In re Baker

• Decision Date: 03 May 1910
• Docket Number: 2,008.
• Citation: 182 F. 392
• Parties: In re BAKER.
• Court: U.S. Court of Appeals — Sixth Circuit

182 F. 392

In re BAKER.

No. 2,008.

United States Court of Appeals, Sixth Circuit.

May 3, 1910

O. M Rogers, for petitioner.

S. W Tolin, for respondent.

Before SEVERENS, WARRINGTON, and KNAPPEN, Circuit Judges.

WARRINGTON Circuit Judge.

This is a proceeding to revise in matter of law a judgment denying to the petitioner a homestead exemption in certain real estate. The petitioner was adjudged a bankrupt under voluntary proceedings begun July 31, 1908. He presented with his petition and schedules his claim to the exemption under section 1702, Ky. St. (Russell's St. Sec. 4661). His real estate consisted of an undivided one-fifth interest in three parcels of land, which descended to him upon the death of his brother in June, 1908. The lands were neither improved nor susceptible of partition; and the trustee in bankruptcy under order of the referee made in November, 1908, sold the interest of the bankrupt in the lands for $926, and set apart the whole of the proceeds of sale to the bankrupt as exempt in lieu of his claim to a homestead. Prior to the bankruptcy proceedings some of the petitioner's creditors, whose claims antedated the inheritance, commenced suits in attachment and otherwise to subject the land to the payment of these debts. These creditors objected to any allowance of a homestead, and the order of the referee was set aside by the court below.

In view of Bankr. Act July 1, 1898, c. 541, Sec. 6, 30 Stat. 548 (U.S. Comp. St. 1901, p. 3424), the validity of the action of the trustee in setting apart the bankrupt's exemption and the rights of the bankrupt in that behalf are to be tested by the law of Kentucky. The federal courts are accustomed in such cases to follow the decisions of the court of last resort of the state whose laws are so drawn in question. In speaking of the Constitution and statutes of Texas respecting homestead exemptions in a proceeding like the present one in Duncan v. Ferguson-McKinney Dry Goods Co., 150 F. 269, 271, 80 C.C.A. 157, 159,

Circuit Judge Shelby said:

'It has been the policy of the state of Texas in its Constitution and legislation, as construed by the decisions of its Supreme Court, to favor by liberal interpretations the exemptions in favor of debtors. These decisions, construing the state Constitution and statutes, are as binding on this court as the Constitution and statutes themselves.'

See, also, McCarty v. Coffin, 150 F. 307, 310, 80 C.C.A. 195; In re Wood (D.C.) 147 F. 877, 878; Huenergardt v. Brittain Dry Goods Co., 116 F. 31, 33, 53 C.C.A. 505; In re Irvin, 120 F. 733, 734, 57 C.C.A. 147; In re Meriwether (D.C.) 107 F. 102; In re Pope (D.C.) 98 F. 722; Loveland on Bankruptcy (3d Ed.) Sec. 177, p. 514.

Since the federal courts cannot administer or distribute exempted property as an asset of the bankrupt's estate, or do more than to set it apart to the bankrupt (Lockwood v. Exchange Bank, 190 U.S. 294, 23 Sup.Ct. 751, 47 L.Ed. 1061), this practice of the courts would seem to be in accord with the course pursued by Mr. Justice Gray respecting a dower right under the bankruptcy act of 1867 (Act March 2, 1867, c. 176, 14 Stat. 517) in Porter v. Lazear, 109 U.S. 84, 3 Sup.Ct. 58, 27 L.Ed. 865. See, also, In re Petition of Carrie E. Hays (decided by this court March 8, 1910) 181 F. 674.

The court below in terms recognized the binding effect in such matters of decisions of courts of last resort of the states in which the questions arise; but, as we understand his opinion the learned judge did not think any rule of decision on the present issue was settled in Kentucky. He said:

'At the outset I would emphasize that the homestead exemption is purely statutory. It is created by statute, and it exists only as it is so created. The courts cannot adjudge that to be such an exemption which is not such by the terms of the statute according to their intent and meaning. They are concerned solely with determining what that true intent and meaning is. This court, however, is not entirely free to do this. It is limited by any construction of the statute put forth by the Kentucky Court of Appeals, at least if it clearly appears that such is its construction, and there is no reason to think that in any future case it will not adhere thereto. I recognize fully this restriction upon me, and have no disposition to go beyond it. But the proper standpoint from which to view any particular construction of the statute by that court, and to determine accurately just what it is, is one's own construction. I will therefore at the first undertake for myself to ascertain the statute's true intent and meaning.'

We of course agree that where the decisions of the state court are in conflict, and point to no definite rule touching the construction of a statute of the state, the federal courts are quite as much at liberty to place their own construction upon the statute as they would be if the state court had not construed it at all. But if there be a rule of decision which is reasonably clear with respect to a given statute, we think the federal courts are bound in a case like this to follow the rule, rather than to undertake to determine upon their own interpretation whether the state court may not change the rule in the future. The statute in question provides that:

' * * * there shall, on all debts or liabilities * * * be exempt from sale under execution, attachment or judgment, except to foreclose a mortgage given by the owner of a homestead, or for purchase money due therefor, so much land including the dwelling house and the appurtenances owned by debtors, who are actual bona fide housekeepers with a family, resident in this commonwealth, as shall not exceed in value one thousand dollars; but this exemption shall not apply to sales under execution, attachment or judgment, if the debt or liability existed prior to the purchase of the land, or of the erection of the improvements thereon.'

It is further provided in substance by section 1705 that where real estate--

'in the opinion of the appraisers, is of greater value than one thousand dollars, and not divisible without great diminution of its value, then the same shall be sold, * * * and one thousand dollars of the money * * * shall be paid to the defendant to enable him to purchase another homestead.'

The first claim urged on behalf of petitioner is that the Court of Appeals has under section 1702 established a distinction between property held by purchase and that held by descent, and that this is especially pertinent here, because, as before stated, the land in question was devolved upon petitioner by descent, and the debts in question were incurred before that event. This distinction is thus stated in Jewell v. Clark's Ex'r, 78 Ky. 398, 399:

'The object of this provision was to prevent debtors from purchasing homesteads after creating debts or liabilities and then claiming the exemption against such debts. The means with which a homestead was purchased might be the very means to which the creditor looked for payment, and gave the debtor credit which enabled him to create the debt. * * * But when the debtor derives title to the homestead by descent, no injury is done to the creditor in exempting the homestead so acquired.'

Jewell v. Clark's Ex'r was decided in 1880. It was approved and followed in 1889 in Spratt v. Allen, 106 Ky. 274, 277, 50 S.W. 270. The case was also approved by the same court in Dwelly v. Galbraith, 5 Ky.Law Rep. 209, Meador v. Meador, 88 Ky. 217, 222, 10 S.W. 651, Hester v. Lynn, 49 S.W. 431, 20 Ky.Law Rep. 1460, 1461, and again in 1906, in Roberts v. Adams, 96 S.W. 554, 29 Ky.Law Rep. 848, through citation of Spratt v. Allen and the statement that all the former decisions of the court are there reviewed; and as late as 1908 Jewell v. Clark's Ex'r was approved and followed in Burrow v. Maxon, 129 Ky. 578, 581, 112 S.W. 661.

We think it clear that these decisions establish the distinction urged respecting property acquired by purchase and property derived by descent, and that this renders inapplicable most of the decisions relied on by the creditors. It is true that in Meador v. Meador, supra, homestead was denied, but only because the land 'descended to the appellant with a lien upon it, and as against it he is not entitled to homestead. ' Creager v. Creager, 87 Ky. 451, 9 S.W. 380, was also distinguished from the cases laying down the rule mentioned, for the reason that the indebtedness against the claimant 'was created after he acquired said property by descent, and he had at no time resided on said land as a housekeeper until after the assignee had sold by order of court the whole of said lands. ' But these decisions rather emphasize than weaken the rule.

It was however, successfully objected in the court below that, since there were no improvements upon the land in question, it could not be regarded as a homestead within the meaning of the statute. In Dwelly v. Galbraith, supra, Dwelly had inherited an undivided interest in 10 acres of land from his father. After the death...