pacific National Bank of Seattle and another. From an order declaring the property subjected to the writs of garnishment to be exempt, the plaintiff appeals, and the defendant moves to dismiss the appeal.

Motion to dismiss the appeal denied and order affirmed.

Patterson & Patterson, of Seattle, for appellant.

Wright Jones & Bronson, of Seattle, for respondent.

BEALS Justice.

During the month of February, 1929, Harry R. and Lydia V. Kneisley husband and wife, executed a note in favor of Northern Savings & Loan Association, a corporation (hereinafter referred to as the association or appellant), and at the same time executed a mortgage on a tract of real estate to secure payment of the note. Mr. Kneisley died November 7, 1930, and thereafter the association instituted suit on its note, also praying for foreclosure of its mortgage. Judgment was rendered in the association's favor, and, after the application of certain credits, there remained a deficiency judgment against Mrs. Kneisley in the sum of $2,500.

Mr. Kneisley left a small community estate, all of which, on Mrs. Kneisley's petition, was set aside to her as exempt, in lieu of homestead, pursuant to Rem.Rev.Stat. § 1473. Mr. Kneisley carried a large amount of life and accident insurance, all payable to Mrs. Kneisley, and, after Mr. Kneisley's death, his widow received $120,000 as the proceeds of these policies. By an arrangement between Mrs. Kneisley and one of the insurance companies, she received from that company annuity certificates guaranteeing payment to her, for the remainder of her life, of the sum of $239 per month. She also entered into an agreement with the Pacific National Bank of Seattle, whereby she turned over to that institution $42,500 of the insurance money in trust, to invest the money and pay the net income to her. For the purposes of this opinion, we assume, without deciding, that the property held by the trustee is, in so far as Mrs. Kneisley's creditors are concerned, her property, as though merely on deposit with the bank.

The association, in an endeavor to collect the amount remaining due upon its judgment against Mrs. Kneisley, sued out two writs of garnishment; one directed to the Pacific National Bank of Seattle, the other to the New York Life Insurance Company. The latter company answered the writ, disclosing that Mrs. Kneisley had purchased the annuity above referred to; that one monthly payment was due the annuitant; and that another payment would fall due each month thereafter. By its answer, the bank disclosed that Mrs. Kneisley had on deposit therein in a checking account the sum of $650; that it held, belonging to her, certain shares of stock; and that it had in its possession under the trust agreement securities worth over $40,000, besides nearly $1,000 in money.

Upon filing of the answers to the writs of garnishment, the association moved for judgment thereon in its favor, whereupon Lydia V. Kneisley filed in the action a verified claim of exemption, alleging that all the properties disclosed by the two garnishees as in their possession were the proceeds and avails of policies of insurance upon the life of her late husband, and as such exempt from liability on account of the judgment owned by the association. The association by affidavit controverted Mrs. Kneisley's claim, and, upon the issues as then made up, the matter came on for trial Before the superior court. After a hearing, the court entered an order adjudging that the annuity above referred to and all the securities, credits, and cash shown to be in the possession of the garnishees were, under the statutes of this state, exempt from execution on the association's judgment. From the formal order of the superior court declaring the properties exempt, the association has appealed.

Respondent, Lydia V. Kneisley, has moved to dismiss the appeal on the ground that no proper or sufficient bond on appeal was filed by appellant. The superior court, in the order appealed from, fixed the amount of the supersedeas bond to be filed by the association in the event it should appeal from the order, in the sum of $1,000, and appellant filed a bond in that amount, conditioned both as a cost and supersedeas bond. This bond, being in the amount fixed by the trial court for a supersedeas bond, was clearly insufficient to serve both as a supersedeas and cost bond. Later appellant filed an additional cost bond in the sum of $200. Rem.Rev.Stat. § 1730-9, reads as follows: 'No appeal shall be dismissed * * * because an appeal bond which is given both as a cost bond and as a bond on supersedeas shall be insufficient by reason of the amount, but the appellant shall in all cases be allowed to give a new bond within such time and upon such terms as the court may order.'

