Case ID: ohio_20/html/0330-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Caldwell, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

John H. Brown & Co. v. George N. Webb.
    A conveyance of goods made for the purpose of defrauding creditors, the vendor and purchaser both participating in the fraud, is void under the statute of frauds, as to the creditors of the party making such conveyance, but is valid as between the parties to such conveyance. 
    
    
      A creditor of the party making such fraudulent conveyance, with notice of the fraud, may, with the consent of his debtor, take a valid mortgage, in good faith, to secure his claim from the purchaser of the goods thus conveyed, without being required to resort to legal process to reach the goods. 
    
    A mortgage of personal property, where the mortgagor retains possession by virtue of the mortgage, with a power of sale, is void, as against subsequent purchasers, and execution creditors,  but when possession is taken by the mortgagee, the mortgage becomes valid so as to protect the mortgaged property from execution creditors not having made a levy, and against subsequent purchasers from the mortgagor.
    Where a debtor, in contemplation of insolvency, executes a chattel mortgage to one creditor, for the purpose of securing such creditor in preference to others, with an understanding that the mortgagee shall satisfy his claim out of the goods, and then surrender the residue to the mortgagor, the mortgage will be deemed an assignment of property in trust, and the mortgagee will be deemed a trustee, holding the mortgaged property for the benefit of all the creditors in proportion to their respective demands. 
    
    Error to the Supreme Court of Stark county.
    *The original action in the common pleas was trespass, brought by the plaintiffs, Brown & Co., against Webb, who was sheriff of Stark county.
    In February, 1848, Alexander Gamier, of Canton, Stark county, purchased from sundry houses in New York and Philadelphia, goods to the value of about $10,000. He purchased from the plaintiffs, goods to the value of $3,258, the largest purchase made, and about $1,000 greater than the amount purchased of any other house. All the purchases were on credit, for which Gamier gave his notes, falling due in August and September, 1848, except, only, that the purchase from plaintiffs was charged on book, but no note taken, nor was any definite time of payment fixed, though it waa understood by the parties that the principal portion of his indebtedness to plaintiffs was to be paid in April or May, 1848, Garnier not being well acquainted with the English language, or the business of buying goods, took with him Nicholas Bour, to aid in purchasing. The goods were brought to Canton, and Garnier commenced retailing them in the usual way.
    In addition to these facts, it was proved on trial, at the April term, 1849, that on June 23, 1848, Garnier sold his entire remaining stock of goods to Bour for $8,800, for which he received a note, secured by mortgage on Bour’s real estate, for $5,000, and the residue in Bour’s individual notes, payable at different dates.
    In July, 1848, George Dietrick, agent and clerk of plaintiffs, came to Canton, and not finding Garnier able to pay for the goods he had purchased of plaintiffs—finding that Bour had possession of the goods, and being anxious to secure the amount due the plaintiffs, got Bour to take an assignment of plaintiff’s account for $3,258, against Garnier, and to give his own notes to plaintiffs, for the amount, with a chattel mortgage on the goods, to secure the payment of the notes. This was done, in due form, on July 14, 1848 ; and on the same day, plaintiffs took possession of the goods, as they proved, and commenced taking an invoice, which was cornpleted *about the 24th of July. The invoice amounted to about $7,000. The mortgage was duly deposited with the recorder of Stark county, as required by the act of the general assembly, on the day it was executed; Garnier residing at the time in the township where said recorder’s office was located. The plaintiffs proved that they continued in possession, with the view of selling enough to make their claim, until the 24th of July, when the defendant Webb, as sheriff, levied on the entire stock of goods, and took them from the plaintiffs. This levy was made pursuant to a writ of execution, in favor of Walter F. Stone, against said Garnier, dated July 22, 1848, for $3,300, which embraced several of the claims of the “ eastern creditors” of Garnier above mentioned, and who had, by pursuing Garnier to Sandusky, and causing him to be imprisoned, obtained from him a judgment note in the name of Stone, for the amount of their claims, before they fell due. ‘Before Webb would levy, he took full indemnity against all loss or damage that he might sustain in consequence of the levy. He subsequently sold the goods so levied on, before this suit was brought, for about $6,000, which has been appropriated in discharge of said execution, and others, against Garnier. Garnier .and Bour are worth nothing. Garnier has gone to parts unknown.
    
