Beneficial Finance Co. of Colorado v. Schmuhl

DUBOFSKY, Justice,

dissenting:

Because I disagree with the majority’s conclusion that a security agreement on a mobile home creates an implied waiver of statutory exemption as to the mobile home and because the exemptions from levy and attachment are to be liberally construed with exceptions only as specified by statute, I respectfully dissent. I would remand this case to allow the district court to determine whether, as Beneficial Finance Company (Beneficial Finance) asserts, the Schmuhls failed to claim their exemption within the time period allowed by statute and whether Beneficial Finance has waived its right to challenge the timeliness of the Schmuhls’ claim of exemption.

Section 13-54-102(1), 6 C.R.S. (1985 Supp.), provides that “[t]he following property is exempt from levy and sale under writ of attachment or writ of execution: ... (o)(II) [o]ne mobile home to the extent of six thousand dollars while used and occupied as a place of residence by the own-er_”1 Although section 13-54-103, 6 C.R.S. (1973), provides that exempt property is subject to levy and sale for the purchase price of such property, Beneficial Finance did not assert that the loan money was used to purchase the mobile home.

The plain meaning of the statute supports enforcing the exemption against Beneficial Finance. In construing a statute, courts have a duty to ascertain and to give effect to legislative intent wherever possible. Industrial Comm’n v. Board of County Comm’rs, 690 P.2d 839 (Colo.1984); see First Nat’l Bank v. District Court, 652 P.2d 613 (Colo.1982). In Packard v. Packard, 33 Colo.App. 308, 309, 519 P.2d 1221,1222 (1974), the court refused to create an exception to the exemption statute, concluding that changing the policy regarding exemptions is for the legislature:

On its face the statute clearly applies to all writs of execution, regardless of the nature of the underlying claim. The only exception is specified in a subsequent subsection, ... which denies exemptions if the writ of execution issues on a judgment for the purchase price of the property exempted. Where the statute is unambiguous, the court is not at liberty to carve out an exception to the act’s coverage.

I agree with the majority opinion that Weaver v. Lynch, 79 Colo. 537, 246 P. 789 (1926), “invalidates the Schmuhls’ general waiver of exemptions contained in the loan note.” Maj. op. at 1296. However, the majority then concludes that “Beneficial’s combined note and security agreement on the mobile home resulted in an implied waiver of the Schmuhls’ statutory right to exempt $6,000 of the value of the mobile home.” Maj. op. at 1296. I find it perplexing that while an explicit waiver of exemptions is void as against public policy, a *1298court may then decide that the parties have implicitly waived their exemptions and that an implied waiver is not void as against public policy. Implied waivers are even more objectionable than explicit waivers because the debtor may be unaware that he is waiving an exemption.

The policy enunciated in Weaver, preserving the benefits of the exemptions, applies even more clearly to implied waivers than it does to express waivers:

[T]he rule is that the debtor cannot waive the privilege of claiming the exemption in advance. This rule is based on the theory that exemption laws are made for the benefit of the debtor and his family, and that it is against public policy for him to waive any benefits of the law in advance of the time when it is necessary for him to do so.... These [waivers] would usually be made at the time when the debtor was in need of money, and would be enforceable at some time in the future when, perhaps, he or his family would require the exemption. By doing so, he would waive practically all the benefits of the exemption law. We approve of this doctrine, and hold that such a waiver cannot be enforced.

Id. at 539, 246 P. at 789-90 (quoting Industrial Loan & Inv. Co. v. Superior Court, 189 Cal. 546, 209 P. 360 (1922)). Weaver’s policy applies to the chattel mortgage2 at issue in this case. Colorado’s policy with respect to exemption laws is required by Colorado Constitution article XVIII, section

1. The purpose of the exemptions is to preserve the debtor’s means of support, Smith v. Pueblo Mercantile & Credit Ass’n, 82 Colo. 364, 260 P. 109 (1927), and to preserve a home for the family. See In re Youngstrom, 153 Fed. 98 (8th Cir.1907). Courts must liberally construe the statutory exemptions and must favor the intent and purposes of the statute. Penrose v. Stevens, 100 Colo. 83, 65 P.2d 697 (1937); Sandberg v. Borstadt, 48 Colo. 96, 109 P. 419 (1910).

A number of other states have accepted the principle that exemptions cannot be waived. See, e.g., Slyfield v. Willard, 43 Wash. 179, 86 P. 392 (1906) (waiver in chattel mortgage ineffective where constitution requiring legislature to protect homesteads and other property annuls statute allowing exemptions to be waived); Mayhugh v. Coon, 460 Pa. 128, 331 A.2d 452, 453 (1975) (“the debtor may not, either expressly or by implication, waive the right of exemption”); see also Industrial Loan & Investment Co. v. Superior Court, 189 Cal. 546, 209 P. 360 (1922) (debtor cannot waive exemptions in an executory contract); Iowa Mutual Insurance Co. v. Parr, 189 Kan. 475, 370 P.2d 400 (1962) (same); Sherwin-Williams Co. v. Morris, 25 Tenn.App. 272, 156 S.W.2d 350 (1941) (same). Blanket waivers such as that included in the Schmuhls’ promissory note, which waive all exemptions permitted by law to be waived, are of questionable validity. IB P. Coogan, W. Hogan, D. Vagts & J. McDonnell, Secured Transactions Under the Uniform Commercial Code, § 20AA.03[6], at 20AA-17 (1985). Although the Schmuhls expressly waived all exemptions permitted by law to be waived, Colorado law does not permit the $6,000 mobile home exemption to be waived. In this case, as in Weaver, an implied waiver of the exemption from levy and sale is void as against public policy.

