Mitchell v. Mitchell

• Decision Date: 07 September 1906
• Citation: 147 F. 280
• Parties: MITCHELL v. MITCHELL.
• Court: U.S. Court of Appeals — Fourth Circuit

147 F. 280

MITCHELL v. MITCHELL.

United States District Court, E.D. North Carolina.

September 7, 1906

J. B Martin, Day & Bell, and Murray Allen, for complainant.

Pou &amp Fuller and Francis D. Winston, for defendant.

PURNELL District Judge.

The above-entitled suit in equity was instituted in the District Court and after answer to the bill, replication, reference to a referee and various orders, appears to have been by consent referred to a master. Said order of reference is missing from the files.

This is one of the class of cases, out of the general rule, where consent confers jurisdiction under the statue. Bardes v Bank, 178 U.S. 524, 20 Sup.Ct. 1000, 44 L.Ed. 1175. And jurisdiction thus acquired is retained to the end of the controversy. And questions touching the jurisdiction seem to have been ignored, and the controversy submitted to the master and court until the filing of defendant's brief when the point is made that the action should have been at law, not in equity. This point was not pressed, and if it had been the court is of the opinion there is sufficient equity to sustain the jurisdiction. The District Court, strictly speaking, has no equity jurisdiction except such as is conferred by the bankrupt act. This is in a great measure inferential to be gathered from the act. But even this question is raised too late and complainant having invoked the jurisdiction of the court, and defendant submitted his claims to such jurisdiction, the court will dispose of the cause on the record. Section 67e of Act July 1, 1898, c. 541, 30 Stat. 564 (U.S. Comp. St. 1901, p. 3449) and the amendment of Feb. 5, 1903, c. 487, Sec. 16, 32 Stat. 800 (U.S. Comp St. Supp. 1905, p. 691), seems to confer jurisdiction on the court of bankruptcy, which under the act is the District Court.

The master reports as follows:

'The counsel for the respective parties agreed upon a partial statement of facts as follows:

'On February 23, 1904, a petition in bankruptcy was filed against I. J. Baker and J. A. Hollowell, trading as Hollowell & Baker, and they were duly adjudged bankrupts on March 8, 1904. On August 3, 1903, a mortgage on the stock of goods of Baker & Hollowell was given to C. W. Mitchell to secure three notes aggregating $1,000, dated August 3rd, and due on November 1, 90 days from date, and four months from date respectively. This mortgage was not registered until November 5, 1903, less than four months before the petition in bankruptcy was filed. From the time of the execution of the mortgage and until the filing of the petition in bankruptcy, the mortgagors, Baker & Hollowell, remained in possession of the stock of goods, continuing the business, and disposing of and adding to the stock. On February 15, 1904, Baker & Hollowell made a general assignment, making C. W. Mitchell, the defendant, preferred creditor. On February 25, 1904, the defendant, C. W. Mitchell, sued Baker & Hollowell and Geo. W. Lassiter, trustee under the general assignment, for the possession of the goods, in the superior court of Bertie county. In this action no answer was filed and no defense made, and C. W. Mitchell was adjudged to be the owner of the stock of goods and entitled to possession thereof by virtue of the mortgage held by him. This action is to set aside the mortgage of Baker & Hollowell to C. W. Mitchell and put the trustee, J. R. Mitchell, in possession of the stock of goods or the value thereof.'

In addition to the foregoing, the master finds as follows:

'That the mortgage in question (a copy of which is included in the examination of the defendant, which examination is made a part of this report) was executed in good faith and for a present consideration, to wit, money advanced to enable the said bankrupt firm to pay its bills. There is no evidence from which the master can find that the said firm was at that time insolvent within the meaning of the bankrupt act of July 1, 1898, c. 541, section 1, subd. 15, 30 Stat. 544 (U.S. Comp. St. 1901, p. 3419). The mortgage was not registered until November 5, 1903, about three months before the filing of the petition herein. It does not appear that at the time of the registration the defendant mortgagee knew of the insolvency of the said firm, though it was in fact insolvent. The master finds, however, from all the circumstances, that the defendant at that time had reason to believe and did believe that the said firm was embarrassed, but that in registering the mortgage there was no purpose to acquire a preference, the purpose being to perfect his lien under the said mortgage. It appears to the satisfaction of the master that the sale of the goods was fairly conducted, after having been duly advertised, and in the absence of testimony to the contrary, the price, $1,500, was reasonable.