      .While the plaintiffs were taking the invoice, and nearly a week before the levy, they received from Gamier an order on Bour, requesting him to pay plaintiffs their claim. This order, before the levy, was accepted by Bour, and he agreed to pay it in goods. The levy was made peaceably, but against the remonstrance of plaintiffs’ agent. The chattel mortgage to plaintiffs contains these provisions :■ “ Provided always, and these presents are upon the express condition, that whereas the said Nicholas Bour has this day given to the said John EL Brown & Co., his four certain promissory notes, for the respective amounts and payable respectively, as follows: One for $700, payable six months after date; one for *$700, payable one year after date; another for $814.16, payable eighteen months after date; and another for $814.16, payable two years after date—all with interest and current rate of exchange in Philadelphia.
    “ Now if the said Nicholas Bour shall pay the said promissory notes, according to the tenor and effect thereof, then these presents to be void, otherwise in full force; provided, further, and it is hereby expressly agreed, that said Nicholas Bour be authorized to retail said stock of goods and merchandise in order to realize funds to meet and satisfy said several notes—the said John EL Brown & Co. retaining, however, the privilege, either through themselves or their attorneys, Brown & Myer, at any time they may deem the safety of their claims require it, to take possession of the said stock of merchandise, and to sell the same, or any part thereof, as may be necessary to satisfy their claims aforesaid, and also to superintend or have the supervision and control of the sale of said goods, by retail, by the said Nicholas Bour, and to keep an account thereof, or hold the said Nicholas Bour to such regular account thereof. It is also further agreed and understood, that all subsequent supplies to said stock shall be in every way subject to the stock now on hand, under and by virtue of the terms of these presents.”
    The defendant proved, that notwithstanding the invoice, Bour was in possession of the goods at the time of the levy, and did business as usual; that Dietrick was advised to remove the goods, but declined. The testimony as to whether the plaintiffs, by their agents,-or Bour, had possession at the time of the levy, was conflicting. One of plaintiffs' witnesses testified that an agent of plaintiffs remained in the store up to the time of the levy, and the arrangement was, that he was to receive the proceeds of sales until plaintiffs’ claim was paid, but that Bour might be in the store as much as he pleased, and *aid in selling goods; and after plaintiffs’ claim was paid, the balance of the goods was to be given up to Bour. 
    
    The defendant introduced proof tending to show that the sale of the goods, by Gamier to Bour, was fraudulent, and made by hoth parties to the sale to defraud the creditors of Gamier, and that at the time plaintiffs took their mortgage they had notice of said fraud.
    The action in the common pleas was presented against Webb, for levying on, removing, and selling the goods by him sold on the execution aforesaid.
    There was other testimony on the trial not material to the decision in this court.
    The plaintiff asked the court below to charge the jury, “ that, if the proof established the fact that plaintiffs were honest creditors of Gamier, and the mortgage was taken from Bour for the purpbse of securing their claim, the mortgage is good and valid, even though the plaintiffs had notice that the sale from Gamier to Bour was fraudulent.” This the court refused, but did charge, “ that if, at the time of making the mortgage to plaintiffs, Deitrick, as agent of plaintiffs, had sufficient knowledge of the nature of the transactions between Gamier and Bour, to induce him to believe that the same were fraudulent, said mortgage was fraudulent and void, as against existing creditors;” and “that the fact that the mortgage covered an amount of property so much greater in value than the amount of plaintiffs’ claim, might be taken into consideration, by the jury, wfth the other facts in-the case as evidence of fraud on the part of the plaintiffs.”
    The jury returned a verdict for defendant.
    The plaintiffs moved to set aside the verdict, and for a new trial, because of the charge given, the refusal to charge as asked, and for other reasons, not passed upon in the decision *now made; which motion was overruled, and judgment rendered for defendant for costs.
    
