Case ID: ohio-cc-ns_2/html/0420-01.html
Source: Caselaw Access Project
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Date Created: 2024-08-24T03:29:51.129683

PRIORITY OF LIENS — FOREIGN DEEDS OF ASSIGNMENT.
    [Circuit Court of Monroe County.]
    The Keystone Bank of Pittsburgh v. Union Oil Company et al.
    Decided, April Term, 1903.
    
      Lien of a Foreign Deed of Assignment Prior to an Unrecorded Transfer of Interest in Oil Leasehold — Power of Majority of Stockholders of Corporation to Make Deed of Assignment — Distribution of Fund in What Forum.
    
    1. A deed of assignment duly executed under the laws of the state of Pennsylvania by a corporation of that state, conveying all its real and personal property to a trustee for the benefit of all its creditors and duly recorded in this state, is a prior lien upon the working interest of the corporation in oil wells, property, and production, situated upon and arising out of an oil leasehold within this state, to that of prior transfer made in writing by the corporation to parties within that state to secure an existing indebtedness of the grantor and not left for record until after the record of the deed of assignment; the creditor holding such transfer not being in the actual and open possession of such leasehold at the time of the execution and recording of such deed of assignment.
    2. The stockholders of an insolvent corporation at a meeting regularly called for that purpose, may authorize and direct the transfer of all its property to a trustee for the benefit of all its creditors, when at such meeting a large majority of its stock is represented; and an assignment made in pursuance of such authority and direction will be upheld, the minority stockholders having full opportunity to do so, making no objection thereto.
    3. In an action for the sale of property situated within this state, conveyed by a deed of assignment for the benefit of creditors made in a foreign state, for the marshalling of liens, and for the distribution of the proceeds of sale, in which action the assignee is a party and a receiver is appointed who makes sale of the property, the fund arising from such sale will not be delivered to the assignee appointed in the foreign state, but the receiver will be directed to disburse the same.
    Cook, J.; Laubie, J., and Burrows, J., concur.
    Appeal from Common Pleas Court of Monroe County.
   Tbe plaintiff, The Keystone Bank of Pittsburgh, is a corporation located at Pittsburgh, state of Pennsylvania, and the defendant, The Union Oil Company, is a corporation with its principal office in the same city.

The Union Oil Company was the owner of an oil and gas lease upon the premises of J. W. Martin, situated in Washington township, this county, and had drilled and was operating a number of oil wells upon such leasehold. Its working interest was three-fourths of the oil, Martin receiving the other one-fourth as royalty.

On August 27, 1900, the oil company had become indebted to the Keystone Bank for money loaned it, in drilling and running its wells, in the sum of $15,000 — twenty-five hundred dollars of said amount being advanced on that date; and it was then agreed between the bank and the oil company, that its line of credit should be further extended to the sum of $20,000, the oil company to transfer to it as security its interest in the leasehold premises, the following memorandum of agreement being entered into:

“Pittsburgh, Pennsylvania, August 27th, 1900.
“To the Buckeye Pipe Line Company, Macksburg Division.
“We have this day sold 3-4 W. I. Wells Nos. 1 and up on J. W. Martin farm, Washington township, Monroe county, state of Ohio, as below:
“3-4 interest Keystone Bank No. 13 account, Pittsburgh, Pa. You will therefore transfer their credit on your books. Pipe Line Tanks Nos. 10227-10228.
“Union Oil Company,
“S. B. Forst, President.
“The assignee above named hereby certifies and agrees that it is the legal owner of the well interest above transferred, and authorize the Buckeye Pipe Line Company, until further notice, to receive oil for transportation and storage pursuant to above transfer. * * *
“Keystone Bank,
“W. H. Nimick, Vice-President.”

