Case ID: ohio-st_7/html/0324-01.html
Source: Caselaw Access Project
Author: {"author": "Scott, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

William Bagaley & Co. v. Asa B. Waters and others.
    A. W., in contemplation of insolvency, and with the design to prefer a portion of his creditors to the exclusion of others, by written agreement sold and transferred to I. W. a stock of goods, together with notes and book-accounts, and also conveyed by deed certain real estate, amounting in the aggregate to about $30,000 in value, being the principal portion of the property owned by A. W.; in 'consideration whereof the said I. W. agreed to assume and pay off a number of debts owing by A. W. to sundry creditors, and upon which I. W. stood bound as surety for A. W., amounting in the aggregate to over $20,000, and also to assume and pay in full the specified claims of certain other creditors. Upon petition of the other creditors not provided for by the arrangement, seeking to charge I. W. as a trustee for the. benefit of all the creditors of A. W., under the act of March 14, 1853: Meld, that there being no allegation of any secret trust in the case, such absolute sale does not, per se, come within the operation of the statute.
    Demurrer to petition.
    Reserved from Washington county.
    On the 18th of March, 1854, Asa B. Waters„and Israel R. Waters-entered into a written contract, of which the material provisions are as follows:
    “That in consideration of the promise and undertaking of said Israel R. Waters, hereinafter stated, the said Asa B. Waters hereby sells to said Israel R. Waters the following-described ^personal property and claims, to wit.” Then follows a description of the property and claims, consisting of a large amount of cooper-stuff, a. store of goods, horses, wagons, harness, book-accounts, notes, railroad stock, etc., etc.
    “And the said Asa B. Waters, for said consideration, hereby sells, and agrees by a proper deed to convoy to said Israel R. Waters, city lot No. 705, in Marietta, Ohio, and all thereto appertaining.”
    The property thus transferred was worth about thirty thousand dollars, and was the principal portion of the property owned by Asa B. Waters.
    “ And the said Israel R. Waters, in consideration of said sale of the"’ above-mentioned property to him, hereby agrees to assume and pay, and does hereby assume the payment of the following debts, for the payment of which said Asa is now liable, to wit.” Then follows a specific description of the liabilities referred to, being certain debts of said Asa, amounting to over twenty thousand dollars, for which, said Israel and other persons were then liable as sureties of said Asa; and also certain other debts of said Asa, for which Israel was not liable.
    “And the said Asa B. Waters agrees that payment for said property, hereby sold as above stated to said Israel R. Waters, shall be made by said Israel as above stated, viz., by his hereby assuming the payment of the debts and liabilities above stated.”
    William Bagaley & Co., creditors of Asa B. Waters, but not among those whom Israel was to pay, on behalf of themselves and other creditors of said Asa, likewise unprovided for, filed a petition,against said Asa, Israel, and the preferred creditors, setting out said contract, and alleging, among other things, that said transfer of property to Israel was made by Asa in contemplation of insolvency, and with a design to prefer a portion of his creditors to the exclusion of others, and seeking to charge Israel as a trustee for the benefit of .all of Asa’s creditors, under the act of March 14, 1853, “ declaring the effect of assignments to trustees in contemplation of insolvency.”
    There is no trust expressed in the contract between Asa and Israel. The petition does not aver any secret trust.
    *The defendant creditors demurred to the petition. And the question thereby raised, to wit, whether said contract is an assignment to a trustee” under said act of' March 14, 1853, was reserved in the district court for decision here.
    
      Arius Nye and S. F. Vinton, for defendants.
    
      A. G. Thurman, for Israel R. Waters,
    presented the following points:
    I. The statute does not prohibit, or interfere with, an absolute sale of property by an insolvent debtor. Hull v. Jeffrey, 8 Ohio, 390, 391; Wilcox v. Kellogg, 11 Ohio, 394, 398, 399 ; Atkinson v. Tomlinson, 1 Ohio St. 237, 242, 243 ; Harkrader v. Leiby, 4 Ohio St. 609 ; Dickson v. Rawson, 5 Ohio St. 222. .
    II. It is no objection to such a sale, that the consideration thereof is an undertaking by the vendee to pay debts of the vendor.
    III. The statute does not prohibit the preferring of creditors, unless the preference be by an assignment in trust. A debtor may lawfully prefer: 1, by payment; 2, by confession of judgment; 3, by mortgage or pledge; 4, by an absolute sale upon the consideration that the vendee pay certain debts. See cases, supra.
    