      Exceptions were duly taken, and the cause was removed on error to the Supreme Court of Stark county, by which court the judgment of the common pleas was affirmed.
    This writ of error is prosecuted to reverse the judgment of affirmance.
    Belden & Leiter, Brown & Myers, for plaintiffs, insisted:
    That, if Dei trick had reason to believe (as he had not), that the sale to Bour was fraudulent, as against the creditors of Garnier, it could not affect the validity of plaintiffs’ claim, nor their right to the goods, nor the chattel mortgage. The plaintiffs were co-creditors of the subsequent execution creditors who made the levy. It was not fraudulent in plaintiffs to pursue the goods in. the hands of Bour, if he was a fraudulent vendor of their debtor, nor was it fraudulent in them, as against the other creditors of Garnier, to make any fair arrangement to secure their claim, whether by suit against, or by voluntary agreement with Bour. Ms between Bour and Garnier, however fraudulent their acts and purposes as against the creditors of Garnier, the sale was good, and could not be disturbed. None could disturb it but creditors.
    
    Suppose this case presented a mere struggle between the creditors of Garnier, and it be admitted that Garnier and Bour had acted fraudulently, not only in buying the goods “ in the east,” but also in the sale of them to Bour, still the question is one of “superior diligence," and if the plaintiffs, by means of their chattel mortgage, got the first lien, and took possession of the goods from the fraudulent vendee, it would be, as it in fact is in this case, a gross fraud on them, for a subsequent execution creditor to come in and sweep away that lien, and appropriate the goods.
    No one can doubt but that the plaintiffs could accomplish, by voluntary agreement with Bour, if he were a fraudulent *vendee, that which the law would undoubtedly have enabled them to do by suit.
    
    To render the title of & purchaser from a fraudulent vendee void, there must have been a fraudulent intent by the purchaser; because if innocent and bona fide, his title is good. But, it will be borne in mind that the plaintiffs are not mere vendees or mortgagees of a fraudulent vendee, but they are also creditors of the fraudulent vendor. And, we should like to know how the plaintiffs can be said to have intended a fraud, in securing a just debt, by taking a transfer of goods from the fraudulent vendee of their debtor. If the plaintiffs in doing so, intended a fraud, or did that which can be called fraudulent, then, we say, the creditors in the Stone judgment and execution, committed a gross fraud against all the unpaid creditors of Gamier*.
    “An innocent purchaser of goods for a valuable consideration» from a fraudulent vendee in possession, obtains a good title, against the creditors of the fraudulent vendee.” 6 Shep. 391 ; 2 U.S. Dig., 528, 544.
    
    Upon the same principle, it has been decided that “A mortgage to secure a pre-existing debt can not be a fraud on other creditors. 7 Iredell, U. S. Dig. II Ann., 281, 856; Id. sec. 57; 25 Maine, 414; U. S. Dig., 284, sec. 107, I Ann.
    •We assert there is but one instance known in the law, where it has been held that a sale of goods, obtained by fraud, would affect the title of a subsequent innocent vendee; and that is, where the fraudulent vendee effected his purchase by his own fraudulent conduct toward his vendor, who acted in good faith, and in no way participated in the fraud, but was duped and deceived. In cases of this description, cited in note d, of 2 Kent’s Com. 514, it was held, that the purchaser from the fraudulent vendee could not protect himself, because he could claim no better title than his vendor had, and as he had none at all, the original vendor, who *had been defrauded, could seize the goods in the hands of the innocent vendee.
    Gamier can not dispute the title of Bour, even if the sale were fraudulent. 2 Kent, 512.
    The order from Gamier to Bour, in favor of plaintiffs, beyond all controversy, it seems to us, gives title to plaintiffs for the goods. If the sale from Gamier to Bour was fraudulent against creditors of Gamier, and Bour could not convey title, why Gamier could, with Bour’s consent, as by the order, especially to a creditor. True, when this order was received, plaintiffs were in possession of the goods under the chattel mortgage. But how can that impair the power of the order ? No lawyer will doubt, that, if one get possession of property, under a bad title, the possession may be protected and perfected, by “ getting in ” a good title, before he is deprived of his possession. This order was received by plaintiffs and accepted by Bour six days before the levy by defendant.
    