On the 17th day of October, 1900, The Union Oil Company having become insolvent, at Pittsburgh, Pennsylvania, made a general deed of assignment to Morris Forst, its vice-president and secretary, of all its property for the benefit of all its creditors. This deed of assignment was duly executed under all the formalities necessary in the state of Pennsylvania to convey real or personal property; it was delivered to the trustee, Morris Forst, and by him left for record with the recorder of this county on the 20th of October, 1900, and was duly recorded in the record of deeds in his office. This deed is in the ordinary form of deeds of assignment generally used in this state, and provides that the trustee shall reduce all the property to money, and after payment of costs and expenses, divide the residue equally among all the creditors of the oil company.

After the execution and record of the deed of assignment, the trustee, Morris Forst, was removed by the Common Pleas Court of Allegheny County, Pennsylvania, for his failure to give bond as required by the laws of that state, and The Equitable Trust Company of Pittsburgh was appointed in his place.

The evidence, we think, clearly shows that no possession was taken by the Keystone Bank of the property in this county. Morris Frost still continued to operate the property after the execution of the memorandum of agreement, as he had done before, and he testifies that after he was appointed trustee in the deed of assignment, he held the property as such trustee until it was turned over to his successor, The Equiable Trust Company, and there is nothing to contradict his testimony.

On June 6, 1901, the Keystone Bank left the memorandum of agreement transferring the leasehold interest of The Union Oil Company to it with the recorder of this county, when it was duly recorded by such recorder, and the bank immediately commenced this action in the common pleas court of this county against The Union Oil Company, The Equitable Trust Company, as assignee of The Union Oil Company, and others, for the purpose of determining the rights of the parties in the property in controversy. In this action a receiver was appointed, and by consent of all parties the property was sold; the money brought into the common pleas court, and the question that is made is as to the manner of its distribution.

The claim of the Keysone Bank is, that the transfer to it by The Union Oil Company by the memorandum of agreement, created an equitable lien upon the property, and further, that The Equitable Trust Company as assignee holds the property under the insolvent layra of the state of Pennsylvania primarily for the benefit of the assignor, and therefore it is estopped from setting up any claim against the equity of the bank, or at least under these circumstances, the equity of the bank is preferable and prior to the equity of the trust company as such assignee.

Many authorities have been referred to in the exhaustive arguments and briefs of counsel for plaintiff, for the purpose of demonstrating that under the law of Pennsylvania the memorandum of agreement between the bank and oil company created an equity in favor of the plaintiff, that it was an equitable assignment of the property from the oil company to the bank; but the question to be determined, as we view it is, not what the law of Pennsylvania makes it, but what is its legal effect under the laws of the state of Ohio. The property is situated in this state, and under our law oil and gas are a part of the realty, and special provision has been made by statute for the manner of its sale and transfer by deed or lease.

This agreement on its face purports to be, and the transaction shows, that it was a transfer of the leasehold estate of the oil company to the bank, for the purpose of securing it for money already advanced and to be advanced.- It says, “We have this day sold three-fourths working interest, wells number one and up on J. W. Martin farm, Washington township, Monroe county, state of Ohio.” In the amended petition filed by the bank and upon which petition the case was- tried it avers: ‘ ‘ That in the execution and delivery of the transfer, plaintiff and the said Union Oil Company believed that the same was a sufficient transfer to plaintiff of said wells, property and production, and vested in plaintiff a good and indefeasable title thereto; that it was then the intention of the said Union Oil Company to transfer to plaintiff by said written agreement, all its right, title and interest in said property to be held by plaintiff as security for said loan of $15,000, and accepted the written agreement aforesaid.”

Section 4112a of Revised Statutes provides:

“That all leases and licenses and assignments thereof, or of any interest therein heretofore executed, given or made for, upon or concerning any lands or tenements in this state whereby any right is given or granted to operate, or to sink or drill wells thereon for natural gas and petroleum, or either or pertaining thereto, shall be recorded in the lease record in the office of the recorder of the proper county by the first day of September, 1888, and all such leases, licenses, and assignments hereafter executed given or made shall be filed for record as aforesaid forthwith, and recorded in said lease record without delay, and shall not be removed until recorded, and no such lease or license hereafter executed or given, or unless the person claiming thereunder is in actual and open possession, shall have any force or validity until the same is filed for record as aforesaid except as between the parties thereto. ’ ’

The remainder of the section provides for actions to cancel oil and gas leases and licenses, and provides that no person shall be necessary parties to such action or to any action involving the same except such as are shown by the lease record to have an interest in the lease, or license, or such as are in the actual and open possession of the premises.