'It is further found that C. W. Mitchell, the defendant, disclaimed taking under the deed of assignment, but his debt was inserted therein with the knowledge and consent of his attorney, he having instructed the said attorney to represent him in the matter. No personal property exemption has ever been assigned, nor does it appear that the members of the firm consented that it shall be laid off to them as individuals, either for themselves or the benefit of the mortgagee.

'The assets, as appears in the schedule, exclusive of the stock of goods, is $104.00 in chattel property, $225.00 in open accounts, and an insurance policy of $1,000 on the life of I. J. Baker, a member of said firm. Exclusive of the mortgage to defendant Mitchell (upon which no payments have been made, there being now due $1,000, and interest; and exclusive of a mortgage made to Mrs. Baker during the same year of 1903, there being due upon it $600), the said firm, according to the schedule, contracted an indebtedness during the year 1903 of $3,242,76, the same being for goods and merchandise. It does not appear that any of these creditors had notice of the mortgage. Of these debts the sum of $771.47 was contracted between August 5, 1903, the date of the execution of the mortgage, and November 5, 1903, the date of its registration. They are as follows:

'H. B. Goodrich . . . $96.79

'The Lowey Drug Store . . . $27.15

'E. A. Davis & Son . . . $14.62

'H. S. Nichols & Co. . . . $24.45

'Watkins, Cattrell & Co. . . . $9.70

'J. E. Hurst & Co. . . . $598.76

'Conclusions of Law.

'(1) The Master is of the opinion and so finds, that the taking and registering of the mortgage under the circumstances do not constitute a preference under the bankrupt act.

'(2) That the mortgage to the defendant is good and valid except as to those creditors whose debts were contracted between the execution and registration of the same, and as to these it is, as a matter of law, fraudulent and void.

'(3) That the proceedings ending in a judgment by the superior court of Bertie county for the possession of the goods is not res judicata so far as this action is concerned.

'(4) The master recommends that judgment be entered in favor of the plaintiff for the benefit of said creditors in the sum of $771.47 and the costs of this action.'

To this report all parties file exceptions. Complainant's first exception is to the finding of the master that there has been no consenting or demand for personal property exemptions for the bankrupts and refers to the answer. The personal property exemptions provided for by the Constitution of North Carolina, art. 10, Sec. 1, is personal for the debtor, not for the benefit of creditors, and can only be demanded, and selected by him. The provision of the Constitution is well understood as construed by the Supreme Court of the state. If construed as contended for, to give a creditor a preference under the bankrupt law, it would be in contravention of that act of Congress and void. Certainly it cannot be given this effect by the courts of the United States administering the bankrupt act. It would be giving a preference which is prohibited. Homestead and personal property exemptions are intended for the debtor and his family (In re Richardson, 104 F. 873, 44 C.C.A. 235), not for creditors. This exception is overruled. The argument of defendant is based on a misconception of the purposes and intent of exemption laws. The true intent is that where a man is overtaken by misfortune or his financial ventures prove out disastrous he shall be allowed from the wreck a pittance for the purpose of keeping himself and family from actual want. Such laws are based on this beneficent idea, not to aid or benefit shrewd, unmerciful, grasping creditors, whose principal study is to aid such in evasions of the true intent of the law, to avail themselves of 'short cuts.' Here the personal property exemption is claimed by the mortgagee whose mortgage was secreted and recorded as found by the master. This article of the Constitution contemplates, as often held, that the personal property exemption shall be laid off and set aside out of property then owned by the debtor. The master, himself, for many years chief justice of the Supreme Court of the state, probably had in mind all the opinions on this article of the Constitution construing the same and properly held there had been no proper demand for a personal property exemption. Such reservation in a deed of trust or mortgage would furnish conclusive evidence of fraud. Boone v. Hardie, 87 N.C. 72.

Defendants further excepts to the finding of fact in section 4 and insists that it was the duty of those creditors to show they had no notice of the mortgage-- they are seeking to recover on the ground they had no actual notice. There seems to be no pretense that plaintiff had actual notice of the mortgage and there was no legal notice or notices in contemplation of law until the mortgage...