Case ID: ohio-st_64/html/0147-01.html
Source: Caselaw Access Project
Author: {"author": "Burket, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Standard Home and Savings Association Company et al. v. Jones et al.
    
      Jurisdiction of action to set aside deed of' assignment for benefit of creditors — Belongs to court of common pleas and not probat-e court — Action by stockholders against building and loan association and its assignee — Cannot, be settled by association and its assignee unless stockholders consent, when — Jurisdiction—Assignment for creditors.
    
    1. The court of common pleas has jurisdiction of an action to set aside or vacate a deed of assignment for benefit of creditors, for fraud or other good cause, and the probate court has no jurisdiction of such action.
    2. When an action is brought by stockholders in a building and loan association against such association and its assignee for the benefit of creditors, to set aside the deed of assignment for fraud or want of power to make the deed, a settlement between the association and its assignee satisfactory to both, will not be a settlement as against the complaining stockholders, unless they consent to the same.
    (Decided February 5, 1901.)
    Error to the Circuit Court of Belmont county.
    On December 12, 1897, Fred B. Jones and three others filed a petition in the court of common pleas, against the above named plaintiff in error, and one Henry G. Pratt, and a demurrer to said petition having been sustained, said plaintiffs below, on leave, filed an amended petition, which is as follows, omitting caption and signatures:
    “Plaintiffs say that the Standard Home and Savings Association Company is a corporation, organized under the laws of the state of Ohio, to do business as a building and loan association in said state of Ohio, and its residence and place of doing business is at Martins Ferry, Belmont county, Ohio.
    
      “Said association began business as a building association in the year 1888, and has received dues, made loans and continued to do business as such association until October 29, 1897.
    “The plaintiffs' are all stockholders of said association, Fred. B. Jones owning twenty shares, David H. Souders five shares, Alexander Davidson six shares and Hiram Frazier five shares of stock therein, each share being of face value of $100.00
    “On the 29th day of October, 1897, a pretended assignment for the benefit of creditors was made of its property and assets to H. G. Pratt, and the same carried into execution by an order of a board of directors, who without notice to or the knowledge of the stockholders of said association, had, before the making of such deed of assignment, and in contemplation thereof, withdrawn or transferred all stock which each of them had owned when elected to said office.
    “The persons claiming to act as directors at the time of the ordering and executing of said assignment were J. P. Crowell, James A. Bayless, Jesse Selby, L. W. Inglebright, William Beall, Jeptha Reel and J. F. Blumenburg. For some time prior to said assignment the said James A. Bayless and J. P. Crowell had owned no stock in said association. That in contemplation of said assignment and immediately prior thereto. Jesse Selby and William Beall had sold all their stock. That immediately before the said assignment and in contemplation thereof all the other members of said board of directors, with the exception of Blumenburg, withdrew and transferred all unawarded stock held by them or secured adjustment of all loans made to them by said association, receiving in such withdrawals and adjustments the face value of all monies paid in by them. That all stock transferred by any of said directors was transferred to other members of said board and by them used in the adjustment of their loans, except a portion of the stock of said Jesse Selby, which was by him transferred to his wife, and said alleged board of directors caused a mortgage to be executed to her, to secure the payment of the value thereof, to-wit, $400.00 to her.
    “At the meeting at which said assignment was ordered to be executed, there were present and voting the said Japaes A. Bayless, J. P. Crowell, Jesse Selby, L. W. Inglebright-and William Beall. The vote on the motion to assign was yeas, Bayless, Inglebright and Beall; nays, Crowell.
    “Plaintiffs are informed and therefore allege it to be a fact that said meeting of said board of directors was a special meeting, and that no notice thereof, setting forth the time and place of meeting and the purpose for which the meeting was called was served upon said Blumenburg and Reel or for that matter on any of the members of said board of directors.
    “The said board of directors drew their money out of said association out of their order and in advance of other stockholders of said association, who had long before given notice of withdrawal under the rules, constitution and by-laws of said association. Said acts and official misconduct on the part of said board of directors was prompted and brought on by their belief that the capital and assets of said association had so far become impaired that upon winding up of its affairs by a proper proceeding, stockholders would not receive dollar for dollar of their contributions, but on the contrary, there would be considerable loss to stockholders; that said board of directors, acting under said belief, drew out what they had therein and made said adjustments aforesaid in order to prefer themselves and to avoid their liability and to escape sharing in the expected loss which they believed would fall upon all members of said association.
    “That the said H. G. Pratt, now assignee under tíre pretended deed of assignment, was, at the time of the execution of said assignment, and for a long time prior thereto, had been, the regularly elected attorney of said association, and legal adviser of said board of directors; that he advised, aided and abetted the said board of directors in their said misconduct, and that he knew of their withdrawal of stock, and adjustment of loans from said association, and the purpose for which the same had been effected as above set forth, and had advised them in regard thereto. That he had counseled and advised the said board of directors to order the execution of said deed of assignment to himself knowing that at the time of said deed of assignment was ordered executed, as well as when it was actually executed, each of said directors had ceased to-be members of said association. That said H. G. Pratt beside assisting said directors in withdrawing their stock and adjusting their loans, planned or assisted in planning said assignment; that before said meeting at which said assignment was ordered and before the same had been considered by said board of directors, he had prepared the deed of assignment and all other papers necessary to carry out said assignment.
    “Said plaintiffs, as well as the stockholders generally, had no knowledge or notice that said assignment was -contemplated, nor did they before its execution, „nor have they since, consented to said assignment.
    