We think this section is controlling as to the legal effect to be given to the agreement between the plaintiff bank and the defendant oil company, and that this agreement had no effect whatever as to third parties until it was filed for record with the recorder of this county.

But if we were in error about the agreement between the parties being controlled by this section of the statute, certainly it would be controlled by the provisions of the statute of this state respecting mortgages of real estate and personal property, as the transfer was made as a security, and therefore, under the decision of our Supreme Court, would be a mortgage, and being a mortgage would have no validity until it was duly executed and left for record with the proper officer. Van Thorniley v. Peters et al, 26 O. S., 471, and eases therein cited.

This brings us to the consideration of the question as to the legal effect of the deed of assignment made by The Union Oil Company to Morris Forst.

A large amount of evidence has been introduced for the purpose of showing what the law of the state of Pennsylvania is respecting deeds of assignment under the insolvent laws of that state, and the evidence shows from the decisions of the supreme and other courts and the testimony of competent attorneys learned in the law, that under the insolvent laws of that state the assignee primarily represents the assignor; indeed stands in the place and stead of the assignor, and it is contended with much force that therefore the assignee can not contest the claim of the plaintiff, and that under Section 4112a the assignee comes under the exception, “except as between the parties thereto.”

As we view the case it is a matter of no importance what the law of Pennsylvania is respecting the mode of administering insolvent estates under deeds of assignment for the benefit of creditors. Our courts take no cognizance of the insolvent laws of other states in administering assignments. Assignments made within our own jurisdiction are only administered by our own courts as courts of insolvency. Johnson v. Sharp, 31st Ohio State Rep., 611, and cases therein cited.

At the same time such deeds will be given full force and effect when properly executed, and, when necessary, recorded in accordance with our registry laws, as conveyance of property, and a court of equity in this state will enforce the trust created in the deed when the same is not in conflict with the law and policy of the state as to distribution of the property. Johnson v. Sharp, supra; Pendleton v. Galloway and others, 9 Ohio Rep., 178; Wright et al v. Franklin Bank et al, 59 O. S. Rep., 80.

Under our law such deeds are ordinary deeds in fee simple to a trustee upon an express trust, and as to property situated in this state will be treated and enforced as such in accordance with the laws of this state. Cases supra.

The case of Wright et al v. Franklin Bank et al, supra, is very much like the case under consideration. T. B. Youtsey, of Newport, Kentucky, assigned and transferred his interest in the Hyde Park Syndicate property in Hamilton county, Ohio, to James C. Wright to secure the payment of certain promissory notes. The transfer was made by a simple memorandum to that effect signed by him and of date January 16, 1895. It was neither acknowledged nor recorded. January 21, 1897, T. B. Youtsey, still being a resident of Newport, Kentucky, executed a deed of assignment for the benefit of his creditors to C. N. Nagle of same city. This deed of assignment was left for record with the recorder of Hamilton county, Ohio, January 22, 1897, and duly recorded, and the controversy was between Wright and Nagle, assignee, as to who held the prior lien and claim upon the interest of Youtsey in the Hyde Park Syndicate property.

In deciding the case the court conceded that the body of the writing of January 16, 1895, signed by Youtsey, was sufficient in form to create a lien upon his interest in the syndicate property in favor of Wright, but the court says on page 93 “that the statutes of this state require all instruments in the nature of a mortgage, either legal or equitable, to be signed, acknowledged, witnessed and recorded; and until so signed, acknowledged, witnessed and delivered for record, the same are without effect as .to third persons.”

