Guaranty Nat. Bank of Huntington v. State Motor Sales, Inc.

• Decision Date: 31 March 1966
• Docket Number: No. 12484,12484
• Citation: 147 S.E.2d 495,150 W.Va. 521
• Court: West Virginia Supreme Court
• Parties: The GUARANTY NATIONAL BANK OF HUNTINGTON v. STATE MOTOR SALES, INC., et al.

Page 495

147 S.E.2d 495

150 W.Va. 521

The GUARANTY NATIONAL BANK OF HUNTINGTON v. STATE MOTOR SALES, INC., et al.

No. 12484.

Supreme Court of Appeals of West Virginia.

Submitted Jan. 25, 1966.

Decided March 31, 1966.

Syllabus by the Court

1. By the commencement of a suit to set aside a fraudulent conveyance as creditor who successfully attacks such conveyance obtains a lien upon the property proceeded against which takes preference over other creditors if there are no prior valid liens.

2. By the provisions of 11 U.S.C.A., Section 107(a)(1), every lien against the property of a person obtained by attachment, judgment, levy, or other legal or equitable process or proceedings within four months before the filing of a petition initiating a proceeding under the statute by or against such person shall be deemed null and void if at the time when such lien was obtained such person was insolvent.

3. The critical time at which the rights of the trustee in bankruptcy are to be determined is the date of the bankruptcy and in general the lien of a creditor does not require validity after a petition in bankruptcy is filed.

4. Under 11 U.S.C.A., Section 110(c), the trustee in bankruptcy is vested, as of the date of the filing of the petition in bankruptcy, with all the rights, remedies and powers of a creditor who could have obtained by legal or equitable proceeding a lien upon all property which may be subjected to such lien.

5. The trustee in bankruptcy is vested with all the rights of a judgment creditor of the bankrupt holding an execution returned unsatisfied and takes not only all the rights of the bankrupt in his property but he also succeeds to all the rights of the creditors of the bankrupt.

6. A trustee in bankruptcy who intervenes in a suit instituted by a creditor of the bankrupt represents all the creditors of the bankrupt, and an adjudicated claim of another creditor of the bankrupt, who intervenes as a party, is for the benefit of all the creditors of the bankrupt represented by such trustee and is not merely for the benefit of such intervening creditor.

7. Under the applicable provisions of the bankruptcy act the trustee in bankruptcy who intervenes as a defendant in a suit to set aside a fraudulent conveyance of the bankrupt is entitled to all the rights of an intervening creditor against the bankrupt for the benefit of the creditors of the bankrupt including such intervening creditor; and such intervening creditor is not entitled to the benefit of its claim to the exclusion of the other creditors of the bankrupt who are represented by such trustee in bankruptcy.

W. Merton Prunty, Huntington, for appellant.

Douglas C. Tomkies, Greene, Ketchum, Baker & Pauley, Huntington, for appellee.

HAYMOND, Judge:

In this suit instituted June 16, 1960, in the Circuit Court of Cabell County, under the provisions of Article 1, Chapter 40, Code, 1931, as amended, for the purpose of attacking certain fraudulent conveyances of real estate, the plaintiff Guaranty National Bank of Huntington, West Virginia, a creditor of the defendant State Motor Sales, Inc., seeks an accounting of its financial transactions with the defendant State Motor Sales, Inc., and to set aside as fraudulent a certain deed, dated October 21, 1959, recorded February 19, 1960, made by State Motor Sales, Inc. to the defendant Credit Discount Corporation for certain real estate designated as the Seventh Avenue Lot; a certain other deed, dated March 31, 1960, recorded April 27, 1960, made by the defendant State Motor Sales, Inc. to the defendant Credit Realty Corporation for four parcels known as the Peck Land; a second deed, dated December 9, 1960, made by State Motor Sales, Inc. to the defendant Credit Discount Corporation for the Seventh Avenue Lot; and a second deed, dated December 9, 1960, made by State Motor Sales, Inc. to the defendant Credit Realty Corporation for the Peck Land, the last two mentioned deeds having been made after those defendants had reconveyed the above properties to the defendant State Motor Sales, Inc. by deeds dated July 18, 1960.

The plaintiff also asked that the cause be referred to a commissioner to report liens, that the plaintiff obtain a decretal judgment, and that the property conveyed by State Motor Sales, Inc., by the foregoing deeds should be sold to satisfy the liens against it and the claim of the plaintiff. John O. Jarvis and F. M. Painter, partners, F. M. Painter, the principal stockholder in the defendants State Motor Sales, Inc., Credit Discount Corporation and Credit Realty Corporation, Mary Louise Painter, his wife, and W. W. Painter, his brother, were also made defendants but the Painters were afterwards dismissed from the suit. Numerous other creditors of the defendant corporations later intervened as parties to the suit and it was eventually converted to a general creditors suit.

