In re Richard , 94 F. 633 ( 1899 )

PUENELL, District Judge

(after stating the facts). The bankrupt law should be, and is, eminently fair and just to all parlies. That there is opposition to its operation is to be expected, until creditors cease to demand their full dues, — a “pound of flesh when it is so nominated in the bond,” — and to gain advantage over other creditors who, from improvident credits, are similarly situated. The purpose of the law is, further, to establish throughout the United States a uniform system, to supersede diverse state insolvent or assignment laws. It is enacted in accordance with an express constitutional authority, and is the supreme law. Except as provided in the act (30 Stat. 544), such as section 6, which provides that the passage of the act shall not affect the exemptions allowed where the bankrupt has his domicile, the state law is suspended and inoperative after an adjudication in bankruptcy. The bankrupt court takes jurisdiction of the estate and all matters pertaining thereto, and will administer the same to a final settlement. In re Bininger, Fed. Cas. No. 1,420; In re Hathorn, Id. 6,214; In re Wallace, Id. 17,094; In are Washington Marine Ins. Co., Id. 17,246; In re Smith, 92 Fed. 135; In re Gutwillig, Id. 337; In re Etheridge Furniture Co., Id. 329; Davis v. Bohle, Id. 325; and opinion of Judge Baker in Re Smith, 92 Fed. 135. The authorities to this effect are overwhelming, and a study of them is commended to attorneys who seem to persistently shut their eyes to the principles involved, or, to satisfy pugnacious clients, make a Quixotic ñght to have state laws prevail in the courts of bankruptcy when the same conflict with the act of congress and the constitution of the United States.

The finding of facts by the referee,, after a careful examination of the record, is affirmed.

Respondents contend:

1. That their liens are valid because they are liens under judgments obtained without collusion before bankruptcy. The finding of the referee as to the facts is a complete answer, under the act, to this contention.

2. “Property, or the fund arising from the sale thereof, should be restored to the constable, to be paid out according to priorities of executions as they came into his hands.” This would set at naught the bankrupt law and the general principles above enunciated. That the contention is untenable is too manifest to admit of argument.

3. As against these judgments, the bankrupt is not entitled to personal property exemptions, or, if any, only to a per cent, of funds as property allotted. Section ¡6 of the bankrupt act provides that the exemptions shall not be affected by the passage of the act, and the state law governs. In re Stevenson, 93 Fed. 789. Tire constitution of North Carolina (article 10, § 1) exempts from sale under process $500 of personal property, to be selected by the debtor, and this is exempt from sale under final process whether set apart or not. Albright v. Albright, 88 N. C. 238, and cases cited; Cowan v. Phillips, 122 N. C. 70, 20 S. E. 961. There is nothing,in the record which can be held as a waiver, or that exemption was not demanded in apt time. Pate v. Harper, 94 N. C. 25. The burden is on the party making the objection. The bankrupt selected goods, as he had a right to do, and these were valued at their cash price. It is not shown this was not fair. By consent, he allowed them to be sold with the other goods, — this course being, in the judgment of the trustee, for the benefit of the estate; and it is not shown that the goods selected did not sell for $500, or that they do not bear that proportion to the balance of the stock, or caused the stock of goods to sell for that much more than it would otherwise have sold for if these goods had been taken therefrom. The court will not overrule a referee, or set aside the acts of the trustee, upon argument, without evidence showing reasonable cause for such action. In contemplation of the law, the officers provided for in chapter 5, § 33 et seq., are to do the detail work in cases in bankruptcy, and the judge of the district court cannot be expected to look through voluminous depositions and records for errors which are not plainly pointed out.

4. “Moneys recovered by the constable and paid out should not be required to be refunded. He has fully accounted for them.” Buch judgments, tinder the finding of facts, are dissolved, and all rights acquired under them. Section 07, subsec. c, els. 1-8.

5. “The judgment creditors, if liens are not valid, should be per-mil fed to prove their claims as other creditors.” The referee asks advice of court “as to whether the respondents, having failed to establish their lions, can now prove their claims as unsecured creditors, if the other creditors or the trustee shall refuse to accept a surrender of the alleged preferences after this decision by the referee.”' There is no denial of respondents’ “debt,” as defined in section 1 (11), nor allegations that there was any actual fraud in obtaining the judgments, — only such fraud of the bankrupt law as vitiates any lien acquired. The debts are due. .Respondents have received and can receive no preference, lien, or advantage by reason of or under ¡he judgments of the magistrate’s court. They are nullities in ibis court to this extent, but they establish the debt. Section 08, in prescribing what debts may be proved, provides “(5) for provable debts reduced to judgment alter the filing of the petition and before the consideration of Uie application of the bankrupt for discharge, less costs incurred,” etc. Respondents have attempted to gain an ad vain age and failed. These proceedings, as* far as gaining a lien, are void. The respondents must pay the cost in the state court, and refund what has been collected under these .proceedings. They are si ill creditors of the bankrupt, after a fruitless fight. They have gained no advantage and acquired no lien, but are still creditors unsecured. Should they be punished by a loss of their debts because they wore vigilant? 'The law does not so provide. It favors vigilance, especially when untainted with fraud. The cases cited under the act of 18(57 do not apply. In most of them the creditor had gained a preference which he would not surrender, or made himself party to an actual fraud; and such would be the law under section 57 of the act: of 1898. Respondents have received no preference and been parries to no actual fraud, but only to such fraud of the operation of the bankrupt act as vitiates their proceedings. They are creditors, and, on a surrender of the amount collected of the bankrupt estate, are entitled to prove their claims as other unsecured creditors.

The conclusions of law by the referee, except as herein modified, are affirmed. The claims sent up since the report of the referee will be returned to that officer, who will proceed to settle the estate accordingly. It is so ordered.