In re Parsons Lumber & Planing Mill Co.

• Decision Date: 12 December 1914
• Citation: 218 F. 674
• Parties: In re PARSONS LUMBER & PLANING MILL CO.
• Court: U.S. Court of Appeals — Fourth Circuit

218 F. 674

In re PARSONS LUMBER & PLANING MILL CO.

United States District Court, N.D. West Virginia.

December 12, 1914

Samuel T. Spears, of Elkins, W. Va., for petitioning creditors.

A. Jay Valentine, of Parsons, W. Va., for defending creditors.

DAYTON District Judge.

The bankrupt is a corporation. W. H. McWhorter, W. G. Davisson and R. J. Clifford, were stockholders and directors, and W G. Davisson was secretary and general manager, thereof on November 12, 1912, when it purported to execute a deed of trust upon certain real estate in Parsons, Tucker county, W Va., to secure W. H. McWhorter, W. G. Davisson, and R. J Clifford as its indorsers upon notes aggregating $5,000 and renewals thereof, discounted in banks and the proceeds applied to its use. This deed of trust, made to D. A. Davisson, trustee, was executed, for and on behalf of the corporation, by W. G. Davisson, its secretary and general manager, under the authority of a by-law of the corporation conferring upon such officer the duty to control all the business affairs of the company, with power to purchase, sell, enter into contracts, and make deeds on its behalf. It was not authorized by a direct vote had at a regular meeting of either stockholders or directors, but its execution was ratified and confirmed subsequently, on December 30, 1912, by a stockholders' meeting.

This deed of trust, executed on November 12, 1912, as stated, was acknowledged November 13, 1912, but was not recorded until January 6, 1914, a few weeks before the corporation was adjudged bankrupt, In the body of the deed of trust erasures were made, whereby one lot of ground, originally embraced therein, was stricken out. These erasures are admitted by Davisson, the secretary and manager who executed it on behalf of the corporation, to have been made by him, but whether before or after its acknowledgement, or whether before or after its ratification by the stockholders' meeting, he is unable to state. In the course of the bankruptcy proceedings before the referee, W. H. McWhorter, one of the indorsers secured thereby, filed his petition, praying preference for these $5,000 of notes, proved by the bank owners in the cause, by reason of this deed of trust. Creditors contested the prayer of this petition, asserting the deed of trust to be void and constituting no lien. The referee sustained this contention of creditors, and at the instance of McWhorter this ruling of the referee is before me for revision.

The contention of creditors is that this trust deed is fraudulent and void, because (a) it was designed to give a preference and was withheld from recordation, and therefore subject to sections 2 and 5 of chapter 74 (sections 3830 and 3835) of the Code of West Virginia; (b) because of the erasures made in it; and (c) because it was not authorized by action of the corporation's board of directors enrolled in the minutes of a meeting regularly held, in which minutes it affirmatively appeared that these three directors, McWhorter, Davisson, and Clifford, withdrew from the meeting and did not vote upon the question of its authorization.

Since the decisions of Holt v. Crucible Steel Co., 224 U.S. 262, 32 Sup.Ct. 414, 56 L.Ed. 756, Gilbert v Pepper, 65 W.Va. 355, at page 364, 64 S.E. 361, 36 L.R.A. (N.S.) 1181, In re Charles Town Light & Power Co. (D.C.) 199 F. 846, and Davis v. Hanover Savings Fund Society (affirming the latter case) 210 F. 768, 127 C.C.A. 318, it is well settled that the mere failure to record a mortgage or deed of trust is not a fraud upon creditors as matter of law, for, in the Holt Case, the Supreme Court holds that the effect to be given such unrecorded instrument must be determined by the recording law of the state, and that the question arising under that law turns upon who are included in the term 'creditors' in the state statute; while, in the Gilbert-Pepper Case the Supreme Court of Appeals of West Virginia has held that this term 'creditors,' as used in section 5, c. 74, of the Code, refers solely to lien and not to unsecured creditors. In the Davis-Hanover Case the Circuit Court of...