Kleinert v. Lefkowitz, 83

• Decision Date: 08 April 1935
• Docket Number: Jan. Term.,No. 83,83
• Citation: 271 Mich. 79,259 N.W. 871
• Parties: KLEINERT v. LEFKOWITZ et al.
• Court: Michigan Supreme Court

271 Mich. 79

259 N.W. 871

KLEINERT

v.LEFKOWITZ et al.

No. 83, Jan. Term.

Supreme Court of Michigan.

April 8, 1935.

Suit by Walter Kleinert, trustee, against Walter Lefkowitz and others. From a decree defendants appeal and plaintiff cross-appeals as to part of decree allowing homestead exemption to defendants.

Affirmed.

Appeal from Circuit Court, Wayne County, in Chancery; Ormond F. Hunt, judge.

Argued before the Entire Bench.

John P. Mikesell, of Detroit, for appellee and cross-appellant.

Aldrich Baxter, of Detroit, for appellees.

POTTER, Chief Justice.

June 21, 1928, Adeline Sterling, administratrix of the estate of Herman Sterling, deceased, recovered judgment in the circuit court for Wayne county against Walter Lefkowitz for $8,000. September 30, 1932, an execution was issued and on October 21, 1932, returned unsatisfied. November 9, 1932, Adeline Sterling, administratrix as aforesaid, took out a writ of garnishment against the First National Bank-Detroit which disclosed it had on hand $929.15 belonging to Mary Leszczewicz (the same person as Mary Lefkowitz), and $2.24 belonging to Walter Lefkowitz. December 24, 1931, Mary Lefkowitz had obtained a deed of real estate from Barney Bernard and Helen Bernard, his wife; and in 1932, Mary Lefkowitz obtained title to a Ford sedan. It is claimed she also obtained title to the money on deposit in the bank, from her husband; that all this property was really the property of Walter Lefkowitz and belonged to him, and therefore belongs to his estate in bankruptcy.

November 29, 1932, Walter Lefkowitz was adjudicated a bankrupt in the United States District Court for the Eastern District of Michigan; December 27, 1932, was the first meeting of creditors, and December 29, 1932, the bill of complaint herein was filed by authority given to the trustee in bankruptcy.

In the bankruptcy proceedings, defendant Lefkowitz's assets were listed at $25 and his liabilities at $9,700. This bill is in the nature of a creditor's bill. Execution was issued upon the judgment obtained by Adeline Sterling, administratrix of the estate of Herman Sterling, deceased, which execution was returned unsatisfied.

A trustee in bankruptcy so far represents creditors of the bankrupt as to have the right to pursue property obtained by the bankrupt debtor and, with intent to defraud creditors, taken in the name of third persons. This is no greater authority than other judgment creditors have. Harwood v. Underwood, 28 Mich. 427.

Subdivision (e) of section 110 of 11 USCA, section 70e of the National Bankruptcy Act provides: ‘The trustee may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided, and may recover the property so transferred, or its value, from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the adjudication. Such property may be recovered or its value collected from whoever may have received it, except a bona fide holder for value. For the purpose of such recovery any court of bankruptcy as defined in this title, and any State court which would have and jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction.’

Subdivision (a) of section 110 of 11 USCA, section 70a of the National Bankruptcy Act provides: ‘The trustee of the estate of a bankrupt, upon his appointment and qualification, and his successor or successors, if he shall have one or more, upon his or their appointment and qualification, shall in turn be vested by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt, except in so far as it is to property which is exempt,’ etc.

Under section 110 of 11 USCA, section 70, of the Bankruptcy Act, upon an adjudication in bankruptcy and the appointment of a trustee, such trustee is vested with the title of the bankrupt to all his property except in so far as such property may be exempt from execution. Homestead exemptions are governed by the law of the residence of the bankrupt and the title to homestead property does not pass to the trustee in bankruptcy. Ingram v. Wilson (C. C. A.) 125 F. 913;In re Bailey (D. C.) 176 F. 990;In re Bitner (C. C. A.) 255 F. 48.

The question of exemptions of personal and real property from sale under execution first challenged consideration in Michigan after the panic of 1837, during which, says Von Holst: ‘The fancy values of landed property melted like snow in the April sun; immense quantities of commodities, stored up without any regard to the real wants of the country, lost in a day fully one-third of their value; the figures on all kinds of value-paper became a bitterer mockery with every hour; bankruptcies came in avalanches; one manufactory after another stopped, and the number of those who could find neither bread nor work increased by thousands and tens of thousands.’ II Von Holst, Constitutional History of the United States, p. 195.

