In re Porterfield

• Decision Date: 20 May 1905
• Citation: 138 F. 192
• Parties: In re PORTERFIELD.
• Court: U.S. Court of Appeals — Fourth Circuit

138 F. 192

In re PORTERFIELD.

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

May 20, 1905

Angus McDonald and Forest W. Brown, for bankrupt and Mrs Porterfield.

Mason &amp Mason, D. B. Lucas, and Joseph Trapnell, for creditors.

DAYTON District Judge.

When this case was referred back by my predecessor to Referee James D. Butts for his further consideration, he directed him to file a written opinion, which he has done, and it is as follows:

Opinion of Referee.

As I understand the facts in this case which are not disputed Geo. Porterfield was, on the 12th day of November, 1902, the date of his adjudication as a bankrupt, a resident of Charles Town, Jefferson county, West Virginia, and the owner of a farm in Jefferson county, known as 'Cassilis.' That Eugene Baker was sheriff of said county from January 1, 1897 to January 1, 1900, and that during that period Porterfield was his deputy for Charles Town district, and intrusted with the collection of the taxes for said district. That Porterfield's real and personal property was situated within said district. That on the 11th day of June, 1902, Porterfield conveyed to John Porterfield, trustee, his farm Cassilis, to secure his wife, Susan E. Porterfield, in the payment of a debt due her by note of $4,976.48. Upon the same day he executed a deed of trust on the same farm to secure Milton Rouss in the sum of $12,500 (about which there is no dispute, the only controversy being relative to the deed of trust to secure Susan E. Porterfield). The deed of trust to secure the latter was executed more than four months prior to the adjudication in bankruptcy, and for a valid consideration, which is not disputed. That Porterfield, in consideration of moneys loaned him from time to time by Susan Porterfield prior to June 11, 1902, had repeatedly promised to execute a deed of trust on Cassilis to secure her the payment of the same, and that there was no fraud in the transaction leading up to the execution of the deed of trust of June 11th, 1902. That on August 30, 1902, Eugene Baker instituted a suit in the circuit court of Jefferson county, West Virginia, to set aside and avoid said deed of trust of June 11, 1902, upon the ground that the making of the same was a preference under the provisions of section 2, c. 74, of the Code of West Virginia. There are other creditors involved in the controversy, who have filed petitions in the cause, who set up the same contention as made by the representative of Eugene Baker. All of the property, both real and personal, to which the bankrupt was entitled at the date of the adjudication, came into possession of the trustees in bankruptcy, and was by them sold without objection on the part of creditors. The representatives of Baker claimed there was due them from Porterfield the sum of $611.47, taxes due on the farm Cassilis and on his personal property, and that the lien of Susan E. Porterfield created by the deed of trust of June 11, 1902, should not be audited in her favor by the referee. Pleadings were made up on both contentions, testimony taken and submitted, arguments by counsel, and all matters were submitted to the referee, who decided: First, That Porterfield had paid the amount of taxes claimed from him. Second, That the lien in favor of Susan E. Porterfield was a valid one, and as such should be audited in her favor, which was accordingly done.

From this decision of the referee a review was asked and obtained, and at the October term, 1904, of the United States District Court for the Northern District of West Virginia, his honor John J. Jackson, judge of said court, heard the cause, and upon consideration thereof ordered the same to be committed to the referee for such further proceedings as was set out in the order then made, all of which appear in the record of the cause. The referee again heard the cause on the original and amended pleadings and evidence and argument of counsel. The order made in the cause by the honorable District Judge on the 28th day of October, 1904, directed the referee to 'report specifically the facts in regard to the payment of the taxes of Porterfield. ' The cause now presents itself to the referee for decision upon the two points raised by counsel for the creditors: (1) Had Porterfield paid the taxes when the creditors sought to charge him with their payment before the referee? (2) Was the lien created in favor of Susan E. Porterfield by the deed of trust of June 11, 1902, a valid one, which she was entitled to have audited in her favor by the referee?

