Opinion ID: 391956
Heading Depth: 3
Heading Rank: 1

Heading: California Decisions

Text: 11 Two different courts from the State of California have considered the question raised here and have reached opposite conclusions. In Daylin Medical and Surgical Supply, Inc. v. Thomas, 138 Cal.Rptr. 878, 69 Cal.App.3d Supp. 37 (1977), the court ruled that the retroactive application of section 690.235 did substantially impair preexisting contractual rights. The debtors had argued that section 690.235 had not created a new exemption, but merely allowed the claiming of a homestead exemption without a prior declaration as required under the homestead laws. The court rejected this argument. The court noted that under the homestead laws, there was no exemption without a prior recordation of the homestead claim. Without the enactment of section 690.235, the creditors would have been able to execute against the debtors' dwelling. The court concluded that section 690.235 created an exemption where none existed and deprived the creditor of a right he had at the time the obligation had been incurred. Thus the court ruled that the contract had been impaired and held that section 690.235 could not be retroactively applied in that case. 12 The district court of appeals, in San Diego White Truck Co. v. Swift, 157 Cal.Rptr. 745, 96 Cal.App.3d 88 (Ct. of App.1979), declined to follow Daylin. The court stated that in striking the balance between rights of creditors and debtors, the State had always provided exemptions for persons unable to pay their debts and that the protection of the homestead from forced sales had been a part of the State's original constitution. Thus the court concluded that the broadest application of section 690.235 was needed to accomplish its purposes. The court declared that the ability to gain the homestead protection should not rest upon the filing or non-filing of a homestead declaration. The court determined that the retroactive application of section 690.235 would have only minimal effect because the rights of creditors had always been subject to the homestead exemption and section 690.235 merely took away the gamesmanship involved in obtaining the exemption. 13 In bankruptcy actions, the federal courts decide the merits of state exemptions, but the validity of the claimed state exemption is controlled by the applicable state law. In the Matter of Jackson, 472 F.2d 589, 590 (9th Cir. 1973); see also, In re Bassin, 637 F.2d 668, 670 (9th Cir. 1980). San Diego White Truck appears to be the most recent and the highest court decision in California on the subject, and therefore, ordinarily should be followed in the absence of convincing evidence that the highest court of the state would decide differently. Klingebiel v. Lockheed Aircraft Co., 494 F.2d 345, n. 2 (9th Cir. 1974). However, here, the validity of the exemption rests upon the interpretation and application of a clause of the United States Constitution. In such a situation, a decision of a state court, while it might provide some guidance, is not controlling. Thus we will independently review the issue.