The rights of a bankrupt to exempt property are those given by
the statutes of the states, and if such exempt property is not
subject to levy and sale under those statutes, it cannot be made to
respond under the federal Bankrupt Act.
A creditor may contest the bankrupt's claim to exemption in the
bankruptcy court, or may invoke the supervision and revision of the
circuit court of appeals, but, failing to do that, cannot, unless
the order setting the bankrupt's exemption apart be absolutely
void, question its validity in another proceeding in the state
court.
Nor can the judgment of the state court following the order of
the bankruptcy court and giving effect to the exemption be reviewed
by this Court on writ of error under § 709, Rev.Stat., on the
ground that plaintiff in error was denied a title, right, privilege
or immunity, under the Constitution or authority of the United
States specially set up or claimed in the state court.
This was an action of ejectment commenced in the Superior Court
of Lincoln County, Washington, by A. F. Smalley and F. McLellan
against George F. Laugenour and Jane Laugenour (with two others,
who subsequently ceased to be parties), to recover possession of
certain real estate situated in that county.
Page 196 U. S. 94
The action was tried by the court without a jury, which filed
findings of fact and conclusions of law and rendered judgment for
plaintiffs, whereupon defendants Laugenour carried the case by
appeal to the Supreme Court of Washington. The judgment was there
reversed and the cause remanded with directions to enter judgment
for appellants, defendants below. 30 Wash. 307. This writ of error
was then brought.
The facts were stated by that court in brief as follows:
"The appellants are husband and wife, and acquired the land in
controversy as early as the year 1885. On March 16, 1895, the
respondents and one L.J. Hutchings, as partners, recovered a
judgment in the Superior Court of Lincoln County on a community
debt against the appellant Geo. F. Laugenour for the sum of
$363.45. On April 12, 1899, execution was issued on the judgment
and levied on the land mentioned, under which, after due
advertisement, it was sold at public auction to the respondents for
the sum of $532.15, being the amount then due on the judgment.
Thereafter the sale was confirmed by the court, and after the time
for redemption had expired, a sheriff's deed was executed and
delivered to the purchasers, which they caused to be recorded. On
May 10, 1899, three days before the execution sale took place, the
appellant Geo. F. Laugenour filed in the United States District
Court for the District of Washington his voluntary petition in
bankruptcy, in the schedule to which he listed the land in
controversy, claiming the same as exempt under the Bankruptcy Act.
On May 11, 1899, the referee in bankruptcy, to whom the proceedings
had been referred, adjudged the petitioner a bankrupt, and
thereupon gave to the creditors of the bankrupt shown in the
schedule attached to the petition, among whom were the respondents,
the formal notice required by the Bankruptcy Act, notifying them of
the adjudication of bankruptcy, of the time and place fixed for the
first meeting of the creditors, that they might attend at such
meeting, prove their claims, examine the bankrupt, and transact
such other business as should properly come before the
Page 196 U. S. 95
meeting. None of the creditors appeared at the time fixed for
the meeting --
viz., June 5, 1899 -- and no trustee was
elected or appointed, the referee finding that no necessity existed
therefor. On August 9, 1899, the bankruptcy court entered an order
discharging the bankrupt from all debts and claims made provable
against the bankrupt's estate, and, on August 12,"
"regularly made an order in said bankruptcy proceedings, setting
aside to said bankrupt, as exempt under the act of Congress
relating to bankruptcy, the real estate hereinbefore described, and
awarding said real estate to the said bankrupt."
"The court further found that, since the execution sale, the
appellants had been in possession of the real estate, claiming to
be the owners of the same, and for several years last past had
resided in Spokane County, Washington, and that the real property,
during the time, had been occupied by the defendant Harry Gilliland
as their tenant. On the facts so found, it ruled that the
respondents were the owners and entitled to the possession of the
premises, and entered judgment accordingly."
MR. CHIEF JUSTICE FULLER delivered the opinion of the Court.
The state supreme court, after calling attention to the statute
of the state permitting a head of a family to select from his or
her real property a homestead of limited value, and exempting it
from the liens of general judgments and from execution or forced
sale thereunder, Ballinger's Code, §§ 5214
et
seq., and to previous rulings of the court that the selection
might be made at any time before sale,
Wiss v.
Page 196 U. S. 96
Stewart; Asher v. Sekofsky, 10 Wash. 379, said:
"If, therefore, the property in question was exempt from
execution at the time the sale was made under the execution issued
on the respondents' judgment, the respondents acquired no title
thereto by their purchase at the execution sale, and consequently
have no title on which they can maintain the present action."
