Case Name: LEITER et al. v. STEINBACH et al.; STEINBACH et al. v. LEITER et al.
Court: United States Court of Appeals for the Fifth Circuit
Jurisdiction: United States
Decision Date: 1950-10-27
Citations: 184 F.2d 751
Docket Number: No. 13006
Parties: LEITER et al. v. STEINBACH et al. STEINBACH et al. v. LEITER et al.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 184
Pages: 751–755

Head Matter:
LEITER et al. v. STEINBACH et al. STEINBACH et al. v. LEITER et al.
No. 13006.
United States Court of Appeals, Fifth Circuit.
Oct. 27, 1950.
Ben T. Beasley, Jr., Sidney T. Schell, Atlanta, Ga., for appellant and cross-appellees.
Joel R. Parker, Benjamin M. Parker, and R. Emerson Gardner, Atlanta, Ga., for appellee and cross-appellants.
Before HUTCHESON, Chief Judge, and HOLMES and RUSSELL, Circuit Judges.

Opinion:
RUSSELL,, Circuit Judge.
The question presented by this appeal, dispositive of the case without regard to other subordinate questions raised, concerns the power of a Court of Bankruptcy, under the circumstances of this case, to determine the validity, priority and effect of an assignment of homestead exemption executed by the bankrupt as a part of a note evidencing indebtedness, and to adjudge delivery of the property to the creditor, when the contest is solely between the bankrupt and such creditor, and when the trustee in bankruptcy who has set aside the claimed exemption expressly disclaims any interest therein on behalf of the general creditors. In his schedule the bankrupt designated certain property as his exemption, its aggregate value being slightly less than the sixteen hundred dollars allowed by the laws of Georgia. The trustee duly approved and reported the claim, and thereupon appellees filed their claim to the property predicated upon the transfer and assignment evidenced in notes held by them. They claimed title to, and the ownership of, any property set apart and designated as exempt and prayed that they be allowed to intervene and claim title to such property and "upon the hearing hereof it be determined that your petitioners are entitled to the scheduled, pointed out and designated exempt property." The bankrupt responded by a motion to set aside the intervention and claim of title, asserting among other defenses, that by reason of usurious interest paid and other payments, the note had been paid and discharged, and further moved to dismiss the claim upon the ground "that the bankruptcy court has no jurisdiction over exempted property and no authority to administer the same." The referee overruled the motion on the authority of Kronstadt v. Citizens & Southern Nat. Bank of Savannah, 5 Cir., 80 F.2d 260, and thereafter upon a hearing determined that the plea of payment and other defenses to the claim were unsupported, and directed that the trustee deliver the exempt property to the claimants. Upon the hearing of a petition for review, the report of which is in the record, the District Judge in numerous instances expressed doubt of the jurisdiction of the Court, but upon -consideration of the matter determined, as had the referee, that "so far as this circuit is concerned" the Kronstadt case, supra, was controlling as, to the $1600.00 homestead, but that the $300.00 homestead could not be waived or assigned, and thereupon with this omitted, directed the balance turned over by the trustee to the claimant. We have concluded that the Court erred in determining the contesting claims of the bankrupt and the claimant to the admittedly exempt property, and therefore the subordinate question of the effectiveness of the waiver of the smaller homestead is not now involved.
While it would be fruitless, if indeed not impossible, to define the precise extent of the jurisdiction of a bankruptcy court with reference to questions arising upon the setting apart of exempt property, or of claims arising in connection with the exercise of this branch of such court's jurisdiction, it seems clear that at least since the decision in Lockwood v. Exchange Bank, 190 U.S. 294, 23 S.Ct. 751, 47 L.Ed. 1061, no authoritative decision has questioned the proposition that after the designated property has been set apart and the question of its exemption vel non determined, the bankruptcy court thereafter has no power to distribute the exemption by adjudicating contests between the bankrupt and his creditors which involve, solely, the ownership of the aggregate exemption, as such.
