134 F. 620 | W.D. Va. | 1904
On April 7, 1904, one W. C. Allen filed a voluntary petition in bankruptcy, alleging that he and one J. A. Allen had been partners in business under the firm name of W. C. Allen & Co., with which were filed schedules of the liabilities and assets of the firm and of said W. C. Allen. The petition prayed that the firm be adjudicated a bankrupt, but did not pray that W. C. Allen be so adjudicated. An opinion sent to counsel for W. C. Allen April 9,1904, reads in part:
“This petition, which is filed by W. C. Allen, one of two partners composing the firm of W. C. Allen & Co., prays that the firm be adjudicated a bankrupt. J. A. Allen, the other partner, is not a party to the petition, and the petition does not contain the allegations necessary to make it proper to adjudicate the firm an involuntary bankrupt. I think it would be clearly improper to adjudicate the firm a bankrupt under this petition. Except for the fact that the petition does not pray that W. C. Allen be adjudicated a bankrupt, it is perhaps sufficient in its statements to authorize such an adjudication. However, the petition is, as above stated, informal, and, for fear I should misunderstand the desire of the petitioner, I think it best that the petition be dismissed, without prejudice to the rights of the petitioner.”
And because of the doubt therein expressed an order was entered on April 9, 1904, dismissing the petition without prejudice.
On April 16,1904 (J. A. Allen having in the meantime filed a petition and schedules, and as it was informally made to appear that the part
It is contemplated by section 47, subsec. 11, Bankr. Act July 1, 1898, c. 541, 30 Stat. 557 [U. S. Comp. St. 1901, p. 3439], and by General Order 17, that the trustee shall set apart the exemptions and make report of his actions; and that thereafter the creditors will file exceptions, if they wish, to such report. Such is undoubtedly the regular and orderly method of raising such question as is here sought to be raised. But, as was said in Kane’s Case, 127 Fed. 552, 553, 62 C. C. A. 616, “A court of bankruptcy is a court of equity, seeking to administer the law according to its spirit, and not merely by its letter.” In the case at bar, if I correctly understand the facts, there are no assets, if the property claimed as exempt be held to be such, and there was no reason for the appointment of a trustee if the claim of homestead was to be allowed. I think, therefore, that the informality of objecting to the claim of homestead prior to the appointment of a trustee need not
In the Virginia Constitution of 1902 is a new provision, which has, so far as I am advised, never been construed by any Virginia court. The provision (section 191 [Va. Code 1904, p. cclxxi]) reads:
“The said [homestead] exemption shall not be claimed or held in a shifting stock of merchandise, or in any property, the conveyance of which by the homestead claimant has been set aside on the ground of fraud or want of consideration.”
There is, I think, room for no doubt but that this court is given by the bankrupt act (section 2, cl. 11, 30 Stat. 546 [U. S. Comp. St. 1901, p. 3421]) jurisdiction to determine the contention between the bankrupt and his creditors now presented. “The courts of bankruptcy * * * are hereby invested * * * with jurisdiction at law and in equity * * * to determine all claims of bankrupts to their exemptions.” Whether or not this jurisdiction is exclusive need not now be determined. My first impression was that comity might require this court to subrogate the trustee in bankruptcy to the rights of the creditors who have sued in the state court (under section 67f of the act, 30 Stat. 565 [U. S. Comp. St. 1901, p. 3450]), stay the proceedings in this court, and direct the trustee to intervene in the state court and pray to be allowed to carry the case in that court to a conclusion for the benefit of the estate. But on further consideration this view does not seem warranted. It is true that the suit in the Pulaski circuit court was instituted before this court acquired jurisdiction; but the right of the bankrupt to his exemption is not now, and cannot be, except by the voluntary act of the bankrupt, involved in that proceeding in that court. If the bankrupt files no pleadings in that court, the decree by default would not involve a determination of his right of exemption. A default decree rendered by the state court would not estop the bankrupt to assert his claim thereafter in this court. It is frequently said that a judgment is binding on the parties as to every question which was or might have been adjudicated. But this frequently misunderstood statement has no application to the state of fact here. No judgment can be an estoppel as to a matter entirely outside of the pleadings, as to an issue not tendered by an unopposed bill. If the creditors could file supplemental pleadings setting up the reconveyance, the filing of the homestead deed, and praying an adjudication of the defendant’s right to the exemption, it would make a new case — one instituted after jurisdiction had been acquired by this court. As, therefore, the bankrupt has submitted his case to this court, and as he can render the action of the state court in the case at present pending there nugatory, it seems clear that no principle of comity requires a useless delay and previous futile action by the state court before this court determines the claim of the bankrupt to his exemption.
