Bracewell v. Hughes

• Decision Date: 05 April 1932
• Docket Number: No. 40464.,40464.
• Citation: 214 Iowa 241,242 N.W. 66
• Parties: BRACEWELL ET AL. v. HUGHES.
• Court: Iowa Supreme Court

214 Iowa 241

242 N.W. 66

BRACEWELL ET AL.

v.HUGHES.

No. 40464.

Supreme Court of Iowa.

April 5, 1932.

Appeal from District Court, Wayne County; H. H. Carter, Judge.

This is an action to subject certain lots in the town of Clio, Iowa, to the payment of an indebtedness represented by a promissory note in the hands of the plaintiffs, which indebtedness arose prior to the acquisition of the homestead rights of the defendant in the above lots. The plaintiffs' petition was dismissed, and they appeal.

Affirmed.

Superseding opinion 235 N. W. 37.

MORLING, GRIMM, and DE GRAFF, JJ., dissenting.Bracewell, Murrow & Poston, of Corydon, for appellants.

T. W. Miles, of Corydon, for appellee.

ALBERT, J.

A rehearing was granted in this case, the former opinion being found in 235 N. W. 37, which opinion is hereby withdrawn.

The Farmers' National Bank was the owner and holder of a note executed by the defendant, Kate Hughes, dated November 7, 1925. The bank went into liquidation, and this note, with others, was turned over to the plaintiffs, as trustees, and as such trustees, on May 10, 1929, they filed their petition in this cause suing on said note, and in pursuance of the prayer of said petition attachment was issued and levy made on lots 1, 2, and 3 in block 1, Cook's second addition to Clio, Iowa.

On April 29th prior to the bringing of this suit, Kate Hughes was adjudged a bankrupt in United States federal court. On June 28, 1929, plaintiffs amended their petition and moved to transfer the cause to equity, and in this amendment they set out that Kate Hughes was adjudged a bankrupt as aforesaid; that a trustee had been appointed and said trustee filed a report setting off to Kate Hughes, the defendant, as her homestead, the above-described lots, which report was approved by the bankruptcy court; that Kate Hughes acquired title thereto through the will of her mother in 1922; that she at no time lived on these lots until 1929, and acquired no residence or homestead rights therein; and the prayer was that the plaintiffs have a decree for the amount due by reason of the debts created prior to the acquisition of the homestead to be established as a lien against said lots and the same be sold on execution.

Later, plaintiffs again amended the petition setting out that the note sued on was a renewal note of many previous notes, the principal part of which was for money borrowed from the bank in the year 1922, and again asking that the amount found to be due be established as a lien against said lots.

[1] Much time was devoted to evidence, pro and con, on the question of whether or not this property was the homestead of Kate Hughes at the time it was set over by the trustees in bankruptcy. This question, as we understand it, was not before the court for determination. When the trustees filed their report in the bankruptcy proceedings setting off this property to Kate Hughes as a homestead, these parties had a right to appear thereto and object to such report, and, having failed so to do, it is a final adjudication by which they are bound for all time. See official form as prescribed by the United States Supreme Court, Collier on Bankruptcy (13 Ed.) vol. 1, p. 334; also vol. 3, p. 2410, form 231.

General Order 17 (11 USCA § 53) defines the duty of the trustee, and, among other things, provides: “The trustee shall make report to the court, within twenty days after receiving the notice of his appointment, of the articles set off to the bankrupt by him, according to the provisions of the forty-seventh section of the act. * * * And any creditor may take exceptions to the determination of the trustee within twenty days after the filing of the report.” See, also, McGahan v. Anderson (C. C. A.) 113 F. 115.

That a setting off of this property as exempt by the Federal Bankruptcy Act, §§ 6, 47 (11 USCA §§ 24, 75) is a final adjudication against all the world, see Lockwood v. Exchange Bank, 190 U. S. 294, 23 S. Ct. 751, 47 L. Ed. 1061;McGahan v. Anderson (C. C. A.) 113 F. 115;In re Bordelon (D. C.) 4 F.(2d) 285;In re Brown (D. C.) 228 F. 533;Duffy v. Tegeler (C. C. A.) 19 F.(2d) 305.

It must be held, therefore, as against said trustee in bankruptcy and the creditors whom he represented on the date of the approval of the trustee's report setting off this property to Kate Hughes as a homestead and, therefore, exempt, it was finally settled as against all parties, including the plaintiffs herein, that on that date, to wit, April, 1929, the property was the homestead of Kate Hughes.