      “Plaintiffs further say that said assignment of the property and assets of said association to the said H. G. Pratt was unnecessary, unwarranted and uncalled for, and that said association was not at the time of assignment in an insolvent condition under the laws providing for the assignment for the benefit of creditors, that on the 29th day of October, 1897, the assets of said association amounted to at least the sum of $23,256.92, that the total amount of debts due or to become due to outside creditors was $702.36; that except said sum of $702.36 there were no claims against said association except such as were based upon the ownership of stock therein. That the said H. G. Pratt had in his hands at the date of the making of his inventory and appraisement as such assignee of the moneys belonging to said association, the sum of $2,201.44
    “Plaintiffs say that said H. G. Pratt is proceeding to sell real estate belonging to said association and to convert securities of said association into money in spite of the facts as above set forth, that by such actions he is incurring unnecessary expense to the irreparable damage of plaintiffs as well as to the association itself.
    “The plaintiffs further say that the said wrongful assignment has deprived many members of said association of the right of paying their dues, and that many members paid dues up to the date of said assignment and still desire to pay the same and carry out their contract with the said association, but the said assignee is not receiving, nor has he any power to receive said dues, to the detriment and loss of the plaintiffs and to the association itself.
    “Wherefore plaintiffs ask.that the said deed of assignment be declared null and void, that an in junetion be granted restraining said Pratt from selling real estate of said association, and from further converting its assets into money, and for such further relief as is proper.”
    The cause was heard upon this amended petition and a motion for an injunction. The court held that it had no jurisdiction of the subject matter of the action, and therefore dismissed the petition, and struck the case from the docket, to all of which the plaintiffs below excepted.
    The circuit court reversed the judgment, and thereupon the plaintiffs in error came to this court, seeking to reverse the judgment of the circuit court.
    
      Henry G. Pratt and James G. Tollman, for plaintiff in error.
    There is no question that the act governing voluntary assignments, and- beginning, with Sec. 6335, is a special act, made especially applicable to assignments for the benefit of creditors; and being a special act, making special provisions for deeds of assignment to be controlled by the probate court, it becomes exclusive, and deprives all other courts of jurisdiction of such deeds. Wambaugh, Trustee, v. Insurance Co., 59 Ohio St., 228; Gilliland v. Administrator of Michael Sellers, 2 Ohio St., 223; Railway Co. v. Marshall, 11 Ohio St., 497.
    Now,, it being clear that in the matter of assignments, that the common pleas court would only have jurisdiction under Secs. 6344 and 6351, Rev. Stat., let us see whether either section would apply to this case.
    This is an action seeking to set aside a deed of assignment for benefit of all the creditors of assignor, on the alleged ground of want of power of assignor to execute same, etc.; in other words, defendants in error are asking the court to determine the legal effect of said deed.
    While Sec. 6343 provides a method for setting aside conveyances made with intent to hinder, delay or defraud creditors, which is an entirely different thing from this case, we never have been able to find where any court has ever held a deed of assignment made for the benefit of all creditors of assignor, to be a conveyance made to hinder, delay or defraud creditors; but, on the other hand, we find where courts have held just the opposite. Hoffman v. Mackall, 5 Ohio St., 124; Thomas v. Talmadge, 16 Ohio St., 434.
    The other section which the court refers to in the case in Second Nat’l Bk. v. Moderwell, 59 Ohio St., 221, 223, i. e., Sec. 6351, simply regards the settlement of questions of lien or title, or dower estate of wife may be settled by assignee in the court of common pleas, which has no application to a case like the present.
    Is it not rather strange to claim that the probate court is a mere machine, and that when a deed of assignment is filed in said court, that said court cannot have the right to say whether it is a deed or not?
    The deed of assignment, if it is valid, places the property' in the custody of that court (the assignee being merely the agent or hand of the court). Why then, would not the probate court have the exclusive right (subject to right of appeal and error) to determine whether the control of said property had been legally transferred by said deed into the custody of said court?
    Property in the hands of an assignee for creditors, who has duly qualified, is in custodia legis.
    
