In re Gerber

• Decision Date: 06 February 1911
• Docket Number: 1,871.
• Citation: 186 F. 693
• Parties: In re GERBER. [1] v. PARKER. FREEDMAN BROS. CO. et al.
• Court: U.S. Court of Appeals — Ninth Circuit

186 F. 693

In re GERBER. ^[1]

FREEDMAN BROS. CO. et al. v. PARKER.

No. 1,871.

United States Court of Appeals, Ninth Circuit.

February 6, 1911

The bankrupt was a retail dealer in women's wearing apparel in the city of Seattle, and was adjudged bankrupt May 19 1909, by the court below. His schedules of assets and liabilities were filed May 27, 1909.

The bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 544 (U.S Comp. St. 1901, p. 3418)), provides that it shall not affect the allowance to bankrupts of the exemptions which are prescribed by the state laws in force at the time of the filing of the petition in the state wherein they have had their domicile for the six months, or the greater portion thereof, immediately preceding the filing of the petition.

The state statute applicable to the case is found in subdivision 4 of section 563 of Remington and Ballinger's Annotated Codes and Statutes of Washington, which reads as follows 'To each householder, two cows, with their calves, five swine, two stands of bees, thirty-six domestic fowls, and provisions and fuel for the comfortable maintenance of such householder and family for six months; also feed for such animals for six months: Provided, that in case such householder shall not possess or does not desire to retain the animals above named, he may select from his property and retain other property, not to exceed two hundred and fifty dollars coin in value. The selection in the proviso mentioned shall be made in the manner and by the person, and at the time mentioned in subdivision three, and said selection shall have the same effect as selections made under subdivision three of this section.'

He also claimed in the schedule mentioned $250 in cash by virtue of the above provision of the statute of the state of Washington concerning animals, and also, by virtue of the same statute 'a sufficient sum out of the assets of his estate for provisions for himself and his family for a period of six months,' and also claimed certain real estate acquired by him, as hereinafter stated, as a homestead. A trustee of the estate was selected. On the 8th of July, 1909, the bankrupt filed with the referee in bankruptcy a petition asking an order directing the trustee to set aside to him the property so claimed by him as exempt, in response to which petition the trustee, on the 12th of October, 1909, filed with the referee a report, designating and setting aside to the bankrupt all of the property so claimed as exempt, to wit, the wearing apparel and household furniture, $250 in money by virtue of the above section of the statute of Washington in lieu of cows, swine, bees, and fowls, $25 a month, aggregating $150, for the maintenance of the bankrupt and his family for six months, and also the real property claimed as a homestead.

Within 20 days after the filing of the trustee's report of such exemptions, a number of the creditors of the bankrupt joined in filing exceptions thereto, directed only to the allowance of the cash exemptions and the homestead. With respect to the cash exemptions the exceptions were based upon the contention that at the time the bankrupt filed his schedules the property of his estate was still in specie, and the bankrupt had ample opportunity to make his selections from such existing property; that he had no right to claim money in lieu of goods; and that by failing to make his selection at the time and in the manner provided by law he had waived such exemption. In respect to the cash allowance for the maintenance of the bankrupt and his family for six months, the contention of the creditors was that the statute of Washington does not authorize exemptions in lieu of provisions and fuel, either in money or property. The homestead allowance was excepted to on the ground that the bankrupt had acquired the homestead in contemplation of his immediate adjudication as a bankrupt and in pursuance of a scheme to defraud his creditors.

The issues thus formed were heard by the referee, who found and decided as follows: That, as to the lieu exemptions allowed by the trustee, the facts were that no claim for specific property in lieu of the animals and supplies was made by or on behalf of the bankrupt; his only claim being for a cash allowance. That the specific property which he might have claimed on account of such lieu exemptions was sold by the trustee, and not more than 60 per cent. of its value obtained therefor upon such sale. That in view of those facts the referee was of opinion, and so held, that the bankrupt should only receive in cash 60 per cent. of the amount to which he would have been entitled in specific property had he made claim therefor, and was therefore entitled to $150 in cash out of the proceeds of the property sold by the trustee. 'That as to the exemptions of property necessary for his maintenance, the statute not having provided any amount in lieu thereof, there seemed to be no guide to aid in determining how much cash he would be entitled to instead of specific property if he had made claim therefor; but the same reasons would obtain for reducing the cash allowance on this account as for that claimed in lieu of certain animals, and the referee agreeing with the trustee that $25 per month would have been a fair allowance if taken in property, 60 per cent. thereof, or $15 per month, would be a fair allowance in cash. ' For the reasons stated, the referee reduced the aforesaid allowances made by the trustee to $150 and $90, respectively.

