In re Cummings

• Decision Date: 12 August 1969
• Docket Number: No. 235-68.,235-68.
• Parties: In the Matter of Marion CUMMINGS, Bankrupt. In the Matter of Audrey Alberta CUMMINGS, Bankrupt. In the Matter of Benancio Ernest DOMINGUEZ, Bankrupt. In the Matter of Cora Esther DOMINGUEZ, Bankrupt. Sears, Roebuck and Company and Montgomery Ward and Company, Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

413 F.2d 1281 (1969)

In the Matter of Marion CUMMINGS, Bankrupt.

In the Matter of Audrey Alberta CUMMINGS, Bankrupt.

In the Matter of Benancio Ernest DOMINGUEZ, Bankrupt.

In the Matter of Cora Esther DOMINGUEZ, Bankrupt.

Sears, Roebuck and Company and Montgomery Ward and Company, Appellants.

No. 235-68.

United States Court of Appeals Tenth Circuit.

August 12, 1969.

COPYRIGHT MATERIAL OMITTED

Herbert W. DeLaney, Jr., Denver, Colo., filed a brief for appellants Sears, Roebuck & Co. and Montgomery Ward & Co.

James R. Horton, Denver, Colo., filed a brief for himself and for William R. Young as Trustees in Bankruptcy.

Before BREITENSTEIN, HILL and HOLLOWAY, Circuit Judges.

BREITENSTEIN, Circuit Judge.

Voluntary petitions in bankruptcy were filed by Mr. and Mrs. Benancio Dominguez and by Mr. and Mrs. Marion Cummings. Dominguez had purchased household goods from Montogomery Ward and Company and given a purchase money chattel mortgage on which $211.77 was due at the time of bankruptcy. Cummings had purchased household goods from Sears, Roebuck and Company and given a purchase money chattel mortgage on which $338.11 was due at the time of bankruptcy. The chattel mortgages were not filed or recorded as required by Colorado law and were not valid as against third parties. Dominguez and Cummings claimed that the household goods were exempt under Colorado law. Sears and Montgomery Ward petitioned in the bankruptcy proceedings for permission to foreclose or reclaim. The referee denied the petitions and his decisions were affirmed by the district court on petitions to review.

We are met at the threshold with procedural complications. Four petitions for voluntary bankruptcy were filed. The referee entered one opinion and order in the Dominguez proceedings and one in the Cummings proceedings. Four petitions for review were filed in the district court. Without the entry of a formal order of consolidation, the district court disposed of all four petitions by one opinion and one order.

The one notice of appeal follows the pattern set by the district court in disposing of the petitions to review. It is filed on behalf of both Sears and Montgomery Ward, names all four bankrupts, and specifies the judgment appealed from. See Rule 3, F.R.A.P. Although the better practice would be to file a separate notice of appeal in each case, the record shows that the purpose of the rule was satisfied because notice was effectually given and there is no claim of any disadvantage to the appellees. See St. Marie v. United States, 9 Cir., 108 F.2d 876, 880, cert. denied 311 U.S. 652, 61 S.Ct. 35, 85 L.Ed. 417. The failure to file separate appeals, or in the situation presented, separate applications for permission to appeal, is not, in the peculiar circumstances of this case, a fatal defect.

No attempt was made to obtain the permission of this court to appeal. Section 47(a), 11 U.S.C., requires an allowance of the appeal by the appellate court when the amount involved is less than $500. See also Rule 6, F.R.A.P. The amount claimed by Montgomery Ward is $211.77 and that claimed by Sears is $338.11. Separate and distinct claims may not be aggregated. See Snyder v. Harris, 394 U.S. 332, 336, 89 S.Ct. 1053, 22 L.Ed.2d 319. An allowance of the appeal is necessary. The failure to file in the court of appeals a petition for allowance of the appeal is not a jurisdictional defect. See Reconstruction Finance Corp. v. Prudence Securities Advisory Group, 311 U.S. 579, 582, 61 S.Ct. 331, 85 L.Ed. 364. The court of appeals has power to treat the notice of appeal filed in the district court as an informal substitute for an application to the court of appeals. Mario Mercado E. Hijos v. Feliciano, 1 Cir., 260 F.2d 500, 502. Such power should be exercised only in exceptional circumstances. See State of California, Department of Employment v. Fred S. Renauld & Co., 9 Cir., 179 F. 2d 605, 608. The issue presented here is of sufficient importance to the administration of bankruptcy proceedings in the District of Colorado to be an exceptional circumstance. The appeal is allowed.

