Case ID: ohio-st_68/html/0389-01.html
Source: Caselaw Access Project
Author: {"author": "Burket, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The National Bank of Commerce et al. v. Gettinger.
    
      Creditor receiving payment from debtor — While debtor insolvent —Cannot be compelled to surrender such payment — Sections 6343 and 6344, Revised Statutes — Law of insolvency and preferences.
    
    A creditor who receives payment from his debtor while such, debtor is insolvent, and makes such payment in contemplation of insolvency, or with a design to prefer such creditor' to the exclusion of‘others, or with a design to hinder, delayer defraud creditors, cannot he compelled to surrender such, payment for the equal benefit of all creditors under Sections; 6343 and 6344, Revised Statutes, even though an assignment made by such debtor be filed within ninety days after such payment.
    (Decided May 19, 1903.)
    Error to the Circuit Court of Lucas county.
    On February 6, 1901, said Harris Gettinger filed his petition against The National Bank of Commerce, Arthur Klauser, Grant Benson, Charles B. Darling and Jay Benson, and afterward filed his amended petition as follows, omitting caption, signatures and verification:
    “Plaintiff' states that the defendant, The National Bank of Commerce, is a banking corporation organized under the laws of the United States and doing and earrying on a general banking business at No. 324 Madison street, in the city of Toledo, Lucas county, Ohio.
    “Plaintiff further states that on January 14, 1901, he recovered a judgment against the defendant Grant Benson in the city and justice courts of the city of Toledo and Port Lawrence township, Lucas county, Ohio, in the sum of one hundred twenty-three and 50-100 dollars ($123.50) and costs. That thereafter, to-wit: on January 17, 1901, transcript of said judgment was filed with the clerk of court of common pleas , of Lucas county, Ohio, and execution was issued thereon to the sheriff of Lucas county, Ohio. That said execution has been by said sheriff returned wholly unsatisfied.
    “Plaintiff further states that on or about January 8, 1901, the defendant, Grant Benson, was indebted to his codefendants herein, and other creditors, in a sum aggregating more than twenty-seven thousand dollars ($27,000). That on said date the defendant Grant Benson had no property of any name or nature subject to the payment of said indebtedness other than a stock of merchandise located at No. 310 Summit street in the city of Toledo, Lucas county, Ohio, of the value of not more than fifteen thousand dollars ($15,000). That on or about January 8, 1901, said defendant Grant Benson obtained a loan of twelve thousand dollars ($12,000), and to secure payment of same executed a chattel mortgage covering said stock of merchandise above referred to. That said stock of merchandise has now been sold and did not sell for enough_to satisfy said mortgage indebtedness, and that said Grant Benson now has no property of any nature to satisfy any portion of his indebtedness.
    “Plaintiff further states that on or about January 8, 1901, the defendants, The National Bank of Commerce, Arthur Klauser, Charles B. Darling and Jay Benson, were creditors of the defendant Grant Benson, and that on or about January 8, 1901, the said Grant Benson, in contemplation of insolvency, and with the intent and, design to prefer said The National Bank of Commerce, Arthur Klauser, Charles B. Darling and Jay Benson, to the exclusion in whole or in part of his other creditors, transferred and paid from said fund realized by execution of said chattel mortgage to said The National Bank of Commerce, the sum of five thousand dollars ($5,000) ; to Arthur Klauser the sum of five thousand dollars ($5,000) ; to Charles B. Darling the sum of fifteen hundred dollars ($1,500).; and to Jay Benson the sum of five hundred dollars ($500). That said payments so made by the defendant Grant Benson to his codefendants, The National Bank of Commerce, Arthur Klauser, Charles B. Darling and Jay Benson, were made in contemplation of insolvency . and with the design to prefer said creditors to the exclusion in whole or in part of the other creditors of the said Grant Benson, and with the further design to hinder and delay his other creditors in the collection of their demands, and to defraud the other creditors of the said Grant Benson.
    “Wherefore, your petitioner prays the court that said payments so made by the said Grant Benson to said The National Bank of Commerce, Arthur Klauser, Charles B. Darling and Jay Benson, be declared void as to the creditors of the said Grant Benson and that said transfers and payments so made be declared to be an assignment of all of the property of the said Grant Benson for the benefit of his creditors, and that said payments and transfers so made be declared to inure to the equal benefit of all of the creditors of the said Grant Benson, in proportion to the amount of their respective demands. That a trustee may be appointed to recover possession of said property and moneys so transferred and paid, and that the estate of the said Grant Benson be administered for the equal benefit of all of his creditors.”
    The defendants severally filed general demurrers to this amended petition, which were sustained by the court of common pleas, and, the plaintiff not desiring to plead further, the petition was dismissed at costs of plaintiff.
    The circuit court reversed the judgment, and remanded the cause for further proceedings. Thereupon the cause was brought to this court on error.
    