And then on page 95 as to the deed of assignment:

“The deed of assignment was executed and delivered in the state of Kentucky, where all the parties resided, and' conveyed property in Hamilton county in this state. Such a deed could not be filed with the probate judge and take effect from the time of its delivery to him as required by Section 6335, Revised Statutes. The deed in this ease was in due form and took effect from the time of its delivery to the assignee. Johnson v. Sharp, 31 O. S., 611.”

The court then finds that the Circuit Court was right in holding and adjudging that Nagle, assignee, had the superior lien.

Another question is made, and that is, that the deed of assignment is not a legal one. This claim is based upon the fact that all the stockholders were not present either in person or by proxy at the meeting at which the deed of assignment was directed to be executed. It is true that the deed purports to convey all the property of every character and description of which the Union Oil Company was possessed, and that as a general rule all the property of a corporation can only be conveyed by the assent of all the stockholders. But there are exceptions to this rule.

In the 7th volume of the American & English Encyclopedia, page 735, it is said:

“Some courts hold that a majority of the stockholders of a strictly private corporation may thus sell and convey all of its property even against the dissent of the minority, when the exigencies of its business renders it necessary or expedient to do so.”

The text is supported by a number of eases from different states, especially from Massachusetts.

The business of The Union Oil Company had failed and it had become insolvent. Under such circumstances the corporation should hold its property for the benefit of all its creditors; justice required it should do so. It did only what a court of equity would have compelled it to do upon proper application— distribute its property equally. Furthermore there were but thirty-five shares of stock out of five hundred that were not represented at the meeting. The holders of these thirty-five shares never have objected and are not now objecting to the execution of the deed, although they have had ample opportunity to do so. No one connected with the corporation is objecting; the objection alone comes from the plaintiff who claims the prior lien against the general creditors, who are numerous. Every intendment should be in favor of the validity of the deed, which makes an equal distribution of the property. We are not informed as to what the law of the state of Pennsylvania is respecting the transfer of property by a corporation, and therefore we are at liberty to apply the law of our own state, and we do not think that the law of this state requires, under all circumstances, all the stockholders of a corporation to consent before it can convey all its property. Stetson v. Bank of New Orleans, 12 O. S., 577; Wiswell v. The First Congregational Church, 14 O. S., 31; Rolling Stock Company v. Railroad Company, 34 O. S., 450; Revised Statutes, 5651, etc.

One other question is made, and that is, who should control the fund? The Equitable Trust Company situated at Pittsburgh, Pennsylvania, the assignee appointed by the court of that state, insists that it should be turned over to it, while the receiver appointed by the common pleas court of this county, as well as a number of creditors of the oil compay from this state and also of Pennsylvania, insist that the receiver should control and disburse it, as it will be attended by much less expense. We see no reason to remove the fund from our own courts. It is doubtful if The Equitable Trust Company has any standing in the ease; as we have seen the deed has no effect under the insolvent laws of Pennsylvania. Probably a trustee should have been appointed by the lower court in this action. AVaiving that, it has no legal, right to remove the fund to another jurisdiction; but as it has been to expense in the litigation it should be reimbursed out of the fund for all such expenses, including reasonable counsel fees.

Mattery & Sears, for plaintiff.

Hamilton & Mats, Lynch & Moore and Boyce, for defendants.

It is ordered and adjudged that the receiver—

First. Pay the costs of the action, including expenses and reasonable counsel fees, to The Equitable Trust Company.

Second. He pay the mechanics’ liens, which are conceded to be a prior lien.

Third. He disti’ibute the residue of the fund to the creditors generally of The Union Oil Company, including the claim of the Keystone Bank, and if there is any surplus after paying the creditors, it be paid over to the Union Oil Company.

Cause is remanded to common pleas court for execution,

If there is any difficulty in arriving at the amounts to be paid each party, which is hardly probable, that court can determine the question.