The referee finds, and it is not disputed, that the Sanderlin mortgage was executed in good faith by him, not intended as a preference, and without knowledge on his part or on that of the mortgagees that he was insolvent. He recommends that so much of the mortgage debt as secures the $805.59 advanced in cash be paid, with its interest, out of the proceeds of sale; that the remainder of the proceeds go into the general estate, and that McNair & Pearsall prove the remainder of their claim against the bankrupt estate as general creditors. He makes the same suggestion with respect to the proportionate amount of costs as he made as to the proceeds of the first-named mortgage. Upon review of his report by the district court, the action of the referee in recognizing the validity of the mortgage of Sanderlin & McMillan was affirmed. In this we concur with the court below.

The ruling of the referee with regard to the proportionate division of the costs was reversed, the court ordering that the entire costs be first paid out of the fund, and that the liens be paid out of the remainder, according to their priority. This is the most simple way of settling the costs, and the ruling on this of the court is affirmed.

The district court sustained the referee in his ruling that only $805.59 be paid to McNair & Pearsall out of the proceeds of the Sanderlin mortgage, and that for the remainder of their claim they come in only as general creditors. The surplus proceeds of sale are placed by him in the general fund. It having been found without question that neither the mortgagor nor the mortgagees were aware of the insolvency of Sanderlin, and that the mortgage was executed in good faith, with no intent to give a preference, we are of the opinion that the referee and the court erred in this conclusion. The law upon this subject is declared in Pirie v. Trust Co., 182 U. S. 446, 21 Sup. Ct. 906, 45 L. Ed. 1171. That case decides that, although a creditor may have received a preference within four months of the adjudication of bankruptcy, he may retain it if he did not have cause to believe that it was intended as a preference or with knowledge of the insolvency. If he retain it, however, he loses all claim against the estate of the bankrupt.

It would seem to be a corollary from this case that, if he insists upon his claim against the general estate, he will be held to have waived his lien. In the case at bar, McNair & Pearsall made no such claim. On the contrary, they disclaim all intention so to do. They clearly are entitled to hold their lien. It is true that they have come into this case. But this was only in obedience to the order of the court making them parties by proceedings in invitum. These proceedings were instituted for the express purpose of selling the mortgaged property free of lien, and, of course, of transferring the lien to the proceeds. McNair & Pearsall came in for this purpose, insisting on their lien. In this respect the ruling of the district court is reversed.

The case is remanded to that court, with instructions to carry out the points settled by this judgment.

(113 Fed. 115.)

MCGAHAN et al. v. ANDERSON et al.

(Circuit Court of Appeals, Fourth Circuit. February 5, 1902.)

No. 409.

1. APPEAL-BANKRUPTCY-QUESTIONS CONSIDERED.

The motion of a bankrupt to dismiss an appeal from a judgment allowing certain exemptions, for want of jurisdiction, may be denied without consideration on the merits, when the bankrupt fails to take a cross appeal.1

2. BANKRUPTCY COURTS-JURISDICTION-EXEMPTIONS.

The bankruptcy court giver jurisdiction by Bankr. Act 1898, § 2, subd. 11, to determine all claims of bankrupts to their exemption, has exclusive jurisdiction to determine such claims, as any other rule might create a conflict of jurisdiction, and deprive the bankruptcy court of its right to determine all questions arising under the act.

3. SAME-PLEADINGS-ISSUES.

Where a bankrupt files a schedule claiming his homestead and personal property exemptions as authorized by Bankr. Act 1898, § 7, subd. 8, and the assignee, in filing his account with the court, as required by section 47, gives the estimated value of each article, as required by general order No. 17 (18 Sup. Ct. vi.), which also authorizes exceptions therefrom to be taken within 20 days, and a creditor files exceptions, and the referee certifies the question of exemptions to the court, such question may be considered without being specially pleaded.

4. SAME-EXEMPTIONS-EVIDENCE-SUFFICIENCY.

A bankrupt admitted that he began the erection of a house claimed as a homestead after July 1st, but did not make a candid disclosure as to where he received the money for its construction. He admitted that a portion thereof came from the sale of goods which were not paid for. The house was built on a lot owned by his wife, which was conveyed to him so that he could claim a homestead. An involuntary petition in bankruptcy was filed against him on October 25th, and he was declared a bankrupt within a month thereafter. Held not sufficient to

show that the bankrupt was solvent, and able to pay his creditors, at the time of the construction of the house, so as to enable him to acquire it as a homestead with money taken from his business.