    
      IY. The conveyance in question is an absolute sale, and not an assignment in trust.
    1. It purports to be an absolute sale, and no trust is expressed in it.
    2. No interest, legal or equitable, in the property, is created in any person but the vendee.
    3. The vendee became the debtor of the persons whose claims he agreed to pay, for the full amount of their claims, irrespective of the value of the property or the amount of its proceeds. See cases-next cited.
    4. Those creditors became entitled to actions at law, in their own names, respectively, against the vendee, for the full amount of their respective claims. Crumbaugh v. Kugler, 3 Ohio St. 549; *Thompson v. Thompson, 4 Ohio St. 353; Cumberland v. Codrington,3 Johns. Ch. 254; Starkie v. Starkie, Styles, 296; Green v. Horn, Cumb. 219; Dutton v. Poole, 2 Levinz. 210; 1 Vent. 318; T. Raymond, 302; T. Jones, 102; Martin v. Hind, 2 Cowp. 443; Douglas, 146; Whorewood v. Shaw, Yelv. 25; Shaw v. Sherwood, Cro. Eliz. 729; Feltmaker v. Davis, 1 Bos. & Pul. 102; Schemerhorn v. Vanderheyden, 1 Johns. 139; 1 Chitty’s Pl. 4-6.
    5. But the trusts contemplated by the statute are such as are-cognizable by a court of equity alone.
    
    But here, the creditors could sue at law; and, indeed, could sue in no other forum. Hence, the case is not within the statute.
    (a.) The statute is identical in purpose with that of 1838 (Swan's Stat., old ed. 717). Indeed, it is identical in language, except so far as the phraseology is changed in order to make judicial proceedings under it conform to the code.
    But the act of 1838 spoke in express terms of the trusts being under the “ control of chancery.”
    
    The existing act means the same thing by the expression “ control of the courts.”
    For the code does not abolish the difference between law and equity, but only the forms of procedure. See Code Commissioners’ Report, 7, 8; Nash Pr. 3.
    (b.) The authorities support this view. Harkrader v. Leiby, 4 Ohio St. 613. See also Hill on Trustees (2 Am. ed.), Introductory chap. 49; 2 Fonblanque’s Eq. 1, note A; Cooper’s Eq. 27, title Jurisdiction; Story’s Eq., see. 29; Ib., sec. 534; Dickson v. Rawson, 5 Ohio St. 222.
    
      V. No ease decides that an instrument like that under consideration is an assignment in trust.
    The cases in which transfers have been held to fall within the-statute are the following: Mitchell v. Gazzam, 12 Ohio, 315; Doremus v. O’Harra, 1 Ohio St. 45; Bloom v. Noggle, 4 Ohio St. 45; Harkrader v. Leiby, Ib. 602; Dickson v. Rawson, 5 Ohio St. 218.
    VI. The statute ought not to be extended by construction beyond the fair import of its words; and this case can not be ♦brought within such fair import. Doremus v. O’Harra, 1 Ohio St. 49, 50; Atkinson v. Tomlinson, Ib. 240-242.
    
      G. B. Goddard, for plaintiff:
    The form of the instrument will not definitely determine its-character. Blank v. Germun, 5 Watts & Serg. 36; Brown v. Webb, 20 Ohio, 389. The cases are common in which absolute deeds have-been treated as mortgages.
    I claim that any of the creditors enumerated in the agreement between Asa and Israel Waters might immediately havo proceeded in equity against them and the fund, had a receiver appointed, or security given by Israel that he would apply the proceeds of the sale to the payment of the debts.
    The very nature of the transaction clothes him with a trust — a resulting trust; and the creditors had instantly a right to invoke the aid of a court of equity to take care of the property placed in the hands of the trustee as a means of enabling him to pay their debts.
    A court of equity would restrain the sale of the property on the application of any of the enumerated creditors upon an allegation of contemplated fraud and mismanagement by the trustee.
    The petition brings the case within the statute. It is not necessary that the petition should aver the conveyance to be a trust. The name is of little consequence if the thing is there. Courts construe an absolute deed to be a mortgage. It is still an absolute-deed, and is so called,-but its legal effect is that of a mortgage. So-courts deal with conditional sales — strip off the artificial covering, with which a loan of money is sought to be disguised, and create mortgages and trusts not intended by the parties.
   Scott, J.

The question reserved in this case is thus stated in the order of reservation: “ Whether the contract entered into bv Asa B. Waters, as set forth in the petition, is an assignment of property, within the meaning of the act of assembly, declaring the effeet of assignments to trustees in contemplation of *insolvency ?” This question necessarily arises upon the demurrer of the defendant creditors.