Under the Constitution of 1869 there were several adjudications of the Court of Appeals of Virginia giving a debtor the right to claim and have his homestead in property which he had fraudulently conveyed. In order to get a clear idea of the state of the law at the time the new Constitution was drafted, and of the change intended to be made thereby, these decisions should be considered. In Boynton v. McNeal, 31
The language of the present Constitution, “has been set aside on the ground of fraud or want of consideration,” must, of necessity, refer to an adjudication of a court. The language, “shall not be claimed or held,” seems to me to mean “shall not be effectually claimed.” . We cannot disregard the word “claim” and read the clause as if written, “shall not be held in property a conveyance of which has been set aside.” Even if the clause could be so read, there are reasons for
The mere fact that the creditors in the case at bar obtained an inchoate lien prior to the reconveyance and claim of homestead is not sufficient. Under the first three decisions above mentioned the householder could validly claim his homestead after a decree had been rendered setting aside for fraud a conveyance, and the lien obtained by his creditors prior to such claim was held of no avail. The new Constitution is so expressed as to change this rule only to the extent that a claim of exemption made after such decree shall be unavailing. To argue that the inchoate lien gives the creditors a right superior to the claim of homestead made prior to a decree converting the inchoate lien into a perfected right not only assumes that an inchoate lien is a perfected right, but seems to beg the question. The very point at issue is whether or not the new law authorizes the court to so decree as to convert the creditors’ inchoate lien into a perfected right when the claim of homestead is asserted before such decree is rendered. So, also, as to the argument that by a reconveyance made after suit filed by the creditors the claimant takes the property cum onere. He does take it subject to the rights given the creditors by section 191: but what are those rights? The language used most plainly denies the homestead only where the decree annulling a conveyance precedes the reconveyance and claim of homestead. And an intent to invalidate the claim of homestead under the circumstances here does not seem to me to be shown. While the intent of the lawmaker should be given full effect by the courts, still the supposed intent must be either expressed or fairly inferable from the words used. And under the principle expressio unius a provision which is expressly applicable to only one state of fact is not to be applied to another. If the intent which the creditors contend for had existed, I think section 191 of the Constitution would have read somewhat in this wise: “The homestead exemption shall not be claimed or held in any property which has been fraudulently conveyed by the homestead claimant.” Thus expressed, the fraudulent conveyance would, when judicially ascertained, prevent an exemption of the homestead whether the property were reconveved before or after suit by creditors, and whether the claim were made before or after decree. It is true that the rather simple device of securing from the fraudulent grantee a reconveyance and making a claim of homestead prior to an adjudication leaves the householder in the position he was in under the former Constitution. But it seems fairly to be inferred that the convention had no intention, even if the possi
No very good reason suggests itself why a householder and head of a family, who owns no property in excess of $2,000, should be denied a homestead — which is for the benefit of his family — merely because he has made a fraudulent conveyance of such property, provided his creditors are not thereby injured. I shall consider now only general creditors, and leave out of view those who have taken homestead waiver obligations and those whose claims are within the exceptions mentioned in section 190 [Va. Code 1904, p. cclxx] of the present Constitution. As to these latter creditors, the reconveyance and claim of homestead could be of no service to the debtor, and could do no harm to the creditor. Thus confining the discussion, let us first consider the case of a householder whose entire estate is of less value than $2,000. Except in view of a fact to be mentioned later, no such householder can injure the creditors we have in view by making a fraudulent conveyance of his estate. His entire estate can be shielded by simply filing a homestead deed. Such creditors of such a debtor had no right to anticipate, when giving him credit, that they could ever subject the property. And if such debtor should make a fraudulent conveyance of his property, and should thereafter, under compulsion of a creditors’ suit to set aside such conveyance, secure a reconveyance and file a homestead deed, his