On December 19, 1960, an involuntary petition in bankruptcy was filed against the defendant State Motor Sales, Inc. and it was adjudicated a bankrupt on January 3, 1961. On March 17, 1961, the trustee in bankruptcy intervened as a party and on March 27, 1961, filed his answer, in which he prayed that the deeds dated December 9, 1960, made by State Motor Sales, Inc. to Credit Realty Corporation and Credit Discount Corporation be set aside, which deeds the court held to be nullities as to creditors who, when the deeds were made, were parties to this suit by reason of a lis pendens which was filed and recorded when the suit was instituted. On December 22, 1960, the City National Bank of Charleston made a motion to intervene as a plaintiff, which motion was opposed by the Guaranty National Bank of Huntington and the motion at that time was denied. On the same day the defendant State Motor Sales, Inc. moved the court that the lis pendens be released but that motion was opposed and was also denied. On December 23, 1960, judgment was rendered in favor of the plaintiff against the defendant State Motor Sales, Inc. for $71,495.02.

By deed, dated December 27, 1960, Vera Painter, who is not a party to this suit but who is the wife of W. W. Painter, who was a party, purchased from Credit Realty Corporation the real estate known as the Peck Land. The evidence, consisting in part of her testimony, shows that she purchased the property for approximately $125,000.00; that the purchase price was paid by the cancellation of a $4,000.00 loan to Credit Realty Corporation which was used as a payment on the first mortgage lien against the property held by the Pecks, former owners of the property, by an amount consisting of a down payment, by payments made on the first mortgage lien held by the Pecks, and by the assumption of prior existing liens upon the property held by the Pecks and Mary Louise Painter. Vera Painter testified as a witness in behalf of the plaintiff and the court held that it was bound by her testimony. With respect to the purchase the court held that Vera Painter was a pendente lite purchaser and as such was charged with all information which appeared in the record at the time of the purchase on December 27, 1960, that as such purchase she was charged with notice of the claims of the plaintiff and the City National Bank of Charleston, whose petition to intervene had been filed on December 22, 1960, and which was permitted to intervene as a defendant in the suit as of that date, and that the transfer to her of the Peck Land, by deed dated December 27, 1960, was a nullity as to the claims of both banks but was good as to all other creditors. State v. Philippi Manufacturing and Mercantile Company, 41 W.Va. 339, 23 S.E. 571, 56 Am.St.Rep. 843; First National Bank of Webster Springs v. McGraw, 85 W.Va. 298, 101 S.E. 474; Bryan v. Jackson, 178 Va. 123, 16 S.E.2d 366. This ruling of the court is not challenged on this appeal.

The petition of the City National Bank of Charleston to intervene and be made a party to the suit, which by order entered April 10, 1961, it was allowed to do as of December 22, 1960, when its motion to intervene was filed, and which petition was filed as an answer to the complaint of the plaintiff, alleged that the defendant State Motor Sales, Inc., was indebted to the intervenor in the amount of $43,787.69; that the defendant Credit Realty Corporation was indebted to it in the sum of $9698.00; that the defendants State Motor Sales, Inc. and Credit Discount Corporation were indebted to it in the sum of $24,468.00 on a note and conditional sales contract, which were exconditional by Credit Discount Corporation, assigned to State Motor Sales, Inc., and by it assigned to the intervenor, and it demanded judgment in the total sum of $107,848.69.

The court held that the corporate instrumentality rule applied to the defendants State Motor Sales, Inc., Credit Realty Corporation and Credit Discount Corporation; that their corporate entity should be disregarded and that the assets and the creditors of each were the assets and the creditors of all; that the transfers by the defendant State Motor Sales, Inc. of the Seventh Avenue Lot and the Peck Land to Credit Discount Corporation and Credit Realty Corporation, by deeds dated October 21, 1959 and March 31, 1960, were made with intent to hinder, delay and defraud creditors within the meaning of the applicable fraudulent conveyance statute and were fraudulent within the corporate instrumentality rule; that the plaintiff Guaranty National Bank of Huntington, under the diligent creditor rule and as a creditor first attacking the conveyances, was entitled to first preference in payment against the Peck Land and the Seventh Avenue Lot which were subject only to valid prior existing liens at the time of the institution of this suit; that the trustee in bankruptcy, who appeared and filed an answer, occupied the position, and was entitled to the rights, of a judgment creditor as of December 19, 1960, when the petition in bankruptcy was filed; that Vera Painter...