B. F. Roden Grocery Co. v. Bacon

PARDEE, Circuit Judge. Comity requires that the jurisdiction of courts of bankruptcy to enjoin proceedings instituted or pending against the bankrupt in other tribunals should not be invoked, unless necessary to protect the bankrupt’s estate or otherwise preserve the rights of creditors. In the present case the injunction allowed was on the application of 'the bankrupt to preserve the exempt property claimed by him in his schedules, the title to which was not to pass to a trustee, and which, beyond the formal setting aside by the trustee when elected, was not to be administered in the bankruptcy court. There was no claim that the actual possession of the bankruptcy court was affected or in any wise interfered with. While the creditor holding a waiver note given by a bankrupt has no lien on specified property — in fact, no lien at all — and the debt represented by such note is one within the purview of the bankrupt law, to be discharged by proper proceedings thereunder, yet the rights of said creditor are to be so far recognized as to require the withhold [517] ing of the bankrupt’s discharge a reasonable time to permit the creditor to assert in the proper state tribunal his alleged right to subject the exempt property to the satisfaction of his claim. Lockwood v. Exchange Bank, 190 U. S. 294, 23 Sup. Ct. 751, 47 L. Ed. 1061. This being the case, it would seem that it is to the interest of the general creditors that such right should be prosecuted and enforced pending the bankruptcy, and prior to proof of debt, to prevent the creditor holding the waiver from taking a dividend on his whole claim from the general assets, and thereafter availing himself of the right resulting from the waiver to proceed against the exempt property. As the creditor holding a waiver may proceed to assert his right in a state tribunal pending the proceedings in bankruptcy, it follows that the form his action may take in the state tribunal is of no concern in the bankruptcy court, unless such writs are issued and proceedings had as directly interfere with property passing to the trustee in bankruptcy, or with exempt property not claimed by the bankrupt and in actual custody of the bankruptcy court. The ruling of the referee and the order of the district judge complained of in the petition for revision are largely based on the finding that under the evidence in the case the petitioner here, although asserting in the state tribunal that he holds a waiver contract, in fact had no waiver. The undisputed evidence shows that the petitioner held prima facie waiver contracts as claimed. Whether the bankrupt could avoid or defeat such contracts was for the state courts to decide, and the issue seems to us to be wholly immaterial in the bankruptcy court. If an application should be made to withhold a bankrupt’s discharge, to which he would otherwise be entitled, to give time to a creditor claiming to hold a waiver note to assert his rights to proceed against exempt property in the state courts, then it would be proper for the bankruptcy court to inquire whether or not the creditor really held such waiver note; but even then it is doubtful whether the court would go beyond a prima facie case and undertake to settle the rights between the parties. If we admit the contention that upon the adjudication all the bankrupt’s estate passes constructively into the custody of the court, and that there can be no exempt property, as such, until after a trustee shall be elected, and he shall set aside the same, as required by clause 11, § 47, Bankr. Law July 1, 1898, c. 541, 30 Stat. 557 [U. S. Comp. St. 1901, p. 3439], and as a corollary that the attachment suit instituted in the city court of Birmingham and the levy thereunder was an interference with property in custodia legis, even then the injunction enjoining further proceedings in attachment suit in the city court of Birmingham should have been temporary, so as to allow petitioner to proceed as soon as a trustee should be elected and the exempt property set aside. The record here does not show the fact, but it was admitted at the bar, on the hearing, that since the injunction was granted a trustee has been chosen, and the entire personal assets scheduled by the bankrupt have been set aside to him as exempt property. If this be true, there can be no longer any reason to continue the injunction complained [518] 6f;. but, whether it be true or not, the proceedings below were erroneous in the matter of trying the issue of waiver vel non, and in granting a permanent injunction, and for the reasons herein given the petition for revision must be allowed. For the purposes of the case the. order to be made in this court need go no further than.to modify the order of the bankruptcy court so as to allow the B. F. Roden Grocery Company to proceed in the attachment suit in the city court of Birmingham against the exempt property of A. H. Bacon, bankrupt, so far as the same can be clone without interfering with property in the actual custody of the bankruptcy court or its trustee, costs to be paid by respondent; and it is so oi'dered.