    
      See authorities collated in note to Hardy v. Tilton, 28 Am. Rep., 35, and in note to Pipher v. Fordyce, 22 Am. Law Reg. (N. S.), p. 666; Wait’s Actions and Defenses, Yol. 6, page 617.
    
      »T. W. Shreve and C. A. Mabon, for defendants in error.
    It is contended by defendants in error that the appeal is to the equity powers of a court of general equity jurisdiction and that the fact that the instrument attacked is a deed of assignment is not one of the most important facts in the case. Plaintiff in error contends that it is the controlling fact. It is not questioned herein, that the common pleas court is a court of general equity jurisdiction, and as such has jurisdiction of the subject matter of this action, unless taken away by statute.
    The jurisdiction of courts of equity or of higher courts proceeding according to the course of the common law, is never taken away except by plain words or equally plain intendment. Black on Interpretation of Laws, page 123.
    The probate court is of limited and statutory jurisdiction, with such auxiliary and incidental powers as are necessary and proper to carry into effect those expressly granted. Sayler v. Simpson, 45 Ohio St., 141; Clapp v. Banking Co., 50 Ohio St., 528.
    When a deed of assignment has been filed in the probate court in accordance with Sec. 6335, Ohio Rev. Stat.,' and the assignee has qualified, that court is clothed with jurisdiction to fully execute the trust. Havens v. Horton, 53 Ohio St., 342; Farwell v. Findley, 5 C. D., 303, 11 C. C., 100; McNeill v. Hagerty, 51 Ohio St., 255.
    
      We contend that when a deed of assignment is not obviously illegal, and to set it aside would require a hearing upon an issue to be made between the parties, that issue must be made and hearing had in a court of general equity jurisdiction. Preston v. Spaulding, 120 Ill., 208; Burrill on Assignments, 6th Ed., Sec. 451.
    We do not contend that the probate court has no equity jurisdiction or that exclusive jurisdiction in such a case as this could not have been conferred upon it by statute, but we do contend that all equity jurisdiction it has was conferred by statute, and that there is no statute expressly conferring power upon it to inquire as to the validity of any instrument, certainly not of a deed of assignment.
    The reasoning of the circuit court is sustained by the fact that property in the hands of an assignee under a voluntary assignment is not in custodia legis. Lapp v. VanNorman, 19 Fed., 406; Lehman v. Rosengarten, 23 Fed., 642; Powers v. Blue Grass B. and L. Association, 86 Fed., 705.
    Deed of assignment invalid:
    1. Because authorized at a special meeting of the board of directors, of Avhich an absent director did not have notice. 1 Beach on Priv. Corp., Sec. 273; 1 Morawetz on Priv. Corp., Sec., 532; 3 Am. & Eng. Ency. Law (2d Ed.), 24 n.
    2. Because the persons who were at said meeting and voted to assign had at that time ceased to be members of the corporation, of which fact H. G. Pratt had notice.
    Directors and other managers of a private corporation are merely agents, and the corporation can be charged with their acts only in accordance with the established doctrines of agency. Morawetz on Corp. Sec. 640.
    An agent whose authority has been terminated, cannot bind his principal in dealings with one having notice of such termination.
    Directors of corporations must be holders of stock in an amount to be fixed by the by-laws. Section 3248, Rev. Stat.
    The company is bound by what takes place in the usual course of business with a third person, where ■that third person deals bona fide with persons who may be termed de facto directors and who might, so far as he could tell, have been directors de jure. Morawetz, Sec. 637.
    The above proposition rests on the principle of estoppel, and with the limits of estoppel the scope of its application is determined. It is also held that the principle on which the validity of the acts of de facto officers is sustained against the corporation does not apply where all the persons affected have notice that the officers assuming to act were not legally chosen. Taylor on Priv. Corp. Sec. 190; State v. Curtis, 9 Nev. 325; Orr Water Ditch Co. v. Reno Water Co., 17 Nev., 166.
    3- Directors of an Ohio building association have no power to assign, especially where the association is not insolvent.
    Dissolution of an association must be by vote of stockholders. Sections 3836-3, Rev. Stat.
   Burket, J.

