Court Opinion

ID: 8744154
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:00:25.573315+00
Date Added: 2024-06-11T17:00:34.203302
License: Public Domain

JENKINS, Gircuit Judge
(dissenting). The motion to dismiss needs little comment, since the majority opinion, sustaining the motion arguendo, declines to pursue the reasoning to its logical conclusion and proceeds to the discussion of the merits. It may not be amiss, however, to say this much: The decree of February 8, 1900, adjudged that the north half of the fiat be set apart as the homestead of the bankrupt. The opinion of the court, filed with that decree, designates the homestead as the north half of the flat “upon the center line of the party wall extended to the rear of the unoccupied portion of the lot.” If this decree be not self-executing, no duty in respect thereof devolved upon the trustee. If the statute imposed upon him the duty to set apart and segregate from the estate the homestead, — -a question fairly debatable, — the trustee had refused to perform that duty. The court had overruled his action, and had decreed the homestead right, performing itself the duty originally, possibly, devolving upon the trustee. He had no further duty in the premises. The decree is positive and final, and not less final because the length of the north and south lines is not stated. “That is certain which may be made certain.” The ascertainment of the lines, if essential, was for the court, and not for the trustee, and by the, opinion filed with the decree was referred, if to any one, to the referee, not to the trustee. The petition by the trustee of March 16, 1900, was, therefore, not one in excuse of nonperformance of the decree of February 8, 1900, but was at most a petition in the nature of a bill of review. The decree has not been appealed from or set aside. The petition contains no reference to it and seeks not to impeach its correctness. The petition would seem to have been prepared either in forgetfulness of or ignoring the decree. It treats the claim for a homestead as unadjudicated, and charges that it should be dismissed, because (1) the bankrupt stood in contempt of the court with respect to other matters, and (2) he had abandoned the homestead some six months after the adjudication of,bankruptcy, and prays that the bankrupt, then beyond seas, should be cited to *611show cause why his claim for exemption should not he disallowed and the trustee be authorized to take possession oí' the premises free and clear of homestead right or exemption claim, and to administer the same as part of the bankrupt estate. Ii it may be assumed that the petition, without mention of it or reference to it, sought to annul the decree of February 8, 1900, for matters occurring subsequently thereto, It must be regarded in the nature of a bill of review. It challenged the adjudicated right to the homestead because only of matters occurring subsequently to the decree. To that proceeding the bankrupt was surely a defendant and was not therein an actor. It is true that to avoid arrest and punishment for contempt of the court he had fled the jurisdiction; but he was not: therefore an outlaw, and while he would not he indulged in an application for favor, he is not lo be denied the right to defend himself in person or property when summoned thereto. It shocks the moral sense; to say that under such circumstances the court: may regard him as constructively present for 1he purposes of jurisdiction and may then rightfully deny him a hearing and proceed to adjudicate his rights without a hearing. That would not be due process of law, the fundamental principle of which is the right of every man to be heard in his own defense; Hovey v. Elliott, 167 U. S. 469, 17 Sup. Ct. 841, 42 L. Ed. 215. The petition of the bankrupt to this court for a review e>f the order complained of is matter of right, not of discretion or of bounty, and is merely a continuatiem anel review of the proceedings instituted by the trustee against the bankrupt.