      Mr. Harvey Scribner; Mr. Wilber A. Owen and Messrs. Kohn & Northup, for plaintiffs in error.
    First — Does a cash payment of money by an insolvent debtor to a bona fide creditor who has no knowledge of such insolvency come within the provisions of Sections 6343 and 6344, Revised Statutes?
    Second — Assuming that such a payment is within said section, does the amended petition of the plaintiff below disclose facts sufficient to entitle him to take advantage of the provisions of those sections?
    The first question is purely one of construction of the statute, and is entirely new so far as this court is concerned, it having never been involved in any case except the one at bar.
    Prior to the act of February 23, 1835, 33 O. L., 13, Sec. 1, there was no legislation in Ohio on the subject of preferences given to creditors by insolvent debtors, and the common law rule that a debtor might prefer certain creditors over others was followed. This preference could he given either by. a transfer direct to the creditor or to a trustee for him, or might be contained in a general deed of assignment, so long as the debtor in giving the preference did not violate the statute of frauds, 29 O. L., 218, which made void all assignments of goods in trust for the use of the assignor, and all conveyances of every kind made with intent to defraud creditors of their debts.
    Before the statute of 1835 failing debtors attempted to assign their property in trust to prefer certain creditors and in the same instrument impose terms upon other creditors, such- as compelling all those who wished to participate in the division of the residue to execute releases of their claims within a certain stipulated time, or forfeit their rights to any part of the assets. Such attempts were declared to be in violation of the above provisions in the statute of frauds, and to amount virtually to an assignment in trust for the use of the assignor, as he was the party benefited, if the creditors did not choose to comply with the conditions of the assignment and execute the releases within the period named therein.
    In Atkinson et al. v. Jordan et al., 5 Ohio, 171, and Repplier et al. v. Orrich et al., 7 Ohio (pt. 2), 246, the court set such transactions aside at the suit of creditors, and held that the creditors suing, as a reward for their superior diligence, were entitled to a preference over other creditors: It was to declare the law on this subject and remedy this unequal distribution of a debtor’s property, so fraudulently-assigned, that the act of February 23, 1835, 33 O. L., 13, Sec. 1, was passed.
    This statute was held to apply only to cases where there was a fraudulent intent on the part of the debtor in giving .tbe preference, and did not prevent him from giving preferences in good faith, either by a direct assignment to the creditor or by a preference in the general assignment to a trustee. Hull v. Jeffrey et al., 8 Ohio, 390. In 1838,this act was amended. 36 O. L., 57, Sec. 3.
    It will be seen, that the act of 1838 was broader than the act of 1835 in that it included all assignments to trustees made in view of insolvency which preferred one or more creditors to the exclusion of others, the former act only applying to cases where the assignment was made with intent to defraud certain creditors.
    The purpose and extent of these enactments is clearly laid down in Hull v. Jeffrey, 8 Ohio, 391; Atkinson v. Jordan, 5 Ohio, 293; Repplier v. Orrich, 7 Ohio (pt. 2), 246; Stevenson v. Agry, 7 Ohio (pt. 2), 248. Hence the statute of 1835; the terms of which, as they appear, relate to fraudulent conveyances made to trustees only. It.does not affect conveyances made to a creditor nor a conveyance made without fraud. The statute of 1838 goes farther, and secures the equal distribution of all assignments made to trustees in view of insolvency.
    
