Fulwiler v. Peters

• Decision Date: 08 June 1942
• Citation: 20 S.E.2d 500,179 Va. 769
• Parties: FULWILER. v. PETERS et al.
• Court: Virginia Supreme Court

20 S.E.2d 500

179 Va. 769

FULWILER.

v.PETERS et al.

Supreme Court of Appeals of Virginia.

June 8, 1942.

Appeal from Hustings Court of City of Roanoke; J. L. Almond, Jr., Judge.

Suit in equity by Robert A. Fulwiler, Jr., trustee of Joseph Samuel Firestone, bankrupt, against Curtis F. Peters and others to set aside two deeds of trust. Decree for respondents, and plaintiff appeals.

Reversed and remanded.

Before CAMPBELL, C. J., and HOLT, HUDGINS, GREGORY, and EGGLESTON, JJ.

V. D. Johnson, Jr., J. T. Engleby, Jr., and Robert A. Fulwiler, Jr., all of Roanoke, for appellant.

Irvin A. Harvey and Burks, Dudley & Staples, all of Roanoke, for appellee James A. Bear, adm'r.

HUDGINS, Justice.

Robert A. Fulwiler, Jr., as trustee of J. S. Firestone, bankrupt, filed a bill alleging that the execution and delivery of two certain deeds of trust on five lots in Roanoke, signed and acknowledged by C. F. Peters and wife, were voidable as to the creditors of J. S. Firestone under the National Bankruptcy Act, 11 U.S.C.A. § 1 et seq., because the instruments were executed and delivered within four months from the date of the order adjudicating J. S. Firestone a bankrupt. From an adverse decree plaintiff in the trial court obtained this appeal.

The title to, the lots was conveyed to C. F. Peters on August 18, 1936. In 1937, buildings were erected on four of the lots, and C. F. Peters and wife executed four deeds of trust securing their personal notes, totaling $9,289.73, payable to various parties. Plaintiff concedes that these obligations are "valid and subsisting liens * * *on the houses and lots" described in the deeds of trust.

The attack is concentrated on two deeds of trust bearing date January 1, and August 24, 1937, wherein the identical property was conveyed to Ralph A. Glasgow, trustee, to secure three notes totaling $10,-450, executed by C. F. Peters and wife and endorsed by the bankrupt. These deeds of trust were acknowledged on February 7, and recorded on February 11, 1938. The notes were formerly held by Miss Kather-ine McGuirk, who died after this suit was instituted.

J. S. Firestone was adjudicated bankrupt in the Federal Court for the Western District of Virginia on April 22, 1938, within four months from the date of the recordation of the two deeds of trust in question.

The decision turns upon the proof of the allegation that J. S. Firestone was insolvent on February 7, 1938, and was the absolute owner of the property in question; and that Miss Katherine McGuirk knew or was charged with knowledge of these facts.

For some years prior to 1938 Miss McGuirk, who seemed to have from twenty to forty thousand dollars invested in real estate or real estate loans, had deposited various sums with Firestone as her real estate agent for investment. Firestone collected interest and principal when due and reinvested the money with Miss McGuirk's approval in other real estate securities.

Firestone informed H. M. Moomaw, a special commissioner in a pending chancery cause, that he would pay $1,750 for the five lots in question. Moomaw, who was authorized to make a private sale of the property, declined to allow Firestone a commission on a sale made to himself. Thereupon Firestone directed Moomaw to convey the property to F. R. Marston, which was done by deed dated August 16, 1936. Two days later, August 18, 1936, Marston conveyed the property to C. F. Peters for an alleged consideration of $2,000. C. F. Peters and wife executed a deed of trust to secure a note payable to Miss Katherine McGuirk for the sum of $1,750. Firestone obtained his commission for consummating the sale, and the balance, less unpaid taxes, was paid to Moomaw. This note and the unrecorded deed of trust were held by Firestone as the property of Miss McGuirk. In 1937 the deed of trust and note were destroyed, and the amount of indebtedness was included in the notes secured by the two deeds of trust bearing date of January 1, and August 24, 1937.

Peters for some reason failed to file an answer to the bill or to testify in the case. He did appear by an attorney.

Miss McGuirk filed an answer in which it is stated that she loaned the $10,450 upon the property, relying upon the record title of C. F. Peters. She died on the 16th day of February, 1940, before she was introduced as a witness. Suit was revived in the name of her administrator, and on August 31, 1940, the trial court entered an order permitting the testimony of Miss McGuirk and Firestone, which had been taken in another cause, to be read and considered by the court as evidence in the present suit. In this exhibit it appears that Miss McGuirk knew her money was loaned to Peters for the purpose of erecting four buildings upon the five lots, and that the first money loaned was used in the construction of a house for the home of Peters. She visited Firestone's office rather frequently--sometimes once a week-- and she inspected the houses while they were under construction.

There is nothing in this testimony which tends to prove that Miss McGuirk knew that Firestone was insolvent or that he had any interest in the five lots.

Firestone testified that he invested and reinvested funds for Miss McGuirk; that he agreed to go halves with Peters in the purchase of the lots and the construction of the houses thereon; that he held the notes and the unacknowledged deeds of trust as the property of Miss McGuirk until February 7, 1938; that about that time a creditor threatened to sue him unless he paid the obligation within thirty days; that, in order to protect Miss McGuirk's interests, he secured the acknowledgments of Mr. and Mrs. Peters to the deeds of trust on February 7, and had them recorded on February 11, 1938; that he did not know whether Miss McGuirk knew that he had any interest in the property or not, but he endorsed the notes before they were delivered to her; that while he looked after most of the construction of the houses, Peters looked after a part of it. Miss McGuirk knew that he was using the proceeds of these loans to pay the bills for the construction of these houses.

The bankrupt's schedules of assets and liabilities, together with the dates of theliabilities, showed that Firestone was insolvent in February, 1938, but there is no evidence tending to show that Miss Mc-Guirk knew the financial condition of Firestone at any time prior to the petition in bankruptcy. Her action in permitting him to invest her money from time to time would indicate that she was ignorant of his true financial condition.

Firestone, in his schedule of liabilities, listed the notes executed by C. F. Peters and wife, endorsed by him and held by Miss McGuirk, and other liens binding on the five lots; but in this schedule Firestone made the following notation; "The above indebtedness is secured by liens on real estate in the name of C. F. Peters, who was a former partner of the bankrupt, the equity in...