Court Opinion

ID: 8628753
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:34:13.892056+00
Date Added: 2024-06-11T16:55:41.874611
License: Public Domain

BROWN, District Judge.
The question whether a member of a partnership, dissolved by bankruptcy, may have an exemption from the stock in trade of the firm, has been discussed in many states and in several of the district courts, under the bankrupt law, and the opinions seem to be in direct conflict. The technical argument of the register in this case, that the firm is dissolved by the bankruptcy, and that it is not a “person” within the meaning of the exemption laws, because it has ceased as an entity, and that no member of the firm is entitled to an exemption, because he has no individual property from which an exemption can be claimed, is a very strong one, and I am not sure that it is not unanswerable. At the same time, in several cases the courts have gone so far in applying the maxim that exemption laws should be liberally construed, as to hold that the individual members of a firm are entitled to exemption from the property of the firm. Were this a new question, I should give the subject a much more lalx>red research and careful consideration than I deem necessary at present. But I consider the law in this district as put to rest by the decision of my learned predecessor in Re Blodgett [Case No. 1,555], where the very question at issue here was decided adversely to the exemption. Nearly all the cases decided up to that time are cited in the opinion, and the learned judge evidently bestowed upon the matter his usual careful consideration. A different *895view has lately been taken by Judge Treat, of Missouri, in Re Richardson [Id. 11,776); but as this was a mere reiteration of the rule laid down in the Case of Young [Id. 18,148], previously decided by him, I think it adds nothing to the weight of authority against the position taken by Judge Ixmgyear. My intention is to follow the prior decisions of this court, unless I am well satisfied in my own mind they are wrong, or until reversed by a higher court. In this case I have no hesitation in following the opinion. in Re Blodgett, and in affirming the action of the register. I gm further confirmed in this view of the law by the recent opinion of Judge Dillon in the case of Handlin v. Venney [Id. 6,018], by Judge Welker in Re Tonne [Id. 14,095], and by Judge Erskine in Re Stewart [Id. 18,420], where the precise question was passed upon.
[NOTE. On appeal to the circuit court this decree was affirmed (case not reported). Subsequently Gibbs gave a mortgage on this homestead to his attorneys for $250 for services rendered in contesting his claim. The assignee petitioned for an order demanding the surrender of the premises and the release of the mortgage, whereupon the court entered a decree for the petitioner. See In re Boothroyd, Case No. 1,653, following.]
In relation to the homestead, it was conceded that all his right to it was obtained by Gibbs from a transfer of notes, to the amount of two thousand two hundred and fifty dollars, to William Perkins; that these notes belonged to the firm, were known as the McCormick notes, and received by them from the sale of their Bay City store, about April 1st, 1875; that the notes were applied in purchase of a homestead by Gibbs, on the 17th of April, 1875, three days before the firm of Boothroyd & Gibbs filed their petition in bankruptcy; and that at the time of such application, Gibbs was a member of the firm, and knew that the firm contemplated filing such petition, and that it could not pay its debts in full. .1 fully, concur in the opinion of the register upon this point, that the transfer of the McCormick notes was not less a.fraud upon the act because they were transferred to one partner instead of to a third person, the intent being to prevent their coming into the hands of creditors. Indeed, if the facts of this case called for it, I think I should be prepared to go much further, and to hold that a debtor, knowing himself to be insolvent, has no right, upon the eve of bankruptcy, to take his property and invest it in a homestead. Such was apparently the view taken by the courts in the case of Brackett v. Watkins, 21 Wend. 68, and Grimes v. Bryne, 2 Minn. 89 [Gil. 72], and in the Matter of George C. Wright [Case No. 18,067]. I am aware that it was held by the supreme court of this state, in the case of O’Donnell v. Segar, 25 Mich. 367, that the disposing of property subject to execution, for the purpose of investing the proceeds in or converting them into exempt property, would not deprive the party of an exemption, so long as his property is really such as the statute requires, and that such conversion would not constitute a legal fraud. Similar views were apparently entertained by the court in the Case of Henkel [Cases Nos. 6,361 and 6,362], in construing the statute of California, following and approving the case of Randall v. Buffington, 10 Cal. 491. A similar rule apparently obtains in the state of Texas.
Whether the supreme court will apply the same principle of law to the case of a homestead which was applied to the exemption of personal property, in O’Donnell v. Segar, I doubt. But I cannot believe it possible for a court to hold that the conversion of a stock in trade of a firm into a homestead, upon the eve of bankruptcy, with full knowledge of its insolvent condition, would not be a legal fraud of which the court could take notice. It is by no means necessary to say. as was argued by the court in Re Henkel [Case No. 6,362], that every purchase of a homestead must be held void as against all existing creditors at the time of the purchase. This does not follow as an inference from the position assumed. All I intend to say is .this: that the purchase by an insolvent trader of a homestead, upon the eve of bankruptcy, with knowledge of his insolvent condition, and for the purpose of placing the property beyond the reach of process, is a legal fraud which no court should hesitate to hold void as to creditors. The magnitude of such a fraud would be more apparent in states where the law exempts a farm or lot of land wholly irrespective of its value, and where a party might, on the eve of bankruptcy, invest (a large fortune in a homestead; but the principle is the same everywhere. As the register decided in favor of the exemption of books and pictures, and no question is made as to the correctness of his ruling upon this point, his report must be confirmed.