    The next enactment on this subject was March 14, 1853, 51 O. L., 463. This statute differed from that of 1838 only in making the trusts therein contemplated “subject to the control of the courts” instead of “subject to the control of chancery.”
    In 1859 the above provisions were re-enacted as section 16 of “an act regulating the mode of administering assignments in trust for the benefit of creditors,” 56 O. L., 235, which later became Section 6343, Revised Statutes.
    It will be seen that there has been no change in the law governing preferences since the act of 1838 until the present law was enacted in 1898, 93 O. L., 290. During all this period frdm 1838 down to 1898 a failing debtor' might prefer one creditor over another by an assignment or conveyance of property to pay the debt or to secure it,^.provided that the sole object of the transaction was to pay or secure such creditor; but whenever the transaction went beyond what was necessary to secure such creditor, and undertook to protect other creditors or the debtor in any way, or was made to a third person in trust for the creditor, it was held to be an assignment in trust and within the provisions of the act of 1838. Brown v. Webb, 20 Ohio, 389; Fassett v. Traber, 20 Ohio, 545; Doremus et al. v. O’Harra et al., 1 Ohio St., 45; Atkinson et al. v. Tomlinson et al., 1 Ohio St., 237; Bloom et al. v. Noggle et al., 4 Ohio St., 46; Harkrader et al. v. Leiby et al., 4 Ohio St., 602; Cross v. Carstens, 49 Ohio St., 548; Pendery v. Allen, 50 Ohio St., 121; Gashe v. Young, 51 Ohio St., 376; Lee v. Hennick, 52 Ohio St., 177; Bonham, Assignee, v. Mersman, 45 Bull., 12.
    
      Messrs. Chittenden & Chittenden, for defendant in error.
    It is evident that it was the intention of our state legislature to greatly extend the scope and effect of the section relating to preferences made by insolvent debtors by amending Section 6343, Revised Statutes, as passed April 26, 1898 (93 O. L., 290). It followed closely upon the passage of the national bankruptcy act and expresses in positive language the apparent intention of the legislature to prevent any • insolvent debtor from preferring a creditor by means of any sale, conveyance, transfer, mortgage or assignment, whether made in trust or otherwise, or by suffering judgment to be taken against him, or by any act or device done or resorted to by him for that purpose. It places every insolvent debtor upon the same plane as an insolvent corporation has been placed under the laws of this state for several years. It requires such insolvent debtor to hold his property of every kind and description as a trust fund for the benefit of all existing creditors.
    The payment of money is certainly such a conveyance or transfer of property as comes within the provisions of this section. Money is a species of property, as has been held by our Supreme Court in the case of Hall v. State, 3 Ohio St., 575. It has always been considered as personal property by the legislature in all of the acts passed by it and is taxed as such.
    The old English authorities all hold that money can be followed and if the original bills or coins cannot be recovered, their equivalent may be recovered in such an action. If merchandise of any nature can be followed by virtue of this section of the statute, and its value recovered from a preferred creditor if. the merchandise itself cannot be located (which proposition we do not think can be questioned) then certainly moneys transferred and delivered to a creditor may be recovered, or the value thereof.
    Counsel for plaintiff in error contends that this section is in violation of Sec. 1, Art. 1, of the bill of rights, in that it interferes with the” acquiring, possessing and protecting of property. That no one is safe in transacting any business with an insolvent debtor. This contention however, is not borne out by the language of the statute, as it expressly excepts transactions in which is involved a present, valid consideration.
    Counsel also contends that it is in violation of Sec. 2, Art. 1, of the bill of rights in that it does not effect equal protection to all creditors. It was for the furtherance of this section of the bill of rights that the amendment was passed. Prior to the enactment of this amended section, all creditors were not equally-protected. It gave the insolvent debtor the privilege either with or without the knowledge of the creditor, to prefer such creditor to the exclusion in whole or in part of others, and it was for the purpose of avoiding that inequality and to place all creditors upon the same plane with equal protection that the amendment was enacted. -
    The act does not seek to avoid any transaction which is based upon a present, valid consideration. It only avoids such acts of an insolvent debtor as will create a preference.
    The act makes void only such transactions as result in a preference and which are done when the debtor is actually insolvent. The filing of a deed of assignment within ninety (90) days after any such act does not in itself make the act void, but by the terms of the act only makes such filing of deed of assignment conclusive evidence of the intent of the insolvent debtor to prefer such creditor.
    The burden of proof is still upon the complaining creditor to show that the debtor was insolvent at the time of the commission of the act of which complaint is made. The act is universal in its application and only carries out the intent of the legislature to make an insolvent debtor a trustee for the benefit of all of his creditors and carries out the provisions of Sec. 2, Art. 1, of the bill of rights, by placing all creditors of an insolvent debtor upon an equal basis.
   Burket, C. J.