[2] When exempt property is thus set off by the federal court, the rights or claims of creditors therein must be adjudicated and determined in the state courts under the state law, limited or superseded by the bankruptcy act and its effects. Eckhardt v. Hess, 200 Iowa, 1308, 206 N. W. 291;Schwanz v. Farmers' Co-operative Co., 204 Iowa, 1273, 214 N. W. 491, 55 A. L. R. 644. That the federal court recognizes equitable liens under certain circumstances, see Johnson, Trustee, v. Root Mfg. Co., 241 U. S. 160, 36 S. Ct. 520, 60 L. Ed. 934;Mott v. Wissler Min. Co. (C. C. A.) 135 F. 697;Moore v. Green (C. C. A.) 145 F. 472.

The evidence in the case abundantly shows that the indebtedness represented by the renewal note was created long prior to that date. The evidence equally shows that Kate Hughes never acquired a homestead right in said property prior to the time it was set off to her in bankruptcy court. She did not acquire a homestead right in said property from her parents because the same passed to her by will in a different share from what she would have taken under the law of descent. Rice v. Burkhart, 130 Iowa, 520, 107 N. W. 308;Voris v. West, 180 Iowa, 138, 162 N. W. 836;Arispe Bank v. Werner, 201 Iowa, 484, 207 N. W. 578.

It follows, therefore, that Kate Hughes had no homestead right in said property prior to April, 1929, when the same was set off to her in the federal court as exempt property, being a homestead. From thence on, under the adjudication of the federal court, she had a homestead right in this property.

Plaintiffs say, however, that, even if this be true, she had no homestead right as against them because the debt owing to them by her long antedated her acquisition of this homestead, and they call to their aid in this respect section 10155, Code 1927, which reads in part as follows: “The homestead may be sold to satisfy debts of each of the following classes: 1. Those contracted prior to its acquisition, but then only to satisfy a deficiency remaining after exhausting the other property of the debtor, liable to execution.” They say, therefore, that they would be entitled to issue an execution, levy on the property, and sell it, even though it be the homestead of Kate Hughes, because their debt anteceded the acquisition of this homestead.

The summary of the contention of the appellant stated in another way is that they are seeking to have a judgment against Kate Hughes on this note, and, after they have obtained said judgment, they will then be in a position to avail themselves of this section of the statute by issuing execution and selling the property.

At this point in the case, the troublesome questions arise. To take the plaintiffs at their word, after alleging the facts, they ask that they have judgment for the amount of their claim and the court establish the same as a lien on this property. To obtain such judgment and lien on the property, however, the foundation for the same is the promissory note on which they sue. Just what is the status of the plaintiffs on this promissory note in the light of the adjudication in bankruptcy?

[3][4] It is fundamental that an adjudication in bankruptcy bars all proceedings in the state courts on unsecured claims, except as allowed in bankruptcy law. It is equally well settled that the adjudication in bankruptcy does not bar, or in any way interfere, with the proceedings in state courts to enforce liens (more than four months old) held by creditors against the property of the bankrupt. Lockwood v. Exchange Bank, 190 U. S. 294, 23 S. Ct. 751, 47 L. Ed. 1061;In re Boyd (D. C.) 120 F. 999;In re Rabb (D. C.) 21 F.(2d) 254;In re Cheatham (D. C.) 210 F. 370;In re Vadner (D. C.) 259 F. 614;In re McBryde (D. C.) 99 F. 686;Duffy v. Tegeler (C. C. A.) 19 F.(2d) 305;In re Maaget (D. C.) 173 F. 232;Ingram v. Wilson (C. C. A.) 125 F. 913;Phillips v. Krakower (C. C. A.) 46 F. (2d) 764;Brown v. Four-In-One Coal Co. (C. C. A.) 286 F. 512;In re Tiffany (D. C.) 147 F. 314.

[5] Of course, if the plaintiffs had sued the defendant on this note and obtained a proper judgment more than four months before the adjudication in bankruptcy, their judgment, under the statute, would be a lien, but they did not do so, and now bring this action after such adjudication in bankruptcy. The pleading of plaintiffs presupposes they have no lien. They, in fact, had no lien on the property at the time of the bankruptcy proceedings, and they are now asking the court in this proceedings not to enforce a lien which existed at the time of the bankruptcy, but to establish or create a lien.

Passing the question as to whether or not, under certain circumstances, this could be done in a state court, we are satisfied that it cannot be done in this case. The plaintiffs insist that it can, because they say they have a right to subject this property to the payment of their debt because the debt antedates the homestead. As a practical question, as against their claim, there is, in fact, no outstanding homestead right. This is true because the general statute freeing homesteads from judicial process excepts from its operation the very situation we have before us in this case. The plaintiffs therefore have an unsecured claim against the defendant, and the defendant is not in a position to avail herself of this exemption statute as against the proper assertion of said claim. The right, therefore, of the plaintiffs to sue on this claim (without...