Court Opinion

ID: 8745023
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:03:53.18895+00
Date Added: 2024-06-11T17:00:37.301948
License: Public Domain

SANBORN, Circuit Judge
(dissenting). May a bankrupt by preferring a favored creditor transform a statutory exemption of specific articles of personal property of the value of $500 to be selected by him into a preferential lien upon a part or all of his property for $500 in cash? The opinion of the majority is, in effect, an affirmative answer to this question, while, in my opinion, it should be answered in the negative. This bankrupt was entitled to an exemption oí specific articles of personal property to be selected by him, and to that exemption only. Without making any selection, he made a preferential conveyance of his goods to a creditor. This creditor sold these goods for $565.25, deducted $23.75 expenses of sale, surrendered the balance to the court, and the court has applied this balance first to *116the payment of $414 claimed by the bankrupt as a part of his exemption, and the remainder, $127.50, to the benefit of the creditors. The result is exactly what it would have been if the bankrupt had been invested with a first lien upon all his property to secure the payment to him of $500 in cash, and this result appears to me to be unwarranted by the law, unjust, and inequitable.
1. The exemption which the bankrupt is here enforcing is granted to him by the constitution and statutes of Arkansas in these words: “The personal property of any resident of this state who is married or the head of a family, in specific articles to be selected by such resident, not exceeding in value the sum of five hundred dollars, * * * shall be exempt.” Section 2, art. 9, Const. Ark. This selection is required to be made by means of an affidavit of the debtor “specifying the particular property which he claims as exempt.” Sand. & H. Dig. § 3718. A debtor' is legally and morally bound to pay his debts, and the rule is that all his property not expressly exempt by law is subject to appropriation by his creditors to satisfy their just demands. Exemptions constitute statutory exceptions, to this rule of morals and of law. They are grants of special privileges on certain conditions, and if a debtor would avail himself of them he must comply strictly with the conditions and pursue the terms of the grant. Moreover, these statutory exceptions must be fairly and reasonably interpreted, so as to effect the evident purpose intended, and to prevent the plain mischiefs deprecated by the legislators. In the light of these considerations, the legislative permission to a debtor to select and retain a tract of land of the value of $1,500 as a homestead cannot be lawfully construed to be a warrant for him to sell, or to authorize the sale of, a large part or all of his real or personal property, and to take from the proceeds of this sale $1,500 in money as .a homestead. Nor is it perceived how the grant by the state of Arkansas to á debtor of the right to select and retain specific articles of personal property free from the claims of his creditors can be lawfully held to empower him, without making any selection, to sell, or to authorize a favorite creditor to sell, a large part or all of his general estate, and to take $500 in money out of the proceeds as the specific articles selected by him as exempt. The constitution and statutes of Arkansas neither authorized this bankrupt to sell, nor to empower the Bank of Clarksville to sell, his unselected personal or real property to raise money to pay him $500 in preference to all his creditors. It seems to me that here is one of the fundamental errors of the ma-' jority. This bankrupt was entitled to specific articles of personal property selected before their sale, and to those only. If he had selected and set these articles apart before the Bank of Clarksville made the sale, and if their proceeds had been kept separate from the proceeds of his unexempt property, it may be that he could have been al-. lowed these proceeds. But when, without selection, he conveyed the property he might have claimed as exempt, and permitted this to be sold, and its proceeds to be mixed inextricably with property which he could not have claimed as exempt, he waived and lost all claim to this exemption, and his carelessness and disregard of the law should not be permitted to transform his lost right to select and retain *117specific articles into a preferential lien upon the proceeds of his unselected property.