This case and the case of George L. Bobilya v. Oscar W. Priddy, Assignee, were considered and decided together, and in the report of that case, at page 373 of this volume, will be found the holding of this court as to the constitutionality and proper construction of Section 6343, Revised Statutes, as amended April 26, 1898.

That section is as follows:

“Section 6343. Every sale, conveyance, transfer, mortgage or assignment, whether made in trust or otherwise, by. a debtor or debtors, and’every, judgment suffered by him or them, and every act or device done or resorted to by him or them, in contemplation of insolvency, or with a design to prefer one or more creditors to. the exclusion in whole or in part of others, and every sale, conveyance, transfer, mortgage or assignment made, or judgment suffered by a debtor or debtors, or procured by him or them to be made, in any manner, with intent to hinder, delay or defraud creditors, shall be declared void as to creditors of such debtor or debtors, at the suit of any creditor or creditors, as hereinafter provided, and shall operate as an assignment and transfer of all the property and effects of such debtor or debtors, and shall inure to the equal benefit of all creditors of such debtor or debtors in proportion to the amount of their respective demands, including those which are unmatured. And every such sale, conveyance, transfer, mortgage or assignment made, and every such judgment suffered, and every such act or device done or resorted to, by any debtor or debtors, in the event of a deed of assignment being filed within ninety (90) days after the giving or doing of such thing or act, shall be conclusively deemed and held to be fraudulent, and held to be void as to the assignee of such debtor or debtors, whereupon proof shown, such debtor or debtors was or were actually insolvent at the time of the giving or doing of such act or thing, whether he or they had knowledge of such insolvency or not.
“Provided, that nothing in this section contained, shall vitiate or affect any mortgage made in good faith to secure any debt or liability created simultaneously with such mortgage, if the same he filed for record in the county wherein the property is situated, or as otherwise provided by law, within three (3) days after its execution, and where, upon foreclosure or taking possession of such property, the mortgagee fully accounts for the proceeds of such property.”

In the Bobilya case this court held that transferees who acted in good faith, and for fair value, must he protected, and that with that construction, the section is constitutional.

In the case at bar there is no averment in the amended petition that the defendants below acted in bad faith, or had notice of the insolvency of Grant Benson, or received more money from him than he owed them, or that they knew that he made the said payments in contemplation of insolvency, or to create a preference, or to hinder, delay or defraud his creditors. The- amended petition avers that Grant Benson made said payments to create a preference, to defraud his creditors, and in contemplation of insolvency; but there is no averment that the persons receiving said payments knew of his said intent and purposes, and, therefore, said petition, by its silence, concedes that they acted in good faith, and without notice, in receiving said payments. It therefore follows, under the holding of this court in the Bobilya case, that they must be protected, and can not be compelled to repay the money which they so received on honest claims.

There is another reason why these creditors can not be compelled to repay, the money so received by them. Said section 6343, makes no provision as to payments made in contemplation of insolvency, or to create a preference, or with intent to hinder, delay or defraud creditors. It is urged that payments are included and covered by the words “every act or device done or resorted to by him.” This is not tenable. The word “payment” is as familiar, and' as well understood, as the words, “sale, conveyance, transfer, mortgage, or assignment,” and if the general assembly had intended to legislate against payments, it would have used that word. The legislature having omitted the word “payment” this court can not read it into the statute by construction; and especially is this true when we never had any legislation in this state against receiving payment of honest claims, and when such a construction would render the constitutionality of the act doubtful.

The circuit court erred in reversing the judgment, and its judgment of reversal will, therefore, be reversed, and that of the common pleas affirmed.

Judgment reversed.

Spear, Davis, Shauck, Price and Crew, JJ., concur.