In re Cunningham

• Decision Date: 23 October 1926
• Docket Number: No. 3390.,3390.
• Citation: 15 F.2d 700
• Court: U.S. District Court — District of South Carolina
• Parties: In re CUNNINGHAM.

15 F.2d 700 (1926)

In re CUNNINGHAM.

No. 3390.

District Court, E. D. South Carolina.

October 23, 1926.

De Loach & De Loach, of Camden, S. C., for bankrupt.

George H. Wittkowsky, of Columbia, S. C., for trustee.

ERNEST F. COCHRAN, District Judge.

This matter comes up upon a petition of the bankrupt to review two orders of the referee — one in reference to his claim of exemption in a certain stock of goods and fixtures, and the other in reference to certain policies of insurance payable to his wife. I will consider first the order in reference to the exemption claim in the stock and fixtures.

It appears from the record that the bankrupt claimed his exemption to the extent of $500 in his stock of goods and fixtures. In substance, the referee's order was that the trustee should set apart to him an exemption in the stock to the extent of $500, with the proviso that, in case the bankrupt and the trustee could not agree on the property to be set apart, then appraisers should be appointed and proper proceedings had for setting the same apart in kind. The order further provided that, after such property should be set off in kind, the bankrupt might, if he desired, have the same sold by the trustee at the time of the sale of the remaining stock of goods and fixtures, and the proceeds of the part so to be set aside should be turned over to the bankrupt. The order further provided, however, that in case the bankrupt should elect to have his right to homestead suspended until after the sale, the trustee should sell all the stock of goods and fixtures, and the bankrupt should receive from the trustee the sum of $500 as homestead, provided the property brought the full appraised value, and, in case it did not bring the appraised value, the bankrupt's right to share in the proceeds to be reduced ratably in the proportion that the proceeds of sale bear to the appraised value of the whole property.

The bankrupt waived his right to have his exemption to the extent of $500 set aside to him in kind from the stock of goods and fixtures, and elected to have the trustee sell the whole stock and take his homestead out of the proceeds of sale, as provided in the order of the referee. The sale was made, and it appears that the property brought more than $500, but did not bring the full appraised value, and, upon a proportionate reduction being made, the amount to be turned over as exemption is only $300. The bankrupt claims that he is not required to accept the $300 in these circumstances, but is entitled to have the sum of $500 paid to him from the proceeds of sale.

Under the various sections of the Bankruptcy Act which refer to exemptions (clause 11 of section 2, section 6, clause 8 of section 7, clause 11 of section 47, section 67, and section 70 Comp. St. §§ 9586, 9590, 9591, 9631, 9651, 9654), the Supreme Court of the United States has held that the title to the exempt property remains in the bankrupt, and does not pass to the trustee. The trustee is entitled to the possession until he can have its value ascertained and set the same apart, but the title remains in the bankrupt. Lockwood v. Exchange Bank, 190 U. S. 294, 299, 23 S. Ct. 751, 47 L. Ed. 1061.

It has also been held that the Bankruptcy Act conferred upon the court of bankruptcy authority to control the exempt property, in order to set it aside and thus exclude it from the assets of the bankrupt estate to be administered, but it did not authorize the bankruptcy court to administer and distribute it as a part of the assets of the bankrupt. Lockwood v. Exchange Bank, supra. See, also, McCrae v. Felder (C. C. A. 4th) 12 F. (2d) 554, 557.

And in making the allotment of the exemption it is the duty of the trustee to follow as nearly as practicable the procedure prescribed for allotment in adversary proceedings under the state statute. McCrae v. Felder, supra.

The order, therefore, of the referee, directing that the property be set aside from the stock of goods and fixtures in kind, and that, if the trustee and bankrupt could not agree upon the same, there should be appraisers appointed and an appraisement had according to the usual practice in adversary proceedings in the state courts, was entirely proper. The bankrupt's rights were fully protected, and he could, if he chose, have had the property set aside to him under this order, and received it in kind; but he did not choose to do so. He waived his right to have it set aside in kind, and availed himself of the privilege given to him by the referee's order of allowing the stock of goods to be sold as a whole and to take his proportionate share therefrom.

I cannot see that there was any illegality in the referee's allowing him this privilege. It was for his benefit. He elected to allow the property to be sold as a whole without being set apart in kind, and, having made his election, he is bound by it. No doubt he exercised his election in favor of this course, because he thought he would obtain more than if his exemption should be set aside to him in kind. The practical result and effect of the order of the referee and the bankrupt's election thereunder was the same as if he and the trustee had expressly agreed that the appraised value of the whole property was correct, and that his interest therein should be $500, based upon the same valuation or appraisal.

It is said, however, that the bankrupt is entitled to the full amount of $500 from the proceeds of sale, under the provisions of section 5498 of volume 3 of the Civil Code of South Carolina of 1922. That section does provide that the court may, in its discretion, where the personal property shall be found to exceed the sum of $500, direct a sale of the entire property and provide for the payment of the exemption from the proceeds of sale. But that section has no application in this case. The referee did not proceed under that section. The referee did not direct a sale of the entire property in invitum. The bankrupt was not compelled to submit to a sale of the whole property. Under that section the bankrupt may be compelled to allow the property to be sold as a whole, and in such event he is entitled to the full amount of exemption, provided the property brings that much.

But the section has no application whatever to the case where the court determines and orders that the property shall be set aside in kind, with the right on the part of the bankrupt to waive his right to have the same set aside in kind, and elect to take his share of the proceeds of sale upon a proportionate basis. For these reasons, the order of the referee under consideration must be affirmed.

Coming, now, to the second question presented by the petition for review, namely, in reference to the policies of insurance, it appears from the record that the bankrupt had certain policies of insurance payable to his wife, which contained a provision that the insured should have the right to change the beneficiary. The referee directed that the policies be turned over to the trustee, and that the trustee should collect the cash surrender values. The petition for review questions this ruling of the referee, and claims that the policies are exempt under section 4099, vol. 3, of the Civil Code of South Carolina of 1922.

Where the state law exempts policies of life insurance from levy or sale, so as to put it beyond the power of creditors to reach such insurance or the proceeds thereof, then under the Bankruptcy Act such policies do not pass to the trustee. Holden v. Stratton, 198 U. S. 202, 25 S. Ct. 656, 49 L. Ed. 1018, approved in Burlingham v. Crouse, 228 U. S. 469, 33 S. Ct....