5. SAME-EVIDENCE-BURDEN OF PROOF.

A bankrupt claiming a homestead exemption has the burden of showing by clear and conclusive proof that he was solvent, and able to pay all claims against him, when he acquired the homestead.

6. SAME-PERSONAL PROPERTY EXEMPTION-UNPAID MERCHANDISE.

Under Const. S. C., which allows a debtor to hold personal property exempt from attachment to the amount of $500, but provides that no property shall be exempt from payment of obligations contracted for the purchase of such property, a bankrupt is not entitled to such exemption out of the proceeds of a sale by the trustee in bankruptcy of merchandise which has not been paid for.

Appeal from the District Court of the United States for the District of South Carolina, in Bankruptcy, at Charleston.

For former opinion, see 103 Fed. 854.

P. A. Willcox (Claudian B. Northrop, on the brief), for appellants. W. F. Clayton, for appellees.

Before SIMONTON, Circuit Judge, and JACKSON and PURNELL, District Judges.

1Appeal and review in bankruptcy cases, see note to In re Eggert, 43 C. C.

JACKSON, District Judge. It appears from the transcript of the record in this case that the bankrupt filed his petition on the 5th day of October, 1899, praying that he be adjudged a bankrupt, and that on the 18th day of November, 1899, he was adjudged a bankrupt, and at the time of his adjudication he filed a schedule of his property that he claimed as exempt under the constitution and the laws of the state of South Carolina. On the 4th day of January, 1900, the trustee set apart, as being exempted under the laws, personal property to the amount of $500 and realty to the amount of $1,000, making a total of $1,500. On January 9, 1900, exceptions were filed by creditors of the bankrupt to the report of the trustee. On January 11, 1900, the bankrupt filed a notice requiring the creditor T. R. McGahan to make exceptions more definite, and on January 15, 1900, an amendment to the exceptions was filed. On February 28, 1900, the referee made his report on the nature and character of the indebtedness of the bankrupt, under the order of the court before entered, which required him to take such further proceedings as were required by the act. On the 3d day of April, 1900, the referee filed his report upon the exceptions to the exemptions, and reported that the bankrupt was entitled to an exemption of $425 in cash, and $50 for wearing apparel, and $25 for a bicycle, making in all $500; and further reported that he was entitled to his homestead, a house and lot, valued at $1,000. Exceptions were taken to this report of the referee, and heard by the court. The court, in its first opinion, after due consideration, reached the conclusion that the bankrupt was not entitled to an exemption of $425 set apart by the referee, but was entitled to the allowance of articles of personal property of the value of $75, and to the homestead exemption of the value of $1,000. This is briefly the history of the case up to the time of the appeal, which was taken to the ruling of the court upon the questions of the two exemptions. The first question that we shall consider is the one raised by the appellees upon their motion to dismiss this proceeding for the reason that this court is without jurisdiction. We might very well dispose of this question by stating that there is no cross appeal upon the part of the appellees to raise any such question. The only appeal from the rulings of the court disclosed by the record is that of the appellants, which we will now consider. The learned judge well remarked that "by section 2, subd. II, of the bankrupt act, this. court has jurisdiction to determine all claims of the bankrupt to exemptions." In the nature of things, this must be so. The bankrupt court, as a necessity, must alone deal with the exemptions of the bankrupt. If any other tribunal was to intervene to determine this question, it would be the exercise of a jurisdiction, which might result in a conflict of authority, and deprive the bankrupt court of its rightful power to speedily determine all questions of law and right arising under the bankrupt act, which was clearly the intention of congress when it enacted the law. The supreme court, which was designated by the bankrupt act to promulgate certain general orders in bankruptcy, expressly prescribed in general order 17 (18 Sup. Ct. vi.) the duties of the trustee after receiving the no

