Lucius v. Cawthon-Coleman Co.

The bankruptcy court has jurisdiction to determine on a claim asserted by the bankrupt whether property in the hands of the trustee is exempt; and while an erroneous decision against the asserted right may be corrected in the appropriate mode for the correction of errors, the jurisdiction of the court is not in issue within the meaning of the act of March 3, 1891, and a direct appeal to this court will not lie.

APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF ALABAMA. This is an appeal from a decree of the District Court of the United States for the Southern District of Alabama, sitting in bankruptcy, establishing and directing the enforcement of a lien upon the proceeds of two policies of insurance in the hands of the trustee in bankruptcy. The District Court filed findings of fact and its conclusions of law, in pursuance to the third subdivision of General Order in Bankruptcy 36; and an appeal. was taken upon the question of jurisdiction alone, under the supposed authority of the fifth section of the judiciary act of March 3, 1891. In substance the pertinent facts stated in the findings were as follows: D. D. Lucius, a resident citizen of Alabama, was, in voluntary proceedings, adjudged a bankrupt, and the case was sent to a referee. In his schedules, Lucius claimed as exempt drugs to the value of $1,000 and $1,000 of a balance of $1,150 due upon the aforementioned policies of insurance. The policies subsequently came into the possession of the trustee in bankruptcy. The Cawthon-Coleman Company were creditors of Lucius for about the sum of $1,000, evidenced by a note containing a waiver of exemption of personal property, and secured by a mortgage upon the homestead of Lucius, which mortgage contained a stipulation for insurance for the benefit of the mortgagees. The two policies above referred to were obtained in consequence of the stipulation referred to, and while in force and before the adjudication in bankruptcy the dwelling insured was destroyed by fire. Claiming, by reason of the facts just stated, an equitable lien upon the proceeds of the insurance, the Cawthon-Coleman Company filed a petition in the bankruptcy proceedings to establish and enforce their alleged lien. During the pendency of this proceeding the trustee in bankruptcy collected the balance due upon the policies. The trustee reported an allowance of the exemption out of such proceeds as claimed by the bankrupt, and shortly afterwards the bankrupt filed a plea denying jurisdiction in the court to hear and determine the claim of lien. This plea was overruled by the referee, who also refused to confirm the allowance of the exemptiop claimed by the bankrupt, and an order was made by the referee directing the trustee to pay to the Cawthon-Coleman Company on the mortgage indebtedness the sum of $1,001.40 out of the insurance proceeds. Thereafter, to quote from the findings, “upon a review by the district judge sitting in bankruptcy, of the referee’s decision, the judge affirmed it, and rendered a decree asserting that the bankruptcy court had jurisdiction to hear and determine this matter, and granted the relief prayed by the petition of Cawthon-Coleman Company.” This appeal on the question of jurisdiction was then taken direct to this court. The bankruptcy court is of limited jurisdiction and has only the authority conferred by the statute creating it. Re Morris, Fed. Cas. 9,825; Collier on Bankruptcy, 11. Where j urisdiction of the court has been sustained see Re Turnbull, 106 Fed. Rep. 667; Re Mayer, 108 Fed. Rep. 599; McGahan v. Anderson, 113 Fed. Rep. 115’; Brand, on Bankr., 2d ed., 126, §2, and cases there cited. It has, however, been expressly held that property generally exempt cannot be subjected in the bankruptcy court to the satisfaction of the debt of a creditor who holds a waiver of exemption as to this particular debt, or has a claim of lien on the exempt property. Re Grimes, 96 Fed. Rep. 534.; Woodruff v. Cheeves, 105 Fed. Rep. 601, 606; Re Hill, 96 Fed. Rep-. 185; Lockwopd v. Exchange Bank, 190 U. S. 294; Re Hatch, 102 Fed. Rep. 280; Re Jackson, 116 Fed. Rep. 46; Ingram v. Wilson, 125 Fed. Rep. 913. The cases cited by the judge below, to the effect that the court had jurisdiction, to wit: Cannon v. Dexter Broom Co., 120 Fed. Rep. 657; Re Butler, 120 Fed. Rep. 100; Re Boyd, 120 Fed. Rep. 999; Re Campbell, 124 Fed. Rep. 417, are all on the border •line. They involve cases in which the state statutes provided that goods shall not be exempt against claims for the unpaid purchase price. They are flatly opposed by the cases cited supra.