With regard to the homestead claim, the findings of fact and conclusions of the referee were as follows: 'That on the 15th day of April, 1909, the bankrupt paid a deposit of $200 on the purchase price of the property now claimed as homestead. That at that time he was wholly insolvent, and knew himself to be insolvent. That many suits were pending, and were threatened by creditors for accounts against the bankrupt long past due. That during the latter part of April, 1909, a petition in involuntary bankruptcy was filed against the bankrupt by creditors, which petition was strongly contested by the bankrupt. That during the pendency of such proceeding the bankrupt converted $1,100, which he had in his possession, into a bank certificate of deposit payable to the order of Blaine, Tucker & Hyland, his attorneys, and delivered said certificate to said attorneys. That his purpose in placing said money in that shape was to prevent creditors from garnisheeing it. That on May 18, 1909, the bankrupt's attorneys stipulated with the attorney for the petitioning creditors that the pending bankruptcy proceeding be dismissed; that costs aggregating $237 incurred in said proceeding be paid out of the $1,100 held by Blaine, Tucker & Hyland; that the balance be paid back to Gerber; and that Gerber should consent to be immediately adjudged bankrupt upon a new petition to be filed against him by other attorneys representing other creditors. That an effort was made by the attorney who had filed the first petition to persuade Gerber to be adjudged bankrupt upon the first petition, but the bankrupt insisted upon a dismissal of said first petition and the filing of a new one. That in pursuance of said stipulation the said first proceeding in bankruptcy was dismissed on the 18th day of May, 1909, and on the 19th day of May, 1909, said Gerber was adjudged bankrupt upon a second petition filed that day. That during the interim between the dismissal of the first petition and the filing of the second petition said Gerber paid a balance of $1,300 cash on the purchase price of the property, receiving a deed therefor. That immediately after receiving said deed he filed a declaration of homestead on said property. That the $1,300 cash so paid was made up of the balance received from Blaine, Tucker & Hyland upon the dismissal of the first petition and other moneys held by the bankrupt. From the foregoing facts the court concludes that the bankrupt invested said funds while insolvent and knowing himself to be insolvent, for the purpose of withholding same from his creditors; that the bankrupt insisted upon a dismissal of the first petition in bankruptcy in order that he might conclude the transaction with respect to the purchase of said property before the filing of the second petition upon which he was adjudged bankrupt; that in equity and good conscience it would seem that in view of these facts said homestead should not be set aside to the bankrupt as exempt, but under the liberal rule laid down by the Supreme Court of this state said undersigned (referee) was constrained to hold that it was, notwithstanding his opinion as to the equities involved in the proposition.'

Upon petition to the court below for a revision of the foregoing decision of the referee, the court confirmed that decision, and hence the proceedings here.

Leopold M. Stern, for petitioner.

James B. Kinne, for bankrupt.

Henry F. McClure, Walter A. McClure, and Wm. E. McClure, for respondents.

Before GILBERT, ROSS, and MORROW, Circuit Judges.

ROSS Circuit Judge (after stating the facts as above).

The motion to dismiss the petition for review is without merit and is denied.

While it is well-established law that exemptions in behalf of unfortunate debtors are to be liberally construed in furtherance of the object of such statutes, it should never be forgotten that courts have not the power to legislate, and can no more add an exemption not fairly within the statute than they can take from the statute. So also must it be remembered that courts of bankruptcy proceed upon equitable principles, and should no more sustain a positive fraud than would a court of equity. In respect to this homestead claim both the referee and the District Court expressly recognized its...