In re White

Decision Date13 August 1963
Docket NumberNo. 21338,21339.,21338
Citation221 F. Supp. 64
PartiesIn the Matter of Harlan WHITE, Bankrupt. In the Matter of Shirley Louise WHITE, Bankrupt.
CourtU.S. District Court — Northern District of California

Frederick L. Hilger, Eureka, Cal., for bankrupts-petitioners.

Max H. Margolis, James M. Conners, San Francisco, Cal., and Francis B. Mathews, Eureka, Cal., for trustee-respondent.

HALBERT, District Judge.

Bankrupts, husband and wife, have filed this petition for review Title 11 U. S.C. § 67, sub. c, § 39, sub. c of the Bankruptcy Act of the Referee's order affirming a decision of the trustee denying certain claims of exemption under the California exemption statutes. Each of the bankrupts claimed as exempt the sum of $1,000 in the Humboldt Federal Savings and Loan Association, and $1,500 in the Government Service Credit Union. The basis for the exemption claim of the monies in the savings and loan association appears in California Financial Code, § 110001 and California Code of Civil Procedure, § 690.212. The credit union deposits are claimed to be exempt under the provisions of California Financial Code, § 154063.

The Referee found that the bankrupts were, at the time of their adjudication in bankruptcy, operating a supermarket as co-partners. At all times during their operation of the supermarket, they were insolvent, and they realized that such insolvency would not allow them to continue operation of the supermarket indefinitely. They continued to operate the supermarket, however, until the receiver took over such operation after they had filed their petitions in bankruptcy. For some period of time prior to the actual filing of their petitions, the bankrupts had contemplated bankruptcy and had consulted with their attorney in that regard. They had received advice and information with reference to possible exemptions under the California statutes. Despite their intention to terminate their business affairs and to file petitions in bankruptcy, they continued their business and continued to request and receive credit. At the time of their determination to file petitions in bankruptcy, the bankrupts did not have in their possession monies sufficient to take advantage of either of the above noted exemptions. After receiving information and advice from counsel concerning the ordinary applicability of said exemptions, the bankrupts continued to acquire on credit merchandise valued in excess of $17,000. The items thus acquired were sold in the ordinary course of business, and the proceeds derived from such sales enabled the bankrupts to deposit sufficient monies in the savings and loan association and the credit union to seek to take full advantage of the exemptions offered. Concomitant with said deposits was the fact that the monies thus received were not used to pay creditors who had supplied certain of the goods sold.

The Referee concluded that the above circumstances constituted actual fraud; that all monies involved in these transactions were community property, notwithstanding an attempt by the husband to make a gift of said funds to the wife as her separate property. (This attempted gift constituted a voidable transfer under § 67, sub. d(3) of the Bankruptcy Act Title 11 U.S.C. § 107, sub. d(3)); and that the deposits in the name of the wife and each of the two children (presumably as tenants in common) did not fall under the exemption statutes regarding personal exemptions. The bankrupts challenge each of these conclusions of law.

The leading case in this substantive area is In re Dudley, D.C., 72 F.Supp. 943, aff'd sub nom. Goggin v. Dudley, 9 Cir., 166 F.2d 1023. That case set forth the proposition that an investment by a heavily insolvent debtor in exempt building and loan association stock only a few days before the filing of a petition in bankruptcy is not, ipso facto, fraudulent, and that the exemption is allowable. The appellate affirmance of Dudley sets forth the rule for this circuit, and is binding upon this Court. The bankrupts also point to similar holdings in Forsberg v. Security State Bank of Canova, 8 Cir., 15 F.2d 499, 49 A.L.R. 913; and Crawford v. Sternberg, 8 Cir., 220 F. 73. As an example of cases involving actual fraud, the bankrupts point to In re Gerber, 9 Cir., 186 F. 693 (where the bankrupt opposed an existing petition by his creditors for his adjudication as an involuntary bankrupt, while at the same time disposing of and secreting his cash, and finally consented to an adjudication provided the creditors would dismiss the pending petition and procure other creditors to file a new one, thus seeking in the interim to use the secreted money in the declaration of a homestead), and seek to distinguish that finding of actual fraud from the instant case. In this connection, Gardner v. Johnson, 9 Cir., 195 F. 2d 717 (where a grantor who fraudulently conveyed realty to his daughter was held to have abandoned his prior claim of homestead, and when the conveyance was set aside, was denied the exemption), is instructive.