The substance of the petition is, that the persons who'assumed to act as directors of the association in the making of the deed of assignment, had ceased to be directors, and therefore had no power to make the deed, that they acted fraudulently, in bad faith and against the interests of the stockholders, and that the assignee had full knowledge of the want of power, and of the fraud and bad faith, and actively participated therein.

That such a deed should be set aside and vacated, at the suit of any party in interest, needs no argument and no citation of authorities; and the only question in the court of common pleas was, whether that court had jurisdiction of the subject matter. The court was of opinion that it had not jurisdiction, and that the probate court alone had such jurisdiction, and therefore it dismissed the petition and struck the case from the docket. The question is as to the correctness of this ruling.

When a deed affecting a right of property has been made by one having no power to make a valid deed, or is made fraudulently, and accepted by the grantee with notice of the fraud or want of power, such deed may be set aside and vacated by the party whose property is thereby affected, by proper action for that purpose in the court of common pleas. This is conceded to be so as to all deeds except deeds of assignment for the benefit of creditors; and as to such deeds the plaintiffs in error insist that the probate court has exclusive jurisdiction. Is this so? The court of common pleas has jurisdiction of the subject matter of setting aside and vacating deeds for fraud or want of power to make them, in all cases, unless such jurisdiction has been taken away by statute, and such statute would have to be express, a mere implication arising from conferring the same jurisdiction upon the probate court wou-ld not be sufficient. Sutherland on Statutory Construction, Secs. 395, 396.

But we need not resort to' this rule. Our statutes confer jurisdiction upon the probate court to carry the deed of assignment into execution; and while the same is being administered under the orders of the probate court, under and in pursuance of the trust created by such deed, it is clothed with all necessary equity powers to hear and determine all questions arising as to the property conveyed by the deed of assignment.

Taking the deed to be valid, the jurisdiction of the probate court extends only to causing the trust created thereby to be executed according to law; but it has no jurisdiction to set the deed aside, or vacate it for fraud, or other cause. The probate court has jurisdiction to act under the deed of assignment; but not in opposition to it. The full extent of the statute is that the probate court shall have jurisdiction to direct the execution of the trust under the deed, that is, “to qualify assignees, control their conduct and settle their accounts.” Section 524, Revised Statutes. But there is no statute prescribing that it shall have general equity power to set aside and vacate the deed of assignment; and such equity power is not implied from the power to act under the deed; and certainly no implication can arise from the granting of such power to act under the deed, that the court of common pleas is thereby deprived of its general equity jurisdiction as to setting aside and vacating deeds obtained by fraud.

It is therefore clear that the court of common pleas has jurisdiction in such cases, and that the probate court has no such jurisdiction. The judgment of the circuit court reversing the judgment of the common pleas, is therefore right and should be affirmed.

A showing is made in this court to the effect that said association and said Henry G. Pratt have, since this case has been pending in this court, made a settlement, and they plead that settlement, and ask this court to mark this case settled and dismissed. This cannot be doné. Mr. Pratt and the association are on one side of the controversy, and are charged in the petition with being in collusion with each other, and a settlement of their differences would not be a -settlement of the differences between them and the defendants in error. If the plaintiffs below proceed, as they have a right to do, after the case gets back into the court of common pleas (Moss v. Board of Education, 58 Ohio St., 354), and prosecute their action, and succeed in setting aside the deed of assignment, the assignee may learn that his settlements do not conclude the matter, and that the plaintiffs below have a right to be consulted and heard, before the matter is finally closed up.

It is further shown that a receiver has been appointed by the' court of common pleas since this case is pending here, and that he has now in his hands substantially all that is left of the estate of the association. When such an association becomes insolvent, it is best to wind it up through a receiver, rather than an assignee. In fact it has been doubted whether a building loan association can make an assignment for the benefit of creditors, under the statutes governing such corporations, but we do not find it necessary to decide that question in this case, as the question was not raised or relied upon in the petition, and was not passed upon by either of the courts below.

Judgment affirmed.

Shauck, C. J., Williams, Spear, and Davis, JJ., concurred.