And the court held that the order of the district judge of the
United States for the District of Washington, sitting in
bankruptcy, awarding the property to Laugenour as property exempt
from the claims of his creditors, and which related back to the
time of the filing of the petition in bankruptcy, which was prior
to the date of the attempted sale, was a judgment conclusive as
between the parties that the property was so exempt at that
date.
The state court was of opinion that Laugenour and his wife might
have pleaded and proved facts showing that the property was exempt
from execution at the time of the sale, making the issue directly
in the state court; but, as they chose to rely on the principle of
res judicata -- that is, on the adjudication by the
bankruptcy court, having jurisdiction of person and estate, in a
proceeding in bankruptcy in which the judgment of Smalley and
McLellan was provable, the court gave due force and effect to that
adjudication.
The jurisdiction of this Court to review the final judgments and
decrees of a state court rests on section 709 of the Revised
Statutes, and in this instance must be derived from the third
division of that section, if it exist at all. And, on the face of
this record, we cannot find that plaintiffs in error specially set
up or claimed any title, right, privilege, or immunity under the
Constitution, or any statute of, or authority exercised under, the
United States, which was decided against by the state court. What
seems to be complained of is that the state supreme court accepted
the judgment of the federal bankruptcy court as having been
rendered in the exercise of the jurisdiction with which it was
vested.
Page 196 U. S. 97
Plaintiffs in error were notified of the proceedings in
bankruptcy, as provided by the Bankruptcy Act, and, if they had
desired to contest the claim to exemption, they might have done so,
or could have invoked the supervision and revision of the order by
the circuit court of appeals; but they did not do that, and could
not question its validity in the state courts, unless, indeed, it
were absolutely void, which is not and could not be pretended.
The bankruptcy court is expressly vested with jurisdiction "to
determine all claims of bankrupts to their exemptions." § 2,
cl. 11. Where there is a trustee, he sets apart the exemptions, and
reports thereon to the court, § 47, cl. 11; where no trustee
has been appointed, under general order XV, the court acts in the
first instance.
Section 6 of the Bankruptcy Act provided:
"This act shall not affect the allowance to bankrupts of the
exemptions which are prescribed by the state laws in force at the
time of the filing of the petition in the state wherein they have
had their domicil for the six months or the greater portion thereof
immediately preceding the filing of the petition."
The rights of a bankrupt to property as exempt are those given
him by the state statutes, and if such exempt property is not
subject to levy and sale under those statutes, then it cannot be
made to respond under the act of Congress.
In one of the paragraphs of the reply of plaintiffs in error
(plaintiffs in the court of original jurisdiction) to the answer of
defendants, it was asserted that, on the day their judgment was
recovered, Laugenour and his wife were the owners of the real
estate in question, and the judgment became a lien thereon, and
that
"said lien, which culminated in the aforesaid sale of real
estate to plaintiffs, was obtained and created pursuant to said
suit, and more than four months prior to the filing of the alleged
petition in bankruptcy,"
and it is argued that this amounted to a special assertion of an
immunity under the Bankruptcy Act. But immunity from what? Nothing
more, at the best, than immunity from the discharge in
bankruptcy,
Page 196 U. S. 98
not from the exemptions authorized by the state statute. And so
Fullerton, J., speaking for the state supreme court, said:
"Lastly, it is said that the order of the court setting apart
the property as exempt does not purport to, nor does it in law,
affect existing liens upon the property set apart as exempt, and,
unless the liens thereon be such as the law avoids of its own
force, such liens may be enforced in the state court against and to
the extent of the property affected by the lien, notwithstanding
the order setting it apart as exempt, and the discharge of the debt
in bankruptcy. In cases of liens which can exist independent of the
question whether or not the property is exempt, undoubtedly the
rule here invoked would be applicable; but the lien of a general
judgment is not such a lien. It is a lien upon real property only
which is not exempt. Hence, if this property was exempt at the time
of the filing of the petition in bankruptcy, the judgment under
which it was sold was not a lien thereon, and to assume that the
judgment was a lien is to assume that it was not exempt -- the very
question at issue."
We are not able to perceive that the state supreme court denied
in any way a right of plaintiffs in error specially set up or
claimed under the Constitution or laws of the United States. All
that was determined, and all that the state court was called on to
determine, was the question of exemption under the state statutes.
Its acceptance of the judgment of the federal court in that regard
does not bring the case within section 709.
Writ of error dismissed.