    
      H. Griswold, for defendant:
    I. A purchaser from a fraudulent vendee, with notice, obtains no better title than his vendor, and the property may be reached in his hands, by execution, at the suit of the creditors of the fraudulent debtor.
    2. But it will be claimed by the plaintiffs that, being creditors
    of Gamier, they had a right to pursue the goods, and having obtained possession of them peaceably, have a right to retain possession against execution creditors. *
    I find but few authorities bearing on this precise question, but such as I do find sustain me in the position that a creditor of the fraudulent grantor can not obtain possession in this way. Owen v. Dixon, 17 Conn. 492; Crowninshield v. Kittridge, 7 Met. 520; Osborne v. Moss, 7 Johns. 161. These authorities show that where there has been a fraudulent conveyance, the creditor, with notice, can not take possession of. the property, except by virtue of legal process, nor can he by *so doing obtain an advantage over other creditors. The property remains in his hands subject to execution.
    3. The chattel mortgage is void, because the possession of the goods was retained by Bour, coupled with a power of sale. 16 Ohio, 547. This authority is applicable to this case, is in point, and conclusive.
    Besides, I claim that the weight of the evidence is, that plaintiffs did not have possession of the goods, and so no vitality could be given to the mortgage by reason of a possession. But, granting (for the argument) the plaintiffs did take possession, still, they thereby acquired no title. The mortgage was void at its inception because of its provisions, and no subsequent act of the parties could give it efficacy. Rowley v. Rice, 11 Met. 333. In the case at bar, the possession was taken solely under the mortgage, if at all.
    4. The plaintiffs’ mortgage was void, because it operated to hinder and delay creditors. The plaintiffs’ claim was about $3,000— the goods mortgaged were worth $7,000. It was correct, therefore, for the court to charge that these facts might be taken into consideration as evidence of fraud.
    5. The mortgage was void because it attempted to cover future purchases of goods. This objection and the preceding one, taken together, establish its invalidity. 16 Ohio, 553.
    
      The case of Frost v. Goddard, 12 Shep. 414 (1 An. Dig. 284 see. 107), does not conflict with the law as I have claimed it to bo.
    That authority only applies to a nurchaso “ in satisfaction of a debt.”
    
    G. W. Belden, in reply:
    The proof shows that plaintiffs had possession of the goods before and at the time of the levy.
    Can it be said that plaintiffs are to be prejudiced because, during the time Dietrick had possession of the goods, he permitted Bour, occasionally, to come to the store, and sell a few small parcels of the goods, in discharge of some small claims *due from Garnier? All the plaintiffs desired was that they should have goods enough to make their claims. This is clear evidence that they intended no harm or delay to the creditors of Gamier, and that they were moved by no “fraudulent intents.”
    The case in 16 Ohio, 547, can not be applied to this. In this case there is an express provision, that plaintiffs might, without any contingency, take possession of the goods; and they did take possession, nine or ten days before any other rights supervened, or were asserted. In the case in 16 Ohio, 547, the mortgagees never had possession. The case is in chancery,  and presents facts and circumstances, and matters of consideration, wholly different from those involved in this case.
    The case of Rowley v. Rice, 11 Met. 333, establishes the fact, that if the plaintiffs’ mortgage were invalid, and they merely took possession of the goods, with an understanding between them and Bour, that they were to hold them until they made the amount of their claim, their title was perfect. It is further said in this case, that “if the parties acted under a mistaken belief that the plaintiffs had good title, under the mortgage, it would not invalidate another good title, under which the plaintiffs might claim.” Had not- the plaintiffs, in the case at bar, just as good title, aside from their mortgage, as the plaintiff had in the case of Rowley v. Rice ? I say they had. First. By the order of Gamier, accepted by Bour. Second. By the mutual understanding between Bour and plaintiffs’ agent, Dietrick, when the agent took possession, that the agent should go on and sell enough to make the plaintiffs’ claim.
    
      
       Tremper v. Barton, 18 Ohio, 418.
    
    
      
       Morris v. Way, 16 Ohio, 469.
    
    
      
       Collins v. Myers, 16 Ohio, 547; Hombeck v. Vanmetre, 9 Ohio, 153.
    
    
      
      
        v. Kellogg, 11 Ohio, 394; v. Coe, 10 293; v. Holden, 22 Pick. 269; Henshaw et al. v. Sumner, 23 Pick. 446 ; Low v. Wyman, 8 N. H. 537; Meredith Man. Co. v. Smith et al., Id. 34; U. S. An. Dig., 1847, 52; Baker v. Hall, 13 N. H. 298; Goodrich v. Downs, 6 Wills, 438; 6 Hill, 438; Lang v. Lee et al. 3 Ran. 410; see Bassett & Co. v. Traber, 201 Ohio.
    
