Case ID: ohio-st_62/html/0487-01.html
Source: Caselaw Access Project
Author: {"author": "Minshall, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Robertson v. Desmond & Ryan et al.
    
      Transfer of property by debtor in trust to prefer creditors — Contemplation on insolvency — Transferee may renounce the trust and restore property, when — Bight of all creditors to restored property.
    
    1. One to whom a transfer of property has been made by a debtor, in contemplation of insolvency, in trust to prefer one or more creditors, may, before any legal steps are taken to have it declared a trust for the benefit of all the debtor’s creditors, renounce the trust and restore the property, without becoming individually liable for its value.
    2. Such renunciation does not, however, affect the right of other creditors to have the character of the transfer judicially determined and the property administered as a trust for the benefit of all creditors under the insolvency laws of the state.
    (Decided April 24, 1900.)
    Error to the Circuit Court of Hamilton county.
    The original action in this case was commenced in the Common Pleas Court of the county by a judgment creditor to set aside a conveyance of certain real estate alleged to have been made by Charles G-. Roth and wife to Edward N. Roth with intent to hinder and delay creditors; and, also, as a second cause of action, to set aside a transfer of certain personal property made by the same party to C. D. Robertson, with the like intent, and for the appointment of a trustee to administer the property for the benefit of the creditors of Roth under the insolvent laws of the state. This proceeding in error arises out of the second cause of action, so that no further notice will be taken of the first. The case was tried in the Common Pleas, and Robertson appealed from the judgment to the Circuit Court, where it was tried upon the issue made by the petition and the answer of Robertson. The answer of. Robertson was in substance that on February 18, 1896, Roth made a transfer to him as the agent of the Penn Mutual Life Insurance Company of the property in question. That he was not at the time the agent or trustee of the company, that it had no knowledge at the time of the transaction, and did not thereafter at any time assent to it. That he received the transfer only to such time as the insurance company should be advised and could take the matter into his own hands. That as soon as the company was advised, it refused to accept the same or ratify what had been done; and took a transfer of the property directly to itself, he, Robertson, having no further or other connection with the matter; and asked to be dismissed with his costs. The court made a finding of the facts which is as follows:
    “The plaintiffs, Desmond & Ryan, recovered a judgment February 24, 1896, before a justice of the peace, against the defendant, Charles G. Roth, for the sum of $141.08 and costs, which judgment is in full force and effect, and has been filed in the Hamilton county common pleas court, cause No. 106,547, for lien and execution, and no part of said judgment has been paid;
    “That on the 18th day of February, 1896, the defendant, Charles G. Roth, was insolvent, and among other debts owed The Penn Mutual Life Insurance Company, of Philadelphia, Pennsylvania, the sum of $2,800.00 for rent of the St Clair hotel, Cincinnati, Ohio. On February 18, 1896, in contemplation of insolvency the said Charles G. Roth executed and delivered to C. D. Robertson a certain bill of sale of certain chattel property owned by him, and which was then located at the St. Clair hotel, of which bill of sale a copy is hereto attached, as Exhibit “A” hereby referred to and made part hereof, O. D. Robertson at that time being the attorney for The Penn Mutual Life Insurance Company, and having in hand the collection of the indebtedness owing from Roth to that company.
    “The bill of sale to C. D. Robertson was made to secure him for the ($50.00) fifty dollars he advanced at the time the bill of sale was made, and to secure and pay the indebtedness of Charles G. Roth to The Penn Mutual Life Co., and was so accepted by said C. D. Robertson.
    “C. D. Robertson filed the bill of sale with the county recorder, and through one Frank D. Goodhue took possession of the property named in the bill of sale.
    “That it was C. D. Robertson’s intention to hold the said property transferred to him as above, unless after he should notify The Penn Mutual Life Insurance Co. of what he had done they should disapprove the same. But this intention was not made known to Charles G. Roth or his attorneys.
    “February 21st, in response to a telegram from C. D. Robertson, The Penn Mutual Life Insurance Co. sent one of its financial agents to Cincinnati to examine into and adjust the business matters pending between the insurance company and Charles G. Roth.