creditors are in no worse position than that which they must have contemplated when they extended credit. The fact adverted to above, which would afford to a knavish householder circumstanced as above a reason for making a fraudulent conveyance of his estate to some member of his family or some friend, is that by so doing he might be enabled to secure a homestead in future-acquired property, and thus, in effect, shield more .than $2,000 worth of property. But when the householder is forced to secure a reconveyance of, and to claim his homestead in, the fraudulently conveyed property, he is cut off from consummating any such dishonest purpose. And it may be here said that, if my views are sound, although a defense to such creditors’ suit setting up the reconveyance and claim of homestead would prevent subjecting the property to the creditors’ claims, the costs of suit would nevertheless be properly adjudged to the creditors. This, in theory, is compensation for the expense to which the creditors have gone in bringing their suit. The case of a householder whose estate is worth more than $2,000 needs very little discussion. If he, by pleading a reconveyance and claim of homestead in fraudulently conveyed property, succeeds in preventing a loss of his homestead, he cannot thereby prevent his creditors from subjecting the remainder of his estate. And hence in this case also the creditors of the class under discussion secure all that they had a right to expect when extending credit; i. e., satisfaction out of the debtor’s nonexempt estate. It is at least probable that the convention did not contemplate such a state of affairs as we have in the case at bar. A householder having an estate over $2,000 in value, would do no harm to his creditors by taking a reconveyance and asserting his right of homestead in fraudulently conveyed property. A householder whose estate is worth less than $2,000 would rarely seek to shield it from nonwaiver creditors by the silly device of fraud
Nor can it be said that this construction leaves the law as it was under the former Constitution, and that it practically gives no effect to the new provision found in section 191. In fact, a wise and valuable change has been made in the law. It is an old rule, nowhere better established than in this state, that he who charges fraud must clearly prove it. Under the old law the creditors who attacked a conveyance as fraudulent had usually a difficult and expensive task to sustain the burden of proof resting on them. The debtor could well afford to, and had every inducement to, resist the creditors until the final decree was rendered; for he could thereafter, if the decree were adverse to him, effectually claim his homestead. Under the present Constitution, as above construed, the debtor who has in fact made a fraudulent conveyance not only imperils his exemption by contesting the claim of his creditors until decree, but he is put under strong inducement to lighten the task of his creditors — to annul the fraud, so to speak- — by securing a reconveyance, and thus save his homestead. Here surely is a change from the old rule, and one that is beneficial to the creditors, and at the ¿same time not an undue punishment of the innocent family of the fraudulent debtor.
In the “grounds of defense” filed by the creditors it seems to be contended that the making of the alleged fraudulent deed by Allen to his son would deprive him of a right to his discharge in bankruptcy, and hence of a right to his homestead. But it must be remembered that the bankrupt does not admit that said deed was fraudulently made, and has not yet reached the stage in the case where he could properly be required to contest this point. The mere reconveyance was not necessarily an admission that the prior deed was fraudulently made. The creditors have taken before the referee evidence to prove this charge, but the bankrupt’s counsel, very properly conceiving that a determination of this question was not involved in this court at present, abstained from taking counter testimony. It is true that the objections to the claim of exemption which we are now considering tendered this issue to the bankrupt. But he had a clear right not to accept the tender thus prematurely made, and he has not accepted it. If at the time a claim of exemption is presented the bankrupt court finds in the record in indisputable form matter which would prevent a discharge, it might be proper to refuse to pass on the claim of exemption. It is not necessary to express an opinion on this point now, and none is expressed. It is sufficient that the right of discharge cannot now, in the case at bar, be properly passed on, and that no just argument against the claim of exemption can be founded on an as yet undeterminable and contestable question of fact.
It follows that the ruling of the referee must be reversed, and the bankrupt’s claim of exemption allowed. I am further of opinion that