Lockwood v. Exchange Bank/Opinion of the Court

The general exemption of property from levy or sale, authorized by article 9, § 1, ¶1, of the present Constitution of the state of Georgia (that of 1877), is 'realty or personalty, or both, to the value in the aggregate of $1,600.' By article 9, § 3, ¶1, of the same Constitution, a debtor is vested with power to waive or renounce in writing this right to exemption, 'except as to wearing apparel, and not exceeding $300 worth of household and kitchen furniture and provisions.' The mode of enforcement of a waiver of exemption is provided for in § 2850 of the Code of 1895, reading as follows:

'In all cases when any defendant in execution has applied for and had set apart a homestead of realty and personalty, or either, or where the same has been applied for and set apart out of his property, as provided for by the Constitution and laws of this state, and the plaintiff in execution is seeking to proceed with the same, and there is no property except the homestead on which to levy upon the ground that his debt falls within some one of the classes for which the homestead is bound under the Constitution, it shall and may be lawful for such plaintiff, his agent, or attorney, to make affidavit before any officer authorized to administer oaths that to the best of his knowledge and belief, the debt upon which such execution is founded is one from which the homestead is not exempt, and it shall be the duty of the officer in whose hands the execution and affidavit are placed to proceed at once to levy and sell, as though the property had never been set apart. The defendant in such execution may, if he desires to do so, deny the truth of the plaintiff's affidavit by filing with the levying officer a counter affidavit.'

The question presented on the record before us may be stated in similar language to that which was used by the district judge-the correctness of whose decision in the case at bar is now for review-in the course of his opinion in Re Woodruff, 96 Fed. 317, as follows (p. 318):

'Has the bankruptcy court jurisdiction to protect or enforce against the bankrupt's exemption the rights of creditors not having a judgment or other lien, whose promissory notes or other like obligations to pay contain a written waiver of the homestead and exemption authorized and prescribed by the Constitution of the state, or are such creditors to be remitted to the state courts for such relief as may be there obtained?'

The provisions of the bankruptcy act of 1898 [30 Stat. at L. 544, chap. 541 (U.S.C.omp. Stat. 1901, p. 3418),] which control the consideration of the question just propounded are as follows: By clause 11 of § 2 courts of bankruptcy are vested with jurisdiction to 'determine all claims of bankrupts to their exemptions.' Section 6 provides as follows:

'Sec. 6. This act shall not affect the allowance are prescribed by the state laws in 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 domicil for the six months or the greater portion thereof immediately preceding the filing of the petition.'

By clause 8 of § 7 the bankrupt is required to schedule all his property, and to make 'a claim for such exemptions as he may be entitled to. By clause 11 of § 47 it is made the duty of the 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.' By § 67 it is provided, among other things, that the property of the debtor fraudulently conveyed, etc., 'shall, if he be adjudged a bankrupt, and the same is not exempt from execution and liability for debts by the law of his domicil, be and remain a part of the assets and estate of the bankrupt,' etc. In § 70 is enumerated the property of the bankrupt which is to vest in the trustee as of the date of the adjudication in bankruptcy, 'except in so far as it is to property which is exempt.'

Under the bankruptcy act of 1867 [14 Stat. at L. 522, chap. 176] it was held that property generally exempted by the state law from the claims of creditors was not part of the assets of the bankrupt, and did not pass to the assignee, but that such property must be pursued by those having special claims against it, in the proper state tribunals. Thus, speaking of the act of 1867, Mr. Justice Bradley (Re Bass, 3 Woods, 382, 384, Fed. Cas. No. 1,091) said:

'Not only is all property exempted by state laws, as those laws stood in 1871, expressly excepted from the operation of the conveyance to the assignee, but is added in the section referred to, as if ex industria, that 'these exceptions shall operate as a limitation upon the conveyance of the property of the bankrupt to his assignee, and in no case shall the property hereby excepted pass to the assignee, or the title of the bankrupt thereto be impaired or affected by any of the provisions of this title.'

'In other words, it is made as clear as anything can be that such exempted property constitutes no part of the assets in bankruptcy. The agreement of the bankrupt in any particular case 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 the bankrupt court to inquire. The exemption is created by the state law, the assignee acquires no title to the exempt property. If the creditor has a claim against it, he must prosecute that claim in a court which has jurisdiction over the property, which the bankrupt court has not.'

We think that the terms of the bankruptcy act of 1898, above set out, as clearly evidence the intention of Congress that the title to the property of a bankrupt, generally exempted by state laws, should remain in the bankrupt, and not pass to his representative in bankruptcy, as did the provisions of the act of 1867, considered in Re Bass. The fact that the act of 1898 confers upon the court of bankruptcy authority to control exempt property in order to set it aside, and thus exclude it from the assets of the bankrupt estate to be administered, affords no just ground for holding that the court of bankruptcy must administer and distribute, as included in the assets of the estate, the very property which the act, in unambiguous language, declares shall not pass from the bankrupt, or become part of the bankruptcy assets. The two provisions of the statute must be construed together, and both be given effect. Moreover, the want of power in the court of bankruptcy to administer exempt property is, besides, shown by the context of the act; since, throughout its text, exempt property is contrasted with property not exempt, the latter alone constituting assets of the bankrupt estate subject to administration. The act of 1898, instead of manifesting the purpose of Congress to adopt a different rule from that which was applied, as we have seen, with reference to the act of 1867, on the contrary, exhibits the intention to perpetuate the rule, since the provision of the statute to which we have referred in reason is consonant only with that hypothesis.

Though it be conceded that some inconvenience may arise from the construction which the text of the statute requires, the fact of such inconvenience would not justify us in disregarding both its letter and spirit. Besides, if mere arguments of inconvenience were to have weight, the fact cannot be overlooked that the contrary construction would produce a greater inconvenience. The difference, however, between the two is this: That in the latter case-that is, causing the exempt property to form a part of the bankruptcy assets-the inconvenience would be irremediable, since it would compel the administration of the exempt property as part of the estate in bankruptcy; whilst in the other, the rights of creditors having no lien, as in the case at bar, but having a remedy under the state law against the exempt property, may be protected by the court of bankruptcy, since, certainly, there would exist in favor of a creditor holding a waiver note, like that possessed by the petitioning creditor in the case at bar, an equity entitling him to a reasonable postponement of the discharge of the bankrupt, in order to allow the institution in the state court of such proceedings as might be necessary to make effective the rights possessed by the creditor.

As, in the case at bar, the entire property which the bankrupt owned is within the exemption of the state law, it becomes unnecessary to consider what, if any, remedy might be available in the court of bankruptcy for the benefit of general creditors, in order to prevent the creditor holding the waiver as to exempt property 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 exempt property.

The judgment of the District Court is reversed, and the proceeding is remanded to that court with directions to overrule the exceptions to the trustee's assignment of homestead and exemption, and to withhold the discharge of the bankrupt, if he be otherwise entitled thereto, until a reasonable time has elapsed for the excepting creditor to assert, in a state tribunal, his alleged to the satisfaction of his claim. And it is so ordered.