Brandt v. Mathew

GILBERT, Circuit Judge (after stating the facts as above). The petition presents these questions: (1) Is a bankrupt in the state of California entitled to claim a real estate homestead exemption, where neither he nor any one in his behalf has made and recorded a declara [424] tion of homestead prior to his adjudication of bankruptcy? -(2) Assuming that otherwise he would be entitled to claim the homestead, is he precluded by reason of his voluntary conveyance oij the property for the benefit of creditors prior to the petition and adjudication in bankruptcy; the property being subsequently transferred to the trustee? Sections 1240 and 1241 of the Civil Code of California provide that the homestead is exempt from execution or forced sale, except— “in satisfaction of judgments obtained: (1) Before tbe declaration of homestead was filed for record, and which constitute liens upon the premises. (2) On debts secured by mechanics’, * * * matérialmen’s or vendors’ liens upon the premises. (3) On debts secured by mortgages on the premises, executed and acknowledged by husband and wife. * * * (4) On debts secured by mortgages * * * executed and recorded before the declaration of homestead was filed for record.” Section 1262 provides: “In order to select a homestead, the husband or other head of a family, or in ease the husband has not made such selection, the wife, must execute and acknowledge, in the same manner as a grant of real property is acknowledged, a declaration of homestead, and file the same for record.” Section 70a of the Bankruptcy Act provides that the trustee of the bankrupt’s estate shall be vested by operation of law with the title of the bankrupt as of the date he was adjudged a bankrupt, “except in so far as it is to property which is exempt,” and property which prior to the filing of the petition he could by any means have transferred, or which might have been levied upop and sold under judicial process against him. Section 2, cl. 11, gives courts of bankruptcy authority to “determine all claims of bankrupts to their exemptions.” Section 7, cl. 8, requires the bankrupt to make and file a schedule of his property “and a claim for such exemptions as he may. be entitled to.” Section 47a, cl. 11, directs trustees to “set apart the bankrupt’s exemptions and report the items and estimated value thereof to the court as soon as practicable after their appointment.” Section 6 provides: “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 petition.” While exemptions allowed a bankrupt are fixed and defined by the law of the state of his domicile, the Bankruptcy Act is controlling as to the time and manner of claiming, selecting, and allowing exemptions, and the courts have given these provisions of the act a liberal and equitable construction. In Smith v. Thompson, 213 Fed. 335, 129 C. C. A. 637, Judge Hook said: “In every court the administration of an exemption law should comport with the beneficent spirit that prompted its enactment. A court of equity especially should not attempt to defeat the exemption by niceties in practice. It should be helpful to those whose condition requires them to invoke it.” [425] The contention of the trustee is based upon the language of section 70a, which provides that the trustee shall he vested by operation of law with the title of the bankrupt’s property, except as to property which is exempt, which provision, it is said, shows the intention of the law to be that property, in order to be excepted, must be recogniza ble as exempt at the date of the adjudication. Rut section 70a does not deal with the time or manner of claiming exemptions. Those matters are regulated by other provisions. Section 7, cl. 8, gives to the involuntary bankrupt the right to claim his exemptions within ten days after the adjudication, and the time within which he may do this may be further extended by amendment, as authorized by general order 11. [1] A bankrupt is not precluded from claiming a homestead as exempt from the operation of the Bankruptcy Law merely because, prior to the adjudication, he had failed to designate a homestead under the laws of the state, provided that, after claiming it, he proceed under the state law to perfect his right within a reasonable time. In re Fisher (D. C.) 142 Fed. 205; In re Culwell (D. C.) 165 Fed. 828; Goodman v. Curtis, 174 Fed. 644, 98 C. C. A. 398. [2] But it is urged that the bankrupt in this case did not claim his homestead until after his right to claim it as exempt under the bankruptcy law had expired, in that, although he was adjudged a bankrupt on October 8, 1912, he did not claim the exemption until February 17, 1913. But it appears from the record that the bankrupt did not file his schedules until the date last mentioned, and that in his schedules, as he was permitted by law to do, he made his claim of exemption of a homestead. The reason for the delay in filing the schedules is not explained in the record. No question is made, however, of the bankrupt’s right to file them on the date mentioned. "We may assume that the referee, upon good cause shown, permitted them to be filed of that date. In Goodman v. Curtis, the bankrupt filed his schedules without claiming his homestead exemption. Six weeks later, upon his application, he was allowed to amend his schedules and file a claim of exemptions. The court said: “In tins ease the bankrupt did not waive his exemptions, and he had, notwithstanding his omission to sot forth his claim in the schedules, a clear legal right to the exemptions allowed by the laws of the state of Alabama; and we think he had a legal right to prefer his claim in the bankruptcy proceedings at any seasonable time while the property remained in the hands of the trustee unaffected by adverse rights.” [3] Aside from the bankrupt’s rights in the premises, we see no ground for denying the right of Mrs. Mayhew to claim, as she did, on November 20,'1912, the dwelling house and the land upon which her declaration of homestead had been filed. The statutes of the state of California recognized her right to do this, and she could not be deprived of that right by the adjudication of bankruptcy against her husband. In re Maxson, 170 Fed. 356, is a case in which the wife had been adjudged