2. This exemption is granted by the constitution and statutes of Arkansas. The construction by the supreme court of that state of that constitution and of those statutes in this case, in which no question of general or commercial law or of right under the constitution or laws of the United States is involved, is binding upon this court, and ought to be followed. Madden v. Lancaster Co., 65 Fed. 188, 192, 12 C. C. A. 566, 570, 27 U. S. App. 528, 536; Dempsey v. Township of Oswego, 4 U. S. App. 416, 435, 2 C. C. A. 110, 112, 51 Fed. 97, 98; Rugan v. Sabin, 10 U. S. App. 519, 3 C. C. A. 578, 53 Fed. 415; Travelers’ Ins. Co. v. Oswego Tp., 19 U. S. App. 321, 327, 7 C. C. A. 669, 674, 59 Fed. 58, 61; Claiborne Co. v. Brooks, 111 U. S. 400, 410, 4 Sup. Ct. 489, 28 L. Ed. 470; Bolles v. Town of Brimfield, 120 U. S. 759, 763, 7 Sup. Ct. 736, 30 L. Ed. 786; City of Detroit v. Osborne, 135 U. S. 492, 499, 10 Sup. Ct. 1012, 34 L. Ed. 260. That court has expressly decided that a debtor who, without selecting specific articles of personal property which he might have claimed as exempt under this constitution and these statutes, permits them to be sold indiscriminately with others which he could not have claimed, cannot be lawfully permitted to receive from the proceeds of the mixed property the value, or any part of the value, of the articles which he might have selected and retained as exempt. King v. Ruble, 54 Ark. 418, 16 S. W. 7; Surratt v. Young, 55 Ark. 447, 18 S. W. 539.
In Surratt v. Young, which is the last decision of the Arkansas court upon this question, the debtor had made an assignment of personal property for the benefit of his creditors. A creditor had attached the assigned property, and had prayed for its sale pending the litigation. The debtor had consented to the sale. The property was sold for the sum of $506.65. The assignment was avoided. The debtor then filed his schedule, in which he claimed specific articles of property which had not been attached, of the value of $29.50, and $470 in cash - from the proceeds of the sale. After citing the constitution and the statutes, the court said, among other things:
“These provisions seem to require that the debtor shall claim bis exemptions in specific articles to be selected by him. Most of the authorities bearing upon the question, ‘When must the selection be made?’ hold that it must be made in a reasonable time, and they all seem to agree, as far as we have examined, that as a rule the selection must be made before the sale of the property, which is said, in most of the cases, in reference to a sale of the property attached on final process. It would seem that the claim of exemption should be made in accordance strictly w-ith the requirements of the statute, and in apt time, that the debtor may have the benefit of the humane provisions of the law in reference to exemptions, and that the creditor may not be prejudiced in his rights. Prima facie all the property of the debtor is subject to sale on execution for the payment of his debts. But the constitution confers upon him the privilege of claiming specific articles of his property as exempt from execution, and the statute points out particularly the manner in which this must be done, and provides that when it is thus done a supersedeas shall be issued to prevent the sale of the property thus selected as exempt. If the debtor were permitted to stand by and see his property sell without claiming his exemptions in specific articles, and then be allowed to claim the amount in *118value of Ms exemptions out of the proceeds of the sale of his 'property, It Is not difficult to see how he might work this to the prejudice of his creditor, and how an improvident and thriftless man, hy permitting the sale of his property exempt by law from execution, and necessary for the use of his family, might thwart the purpose of the law in securing the right to a debtor to claim his, exemption.”
How much more may a debtor use his privilege to the prejudice of his creditor, and to thwart the purpose of the law, if he may convey his unselected property to a favored creditor, and permit him to sell it to raise money for his benefit. The judgment of the supreme court of Arkansas was that the debtor was entitled to no share of the proceeds of the sale, and in support of its decision it cited Weaver’s Appeal, 18 Pa. 309; Miller’s Appeal, 16 Pa. 303; King v. Ruble, 54 Ark. 418, 16 S. W. 7; Norris v. Kidd, 28 Ark. 499; Healy v. Conner, 40 Ark. 352; Chambers v. Perry, 47 Ark. 400, 1 S. W. 700; Brown v. Peters, 53 Ark. 182, 13 S. W. 729. This decision of the supreme court of Arkansas appears to me to be reasonable, right, applicable, and controlling in this case.
3. It is an established principle, in support of which the authorities are uniform, that identification and separation of the exempt articles is an indispensable condition of the exercise of the right of exemption. If, through any act or omission of the debtor, the articles which he might have claimed as exempt have become so mixed with those which he could not claim that the former can be no longer identified and separated, the right to the exemption is gone. Freeman in his work on Executions states this rule in these words:
“If exempt goods be so mixed with others that they can no longer be identified, the right of exemption is lost. The claimant must always be able to point out the property claimed. The exempt and nonexempt property having been inextricably blended, the exemption must necessarily be denied ns to the whole; else the creditor is compelled to suffer, and the debtor permitted to profit, by the act or neglect of the latter.” Freem. Ex’ns, g 214a.