In asserting that the security agreement created an implied waiver of the statutory exemptions as to the mobile home, the majority cites In re Rade, 205 F.Supp. 336 (D.Colo.1962). In In re Rade, which did not involve an express waiver of exemptions, the debtor sold his old car and borrowed an additional $300 to purchase a new car, executing a new note for his prior debt to the credit union and for the additional $300. Thus, the loan for the car, $300, was the same amount as the $300 claimed as an exemption. The additional $300 loan arguably created a purchase money security interest, but the federal court refused to determine whether the loan created a pur*1299chase money security interest because the new car was purchased with money advanced by the credit union and the proceeds from the sale of the debtor’s old car; instead, the federal court avoided these questions by treating the debt as an ordinary chattel mortgage.

Although the federal court in In re Bade acknowledged this court’s opinion in Weaver, it inexplicably allowed the fact that Colorado statutes do not void a mortgage on exempt property to become the basis for its policy preference that exemption of a specific value of specified property from levy and sale be subject to waiver. The court’s reasoning is as follows:

Colorado has held that a stipulation in a cognovit note which waived the right of exemption was invalid as against public policy; Weaver v. Lynch, 79 Colo. 537, 246 P. 789, 47 A.L.R. 299 (1926). However, where a mortgage is executed on exempt property, the prevailing view seems to consider the exemption waived by implication. 22 Am.Jur. Exemptions, Section 132; 35 C.J.S. Exemptions § 106. While there seem to be no Colorado cases that stand for this proposition, the Colorado statutes do not void a mortgage on exempt property. It would seem then, that the courts of Colorado would follow this general approach and permit a valid mortgage to be executed on property that may later be claimed as exempt. Where the bankrupt has intended to create a security interest in the property which he later seems to claim as exempt, such a ruling would not be contrary to the liberal construction which must be given exemption laws as announced in Haas v. DeLaney, D.C.Colo.1958, 165 F.Supp. 488.

In re Bade, 205 F.Supp. at 339. This court is not bound by a federal court’s determination of state law, and where the federal court has refused to follow an opinion of this court that an explicit waiver of an exemption is void as against public policy, instead holding that an implied waiver is sufficient to overcome statutory exemptions, I would decline to be bound by the federal court’s decision.

In addition, the court in In re Bade relied on the general rule “that in the absence of a contrary statutory provision exempt property may be mortgaged.” 205 F.Supp. at 339. In this case, a contrary statutory provision, section 13-54-102, provides that certain property is exempt from levy and sale under a writ of attachment or a writ of execution unless such property is subject to a purchase money security interest under section 13-54-103. I believe that the plain meaning of section 13-54-102(l)(o )(II) is that the Schmuhls’ mobile home is exempt from levy or sale under a writ of attachment or a writ of execution.3 Colorado’s exemption laws do not prevent the Schmuhls from obtaining credit on any equity in their mobile home above $6,000 or credit through a purchase money security agreement. Colorado Constitution article XVIII, section 1, requires the General Assembly to pass liberal homestead and exemption laws; only the legislature may grant further exceptions to statutory exemptions such as that granted for purchase money security interests.

Beneficial Finance also asserts that the Schmuhls failed to claim an exemption for their mobile home within the statutory time limits, and the Schmuhls argue that Beneficial Finance waived its right to challenge the timeliness of their claim of exemption by failing to raise the timeliness issue before the district court. Section 13-55-101, 6 C.R.S. (1973),4 requires that debtors claim

*1300exemptions under the provisions of section 13-54-102 “within ten days after being served with notice of such levy or seizure.” Beneficial Finance asserts that it gave the Schmuhls notice, levied on, and seized the mobile home on December 15, 1982, but that the Schmuhls did not file a claim of exemption until January 6, 1983. The Schmuhls also assert that, because they, not their attorney, were served with notice, and because their attorney was not in town, their neglect was excusable. Although the Schmuhls’ court of appeals’ brief concedes that Beneficial Finance did raise the issue of timeliness, at trial, nothing in the record indicates that Beneficial Finance raised this issue, and the district court did not rule on the timeliness of the Schmuhls’ claim of exemption or on whether Beneficial Finance waived its right to challenge the timeliness of the claim of exemption. Because the timeliness of the Schmuhls’ claim of exemption may determine the result of this case, I would remand the case to the district court in order to allow it to rule on this issue.

I am authorized to say that QUINN, C.J., joins me in this dissent.

. Section 13-54-101(5), 6 C.R.S. (1985 Supp.), defines the value exempted as the "fair market value of any property less the amount of any lien thereon valid as between the owner of the property and the holder of any such lien."

. The Schmuhls’ promissory note contained the following language: “All parties hereto ... waive, as to this debt, any and all exemptions permitted by law to be waived.” In this case, only the blanket waiver in the promissory note is in issue.

. The General Assembly has also provided a homestead exemption for mobile homes, exempting $20,000 in actual cash value in mobile homes from execution and attachment. §§ 38-41-201.5, -201.6, 16A C.R.S. (1982). Because the sections became effective January 1, 1983, and do not provide an exemption for any loans, debts, or obligations incurred prior to January 1, 1983, and the debts in this case were incurred on October 4, 1979, I do not reach the question of whether the homestead exemption for mobile homes prohibits levy or attachment in this case or the effect of the homestead exemption on the exemption for mobile homes under section 13-54-102.

. The General Assembly amended section 13-55-101 in 1985. § 13-55-101, 6 C.R.S. (1985 Supp.). The amendment is not material to this case.