Court Opinion

ID: 8761579
Source: CourtListenerOpinion
Date Created: 2022-11-26 12:08:19.48865+00
Date Added: 2024-06-11T17:01:36.332425
License: Public Domain

QUARLES, District Judge.
The question raised by the record is whether the bankrupt has worked a fraud upon his creditors by using nonexempt property or money borrowed of creditors to obtain a homestead which he might claim as exempt under the laws of Wisconsin. This question is one that has been long mooted in the courts, and concerning which the authorities, both state and federal, are hopelessly at variance. If I were permitted to follow my own judgment as to what the law should be, I should be much inclined to follow the federal decisions in Wisconsin, which hold that a statutory homestead cannot be employed as an agency of fraud, and that when a debtor, knowing himself to be hopelessly insolvent, takes the whole estate liable to execution,- and, for the purpose of withholding it from his creditors, invests it in a homestead, he has worked a fraüd and wrong upon his creditors. This doctrine was held by this court in the following cases: In re Wright, 3 Biss. 359, Fed. Cas. No. 18,067; In re Lammer, 7 Biss. 269, Fed. Cas. No. 8,031; Pratt v. Burr, 5 Biss. 36, Fed Cas. No. 11,372; In re Sauthoff, 8 Biss. 35, Fed. Cas. No. 12,380 (wherein the court, by Dyer, J., expressly sanctions the reasoning); In re Boothroyd, 14 N. B. R. 223, Fed. Cas. No. 1,652. But the bankruptcy act of July 1, 1898, c. 541, § 6, 30 Stat. 548 [U. S. Comp. St. 1901, p. 3424], providing that “this act shall not affect the allowance to bankrupts of the exemptions which.are prescribed by the state laws in force at the time of the filing of the petition, in the state wherein they have had their domicile for the six months, or the greater portion thereof, immediately preceding the filing of the petitions,” seems to make it the duty of the courts to recognize, not only the statutes of the state, but also to adopt the construction imposed by the highest court of the state upon such statute. These decisions are a part of “the state laws.” The general rule is that the construction of the highest judicial tribunal of a state of its Constitution of statutes which establishes a rule of property is controlling authority in the courts of the United States where no question of right under the Constitution and the laws of the nation is involved. Allen v. Massey, 17 Wall. 351, 21 L. Ed. 542; Lloyd v. Fulton, 91 U. S. 479, 23 L. Ed. 363; Jaffray v. McGehee, 107 U. S. 361, 365, 2 Sup. Ct. *879367, 27 L. Ed. 495; Peters v. Bain, 133 U. S. 670, 686, 10 Sup. Ct. 354, 33 L. Ed. 696.
The peculiar language of the bankruptcy act, above quoted, seems to emphasize the general rule. Here is a homestead located in Wisconsin. Its status must be settled and determined by the local law. When we turn to the Wisconsin decisions, we find a well-settled rule by which the statute creating the homestead exemption has been construed. This rule seems to be that the insolvent debtor commits no fraud upon his creditors by taking nonexempt property and investing it in a homestead, although his purpose may have been to withhold such property from his creditors. There would almost seem to be an implication from these decisions that it was the part of prudence for the insolvent debtor to shelter his family at the expense of his creditors. It is held that one who extends credit to a debtor does so with full knowledge of the statute and the policy of the state, and therefore has no right to complain. A few of such cases may be found: Hanson v. Edgar, 34 Wis. 653; Smith v. Waite, 39 Wis. 512; Comstock v. Bechtel, 63 Wis. 656, 24 N. W. 465; Palmer v. Hawes, 80 Wis. 474, 50 N. W. 341; Kapernich v. Louk, 90 Wis. 232, 62 N. W. 1057. I therefore feel constrained to follow these numerous and consistent rulings of the Supreme Court of the state, and to sustain the ruling of the referee as to the homestead exemption.
Notwithstanding this conclusion, it does not follow that the creditor rvlio loaned the bankrupt $600 to make the first payment upon the homestead may not have a remedy in the law. If the money was borrowed by the bankrupt knowing that he had no means to repay the same, and not intending to repay it when he. borrowed it, it may well be held that that was an actual fraud perpetrated upon such creditor. But it is not my province to discuss that proposition at this time.
The finding of the referee as to the homestead exemption is therefore affirmed.