Smith v. Turnley, 44 Ga. 243, 248; Miller’s Appeal, 16 Pa. 300, 303; Miller v. Sherry, 2 Wall. 237, 248, 17 L. Ed. 827; Norris v. Kidd, 28 Ark. 485, 499; Healy v. Conner, 40 Ark. 352, 358; Chambers v. Perry, 47 Ark. 400, 403, 1 S. W. 700; Friedman v. Sullivan, 48 Ark. 213, 215, 2 S. W. 785.
The bankrupt is barred by this rule from taking and retaining from the proceeds of this sale the $4x4 which has been allowed to him. IIis act in transferring his goods to the Bank of Clarksville, and his* neglect to select from the articles transferred those he claimed as exempt before their sale, have estopped him from charging the proceeds of this sale with the amount of the value of his exemption. He may not thus impose upon his creditors the expenses of the administration and sale of the property he might have claimed as exempt, and the necessary loss of a forced or speedy sale, while he secures to himself a first lien upon his unselected property, that was,never given him by the law, for $500 in cash. There is nothing in the opinions of the courts in the authorities.cited by the majority in conflict with this position. Those decisions all treat of cases in which the bankrupt was able to identify the specific property or the proceeds ot *119the specific property which he was entitled to claim as exempt. In the case entitled In re Detert, 7 Fed. Cas. 545 (No. 3,829), the insolvent conveyed his homestead and other property. He was entitled to a homestead not exceeding in value $1,500. The assignee in bankruptcy recovered the property conveyed, and it was sold. The homestead was, however, sold separately for the sum of $725. The bankrupt applied for an allowance out of the proceeds of the sale of his property of the sum of $1,500, the value of the homestead exemption which he was permitted to specify and retain by the law. The court denied his application, and allowed him only what his homestead yielded, the sum of $725. In all the other cases cited by the majority in support of their view, — Cox v. Wilder, 2 Dill. 45, Fed. Cas. No. 3,308; McFarland v. Goodman, 16 Fed. Cas. 90 (No. 8,789); Penny v. Taylor, 19 Fed. Cas. 194 (No. 10,957); In re Poleman, 19 Fed. Cas. 918 (No. 11,247), and In re Tollett, 3 Nat. Bankr. N. 454, 105 Fed. 425, — the claim of the bankrupt which was allowed was for the specific land constituting the homestead, which he identified and claimed, and his claim was made and allowed before the property was sold. No authority that has been cited or found goes further than to hold that where a bankrupt can identify and set apart specific exempt property, or the proceeds of that very property, after a preferential conveyance thereof has been avoided, he may yet assert his claim to it. On the other hand, the authorities which treat of the question uniformly hold, so far as I can discover, that when a bankrupt has inextricably mixed the property which he might have claimed as exempt with that which he could not have claimed, and has induced or permitted a sale thereof so that it is impossible to separate the proceeds of the former from those of the latter, he has thereby waived and lost his right to any exemptions in the mixed property or its proceeds, and has not promoted himself to the position of a preferential lienholder upon all the property he has authorized to be sold. Thus, in Weaver’s Appeal, 18 Pa. 307, 309, the statute granted to the debtor, an exemption of the value of $300 in real estate or specific articles of personal property -to be selected by him. He specified articles of property of the value of $64.17, and after the sale of his real estate claimed the balance of his exemption out of the proceeds of the sale, and the court below allowed him therefrom the sum of $235.83. The supreme court of Pennsylvania reversed the order of allowance, and held that the omission of the debtor to specify the property he claimed as exempt before it was sold, and its proceeds inextricably mixed with the proceeds of the other property, was a waiver of all the advantages of the exemption. This, as we have seen, is the rule adopted and emphatically sustained by the decisions of the supreme court of Arkansas in Surratt v. Young, 55 Ark. 447, 449, 18 S. W. 539, and King v. Ruble, 54 Ark. 418, 421, 16 S. W. 7, and it ought to prevail in this case.
For the reasons which have now been briefly stated, I am of the, opinion that the order allowing the bankrupt $414 out of the proceeds of the mixed property, which he conveyed and permitted to be sold without selecting any exemptions from it, was erroneous, and should be reversed.