Passing, however, io the merits: By the law of Wisconsin the owneT of a homestead, without limitation of value, has an absolute estate therein with power erf alienation, limited only, in the interest of the; wife, so that he cannot dispossess himself of the right of oecnpane‘.y unless she join in (lie execution of the conveyance. There is also attached to that estate a privilege of exemption from pursuit by creditors so long as the property remains a homestead. At the death of the owner intestate the homestead descends to his widow' or children beyond reach of his creditors, although after his death it be abandoned as a homestead. The estate has all the incidents of a freehold except the restriction upon the power of alienation in the interest of tin wife. The superadded privilege of exemption would not seem to lessen the character of the estate. Does the title to such homestead pass to the trustee in bankruptcy? An answer to this question must be found in the bankruptcy act, for from that act alone the trustee derives his title to the bankrupt estate. He has sucli powers and rights of property as are therein conferred and no other. The act contemplates that the bankrupi shall be entitled to the exemptions allowed by the slate of his domicile. Section. 6 provides that the act shall not affect the allowance to bankrupts of the exemptions prescribed by the law of the state. Section 70a. defines the title which shall pass to the trustee. It declares that lie shall be “vested by operation of law with the title of the bankrupt as of the date lie was adjudged a bankrupt, except in so far as i,t is to property which is exempt.” The act is careful to restrict the transfer of title to property which is not exempt, and in one instance *612at least seems to indulge in unnecessary caution in that regard. Section 67e provides that property conveyed or incumbered with intent to defraud creditors shall remain part of the estate and pass to the trustee if “the same is not exempt from execution and liability for debts by the law of his domicile.” It is difficult to understand that property exempt from execution could be conveyed or incumbered in fraud of creditors. The unnecessary caution, however, emphasizes the design to exclude all exempt property from the operation of law which vests title in the trustee. If, as held by the majority of the court, the title to a homestead passes to a trustee, it must be under the first clause of the fifth subdivision of section 70a as property which the bankrupt could have transferred; but that clause is necessarily limited and restricted by the exception which applies to every subdivision of the section, “except in so far as it is to property which is exempt.” Such construction 'accords with the canon for the reading of statutes and is supported by the ruling of the circuit court of appeals for the Eighth circuit in Steele v. Buel, 104 Fed. 968.
The design of the lawmaker is clear that the title to the homestead, which by the state law is exempted from sale under judicial process, shall not pass to the trustee but shall remain in the bankrupt. The statute is plain; its language explicit. There is no room for construction. It is its own best expositor. This manifest design is not weakened by the provision of section 2, cl. 11, that the courts of bankruptcy shall have jurisdiction to “determine all claims of bankrupts to their exemptions.” The bankrupt is required by section 7, cl. 8, to file a schedule of his property and “a claim for such, exemptions as he ma.y be entitled to.” The right to a homestead may be challenged. The claim therefor may embrace more land than allowed by the state law. Undoubtedly the bankruptcy court is given jurisdiction — which before the act was lodged in all courts of general jurisdiction — to determine, if there be dispute, the right to and the extent and dimensions of the homestead. It was never deemed necessary to the determination of that question before the bankruptcy act, nor is it now necessary, that there should be an ad interim shifting of title. Upon determination of the question the court formally sets apart to the debtor and segregates from the estate that which the state law exempts. The bankruptcy court does not grant the exemption. It merely defines that upon which the law operates to exempt. The right is derived from the statute, and, as to the property found to be in fact exempt, the bankruptcy court has jurisdiction and the jurisdiction only to sever it from the estate; the title all the while remaining in the bankrupt. We have so held in Re Friedrich, 40 C. C. A. 378, 100 Fed. 284, and are therein in accord with Steele v. Buel, supra, and In re Wells (D. C.) 105 Fed. 762. Such was also the holding of the courts under the bankruptcy law of 1867. Rix v. Bank, 2 Dill, 367, 20 Fed. Cas. 846; In re Dillard, 2 Hughes, 190, 7 Fed. Gas. 703; In re Badway, 3 Hughes, 609, 20 Fed. Cas. 154; In re Bass, 3 Woods, 382, 2 Fed. Cas. 1004; Cox v. Wilder, 2 Dill. 45, 48, 6 Fed. Cas. 684; In re Hester (D. C.) 12 Fed. Cas. 68; In re Hunt (D. C.) 12 Fed. Cas. 902, *613Mr. Justice Bradley, in Re Bass, supra, sums up the whole contention iu language which leaves no room tor argument:
“In other words, it is made as clear as anything can he that such exempted property constitutes no part of the estate in bankruptcy. The agreement oí the bankrupt in any particular ease to waive the right to the exemption makes no difference. He may owe other 'debts in regard to which no such agreement has been made, but whether so or not it is not for tlio bankrupt court to inquire. The exemption is created by the state law, and the assignee acquires uo title to the exempt property. If the creditor has a claim against it, he may pursue that claim in a court which has jurisdiction over the property, which the bankrupt court has not. Nor does it make any difference that the homestead was not ascertained or set out in. severalty until after the proceedings in bankruptcy were commenced, or until after the conveyance to the assignee was executed. Whenever properly claimed and designated, the exemption protects it; and the exemption created by the bankrupt act relates back to the conveyance and limits its operation. Though uot desig-' uated when the conveyance was executed, it was capable of being designated; and on the principle that ‘id eertum ost quod certum reddi potest’ it is as much entitled to the benefit of the exemption as if it had been designated and set apart before the bankruptcy occurred.”