The statute of 1853, referred to in the order, is in these words:

“ That all assignments of property in trust which shall be made by debtors to trustees, in contemplation of insolvency, with the design to prefer one or more creditors, to the exclusion of others, shall be held to inure to the benefit of all the creditors, in proportion to their respective demands; and such trusts shall be subject to the control of the courts, which may require security of the trustees for the faithful execution of the trusts, or remove them and appoint others, as justice may require.”

The allegations of the petition being admitted by the demurrer, we must regard the transfer of property made by Asa B. Waters to I. R. Waters, as having been made by a debtor, in contemplation of insolvency, with the design to prefer a portion of his creditors to the exclusion of others. But this is not enough to bring the case within the operation of the statute.

It is true that equality is generally the rule of equity. But, however equitable it may seem, that the assets of a failing debtor should be distributed pro rata among his creditors, it would be impracticable to enforce such a distribution in all cases, without taking away the necessary security, and so destroying confidence in the business transactions of every department of trade. At all events, the statute contemplates no such purpose. So far as it operates, it places all the creditors upon an equal footing. But it does not seek to prevent a debtor from applying his property to the payment in full of the bona fide claims of one or more creditors, though nothing be left for the satisfaction of other claims equally meritorious. One creditor may be amply secured 'by a mortgage, though the debtor have no means from which to pay or secure others. But there is one mode, in which a debtor is not permitted, in contemplation of insolvency, to exercise this conceded right of preference.

The sole object of the statute is to prevent his effecting this purpose by an assignment in trust. And this it does, not by making such assignments void, but by declaring that they “ shall *be held to inure to the benefit of all the creditors, in proportion to their respective demands.”

In the case before us, it is not charged that the contract of sale set out in the petition, was merely colorable; no. secret trust is claimed to exist, nor any agreement touching the subject-matter, to have been made between the parties, other than the written contract. The question, then, is upon the proper construction and legal effect of this contract. Is it, though purporting on its face to be an absolute sale and conveyance of property, to be regarded, under the circumstances, as an assignment in trust, within the meaning of the statute ?

In Dickson et al. v. Rawson et al., 5 Ohio St. 218, it was well said by Chief Justice Eannoy: “ To bring the case within the operation of the statute, the conveyance must be in trust, and the person receiving the property thereby constituted a trustee for some one or more of the creditors of the debtor, to the exclusion of others. Whether it is so in trust, and the assignee or grantee such trustee, depends upon the question whether, by the terms of the instrument, or by necessary implication, ho is liable to account to the preferred creditor for the property in his hands, and for the manner in which he disposes of it. If a court of chancery, at the instance of the creditor, would compel him thus to account, the character of the transfer, and his own position, are thereby determined; and the statute then steps in and enlarges the trust, and makes it inure to the benefit of all the creditors, and distributes the fund to all, in proportion to their respective demands.”

The statute of 1853, now under consideration, is copied from the third section of the act of 1838 (1 Curwen, 424), and there is no good reason why the same construction should not be given in each of these acts, to the terms “ assignments of property in trust.” The act last referred to expressly declared the trusts therein spoken of, to be “subject to the control of chancery, as in other cases.” This provision is properly varied in the act of 1853, because the distinction between the forms of proceeding in chancery and at law was then abolished. But this does not change the character of the trusts referred to, which is expressed *in the same terms in both acts. They are trusts of which the jurisdiction and cognizance properly belong to courts of chancery.

Does, then, the written contract of the parties create a liability on the part of Israel E. Waters, to account to the preferred creditors,or either of them, for the property conveyed to him by Asa B. Waters, and for the manner in which he disposes of it? Would a court of chancery, at the instance of any or all of the preferred creditors, compel him thus to account?

The agreement purports, on its face, to be an absolute and unconditional sale of property, for which I. R. Waters, the vendee, agrees to pay to certain creditors of the vendor, the specified amounts in full, of their respective claims, forming in the aggregate a fixed and specified sum.

Now, in such a case, what remedy could a court of chancery afford to these prefei'red creditors, which they could not obtain at law ? An account could only become necessary for the purpose of ascertaining and fixing the extent of the vendee’s liability to them. But by the terms of the contract this liability is commensurate with their claims, which he has personally stipulated to pay in full. And that they could severally enforce this personal liability by actions at law, admits, we think, of no doubt. On this subject, the law is thus stated in 1 Chitty’s Pleadings, 5 : When a contract not under seal is made with. A to pay B a sum of money, B may maintain an action in his own name; but if the promise had been to pay A for the use of B, A is a trustee, and B, having no legal interest, can not sue.” In Starkie v. Starkie, Styles, 296, the case was this : “ The father gave goods to his son in consideration that, the son would pay the plaintiff twenty pounds.” Roll said : “ There is a promise in law made to the plaintiff, though there be not a promise in fact; there is a debt here, and assumpsit is good.”