    
      
       See Basset v. Traber, 20 Ohio, as to tbe effect of such an arrangement, and as to the liability of such trustees; also 10 Ohio, 230; 12 Ohio, 340; 15 Ohio, 593. See also Davies v. Lowery, 15 Ohio, 655; 18 Ohio, 509; 13 Ohio, 300.
    
    
      
       See Nichols v. Bailey, 10 Ohio, 230.
    
    
      
       Hampson v. Sumner, 18 Ohio, HI.
      
    
   Caldwell, J.,

delivered the opinion of the court.

On the trial of this cause, on error, in the Supreme Court, %nany errors were assigned to the ruling of the common pleas, on the trial in that court, on points of evidence, and also to the charge of the court to the jury. We propose, however, to confine ourselves to a single assignment, as that raises the principal question in controversy, and in the opinion of the court is decisive of the case. That question is thus presented by the bill of exceptions: “ The plaintiffs requested the court to charge the jury, that if the proof established the fact that plaintiffs were honest creditors of Garnier, and the chattel mortgage was obtained from Bour for the purpose of securing their claim, the mortgage is good and valid, even though the plaintiffs had notice that the sale from Garnier to Bour was fraudulent. Which chai’ge the court refused to give to the jury, but, on the contrary, the court charged the jury, that if, at the time of making said chattel mortgage, Dietrick, as the agent of the plaintiffs, had sufficient knowledge of the nature of the transactions between Garnier and Bour, to induce him to believe that the same was fraudulent, said mortgage was fraudulent and void as against existing creditors.” The point on which this charge was given was one directly raised by the evidence in the case, and was pertinent to the issue between the parties. Did the court of common pleas charge the law? We think they did not.

Taking it for granted, that the transfer from Garnier to Bour was fraudulent, and that plaintiffs knew of that fact, we do not see why they, as creditors, were deprived of any of their rights, in Securing their claim. The sale from Garnier to Bour was void, and of no effect, as against the rights of creditors, but good as between the parties.

Before the sale of the goods to Bour, the plaintiffs would have had a right to have their claim secured by a mortgage from Garnier on the goods, and we do not see why Garnier and Bourmight not agree, as they did, that plaintiffs might have the benefit of the goods as security for their debt, as though no such sale had taken place. They wore thus doing away the fraud committed by the sale, and using the goods in *tbe way the law required they should be used—in the payment of Garnier’s debts. The creditors who made the levy on the goods, and thus took them, out of the possession of plaintiffs, had no preferred claim on them. At the time the goods were mortgaged to plaintiffs, the claims of the judgment creditor were not due. It was only by obtaining a power of attorney from Gamier, to confess a judgment, that they were enabled to proceed to their claims at the time they did. We do not think it was necessary for the plaintiffs to proceed by legal process, to secure their claim in the goods; but that if, by a fair transaction, they obtained a security on the goods, without execution, such security would bo available, and could not be treated as a nullity.

It is true, that, from all the circumstances attending the taking of the mortgage from Bour, on the stock of goods, the mortgage would probably (if that question were before us for decision), be held to come within the provisions of the statute (Swan’s Stat. 717, see. 68), and inure to the benefit of all the creditors. But that would not vitiate the mortgage so as to render it a nullity; the statute merely gives such assignments a particular direction ; it does not avoid them; it makes an assignment that was intended for the benefit of one or more creditors, exclusively, to inure to the benefit of all the creditors. If, then, this mortgage of plaintiffs was such an assignment, as we think it was, the other creditors had not a right to appropriate the entire property to the payment of their claims by execution; but they .had a right to share equally, under the assignment, with the plaintiffs, in proportion to their respective claims. We think the court of common pleas erred in their charge to the jury, and that the judgment of the Supreme Court, in affirming the judgment of the common pleas, is erroneous. The judgment of the Supreme Court will therefore be reversed.

We have examined the authorities cited in this case, on both sides, and, without going into a detailed examination of them, we would merely remark that we do not think they conflict *with the conclusion to which we have come, but, on the contrary, so far as they apply, we think they harmonize with it. Judgment reversed.