Under this statute, the filing of a new and additional bond was proper, and is allowed. The appeal is regularly Before this court, and the motion to dismiss the same is denied.

Appellant assigns error upon the entry of the order declaring the property in the hands of the garnishees exempt from levy and execution. Appellant contends, first, that the statutory exemption of the proceeds or avails of life insurance does not extend to property purchased with such proceeds, or with the income, earnings, or profits derived therefrom; second, that respondent, as widow, having asked for and received the entire estate of her deceased husband, accepted this award in lieu of all other exemptions; third, that the written claim of exemption filed by respondent Before the court below is defective in form and insufficient to support the order appealed from; fourth, that Rem.Rev.Stat. § 7230-1 (infra), is unconstitutional as class legislation, and because the same is not in accord with the provisions of the State Constitution relating to exemptions; and, fifth, that the proceeds of policies of life and accident insurance, to the extent of premiums paid thereon after the debt due the claimant was incurred, are not exempt from the creditor's claim.

We shall discuss these propositions in order.

The first statute of this state exempting the proceeds of policies of life insurance is found in chapter 125, page 336, Laws of 1895, and reads as follows:

'Section 1. That the proceeds or avails of all life insurance shall be exempt from all liability for any debt.

'Sec. 2. There being no adequate law now in force exempting the proceeds of life insurance, an emergency is hereby declared to exist, and this act shall take effect immediately.'

By chapter 49, page 70, Laws of 1897, section 1 of the act of 1895 was amended to read: 'Section 1. That section 1 of an act entitled 'An act exempting the proceeds of life insurance from liability for debt, and declaring an emergency,' approved March 20, 1895, is amended to read as follows: Section 1. That the proceeds or avails of all life and accident insurance shall be exempt from all liability for any debt.'

This enactment (save as affected by section 36, chapter 142, page 556, Laws of 1909) stood for thirty years, and was amended by chapter 92, page 72, Laws of 1927, which is now in force, the pertinent portions of which act read as follows:

'Section 1. That the proceeds or avails of all accident and health insurance heretofore or hereafter effected shall be exempt from all liability for any debt of the assured, and any debt of the beneficiary existing at the time the policy is made available for his use.

'Sec. 2. That the proceeds or avails of life insurance heretofore or hereafter effected by any person on his own life, * * * shall be exempt from all liability for any debt of the person effecting the insurance, or for any debt of the beneficiary existing at the time the policy is made available for his use, unless the contrary appears by the terms of the policy: Provided, That subject to the statute of limitations, the amount of any premium for said insurance paid in fraud of creditors, with interest thereon, shall inure to their benefit from the proceeds of the policy.'

Section 1 of this act appears as Rem.Rev.Stat. § 569, and section 2 as Rem.Rev.Stat. § 7230-1.

The words 'proceeds or avails' are contained in all of the statutes above quoted. The Legislature deemed the first statute above set forth so important that it declared an emergency so that the act should take effect immediately. The same is true of the amendatory statute enacted in 1897. It should also be noted that by each amendment the statutory exemption has been extended. It must also be remembered that this court has repeatedly held that exemption statutes are to be liberally construed to effect their intent and purpose. State ex rel. McKee v. McNeill, 58 Wash. 47, 107 P. 1028, 137 Am.St.Rep. 1038; Northwestern Mutual Life Ins. Co. v. Chehalis County Bank, 65 Wash. 374, 118 P. 326; Lemagie v. Acme Stamp Works, 98 Wash. 34, 167 P. 60; Arbogast v. Linz, 180 Wash. 315, 39 P.2d 615.

Appellant contends that, taken literally, the words proceeds or avails mean only the money paid on an insurance policy, and argues that, if the Legislature had intended to exempt property purchased with such money, the Legislature would have expressly so provided, as it did in the statute exempting a homestead from forced sale. Re...