The cases of Green v. Horn, Cumb. 219; Dutton v. Poole, 1 Vent. 318; Martin v. Hind, 2 Cowp. 443; and Whorewood v. Shaw, Yelv. 25; all affirm the same doctrine. So in Schemerhorn v. Vanderheyden, 1 Johns. 139, the court said: “ Where one person-makes a promise to another for *the benefit of a third person, that third person may maintain an action on such promise.”' And such is the settled law in this state. In Krumbaugh v. Kugler, 3 Ohio St. 549, the court say: “ If for a valuable consideration A promise B to pay C a sum of money, C may recover it, in an action of assumpsit against A.” And so in Thompson v. Thompson, 4 Ohio St. 353.

By the agreement in this case, then, the absolute legal relation of debtor and creditor was created between Israel R. Waters and each of the creditors whose claims he promised to pay; and upon his. failure to make payment, they might severally recover their judgments at law against him, and might, by execution, subject to the-satisfaction of those judgments, not only the property which passed to him by the contract, but all his other property not exempt from execution. This they could not do in chancery if he were a mero trustee. In that case, their equitable rights would be limited to 'the-property which passed to him by the assignment, or its proceeds.

The remedy of the creditors being thus full and perfect at law, to what end could they invoke the aid of a court of chancery?' If the contract were assailed on the ground of fraud, for gross inadequacy of consideration ; for a secret trust; for the insolvent or-irresponsible character of the vendee, or for a combination to prevent the bona fide application of the debtor’s property in payment of his debts ; and were it sought to set the sale aside on the ground of such fraud, there can be no doubt that, for such a purpose, a court of chancery would take jurisdiction. But this petition presents no such case; nor does the statute of which the plaintiffs here-claim the benefit, contemplate the setting aside of conveyances as fraudulent and void. Under its provisions, the transfer in this case, if found to be an assignment in trust, must be declared valid, but held to inure to the benefit of all the creditors; and such is the relief asked by the plaintiffs.

There are no stipulations in the contract which give to any of the creditors of the vendor, or reserve for himself any interest in the property transferred to the vendee. It purports to be an absolute sale, and it is not claimed to have been otherwise intended by *the parties. The amount and payment of the purchase money arc subjected to no conditions. The agreement applies the whole of it to the payment of the bona fide debts of the vendor; and that such payment has been accordingly made, in good faith, by the vendee, is not denied, but is, at least partially, admitted by the petition, and is fully set up in the answer of Israel R. Waters.

Does this sale become an assignment in trust, merely because of the preference given to creditors in the appropriation of the purchase money ? Had the price of the property been paid to the vendor, no one can doubt his legal right to have made such preference in its distribution. We do not see how the fact that the purchase money was paid, not directly to Asa B. Waters, but to his bona fide' creditors, at his instance, can convert that which would otherwise-have been an absolute sale into an assignment in trust.

Israel R. Waters was surety for his brother, Asa B., to the preferred creditors, in about nine-tenths of the whole price of the property sold. We think his right to secure himself by the purchase of property from his brother, by assuming the payment of those ■debts for which he thus stood bound as surety, can scarcely be questioned. 'The situation of the parties shows a reasonable motive for the transaction, consistent at least with legal honesty, and repels the suspicion'of fraud which might otherwise attach ; and the preference given by Asa B. Waters to creditors, in the distribution of the balance of the purchase money, being but a legal l’ight which he might exercise in any other mode than by an assignment in trust, will not authorize us to regard a tona fide sale as coming within the ■operation of the statute.

Without undertaking to review, in derail, the cases which have been held by our predecessors to fall within the statute, it may be safely said that none of them are similar to' the present case. In ■each of them that has not been overruled, the instrument which was held to be an assignment in trust gave to other creditors beside the assignees, or reversed for the assignor, an interest in the property transferred, or in its proceeds, and thus laid the foundation for chancery jurisdiction to compel an account. None of *themwas a case of absolute sale, in which the sum to be paid by the assignee was definitely fixed, without reference to the amount which he might realize from the property.

In each of them it will be found that the assignee held the property as mortgagee, or otherwise, in part at least, merely to secure •other creditors beside himself, or was to account for a residuum to the assignor. Such instruments might well be declared assignments in trust. But, in a case like the present, however much we •might desire to enforce equality of rights among creditors, we are ■not at liberty to accomplish this object by giving a construction to the statute which is wholly unwarranted by its terms.

The question reserved must, therefore, be answered in the negative.

Bartley, C. J., and .Swan, Brinkerhoee, and Sutliee, JJ., concurred.