tice of his appointment, one of which was to make a report to the bankrupt court within 20 days after receiving said notice of the articles set aside by him. We think that we may fairly infer that the supreme court would not have adopted general order 17 (18 Sup. Ct. vi.) if it had any doubt about its power and authority to do so; certainly it cannot be contended that congress, in the passage of a general bankrupt act, has not the right to determine the terms and conditions upon which a bankrupt may secure the benefit of the act. This principle has been recognized in every bankrupt act which has been passed by congress since the creation of our government. The express provision in this act which we have now under consideration makes it the duty of the trustee to set apart such property to the bankrupt as provided for under the laws of the state in which he lives as being exempt from seizure under any legal process whatever. This appears to have been done by the trustee as required by the act. It does not appear to us that it is necessary to cite any authorities to support this position, but, if any were needed, it would be found, after an examination of the case of In re Mayer, 47 C. C. A. 512, 108 Fed. 602, that it fully sustains this position, the court holding that by section 2 of the bankrupt act the courts of bankruptcy are given jurisdiction to determine all the claims of the bankrupt to their exemptions. The supreme court, in the case of Bryan v. Bernheimer, 181 U. S. 188, 21 Sup. Ct. 557, 45 L. Ed. 814, we think, fully sustains this position. The first error assigned by the appellants is to the ruling of the court below in reference to the homestead exemption in the real estate. The learned judge below, who heard this case upon a rehearing of this question, held, in his second opinion, that the case was "not before him in such a shape that would enable him to decide it." It is to be observed that by section 7, subd. 8, of the bankrupt act, the bankrupt is required to file his claim for such exemptions as he may be entitled to. Evidently the purpose of congress in the enactment of this statute was to protect an insolvent debtor at least to the same extent that he was protected by the laws of his state, provided that the exemption claim did not exceed the amount allowed under the laws of the state in which the bankrupt lives. When the bankrupt had exercised this right under the act of congress by filing his schedule as prescribed by the act, then it became the duty of the trustee to set aside the property specified in the exemption for the benefit of the bankrupt and his family, if any he had. As soon as the property was set apart under the claim of the bankrupt, he became invested with the title thereto free from all existing debts; but such title or claim to such exemption might be challenged, which challenge must be heard by the bankrupt court, as it alone could determine the right to the property between the bankrupt and the trustee, who alone represents the rights of the creditors in the matter. It might be otherwise if it were a contest between the bankrupt and a third party, who claimed any portion of the property set aside under the exemption, or, in fact, any other property of the bankrupt that the trustee might seek to recover from a third party. We concur with Judge

Jenkins in his able opinion in the case of In re Mayer, supra, when he says undoubtedly the bankrupt court is given jurisdiction, which before the act was lodged in all the courts of general jurisdiction, to determine, if there be any dispute, as to the rights of the bankrupt under his claim of exemption. So far as this question is raised by the appellants in this case, we hold that the bankrupt court under the act possesses full and plenary power to dispose of these questions. The learned judge below in his first opinion allowed the homestead exemption, but in his subsequent opinion he held that the question of the homestead exemption was not properly before him, and could not be determined upon the exceptions to the allowance of the homestead. In this conclusion we must differ with the court below. Certainly this question has been raised by the bankrupt filing his claim and schedule of exempted property, and the action of the trustee setting aside the property claimed as exempt, and the exceptions to the action of the trustee taken by the creditors before the referee in bankruptcy, and the action of the referee and his report upon the exemptions, in which he disposes of the question certifying the whole matter to the judge of the court for his opinion. This is in strict compliance with general order 17, which requires the trustee to make his report to the court under the provisions of section 47 of the act, giving the estimated value of each article, to which report any creditor may file exceptions within 20 days after the filing of the report. This general order directs that the exceptions be argued before the referee, and at the request of either party his action shall be certified to the court for final determination. This course was pursued in this case. Not only was the question relating to the personal property, but the exemption relating to the homestead was certified to the judge of the court for his action. This certificate makes a well-defined issue founded upon the pleadings and evidence in the case, which invokes the judgment of the court. In the view that we take of this case, no necessity exists for any special pleading. The only question for the court to consider is whether or not this bankrupt is entitled to the homestead exemption that he claims. The history of how and when he acquired this property that he claims to be set apart as a homestead is fully disclosed by the evidence. In his schedule he claims the property. The trustee set it apart and assigned it to him. Exceptions were taken to this assignment by the creditors, and the matter referred to the referee in bankruptcy, who, in an elaborate opinion, overruled all the exceptions, and approved the report of the trustee, and the referee certified his conclusions to the court for its action. We cannot agree with the conclusions of the referee in regard to either exemption. As to the homestead exemption, the evidence of the bankrupt is by no means satisfactory. He admits that he began the erection of the "house in July or August, 1899,-after July 1st." He does not make a candid disclosure as to where the money came from to build this house, but, when pressed, admitted that a part of it "came from the sale of goods which he had not paid for." He fails to disclose how much money came from the goods which he had purchased and never paid for.