The former bankruptcy act ex industria staled'with particularity that the exemption of the homestead from the operatiou of the con-, veyauce required to be made by the bankrupt to the assignee should operate as a limitation upon the conveyance, and that in no case should Hie excepted property pass to the assignee or the title of the bankrupt be impaired or affected. The limitation there is no more certain and precise or more potential than the limitation of the present law, “except in so far as it is to property which is exempt.”
The majority opinion suggests certain questions which It is assumed answer themselves. A reference to them may not be unprofitable. It asks, where, after adjudication and prior to the filing' of the claim to the exemption, is the title to the homestead? I answer; Clearly in the bankrupt, because by the bankruptcy act the title did no! pass. The title came to the bankrupt by purchase. Its exemption from pursuit by creditors is conferred by statute. The adjudication of the bankruptcy court sustaining the claim of exemption does not confer title. It has not to do with title. It had only to deal with the claim of exemption. A decree of court adjudging a man and woman to he man and wife does not perforin a marriage ceremony. It is further suggested that if in the interval between the adjudication and the filing of the claim of exemption the bankrupt should die intestate without widow or issue, so that the homestead under the statute would go according to the law of descent, but subject to the debts and liabilities of the deceased, if the title was in no sense in the trustee, he would be powerless to deal with the property, and, if he had disposed of it and with the proceeds discharged the debts of the ¿bankrupt, the sale could be set aside as invalid or void. I answer: Of course, and because the trustee never acquired and could not convey title to it. The majority opinion also inquires, if moneys exempt and moneys not exempt be mingled, in whom is the title to the exempt moneys? Clearly in him to whom they of right belong, not in him who may happen to obtain tortious or rightful possession of them. The mingling no more passes title than does the mingling of grain in a warehouse bin *614with the grain of another transfer the title to that other. Each remains the owner of the aliquot part contributed by him to the common mass.
The other suggested situations are likewise easily met and resolved. The plain answer is that the trustee has no right, because he has no title. The law limits his title to property which is not exempt. The title to the exempted property remains without change with him in whom the right is vested by the law. The majority opinion would seem to hold that the title to exempt property passes upon adjudication in bankruptcy sub modo to the trustee, reverting, it may be presumed, to the bankrupt when the exemptions are established by the court, and again passing to the trustee upon a subsequent abandonment of the homestead, or else that the title to the homestead passes to the trustee upon adjudication and there abides. It is not clear which result is intended. If the former reading be correct, the logic of the opinion is that the title automatically shifts from one person to another ipso facto upon the happening of events. If the latter reading be correct, then the title to the property abides with the trustee, and all that remains to the debtor is the right of occupancy during his life. The trustee could convey that title, the purchaser becoming the owner with the right of possession upon the termination of the homestead right. But what, then, becomes of the provisions of the law that one’s homestead shall descend to one’s widow and issue, discharged of any claim of creditors? What, then, becomes of the right of the debtor to sell or mortgage, with the consent of his wife, the homestead premises, and to hold the proceeds for reinvestment in another home and beyond the pursuit of his creditors? The beneficent policy of the state would thereby be thwarted. Every debtor, whether honest or dishonest, by mere adjudication in bankruptcy would lose title to and control of his homestead; there remaining in him only the right of occupancy. This untoward result comes from an attempt to construe that which needs no construction, — an effort through much subtlety of reasoning to abort the plain language of the statute. The act says the title to exempt property shall not pass' to the trastee. The majority opinion says that it does, and that it passes and repasses ad infinitum, shifting with events. With all respect, the