    “This agent, on behalf of the company, disapproved the bill of sale, repaid Mr. Robertson $50.00 which he had advanced Charles G. Roth at the time the bill of sale was made, and which $50.00 is referred to in the bill of sale, and C. D. Robertson assenting thereto, Charles G. Roth executed and delivered to the agent as representing the insurance company a second bill of sale, dated February 21, 1896, a copy of which is hereto attached as exhibit “B” hereby referred to and made part hereof.
    “The second bill of sale included the property named in the first, and contained some additional chattel property. Under this second bill of sale the insurance company took possession of the property named in it, and has held its possession ever since.
    “O. D. Robertson, on the arrival in Cincinnati of the financial agent of his client, turned over to the latter the entire matter of the indebtedness between Charles G-. Roth and The Penn Mutual Life Insurance Co., and had nothing further to do with it, the second bill of sale having been made between Roth and the company without the intervention of the said Robertson in any way.
    “On the 12th of March, 1896, the plaintiffs brought this action under the provisions of the Revised Statutes of Ohio, secs. 6343-6344, for the purpose of having the bill of sale of February 18, 1896, above referred to, declared an assignment in trust for the benefit of all the creditors of Charles G. Roth; C. D. Robertson was made party defendant to the action, to have him declared a trustee under the first bill of sale for the benefit of all the creditors of Charles G. Roth. The Penn Mutual Life Insurance Co. is not now, nor never has been, a party to this case.”
    Each exhibit referred to is a simple written transfer of the property in consideration of $50.00 and other valuable considerations, from Roth, in the one case, to Robertson as agent of the Penn Mutual Life Insurance Company; in the other it is a transfer from the same party to the Penn Mutual Life Insurance Company directly, — dated respectively February 21, 1896.
    On this finding of facts the court found as a matter of law that the transfer was an assignment for all the creditors of Roth and so decreed,' assessed the costs against Roth and Robertson, appointed a trustee and directed him to possess himself of the property, or in the event it had been disposed of to recover the value. This seems a little indefinite; but as both parties treat the language as authority to recover its value from Robertson we shall treat it in the same way, as that was doubtless the intention of the court. Robertson excepted to the judgment and prosecutes error to reverse it.
    
      M. L. Buchwalter and Robert O. Pugh, for plaintiff in error.
    The circuit court, in deciding the case, proceeded upon the idea that the plaintiff in error once having become a trustee for creditors, by the operation of Rev. Stat., secs. 6343-6344 upon the bill of sale made to him, February 18, 1896, no subsequent act of said Robertson or his grantor could relieve him of this responsibility. The authorities will show that the court was mistaken. For instance, it is well established that if the assignee of a fraudulent, or constructively fraudulent, transfer, sells the property to a bona fide purchaser without notice, neither the seller nor the buyer can be held to account to the creditors of the original assignor. Holmes v. Gardner, 50 Ohio St., 36; Webb v. Brown, 3 Ohio St., 246; Swift v. Holdridge, 10 Ohio, 232; Schultz v. Brown, 3 C. C. 609; 2 Circ. Dec., 353.
    It is apparent at once, therefore, that it is not true that a trust brought about by operation of the statute (Rev. Stat., secs. 6343, 6344) is absolute and final, so that it can not be divested or cut off by any subsequent action of the trustee.
    To this doctrine, however, there is a limitation— that, if after sale to a bona fide purchaser, the property in any way comes back to and remains in the assignee of the fraudulent conveyance, the trust for general creditors again attaches and can be enforced. Schultz v. Brown, 3 C. C., 609-611; 2 Circ. Dec., 353, affirmed by the Supreme Court without report (38 Bull., 356).
    An almost similar state of affairs will be found in the case of Hyde & Co. v. Olds, 12 Ohio St., 591; Gaylord v. Cramer, 1 Handy, 369.
    A most striking confirmation of the doctrine of law for which we are contending is found on examination of the Ohio decisions on this subject of fraudulent conveyances: Pendery v. Allen, 50 Ohio St., 121; Gashe v. Young, 51 Ohio St., 376; Pride v. Andrew, 51 Ohio St., 405; Lee v. Hennicks, 52 Ohio St., 177; Brinkerhoff v. Smith, 57 Ohio St., 610; Farmers’ Bank v. Miller, 9 C. C., 111; 6 Circ. Dec., 1.