The well established Georgia law which permits the sale or assignment of exempt property (as distinguished from a general waiver of exemption rights), does not change the matter. This is so because the exemption and exempt property which has been assigned is determinable only after the final determination of its specific existence. Therefore a creditor, such as the appellees, have no claim enforceable definitely upon specific assets until the exemption has been declared and perfected. However, this very act of the bankruptcy court, essential to- the perfection of the creditors claim, is the final act within the jurisdiction of the bankruptcy court, and consequently any contest as to whom the exempt property should be awarded has then passed beyond the power o-f the court of bankruptcy, and for the enforcement of the assignment the creditor is relegated to a court of competent jurisdiction. This proposition is so clearly established by the language and plan of the Bankruptcy Act, 11 U.S.C.A. § 1 et seq., as to- render further argument in support thereof unnecessary, but in passing we may nevertheless call attention to the consequences of a contrary holding. In the event there were numerous creditors holding similar assignments, with conflicting claims as to priority, and indeed existence of assignments, dependent in each case on whether the indebtedness which the assignment was given to- secure had in fact been paid, a bankruptcy court would find itself enmeshed in the determination of questions with which it is in no wise concerned, -its proper function having been discharged upon the determination and setting apart of the exemption claimed by the bankrupt.
Review of the Kronstadt case discloses that the question of whether the bankruptcy court may adjudicate the existence or effectiveness of the assignment in a contest between the bankrupt and a creditor, which arises only after the property has been declared exempt, was not there presented. The ruling in that case related squarely to the final setting aside of the exemption, — a matter of course within the jurisdiction of the bankruptcy court. The claim of the trustee in bankruptcy, bottomed upon the attempted renunciation of the exemption, which had been assigned to the creditor, furnished the nexus for the exercise of the jurisdiction of the bankruptcy court to determine whether the property in question had become by the .renunciation, assets for distribution to general creditors, or whether the renunciation should be declared ineffective and the property set apart as exempt as claimed by the creditor. No question was there presented as to the lack of power of a bankruptcy court to settle contests between the bankrupt and the claimant as to the title to. the exemption. The bankruptcy trustee apparently relied solely upon the renunciation of the exemption, originally claimed by the bankrupt, and there was no attack upon the power of the bankruptcy court to award the property to the claimant in the event the renunciation was determined to be ineffective. In Re Marschall, 5 Cir., 296 F. 685, also relied upon by the appellees, the ruling relates to- the duty and jurisdiction of the bankruptcy court to determine the question of exemption when it was asserted that the bankrupt was not entitled to the exemp- - tion because he was not the owner of the property. Both of these rulings are correct, but neither reach the question here involved on the precise question of the power of the bankruptcy court to determine questions of the existence and effect of the assignment of exempt property, as such. We reiterate, in the present case in no event could the claim of the assigneecreditor arise until the exemption had been set aside. When challenged in a proceeding exclusively between the bankrupt and assignee, we find the rule in this' Circuit to be no different from that referred to above as generally prevailing. Proper application of the rule denies the jurisdiction of the bankruptcy court to- adjudicate questions of ownership of the exemption when based upon opposing claims which of necessity could arise only after the exemption had been set apart by the bankruptcy court. The District Judge therefore erred in failing to sustain the motion to dismiss the claim of the intervening assignees.
The appellants also complain that the Court erred in taxing the expenses of storage of the exempt articles • against the articles, the effect of which will be to diminish the amount of the exemption. This assignment does not properly reflect the action of the Court. After awarding the property to the claimants, the Court directed that they pay the costs of storage before receiving delivery. Therefore, under our ruling that the order directing delivery was erroneous, the question of. costs is not now properly before us, and as to this part of the case we shall not anticipate that in carrying out the mandate of this Court upon reversal that the Court will tax such storage expenses other than in accordance with law.
The judgment of the trial Court is reversed and the cause remanded with direction to dismiss the intervention and the claim of the appellees.
Judgment reversed.
. "Bach of us, .whether principal, surety, guarantor, endorser or other party hereto, hereby severally waives and renounces each for himself and family, any and all homestead or exemption rights any one of us may have [under] or by virtue of the Constitution and laws of Georgia, any other state, or the United States, as against this debt or any renewal thereof; and the undersigned, as well as all sureties, endorsers, guarantors, or other parties to this note, jointly and severally transfer, convey and assign to the payee or holder of this note a sufficient amount of any homestead or exemption that may be allowed to any one of us, including such homestead or exemption as may be set apart in bankruptcy, to pay this note in full, with all costs of collection; and each of us hereby directs the Trustee in Bankruptcy, Receiver or other person having possession of such homestead or exemption to deliver to the payee or holder of this note a sufficient amount of property or money set apart as exempt to pay off the indebtedness evidenced hereby; and each of us further waives, demand, protest and notice of demand, protest and non-payment."
. Statement of the universal rule and numerous authorities in support thereof are contained in Collier on Bankruptcy, 14th Ed. page 805, et seq.