In answer to the first proposition it seems that it must be answered by the facts disclosed from the testimony in the cause, and in following the order of the honorable judge of the District Court the 'facts specifically' bearing on that point raised must be given prominence. The only testimony in the cause was that of Porterfield, the bankrupt. At page 2 in the summary of his evidence in the record, upon the point of the payment of the taxes in money, the following language will be found: 'The tax bills had been taken from the taxbooks of Porterfield, and were in his pocketbook, and in his possession. Did not know just what amount of uncollected tax bills remained in said taxbook. Does not know how much he was indebted to High Sheriff Baker, if anything. Always thought he had sufficient uncollected tax bills, when credited with commissions, etc., to square himself with High Sheriff Baker. Always regarded his individual taxes which he had in his hands for collection paid to High Sheriff Baker. Says he paid them as he did other taxes-- just in money. Took from the taxbooks in his possession and custody the tax bills on his individual property from time to time. ' These extracts from Porterfield's testimony, standing, as it seems, uncontradicted, prove that he paid these taxes in money. He was the deputy sheriff, and the legal custodian of the taxbooks for Charles Town district. His own tax bills, along with others, were in these books, and he had a perfect right to extract them and cancel them in the same way as he would do in other cases. It was insisted in argument that, being largely in arrear with Baker in settling the taxes for Charles Town district, that any moneys that he might have paid to Baker or his agents should have been applied first to the settlement of the shortage. In a settlement with Porterfield, Baker might perhaps require this; but there is no evidence on that point, and it seems immaterial what the relation of debtor and creditor may have been between Porterfield and Baker, if it can be shown that Porterfield paid in money one particular debt it seems he is absolved from further liability for it. He swears that he paid his individual taxes in money, and that he took them from the taxbooks. This evidence seems conclusive of the payment of these taxes in money.

On the second point; It is not denied that the deed of trust of June 11, 1902, in favor of Susan E. Porterfield, was fairly entered into between the parties thereto, and that there was no fraud in its procurement, and that it was executed four months prior to the adjudication of Porterfield as a bankrupt, or that the consideration was valid. It is admitted that it was executed in furtherance of repeated promises on the part of Porterfield to do so to secure the sum of moneys which he had at times prior thereto borrowed from her. But it is insisted by the creditors of Geo. Porterfield that the making of said deed of trust was a preference, which was void under the provisions of section 2 of chapter 74 of the Code of West Virginia of 1899. It was also insisted by counsel for creditors that, inasmuch as the suit on the part of Eugene Baker v. Porterfield et al. had been commenced in the circuit court of Jefferson county to test the questions involved growing out of the making of said deed of trust, that the bankruptcy court should stay further proceedings, and permit the state court to determine all questions affecting said deed of trust. This latter proposition seems entirely without merit. The court of bankruptcy had attained jurisdiction over the property and effects of the bankrupt. His property had passed into the possession of the trustees of the bankruptcy court. It had been sold at public sale by the trustees without objection on the part of creditors, and there was no other forum in which questions concerning it could be determined, or through the medium of which the funds could be distributed and the estate settled up. The fact that the suit of Baker v. Porterfield et al. having been commenced in the state court prior to the adjudication of Porterfield a bankrupt in no sense affects the jurisdiction of the bankruptcy court, for the law is now well settled that suits in the state courts begun before the adjudication in bankruptcy must be stayed after adjudication, though the property of the bankrupt may be in custody of the state court through a receiver, and that on adjudication the state court must order its receiver to turn over the property of the bankrupt held by him to the trustees in bankruptcy. See Hanson v. Stephens et al. (Ga.) 42 S.E. 1028. All questions relating to the estate of the bankrupt must be determined in a court of bankruptcy. In re Mertens, 12 Am.Bankr.R. 709, 131 F. 515. 'An action concerning the same will not be permitted to proceed further in the state courts. ' See Mueller v. Nugent, 184 U.S. 1, 22 Sup.Ct. 269, 46 L.Ed. 405; Bank v. Sherman, 101 U.S. 407, 25 L.Ed. 866. 'A referee in bankruptcy has jurisdiction in the first instance to determine the questions of the validity of the claim of a third party to a lien upon or an interest in property or the proceeds of property lawfully in the custody of the trustee in bankruptcy. ' In re Rochford, 124 F. 182, ...