The basis of the action of the trustee in denying the instant claims, and of the affirmance of that action by the Referee, appears in Sampsell v. Anches, 9 Cir., 108 F.2d 945; Kangas v. Robie, 8 Cir., 264 F. 92; and In re Lynn, Bankruptcy No. 132778-TC, records of the United States District Court, Southern District of California, Central Division. Each of these cases involved a finding of actual fraud. Sampsell involved a scheme by the bankrupt whereby he purchased

"quantities of merchandise on credit without any intent to pay the creditors from whom he had purchased the goods but, on the contrary, with intent to quickly sell the goods for cash and appropriate to his own uses the cash thus procured and, then, to go into bankruptcy." (108 F.2d at 946)

Although no exemption statutes were involved in Sampsell, that case is instructive on the question of actual fraud. Kangas involved a bankrupt who ceased his usual custom of making deposits in his usual bank account, stopped making payments on his trade obligations, put the proceeds received for merchandise sold in his safe or retained the currency in his possession, sold his entire inventory, and applied the total proceeds thereof to the acquisition of a purportedly exempt homestead. The bankruptcy court refused to allow the exemption. The bankrupts in the instant case attempt to distinguish Kangas by the totality of the conversion, and by the confession of bad faith by the bankrupt in that case. Neither of those distinctions are impressive to this Court. Lynn involved a fraudulent transfer of a note and deed of trust to a sister of the bankrupt for a third of its value, and a following deposit of the proceeds in a savings and loan association. Lynn was decided by a judge of the same district and division from which emanated the rule in Dudley, and Lynn specifically distinguished Dudley by its finding of actual fraud.

The bankrupts also make note of the fact that the rule of Kangas was held inapplicable in a subsequent decision of the same Court of Appeals, in Forsberg, supra, and attempt to apply the Forsberg holding to the instant case. Forsberg involved the exchange by a farmer-rancher of non-exempt cattle and hogs for exempt sheep, prior to filing in bankruptcy. In this connection, the bankrupts apparently misinterpret the holding of the Referee. The Referee found actual fraud not solely on the basis of the conversion of non-exempt assets into exempt, but rather on the basis of the continued request for and acquisition of credit in order to accomplish such conversion. There is no question but that a bankrupt may convert his existing non-exempt property into exempt (See Dudley and Forsberg, supra), but such a privilege does not afford a basis for fraudulently acquiring additional property in order to take advantage of the exemption statutes. Such was the Referee's holding, and such, in this Court's opinion, is the state of the law.

In determining the availability of state exemptions in bankruptcy proceedings, state law is applicable (Esten v. Cheek, 9 Cir., 254...

To continue reading

Request your trial
9 cases
  • Reed, Matter of
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • March 21, 1983
    ...v. Hardin, 101 F.2d 177 (6th Cir.1939); Kangas v. Robie, 264 F. 92 (8th Cir.1920); In re Gerber, 186 F. 693 (9th Cir.1911); In re White, 221 F.Supp. 64 (N.D.Cal.1963); In re Martin, 217 F.Supp. 937 (D.Or.1963); In re Majors, 241 F. 538 (D.Or.1917). If intent to defraud was not proved, howev......
  • Matter of Hulk
    • United States
    • U.S. Bankruptcy Court — District of Connecticut
    • January 13, 1981
    ...Pioneer Bank & Trust Co., 270 F.2d 823 (5th Cir. 1959), cert. denied, 362 U.S. 962, 80 S.Ct. 878, 4 L.Ed.2d 877 (1960); Cf. In re White, 221 F.Supp. 64 (N.D.Cal.1963). With respect to the alternate basis for claiming a fraudulent transfer, when Amelia transferred her one-half interest in th......
  • Matter of Prestien
    • United States
    • U.S. District Court — Southern District of Florida
    • March 8, 1977
    ...citing Pasco v. Harley, 73 Fla. 819, 75 So. 30 (1917). Accord, Jetton Lumber Co. v. Hall, 67 Fla. 61, 64 So. 440 (1914), In re White, 221 F.Supp. 64 (N.D. Cal. 1963), In re Martin, 217 F.Supp. 937 (D. Ore. 1963), In re David, 54 F.2d 140 (S.D. Fla. Here the Bankruptcy Judge, who as a trial ......
  • In re Ayers, Bankruptcy No. 280-00369
    • United States
    • U.S. Bankruptcy Court — Middle District of Tennessee
    • May 4, 1982
    ...in favor of the exemption. 15 F.2d at 501. See also Chase v. Local Loan Co. et al., 141 F.2d 299 (7th Cir.1944); In re White, 221 F.Supp. 64 (N.D.Calif. 1963). The Forsberg court also quoted from another of its earlier decisions, First National Bank v. Glass, 79 F. 706, 25 C.C.A. 151 (8th C......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT