Moore v. Green

• Decision Date: 01 May 1906
• Docket Number: 615.
• Citation: 145 F. 472
• Parties: MOORE v. GREEN et al.
• Court: U.S. Court of Appeals — Fourth Circuit

145 F. 472

MOORE v. GREEN et al.

No. 615.

United States Court of Appeals, Fourth Circuit.

May 1, 1906

James M. Mason, Jr., for petitioner.

Forest W. Brown and A. W. McDonald (brown, McDonald & Beckwith, on the briefs), for respondents.

Before PRITCHARD, Circuit Judge, and WADDILL and KELLER, d KELLER District judges.

WADDILL District Judge.

On the 10th day of November, 1902, George Porterfield, a farmer filed his voluntary petition in bankruptcy in the District Court, and was on the 12th day of November, 1902 duly adjudged bankrupt. Prior thereto, to wit, on the 11th day of June, 1902, he executed a trust deed upon his real estate to secure a debt of $12,500 in which his wife, Susan E. Porterfield, joined, and on the 13th day of the same month he executed a second trust deed to secure a debt of $4,976.73 to his said wife, being the aggregate of sundry loans made by her to him from time to time since the year 1884, and interest. On the 11th and 13th days of June, 1902, the said George Porterfield was insolvent, though his wife did not know, or have reasonable cause to believe, the existence of such condition. That the trust deed in favor of said Susan E Porterfield was made pursuant to promises from time to time given her to secure her debt, and upon the express agreement and as the consideration for the release of her dower by joining in the deed to secure the $12,500; she having on a previous occasion waived her dower upon a like understanding to secure$2,500 on the property, which debt, however, was paid out of the proceeds of t he $12,500 loan; the purpose of said latter negotiation being to extinguish all prior liens upon the property, amounting to some $5,000, and for the payment o f other obligations, including an indebtedness to the state of West Virginia. The District Court proceeded with the bankruptcy case, and possessed itself of the estate of the bankrupt, consisting of the farm known as 'Cassilis,' mortgaged as aforesaid, which was subsequently sold in said proceedings, and the proceeds arising therefrom, amounting to $19,420.50, brought into court. An account of the bankrupt's liabilities was regularly taken, showing an indebtedness of $44,264.25, of which $25,766.20 was unsecured. After the execution of the deed of the 13th day of June, 1902, in favor of Mrs. Porterfield, to wit, on the 30th day of August, 1902, G. D. Moore, trustee under a certain deed of assignment from Eugene Baker, deceased, a creditor of said bankrupt for some $3,700, duly filed his bill in equity in the Circuit Court of Jefferson County, W. Va., ass ailing the deed to secure Mrs. Porterfield, because under section 2 of chapter 74 of the Code of West Virginia of 1899 it constituted a preference, and inured to the benefit of all creditors when so assailed within the period specified i n said statute.

Section 2, so far as applicable, is as follows:

'Every transfer or charge made by an insolvent debtor attempting to prefer any creditor of such insolvent debtor, or to secure such a creditor, or any surety or indorser for a debt to the exclusion or prejudice of any other creditor, shall be void as to such preference or security, but shall be taken to be for the benefit of all creditors of such debtor, and all the property so attempted to be transferred or charged shall be applied and paid pro rata upon all the debts owed by such debtor by such debtor at the time such transfer or charge is made; provided, that any such transfer or charge by an insolvent debtor shall be valid as to such preference or priority unless a creditor of such an insolvent debtor shall institute a suit in chancery within one year after such transfer or charge was made, to set aside and avoid the same and cause the property so transferred or charged to be applied toward the payment pro rata of all the debts of such insolvent debtor existing at the time such transfer or charge is made, subject, however, to the provision hereinafter contained with reference to creditors uniting in such suit and contributing to the expenses thereof. But if such transfer or charge be admitted to record within eight months after it is made, then such suit to be availing must be brought within four months after such transfer or charge was admitted to record. Every such shall be deemed to be brought in behalf of the plaintiff and all other creditors of such insolvent debtor, but the creditor instituting such suit or proceeding, together with all creditors of such insolvent debtor, who shall come into the suit and unite with the plaintiff before final decree and agree to contribute to the costs and expenses of said suit, shall be entitled to have their claims first paid in full pro rata out of the property so transferred or charged, in preference to any creditor of such debtor who shall before final decree decline or fail to so unite, and agree to contribute to the cost and expenses of said suit, but not in preference to such creditor as may attempt to sustain the preference given him by such transfer or charge; provided further, that nothing in this section shall be taken to prevent the making of a preference as security for the payment of purchase money, or a bona fide loan of money, or other bona fide debt contracted at the time such transfer or charge was made or as security for one who at the time of such transfer or charge becomes an endorser or surety for the payment of money then borrowed. * * * '

During the pendency of this suit, other creditors having tendered their petitions, therein, the bankruptcy proceedings were inaugurated as aforesaid.

A preliminary question has been presented by the respondent's motion to dismiss the proceedings, because the application to this court 'to superintend and revise in matter of law' the action of the lower court is not the proper remedy to secure the relief asked by the petitioner. A careful consideration of this subject has been had by this court at its present term in Re Augusta Pottery Co. (Morgan v. First Nat. Bank of Mannington et al.) 145 F. 466, and for the reasons there given, which need not be added to here, the motion to dismiss should be overruled.

The real controversy in this case turns upon what was the effect of the institution and pendency of such suit in equity in the state court, how far the same affected the debt secured in favor of Mrs. Porterfield under the deed assailed, and to what extent the suit inured to the benefit of creditors other than the plaintiff and.petitioners therein at the time of the bankruptcy. The bankruptcy proceedings having been commenced more than four months after the execution of the deed of the 13th day of June, 1902, in favor of Mrs. Porterfield, the deed was unaffected thereby, unless as the result of said suit in the state court. The referee and the District Court were both of opinion that the institution of such suit became inoperative to affect said deed, since the bankruptcy proceeding was not inaugurated within the four months period provided by the bankrupt act after the execution of the deed, and each accordingly held the deed securing the debt to Mrs. Porterfield a valid preference, to be paid in the distribution of the estate next after the $12,500 debt secured on the 10th day of June; and it is as to the correctness of these conclusions that we are to decide.

Two questions are presented at the threshold: What was the proper course for the District Court to pursue in dealing with the case before it, so far as the litigation pending in the state court was concerned? and,$ secondly, what was the legal effect of the proceeding in the state court? These questions we will consider in inverse order.

First. The proceeding in the state court was one instituted under the statute of West Virginia, which enabled a creditor of an insolvent debtor to apply to a court of equity to vacate a preference in favor of a particular creditor, and have the conveyance declared to be for the benefit of all creditors properly joining in such suit. This suit was regularly instituted by the petitioner here, the holder of an unsecured debt of some $3,700, and the same under said statute clearly inured to the benefit of himself and all other creditors authorized thereunder to intervene in the suit; and such rights could not, and should not, be destroyed by the subsequent act of the grantor in the trust deed in favor of his wife voluntarily waiting beyond the four-month period, and then availing himself of the benefit of the bankruptcy act. Certainly such a result ought not be brought about unless the interpretation of the bankruptcy law imperatively requires it. Until the husband chose to go into bankruptcy, his creditors had no right under the bankrupt law to require him so to do, he being a person 'engaged chiefly in farming or tillage of the soil,' and they had to look to the state law alone to ascertain their status respecting his property by assailing the deed made in favor of his wife, which they did. They could not anticipate that he would subsequently go into bankruptcy. Having thus availed themselves of the remedy prescribed by the state statute to enforce a right secured to them consequent upon the grantor's act while insolvent-- to wit, the conveyance of his property to give a preference-- upon instituting such proceedings in the state court they thereby became lienors and secured creditors, pursuant to said statute, under the deed of conveyance thus executed by the bankrupt, which conveyance the law declared upon the institution of the suit inured to the benefit alike of the secured creditor in the deed and his other creditors properly joining therein. The true intent, spirit, and meaning of the bankrupt act of July 1, 1898, c. 541, 30 Stat. 544 (U.S. Comp. St. 1901, p. 3418), after...