Court Opinion

ID: 6885390
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:27:10.91428+00
Date Added: 2024-06-11T16:05:42.144366
License: Public Domain

DENMAN, Circuit Judge
(dissenting).
(A) The court has decided an important question of local law of Nevada with respect to the right of a wife in a homestead prior to a transfer by operation of the Nevada law, similar to the transfer by operation of law on the filing of a petition in bankruptcy, where the wife has taken no steps to create the homestead prior thereto, in conflict with the applicable Nevada decisions to the contrary. Rule 38, U.S.Sup.Ct, 28 U.S.C.A. following section 354.
This is a dissent to the holding of the majority that the transfer by operation of law under § 70, sub. a of the Bankruptcy Act is the same as a voluntary transfer by the husband to some third party and that therefore a homestead exemption is created without the necessity of making and filing a declaration. For this holding the majority relies on a dictum in the decision of First National Bank of Ely v. Meyers, 39 Nev. 235, 150 P. 308.1 That decision considered the provision concerning the voluntary transfer by the husband of community property as provided in § 3360 of the laws of Nevada. N.C.L.1929. The pertinent portions of the statute read: “The husband shall have the entire management and control of the community property, with the like absolute power of disposition thereof, except as hereinafter provided, as of his own separate estate; provided, that no deed of conveyance or mortgage of a homestead as now defined by law, regardless of whether a declaration thereof has been filed or not, shall be valid for any purpose whatever unless both the husband *780and wife execute and acknowledge the same as now provided by law for the conveyance of real estate; * *
That the majority opinion necessarily holds this identity between the transfer by operation of law under the Bankruptcy Act and the voluntary conveyance by the husband referred to in § 3360, is apparent when we consider that the majority refuses to entertain the principal contention of the appellant trustee and the latest decision of the Nevada supreme court on which his contention is based.
The trustee’s contention is that in Nevada the transfer by operation of law on an execution sale is entirely different from the voluntary transfer by the husband, and that the two transactions are governed by entirely different Nevada statutes. These statutes distinguish between the rights, as in bankruptcy, of creditors on a transfer by operation of law, and the rights of the transferee on the voluntary conveyance by the husband. The former rights are determined by § 3315 of the homestead statute, and the latter by an entirely different statute, § 3360, under the Nevada community property laws.
Under no theory could the majority have refused to consider this latest Nevada decision other than that the Bankruptcy Act itself made the transfer of title from the bankrupt to the trustee, by operation of law, identical with a voluntary transfer by the husband prior to bankruptcy.
The case which the majority refuses to consider as revelant to its decision is McGill v. Lewis, Nev., 116 P.2d 581, 583, decided August 30, 1941. In that case there had been a transfer by operation of the Nevada law on an execution sale in a suit brought by creditors against the husband. The wife,, prior to the sale, had made a so-called recordation of a document which did • not comply with the state statutory requirements of a homestead declaration. The court held that upon such a transfer by operation of law, the purchaser under execution in the suit by the creditors took free and clear of any right of the wife to create a homestead in the property conveyed, unless prior thereto there had been a recordation substantially complying with the homestead statute. This decision limits the “solicitude” of the Nevada law to protect the homestead, on which the majority relies, as follows: “This court agrees with appellants that our constitutional and statutory provisions relating to homesteads should be liberally construed, but the rule of liberal construction can be applied only where there is a substantial compliance with those provisions.” (Emphasis supplied). McGill v. Lewis, supra, 116 P.2d 583. In so holding the Nevada court reaffirmed its decision in Lachman v. Walker, 15 Nev. 422, where, as here, the homestead recordation was made after a transfer by operation of law.
Also, in so holding, the Nevada supreme court distinguishes the transfer by operation of law in a suit by creditors, from a voluntary transfer by the husband in mortgaging property, in a consideration of the case of First National Bank of Ely v. Meyers, supra, which is made the basis of the majority opinion, as follows: “To secure the benefits of the constitutional and statutory provisions exempting the homestead from forced sale under process of law (with certain exceptions not here pertinent), it is necessary that a declaration of homestead be filed for record as provided in § 3315, N.C.L.1929. Lachman v. Walker, 15 Nev. 422. The case last cited was not overruled in First National Bank of Ely v. Meyers, 39 Nev. 235, 150 P. 308; Id., 40 Nev. 284, 161 P. 929. In that case, it is true, no declaration for homestead was filed for record but the question before the court was not as to the exemption of the homestead from forced sale; it was whether the husband alone could mortgage the homestead occupied by him and his family. * * * ” McGill v. Lewis, supra, 116 P.2d 582, 583.
Since the trustee stands in the place of the creditors and the bankrupt, what White v. Stump, 266 U.S. 310, 45 S.Ct. 103, 69 L.Ed. 301, decides is that the creditors have had transferred to them by operation of law on the filing of the petition in bankruptcy, exactly what would be acquired by operation of law in Nevada on an execution sale in a suit by the creditors against the bankrupt prior to the filing of his petition. That is to say, a title free and clear of any right of the wife thereafter to create a homestead in the property so transferred. This is the holding made by the referee in bankruptcy which was overruled by the district court. In my opinion, the referee’s holding is correct and the trustee should have prevailed on his appeal here.
(B) The court has decided an important federal question of first impression, to-wit, an amendment to Bankruptcy Law, in con*781fiict with White v. Stump, 266 U.S. 310, 45 S.Ct. 103, 69 L.Ed. 301, and the applicable decisions of the United States Supreme Court. Rule 38, U.S.Sup.Ct., 28 U.S.C.A. following section 354.
