In re Strickland

• Decision Date: 26 February 1909
• Citation: 167 F. 867
• Parties: In re STRICKLAND.
• Court: U.S. District Court — Southern District of Georgia

167 F. 867

In re STRICKLAND.

United States District Court, S.D. Georgia, Southwestern Division.

February 26, 1909

C. C Thomas and J. R. Walker, for bankrupt.

W. W Lambdin, for creditor.

SPEER District Judge.

The bankrupt has filed a petition for the review of an order by the referee, permitting one J. G. Curry, an alleged lien creditor of the bankrupt, to withdraw from the records of the court his proof of debt and intervention. These are based upon two purchase-money notes, containing waivers of homestead and exemption, aggregating the sum of $879.49. The ground of the motion for the withdrawal of the claim was 'inadvertence upon the part of counsel, being mistaken as to the proper forum in which he should endeavor to set up said claim. ' On January 13, 1908, Strickland was adjudicated a bankrupt. On January 23d the first meeting of creditors was held, and at this meeting John C. McDonald appeared as the attorney at law representing Curry, and filed the claim referred to, with proof thereon. Thereafter said attorney filed a motion for an order segregating certain property of the bankrupt, and also sought to have the same sold separately, claiming the proceeds thereof as purchase money for property bought by the bankrupt from the said Curry. On February 3d a sale of the assets was had, and the said attorney sought to obtain the proceeds for the property claimed as aforesaid by virtue of the purchase-money lien. Before the determination of this petition, however, the said attorney presented in lieu thereof the motion which is now in question, asking leave to withdraw from the files of the court the claim and original notes, in order that his client might proceed in equity, in a state court, to subject the homestead of the bankrupt and enforce his rights under alleged waivers contained in said notes. This counsel proceeded to do by filing in the state court a bill in equity, securing an injunction against the bankrupt, and a receiver to hold the exemption, which had been set apart by the trustee in bankruptcy. Upon the motion to withdraw, the referee issued the usual rule nisi. This was heard on February 28th, and on the 20th of March following the referee passed an order, permitting Curry to withdraw his claim upon the condition that such withdrawal should be without prejudice to the right of the bankrupt thereafter to contend before the state tribunal that the proceedings in this court operated as an estoppel. The petition for review related to this order of the referee. The bankrupt is the only party objecting to the withdrawal of the proceedings, and it does not appear that any creditor objected, or joins now in the petition to review.

The only question before the court is the propriety of the referee's order, allowing a creditor to withdraw his proof of debt and intervention before the final determination of the cause. Now, the right to dismiss legal proceedings has long inured to parties in all jurisdictions, state and national. Veazie v. Wadleigh, 11 Pet. 55, 61, 9 L.Ed. 630; Stevens v. Railroad (C.C.) 4 Fed. 97. The only limitation upon that right is that the party dismissing shall pay all costs, and that the dismissal shall not violate any substantial right, nor render it unavailable. That is the law in Georgia, and obtains almost universally. Sections 4970, 5044, Civ. Code 1895; Evans v. Sheldon, 69 Ga. 110; People's Bank of Talbotton v. Exchange Bank, 119 Ga. 367, 46 S.E. 416; Kean v. Lathrop, 58 Ga. 355. Can the withdrawal of a proof of debt be said to violate any substantial right of the bankrupt, or place him in a position more prejudicial than that which he occupied before the proof was filed? An examination of the precedents shows that all of the recent ceases sanction a withdrawal or amendment, under ordinary circumstances, of proceedings in bankruptcy. Mr. Loveland in his work on Bankruptcy, discussing the subject, says:

'The judge or referee has power, in his discretion, to allow proofs of debt to be amended or withdrawn. In cases of mistake or ignorance, whether of fact or of law, the judge or referee will exercise that power in the absence of fraud, and when all parties can be placed in the same position they would have been in if the error had not occurred, and where justice seems to demand that it should be done. ' Loveland on Bankruptcy, 403.

In Re Meredith (D.C.) 16 Am.Bankr.Rep. 331, 144 F. 230, the question arose before Judge Newman in the Northern district of Georgia, and the action of a referee, permitting a withdrawal, although not discussed, was sustained. In this state, a note containing a waiver of homestead and exemption rights has been held to be in the nature of a security for the payment of the debt. In Bell v. Dawson Co., 120 Ga. 628, 48 S.E. 150, Chief Justice Simmons, for the Supreme Court of the state, observed:

'The waiver becomes in the nature of a security, in that the debt may be made out of any property owned by the debtor, without regard to any exemption rights which the debtor would have had but for the waiver.'

Here, the creditor seeks to enforce his debt by employing the remedies afforded by the laws of Georgia, viz., by subjecting the homestead set apart to the bankrupt by the trustee in this court by proceeding in equity in a state court upon the waiver notes, and by having a receiver appointed to hold and disburse to the creditor such part of the homestead as he may be held entitled to receive. That procedure seems justified by the ruling of the Supreme Court in Lockwood v. Exchange Bank, 190 U.S. 294, 23 Sup.Ct. 751, 47 L.Ed. 1061,

where it was held that a trustee in bankruptcy acquires no title to exempted property, save that which is incident and necessary to his duties to the estate and to the bankrupt in setting it aside. In the case of Bell v. Dawson Company, supra, it was held that the remedy of creditors holding waiver notes may be found in section 4904 of the Civil Code of Georgia, which is as follows:

'A court of equity may appoint a receiver to take possession of, and hold subject to the direction of the court, any assets charged with the payment of debts, where there is manifest danger of loss, or destruction, or material injury to those interested.'

The appropriate remedy under this general equity power is then summarized by the court in these words:

'The latter's remedy is in a court of equity, which court is authorized under the laws of this state to give (the creditor) a judgment in rem against the exempted property, subjecting it to his claim, and, where such property is personalty of a perishable nature, or such as will be destroyed by the use, to appoint a receiver to take charge of such property until the judgment in rem has been obtained. ' Sanford v. Fidelity & Guaranty Co., 116 Ga. 689, 43 S.E. 61.

The question of the right to amend a proof of debt came before the Supreme Court of the United States in the case of Hutchinson v. Otis, 190 U.S. 552, 23 Sup.Ct. 778, 47 L.Ed. 1179. In the opinion rendered by Mr. Justice Holmes, that right was affirmatively established. See, also, In re Scott (D.C.) 93 F. 418; In re Myers (D.C.) 99 F. 691; In re Wilder (D.C.) 101 F. 104; In re Stevens (D.C.) 107 F. 243; In re Swords (D.C.) 112 F. 661; In re Tiffany (D.C.) 17 Am.Bankr.Rep. 296, 147 F. 314; In re Castleberry (D.C.) 16 Am.Bankr.Rep. 159, 143 F. 1018; In re Brumbaugh (D.C.) 12 Am.Bankr.Rep. 204, 128 F. 971; Ingram v. Wilson, 11 Am.Bankr.Rep. 195, 125 F. 913, 60 C.C.A. 618; In re Ogilvie, 5 Am.Bankr.Rep. 374.

The bankrupt, however, contends that the withdrawal of a proof of debt falls within the equitable doctrine of election, and that the action of Curry in electing to file his claim before the referee precludes him from pursuing the remedy of subjecting the exemption in the state court. Counsel invokes the language of section 4012 of the Code of Georgia, as follows:

'A case of election arises

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