majority opinion, to my thinking, indulges a game of judicial battledoor and shuttlecock, interesting, indeed, as an example of mental gymnastics, but without the sanction of reason or the warrant of law. In the course of the discussion the majority opinion suggests, interrogatively, that the bankrupt’s exempt property may be held by the court to compel restoration of money fraudulently withheld by him from his creditors, and states that the question ought to answer itself. It should; but a correct answer,’I fear, would fail to meet the views of my brethren. It is novel doctrine that property exempt by law from pursuit by creditors, that the debtor and his family may have a roof to shelter them, may be taken from them because the debtor has defrauded his creditors. For the wrong done by him, the law gives to creditors appropriate remedy, civil and criminal. It does not subject the homestead to the payment of debts fraudulently con*615tracted, or for property disposed of in fraud of creditors. It does not seek to punish wife and children for the dereliction of the head of the family. The visitation of the sins of the fathers upon the children may be the inexorable decree of physical law, and, possibly, an essential tenet of orthodox faith, but is not the policy of the state whose law we are considering, and which is here controlling.
Assuming, however, that the majority ojfimon is correct in supposing that the title to the homestead passes sub modo to the trustee until the claim for its exemption has been determined by the bankruptcy court, and then reverts to the bankrupt, the decree we are ask<»d to review is in my judgment erroneous. The court had determined, allowed, and declared the homestead. That order, as I think, was final, and, upon the assumption in the majority opinion, caused the title thereto to revert to the bankrupt. The decrecí here under review' in effect, although not in terms, nullifies the former decree because of the abandonment of the homestead by the bankrupt six months after the adjudication. In my opinion the bankruptcy court was without jurisdiction so to determine. The general purpose of fhe bankruptcy atd is that the bankrupt, surrendering his estate not exempt, should be discharged from his debts then existing and should retain the property exempted and allowed to him by the law of the state of his domicile. The creditors are to have all of the estate not exempt, and must surrender all claims against the bankrupt if he shall receive his discharge. The title to the property thus reserved for the benefit of creditors is vested in the trustees as of the date he was adjudicated a bankrupt. That date is the “dead line,” separating the pastnand the future. All that the bankrupt had on that date, except property exempt, goes to his creditors. All after-acquired properly goes to the bankrupt, and with that the trustee has nothing to do. That date is the line of delimitation. The bankruptcy court has to do with the estate which through the adjudication comes to the trustee for the creditors, and with no other.' The trustee can in no event pursue the after-acquired property of the bankrupt; .but, failing a discharge, the creditor may pursue it in an appropriate forum, but not in the bankruptcy court. In case of discharge the creditor cannot pursue, because the debt is discharged. Üo here, if by reason of abandonment the homestead has become subject to debts, the creditor, failing a discharge of the bankrupt, may pursue that homestead in an appropriate forum, not in the bankruptcy court; but, a discharge being granted, he is precluded from such pursuit because the debt is canceled. At the time of this adjudication and for months thereafter the premises in question constituted the homestead of the bankrupt and his family. Its subsequent abandonment could give no title to the trustee, not only because the law restricted title to property which at the time of adjudication was not exempt, but also because, under the theory of the majority opinion, the title was revested in the bankrupt by the decree of February 8, 1900, and the court was without jurisdiction to review that decree for matters occurring subsequently to the adjudication. It is not doubted that before the act, upon abandonment of the homestead, creditors could pursue it and subject it to the pay*616ment of their debts. If they cannot now do so, it is because the bankruptcy act has tied their hands for a certain period and until determination of the question of the bankrupt’s discharge.
I am constrained, with deference, to dissent from the judgment of the court.