bankrupt, but in her schedules had failed to claim a homestead exemption. It was held that her waiver of right to the homestead would not prevent her husband from claiming it. [426] [4]= The petitioner contends that the right which the bankrupt would have to a homestead exemption under the bankruptcy law before the amendment of June 25, 1910, is taken away by that amendment, which adds to section 47a(2) the following: “And such trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon, and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of á judgment creditor holding an execution duly returned unsatisfied.” The argument is that the amendment puts the trustee, as to all property in the custody of the bankruptcy court, in the position of a creditor holding a lien by legal or equitable proceedings, and, as to all other property, in the position of a creditor holding an execution returned unsatisfied, and that it follows that the trustee in the case at bar is in the attitude of a lien creditor as to the real estate which is claimed as a homestead, and that his lien represents the entire indebtedness against the bankrupt, so as to exclude a claim of homestead exemption. We do not so construe the amendment. Section 6 of the act remains unamended and unrepealed. The amendment does not affect the provision of that section, in which the intention of Congress is plainly expressed, that the Bankruptcy Act shall not affect tire allowance to bankrupts.of the exemptions which are prescribed by state laws. Section 6 still remains one of the fundamental provisions of the act, and it is the duty of the courts to construe the act with all its amendments as a whole, and to harmonize all its parts. The purpose of the amendment to 47a was to make effective the rights of creditors against those who claimed secret or unrecorded liens or adverse interests in the property of the bankrupt. Before the amendment, the trustee in bankruptcy was vested with no better title to the bankrupt's property than the bankrupt had at the time when the trustee’s title accrued. He stood in the shoes of the bankrupt, and where, under the law of the state, a conditional sale, a vendor’s lien, or an unrecorded mortgage was good between the parties, it was good as against the trustee. The amendment gives the trustee the right to attack all such unrecorded liens and secret equities, without requiring that he shall be in the position of representing creditors who have acquired liens by legal or equitable proceedings against the bankrupt. It is conceded that the purpose of the amendment was to remedy the situation disclosed in York Manufacturing Co. v. Cassell, 201 U. S. 344, 26 Sup. Ct. 481, 50 L. Ed. 782, in which it had been reaffirmed that .the trustee in bankruptcy was vested with no better right or title to the property than the bankrupt had when the trustee’s title accrued, and that where a contract of conditional sale of personal property was good as between the parties themselves, although not filed, the vendor of- such property, where payment had not been made, might remove the same as against all creditors of the bankrupt who have, not fastened upon it by some specific lien. The amendment should be construed in the light of the purpose which it was intended to serve, and this is shown by the report of the Senate judiciary committee when [427] the amendment was on its passage. In re Williamsburg Knitting Mill (D. C.) 190 Fed. 871; In re Farmers’ Supply Co. (D. C.) 196 Fed. 990; In re Dancy Hardware & Furniture Co. (D. C.) 198 Fed. 336. [5] It is contended that, the bankrupt and his wife having voluntarily conveyed the real property in question for the benefit of creditors prior to the petition in bankruptcy, they are by that act precluded from claiming the homestead exemption. In certain cases where the bankrupt prior to bankruptcy has conveyed his property for the purpose of giving a fraudulent preference, or to conceal the property in fraud of creditors, and thereafter the trustee in bankruptcy, for the benefit of the creditors has, by his own action, recovered the property, it has been held that there can be no claim of home-, stead exemption, since the trustee has restored to the estate property which, but for his efforts, would'have passed both from the bankrupt and his creditors. In re Coddington (D. C.) 126 Fed. 891; In re Evans (D. C.) 116 Fed. 909; In re White (D. C.) 109 Fed. 635; In re Tollett (D. C.) 105 Fed. 425; In re Long (D. C.) 116 Fed. 113; In re Wishnefsky (D. C.) 181 Fed. 896. These decisions are based upon the ground that to permit the bankrupt thereafter to claim exemptions would be to allow him to take advantage of his own wrong; or on the ground that he can have no right to extend his claim over, that to which he has no title, except through the intervention and instrumentality of the trustee. But in the present case no preference-was made, and there was no fraudulent transfer. In good faith May-j hew and his wife had conveyed all their property to an assignee for the benefit of all creditors. Bankruptcy ensued before the assignee accepted the trust, and he at once released to the trustee in bankruptcy. Such a voluntary conveyance for creditors can have no effect upon the right of the bankrupts thereafter to claim the exemptions provided by law. The effect of the bankruptcy and the transfer of the property by the assignee to the trustee in bankruptcy was to leave the estate as it would have been if there had been no such voluntary conveyance. In Bryan v. Bernheimer, 181 U. S. 188-192, 21 Sup. Ct. 557, 559 (45 L. Ed. 814), the court said: “The general assignment, made by Abraham to Davidson, did not constitute Davidson an assignee for value, but simply made him an agent of Abraham for the distribution of the proceeds of the property among Abraham’s credl-itors. This general assignment was of itself an act of bankruptcy, without regard to the question whether Abraham was insolvent.” Cases in point are In re Falconer, 110 Fed. 111, 49 C. C. A. 50; Bashinski v. Talbott, 119 Fed. 337, 56 C. C. A. 241; In re Thompson (D. C.) 140 Fed. 257; In re Soper (D. C.) 173 Fed. 116; In re Irwin (D. C.) 177 Fed. 284. The petition to revise is denied, and the order of the District Court is affirmed.