Stein v. Bostian

• Decision Date: 25 February 1943
• Docket Number: 12246.,No. 12213,12213
• Citation: 133 F.2d 586
• Parties: STEIN v. BOSTIAN et al. (two cases).
• Court: U.S. Court of Appeals — Eighth Circuit

133 F.2d 586 (1943)

STEIN v. BOSTIAN et al. (two cases).

Nos. 12213, 12246.

Circuit Court of Appeals, Eighth Circuit.

February 25, 1943.

Phineas Rosenberg, of Kansas City, Mo., for appellant.

Warren S. Earhart and Roy B. Cunningham, both of Kansas City, Mo., for appellees.

Before SANBORN, WOODROUGH, and THOMAS, Circuit Judge.

SANBORN, Circuit Judge.

The question for decision is whether the court of bankruptcy could subject a cash exemption, to which the bankrupt was entitled under the laws of Missouri, to the payment of claims for taxes filed by that State and by the City of Kansas City.

The facts are stipulated. Sigmund Stein, a merchant of Kansas City, Missouri, and the head of a family, was adjudicated a bankrupt February 17, 1941, upon an involuntary petition. On that day he filed his schedules showing his liabilities, among which were taxes aggregating $530, and his assets which consisted of his stock in trade, fixtures and accounts receivable. In his schedules the bankrupt made the following claim for exemptions: "I claim as exempt under and by virtue of Article 19, Chapter 5 of the Revised Statutes of Missouri, 1929 Art. 19, Ch. 6, Revised Statutes of Missouri, 1939, Mo.R.S.A. § 1316 et seq., all of my household goods, wearing apparel, furniture, household stores, and ornaments of myself and family heretofore scheduled, as well as all other personal property heretofore scheduled herein, all of them not exceeding in value the amount allowed me by law or the sum of $400."

William B. Bostian was appointed receiver on February 17, 1941, and on February 18, without notice to the bankrupt, he procured from the referee in bankruptcy an order to sell the bankrupt's merchandise and fixtures free of liens. The sale was at public auction, and the highest bid received was $710 for the merchandise and fixtures together, and they were sold for that amount. Prior to the sale, the referee had mailed notice thereof to the bankrupt, who did not appear and object. The sale was confirmed on February 26, 1941. The bankrupt did not waive his exemption rights or stipulate them away.

At the first meeting of creditors, held on March 10, 1941, William B. Bostian was elected trustee. On March 12, 1941, he filed a report of exemptions, specifying as exempt:

"Household goods and furniture

Wearing apparel if unencumbered and if encumbered the equity therein

Household stores."

The attorney for the bankrupt objected to the failure of the trustee to "set off merchandise or cash equivalent as exempt, and as claimed in bankrupt's schedules." On April 29, 1941, the trustee filed a supplemental report of exemptions, specifying as exempt: "Cash $300 (Subject to costs of administration and claims adjudged prior to cash exemptions by the Bankruptcy Court)."

No creditor of the bankrupt filed exceptions to or challenged in any way the trustee's reports of exemptions. The bankrupt filed exceptions to so much of the trustee's supplemental report as sought to subordinate his cash exemption to costs of administration and claims adjudged prior to such exemption.

The tax claims filed against the estate of the bankrupt were as follows: State of Missouri, $191.05; Jackson County, Missouri, $71.93; City of Kansas City, Missouri, $267.02. None of these tax claimants had levied upon or seized or sold any part of the assets for taxes or commenced any proceedings for that purpose or for establishing a lien thereon.

The referee on July 9, 1941, issued an order directing the bankrupt and the tax claimants to show cause why the referee "should not make either an order allowing the payment by the trustee in bankruptcy of $300.00 as cash exemptions out of the proceeds of the sale of the assets of this estate, or an order that the bankrupt is not entitled to such cash exemptions as against said tax claims or rights of the trustee in bankruptcy."

After a hearing, the referee decided that the court of bankruptcy had jurisdiction to determine the controversy between the bankrupt and the tax claimants over the $300 cash exemption conditionally set off to the bankrupt; that the tax claimants, State of Missouri and Kansas City, Missouri, had rights superior to those of the bankrupt in the $300 exemption; that it should be equitably divided between these two tax creditors; and that Jackson County, Missouri, "having defaulted", had forfeited its right to participate in a distribution of the bankrupt's exemption. The bankrupt petitioned for a review of the referee's order directing the application of the exemption to the payment of the tax claims. The District Court affirmed the referee, and the bankrupt appealed.¹

The effect of what the court of bankruptcy did was to set off to tax creditors the cash exemption to which the bankrupt was entitled.

The trustee contends that the Bankruptcy Act confers jurisdiction on the courts of bankruptcy to determine all claims to exemptions of bankrupts; that the object and effect of the Missouri statutes is to abolish exemptions as against taxes due the State and its subdivisions; and that when an exemption is set apart in cash, the court of bankruptcy may order it applied to the claims of creditors against whom the bankrupt can not claim exemptions. The trustee does not contend that the exemption is subject to costs of administration.

The statutes of Missouri providing that certain property "owned by the head of a family, shall be exempt from attachment and execution," are Sections 1324 and 1327, Revised Statutes of Missouri, 1939, Mo.R.S.A. §§ 1324, 1327. Section 1330 of the same Statutes provides: "Sec. 1330. Nothing contained in this article shall be construed so as to exempt any property from seizure and sale for the payment of taxes due this state, or any city, town or county thereof."

Thus, while exempt property in Missouri is not subject to attachment and execution, it is subject to seizure and sale for taxes due the State or its subdivisions. It is agreed, however, that none of the property of the bankrupt had been seized or sold for taxes or that any lien for taxes had been established thereon. The right to an exemption under Missouri law is not made to depend upon the payment of taxes, nor is the amount of the exemption determined by deducting the amount of the debtor's liability for taxes.²

The question presented is, in our opinion, so well settled that we shall not indulge in a discussion of the pertinent provisions of the Bankruptcy Act³ or a review of the cases construing those provisions.

The exempt property to which a bankrupt is entitled is no part of his estate in bankruptcy, is not subject to administration by the court of bankruptcy, and the title to such property does not pass to the trustee, but remains in the bankrupt. Lockwood v. Exchange Bank, 190 U.S. 294, 299, 300, 23 S.Ct. 751, 47 L.Ed. 1061. The authority of the court of bankruptcy to determine claims of bankrupts to their exemptions is "to control exempt property in order to set it aside, and thus exclude it from the assets of the bankrupt estate to be...