At that time there was no substantial exemption of personal property from execution sale in this state. The panic of 1837 so vividly described by Von Holst bore particularly hard upon the people of Michigan because of the disastrous effect of its wildcat banking system, the failure to receive the cash on its $5,000,000 loan, and the cost of its internal improvement ventures which were not yet profitable. To extricate themselves from their situation, the Legislature in 1842 passed Act No. 48, Laws of 1842, the first exemption law relating to personal property in this State worthy of the name.

Imprisonment for debt was abolished in Michigan by Act No. 48, Laws of 1839, and during the legislative session of 1839 the enactment of an appraisal law was strongly urged (Senate Documents 1839, pp. 406-410), but no action was taken by the Legislature until the passage of Act No. 27 of the Laws of 1841 which was followed by Act No. 88 of the Laws of 1842, the first of which prohibited the execution sale of real estate unless the purchaser bid two-thirds of its appraised value, and the second of which compelled the creditor to accept the real estate levied upon at two-thirds its appraised value or have his execution discharged by the sheriff. Act No. 88 of the Laws of 1842 also included a mortgage moratorium. The Governor submitted the reconsideration of the appraisal law to the Legislature of 1844, and a majority and a minority report thereon, prepared by Norton R. Ramsdell, of Ann Arbor, and Augustus C Baldwin, of Milford (W. Norman McLeod, of Mackinaw City), respectively (Senate and House Documents of 1844, House Nos. 6 and 7), exhausted the arguments for and against the law. It was not then repealed, but in Willard v. Longstreet, 2 Doug. 172, was declared unconstitutional at the July, 1845, session of the Supreme Court.

At common law, a man's dwelling house and the land contiguous to it was inalienable and indefeasible except when required by the sovereign, or for the defense of the state. At common law, the creditor could not sell or cause to be sold his debtor's land to satisfy his debts. 3 Blackstone Comm. (8th Ed.) 418. The first encroachments upon the exclusive right of the debtor to the use of his land was by the statute of Westminster 2 (13 Edw. I, c. 18), and it was not until 1 and 2 Vict. c. 110, that the creditor was permitted to make a sale of the debtor's lands to satisfy his debt. Riggs v. Sterling, 60 Mich. 643, 27 N. W. 705,1 Am. St. Rep. 554.

After the Michigan appraisal laws of 1841 and 1842 had been declared unconstitutional, a homestead exemption bill was considered by the legislative session of 1847, and the Homestead Exemption Law was created by Act No. 109 of the Laws of 1848. The provisions of the act of 1848 were in substance carried into the Constitution of 1850 and stand as article 16 thereof, and now constitute article 14 of the Constitution of 1908. When the provisions of article 16 of the Constitution of 1850 were before the Convention for consideration, John D. Pierce, a member of the Constitutional Convention, said: ‘The homestead should be free, inviolate. No man-no woman-no child-no family should be driven from home, because the hand of adversity presses hard upon them. The measure is so accordant with the real spirit of progress, so just in itself, so wisely expedient in all exigencies to which families are liable, so alleviating when ill fortune bears them down, and so consonant with the popular sentiment and the principles of true Christian morality, that no power on earth can prevent its universal adoption, and they shall sit every man under his vine and fig tree. It is the high duty of the State to throw around every homestead, every fireside, every hearth-stone, the shield of its protection.’

Substantially similar sentiments were expressed by other members of the Convention.

Very shortly after the adoption of the Constitution of 1850, the construction of the act of 1848 and of article 16 of the Constitution of 1850 came before the court, and were fully considered by it, in Beecher v. Baldy, 7 Mich. 488, in an exhaustive opinion by Mr. Justice Christiancy, the principles of which have not since been departed from.

The second Michigan Constitution was adopted in 1850. The object and purpose of the constitutional provision for a homestead exemption was to perpetuate the provisions of the Homestead Exemption Law of 1848, to enable the debtor to establish and maintain a home exempt from sale under legal process sued out at the suit of any creditor, for himself and for his family. The constitutional homestead exemption was fixed by the people; does not depend upon principles of equity jurisprudence; and was to preserve the home for the family, even at the sacrifice of the just demands of creditors, for the reason the preservation of the home was regarded as of paramount importance. Senator Thomas H. Benton said: ‘Tenantry is unfavorable to freedom. It lays the foundation for separate orders in society,...