In re Brown

• Decision Date: 18 November 1915
• Citation: 228 F. 533
• Parties: In re BROWN.
• Court: U.S. District Court — Western District of Kentucky

228 F. 533

In re BROWN.

United States District Court, W.D. Kentucky.

November 18, 1915

J. C Erwin, of Murray, Ky., and Arthur Y. Martin, of Paducah, Ky for petitioning creditors.

J. P Holt, of Murray, Ky., for bankrupt.

EVANS District Judge.

S. O Miller, a creditor of the bankrupt, filed his proof of debt upon a note dated April 21, 1909, for $425, due April 21, 1910, with interest from date until paid, subject to a credit of $136. Payment of the note was secured by a mortgage executed simultaneously with the note upon certain real estate. The mortgage was not recorded until March 1, 1915, only a short time before the adjudication in bankruptcy on April 20, 1915. The referee allowed the claim as a secured debt.

The trustee filed a petition before the referee, praying that the claim be reconsidered, and that it be 'disallowed in so far as it is sought to have a lien adjudged on said land, or the proceeds thereof, until after the payment of the general indebtedness of said bankrupt, or such debts as were created without notice of the lien herein claimed. ' Subsequently the trustee filed an amendment to his petition, wherein he prayed 'that said claim, if allowed herein, be allowed only as against the interest of the bankrupt in said proceeds, and so as not to prejudice the rights of the general creditors of said estate, and he further prays as in his original petition.'

We ignore certain demurrers to these petitions, because by the new equity rules demurrers were abolished in equity cases, and besides we had previously held them inappropriate to the various steps taken in bankruptcy proceedings.

It appears that the real estate embraced in the mortgage to Miller was estimated by him in his schedules to be worth $1,300. He therein claimed a homestead, and showed himself to be a housekeeper with a family, consisting of a wife and several children, and stated that he, with his family, had previously occupied, and did then occupy, the premises as a homestead. The right to have this property to the extent of $1,000 exempt from the payment of his debts inures to the bankrupt under the provision of section 1702 of the Kentucky Statutes. Whether any steps have been taken by the trustee to set apart the homestead to the bankrupt is not shown by the papers sent up with the petition for a review now under consideration, although one of the first concerns of the trustee should always be promptly to set aside to the bankrupt any exempt property. If the real estate in which the homestead is claimed be indivisible, steps should be taken to have it sold. These things should always be promptly attended to by a trustee, and the referee should see that it is done. Here it appears that the trustee has rather been inclined to litigate with the bankrupt as to his rights in the homestead, and to claim for the trustee and creditors some rights either in the whole homestead or in such parts of it as might remain after the satisfaction of Miller's debt.

The petition of the trustee for a re-examination of the claim of Miller was filed June 2d, and the amendment to it on August 6th. Efforts were made to have the matter disposed of, during which, on June 12th, certain facts were agreed to by stipulation in writing in these terms, to wit:

'It is stipulated as an agreed statement of facts, for the purpose of the trial and determination of the trustee's petition for the reconsideration and rejection of the mortgage claim of S. O. Miller, on the real estate of the bankrupt, in so far as the same is a lien as against the creditors herein: That the said mortgage debt was made in good faith, and for a present valuable consideration, to wit, money loaned, and that the mortgagee failed to record his mortgage until March 1, 1915, by neglect, and did not purposely secrete the same, nor have any agreement with the mortgagor, or other persons, to withhold the same from record, or to defraud the creditors herein, or other persons, by doing so; that the creditors of the bankrupt herein had no knowledge or information of the existence of said mortgage, until after their debts against the bankrupt had been created, and extended credit to the bankrupt without knowledge or information of the said mortgage lien existing against his said real estate. The creditors knew, at the time they extended this credit, the bankrupt owned this real estate, but did not know of the existence of this mortgage, and extended credit in part because of their knowledge of his ownership of this real estate, and not knowing of the existence of this mortgage.'

It is nowhere claimed that any of the bankrupt's debts were created before the purchase of the land or the erection of the improvements thereon (section 1702), nor is it claimed that any creditor had sued out any attachment against the property or caused it to be levied thereon.

At last the matter was brought to trial on ...