Young is the trustee of the two Dominguez bankrupt estates and Horton of the two Cummings estates. Upon a proper claim of statutory exemption, the two trustees set aside the household goods in question as exempt and such actions were approved by the referee. The sellers of the goods sought to foreclose or reclaim on the theory that their security interests were valid as between them and the purchasers. The trustees asserted that the security interests were void as to third parties and that the value of such interests went to the trustees for the benefit of the unsecured creditors.

The referee held that the security interests were invalid as to the trustees; that the security interests were preserved to the trustees for the benefit of the bankruptcy estates; that the exemptions claimed and allowed to the bankrupts apply only to the value of the goods in excess of the indebtedness due at the date of bankruptcy; that the bankrupts had thirty days to pay such indebtedness to the trustees; and that if the bankrupts fail to make such payments, the property shall be sold by the trustees with the proceeds in the amount of the indebtedness going to the bankruptcy estates and the excess to the bankrupts. The district court upheld the referee in all respects.

The Bankruptcy Act preserves the exemptions which are allowed by state law. 11 U.S.C. § 24, and Cantrell v. Molz-Frick Implement Company, 10 Cir., 278 F.2d 546. Property which is exempt under state law and which is determined to be exempt by the bankruptcy court is no part of the estate in bankruptcy. 11 U.S.C. § 110(a), and Lockwood v. Exchange Bank, 190 U.S. 294, 299, 23 S.Ct. 751, 47 L.Ed. 1061.

The trustees argue that the Colorado exemption statutes exempt only the bankrupts' equity in the property. The sellers urge that those statutes exempt the property which continues to be held by the bankrupts subject to the purchase money liens. Colo.R.S.1963, § 77-2-2(1) (f) exempts

"The household goods owned and used by the head of a family or owned by such head and used by his or her dependents to the extent of seven hundred fifty dollars in value, and owned and used by a single person to the extent of two hundred fifty dollars in value."

The word "value" as used in the foregoing is defined thus by Colo.R.S. § 772-1(6):

"Value is the fair market value of any property less the amount of any lien or liens thereon valid as between the owner of the property and the holder or holders of any such lien or liens."

Colo.R.S.1963 § 77-2-3 provides that no property is exempt from levy and sale for the purchase price thereof.

The sellers insist that an exemption statute must be read in terms of property. Heavy reliance is placed on In re Rade, D.C.Colo., 205 F.Supp. 336. In that case a credit union loaned the bankrupt part of the purchase price of an automobile and took back a mortgage which was not properly recorded. Colo. Rev.Stat. § 77-2-2(1) (k) exempts motor vehicles used in a gainful occupation to the value of $300. The bankrupt claimed this exemption. The referee held that the lien of the credit union was void as to the trustee. The automobile was ordered sold with the proceeds going to the estate except for the $300 exemption which should be paid to the credit union. The question certified to the district court was the validity of the order for payment to the credit union. The court upheld the referee. The dispute there was between the mortgagee and the bankrupt. Here it is between the mortgagees and the trustees. We are not concerned with the rights of the mortgagees against the mortgagors under purchase money mortgages. The point is that 11 U.S.C. § 110(e) makes the unrecorded mortgages void against the trustees. Rade does not discuss or decide the question of whether the Colorado statutory exemption on mortgaged household goods applies to the equity or to the property.

The sellers assert that Sears, Roebuck & Company v. Schulein, 9 Cir., 282 F.2d 267, is dispositive of the issue. There the bankrupt had purchased a refrigerator and sewing machine from Sears on an unrecorded conditional sales contract and had...