This dissent is also to the holding that the Act of June 22, 1938, in amending the phrase “except in so far as it is to property which is exempt,” to read “to property which is held to be exempt,” 2 change the rule of White v. Stump, 266 U.S. 310, 313, 45 S.Ct. 103, 69 L.Ed. 301,3 and is intended to permit the creation of an exemption after the filing of the petition in bankruptcy. Certainly it would be unusual for Congress to cause such a profound change in the many years of administration of the Act by such a three-word alteration in verbiage, without altering or referring to all the several other provisions summarized in White v. Stump, making the date of filing of the petition “the point of time which is to separate the old situation from the new in the bankrupt’s affairs.” Id., 266 U.S. 313, 45 S.Ct. 104, 69 L.Ed. 301.
The Act of 1938 makes a general clarification of the language of the Bankruptcy Act in many respects. In all there were more than 64 amendatory provisions. So far as concerns the original phrase excepting “property which is exempt,” it did not fully describe the processes of the Act. Under § 7 of the Act of 1898, 11 U.S.C.A. § 25, on filing his petition in voluntary bankruptcy, or ten days thereafter in involuntary proceedings, the bankrupt is required to file his “claim for such exemptions as he may be entitled to.” This claim is not one which “is exempt” merely by its filing with the petition. It has to be adjudicated as a proper exemption in the bankruptcy proceeding,—that is, it has thereafter to be “held to be exempt.” In making such a general overhauling of the bankruptcy statute this seems the rational explanation of the amendatory phrase in question.
The majority opinion holds that in the words “held to be exempt,” Congress had two entirely different purposes. One was to “ameliorate” the position of the wife, a third person, claiming a homestead. In this connection it should be noted that in White v. Stump, supra, the Supreme Court overruled the holding of this court in Re Stump, 9 Cir., 284 F. 199, 203, that the wife was such a third person. The Supreme Court treats her claim as no different from her bankrupt husband.
To impute to the words “held to be exempt” such a creation of the wife’s rights as a third party seems too extraordinarily obscure and roundabout a method for Congress to pursue to give it rational credence.
Here the attempted creation of the homestead by recording the claim was 27 -days after the filing of the petition and adjudication. In White v. Stump it was 60 days thereafter. However, under the majority opinion the claimant could wait at his will to create his exemption. Bankruptcy estates often are months, sometimes years, in the course of administration. Finally, the creditors’ claims being determined, all that is necessary for distribution is the sale of the estate’s property. On the principle of the majority opinion, on the morning of the sale the homestead claim may be made by the wife or created by the statutory recordation of the husband. It does not seem a reasonable contention that the amendment of 1938 was intended to permit the creation by either the debtor husband or the third party wife of an exemption years after the filing of the petition. All the adjustments and settlements arrived at in the long proceeding well may be frustrated.
A second reason of the majority for treating the amendatory phrase as warranting the creation of an exemption after the filing of the petition is equally untenable. It is that the holding of White v. Stump that the exemption must exist when the petition is filed, prevents the selection of barber’s tools, farm implements, milch cows, lawyers’ libraries, and the like, permitted by various exemption statutes of the several states. This is an astonishing discovery to make in 1938, after forty years of administration of the act in which there must have been scores of thousands of such exemptions claimed and allowed.
The fact is that unlike the futile claim of an unrecorded homestead in Nevada, these other statutory exemptions actually exist as to the title to the farm implements, etc., when, by operation of law, they are transferred to the trustee on the filing of the bankrupt’s petition. Then, as at the time of the transfer by *782operation of law in an execution sale, the debtor files his designation of the items in the group exempted with the petition transferring his property by operation of law. The later designation in an involuntary bankruptcy relates back, as do his schedules, to the date of filing the creditors’ petition.
In Nevada, Idaho and Arizona the judgment .debtor must make this designation at or before the execution sale or the exemption is waived. Hammersmith v. Avery, 18 Nev. 225, 229, 2 P. 55; Idaho Code 8-202; Wilson v. Lowry, 5 Ariz. 335, 52 P. 777.
It would be a vain act to amend the bankruptcy statute by such a phrase as “which is held to be exempt” to give the debtor the right to designate the items of exempt property, when that right is already provided in • the Act as it stood before the amendment. The obvious reason for that amendment was that the former phraseology failed to recognize that the mere filing of a claim of exemption of property does not make that property something “which is exempt.” As stated, the claim of property must be adjudicated whereby the property there becomes “held” exempt.
The decision of the district court should be reversed.

 But two judges participated in this decision. On rehearing one of the judges carefully distinguishes between a transfer by operation of law in an execution sale in a suit by creditors and the mortgaging of the home by a husband, stating “This is but a reannunciation of an old principle. It does not apply to our peculiar statute, because our statute says nothing as to selection or recordation as affecting the rights of the wife as against those of the husband. Recordation may be, and in fact is, necessary to give notice to all the world of the selection of the homestead to exempt it from forced sale under execution. But to exempt it from alienation by one spouse without the consent of the other, in the absence of specific constitutional or statutory provision, why should such be necessary?” First Nat. Bank of Ely v. Meyers, 40 Nev. 284, 297, 161 P. 929, 932.

 § 70, sub. a (5), 11 U.S.C.A. § 110, sub. a (5).

 Reaffirmed in United States v. Marx-en, 307 U.S. 200, 207, 59 S.Ct. 811, 83 L.Ed. 1222, and followed by this court in Coopman v. Citizens State Bank of Omak, 9 Cir., 83 F.2d 815.