    Examination shows that in each one of these instances the fraudulent assignee was in possession of the assigned property, at the time action was begun to charge him as trustee.
    The case of Mitchell v. Gazzam, 12 Ohio, 315, goes further than any other Ohio decision we have found. The circumstances were peculiar, and the assignee, in addition, had secured himself by taking indemnity from the creditors he had paid, and was, in any event, in no apparent danger of losing anything by the decision; but, without stopping to criticise, we call attention to the language on page 339, which confirms all that we claim.
    In the case above referred to (which is Swift & Nichols v. Holdridge, 10 Ohio, 231, and not Mahon v. State, which follows), the law, as we claim it is most explicity laid down; Hallowell & Co. v. Bayliss, 10 Ohio St., 536; the doctrine is again expressly recognised in the case of Starr v. Wright, 20 Ohio St., 97, at p. 107 of the opinion, citing in support Swift v. Holdridge, supra, and White v. Brocaw, 14 Ohio St., 339.
    To return to the other Ohio eases on the subject of fraudulent conveyances, we find, Bloomingdale v. Stein, 42 Ohio St., 168; Bloom v. Noggle, 4 Ohio St., 45; Harkrader v. Leiby, 4 Ohio St., 602; Dickson v. Rawson, 5 Ohio St., 218; Bagaley v. Watters, 7 Ohio St., 359; Feed Company v. Shute, 19 Bull., 180; 10 Dec. Re., 198.
    
      Dennis F. Cash and Province M. Pogue, for defendants in error.
    In the trial of this case before the referee he found it created a trust; the court of common pleas so found; the circuit court' so found—Desmond & Ryan v. Roth, 16 C. C., 483; 9 Circ. Dec., 204. That the law as laid down by the circuit court should be sustained by this court, we call attention, briefly, to the decisions with which the court is no doubt thoroughly familiar. Lee v. Hennick, 52 Ohio St., 177; Mass v. Miller, 58 Ohio St., 483; Penfield v. Allen, 50 Ohio St., 132; Gashe v. Young, 51 Ohio St., 377.
    The court in the foregoing cases has had before it transactions similar to the case at bar, an agent taking security. In the case at bar the security was for both principal and agent. The question of fraud does not have any bearing upon the issue. The only elements necessary to exist are that a conveyance was made, which is an assignment in trust in contemplation of insolvency with intent to prefer one or more creditors.
    We wish the court to keep clearly in mind the fact that eo instanti on the execution and delivery of this instrument to Robertson and his acceptance he became a trustee for the benefit of all the creditors of Charles G. Roth. This court has defined that principle clearly wherever Section 6343, Revised Statutes applies from the earliest cases to the present time. Dickson v. Rawson, 5 Ohio St., 218; Hyde v. Olds, 12 Ohio St., 594.
    * Recent decisions of this court have sustained the earlier ones. Brinkerhoof v. Smith, 57 Ohio St., 610.
    These citations establish the proposition that the transaction is stamped with a trust, immediately upon its acceptance, and this is so without reference to any creditors bringing a suit, and the trustee must account to his cestuis que trust, here all the creditors of Charles G. Roth.
    The purpose of Section 6343, Revised Statutes, was to give the creditor a right in the fund created for his benefit when the trust was complete, whether he assented to it or not, and regardless of whether his debt was reduced to judgment or not.
    The trustee cannot divest himself of the trust in the way it is claimed he did in the case, at bar. The court has defined his duty in Brinkerhoff v. Tracy, 55 Ohio St., 558.
    The trustee’s failure to perform this duty cannot shield him, however honest his intentions. He attempted to give his client — one of the beneficiaries of the trust — all of the trust estate to the exclusion of others equally meritorious. He has no one to blame for his predicament but himself. His attempt was futile withoutthe consent of all the cestuis que trust. The assignor had no right to take back the trust estate. Keen v. Hall, 31 Ohio St., 110.
    If the court should find it necessary to go outside of the state to consider other authorities than those referred to, we will call attention to the decisions from other states, first, that the assignment became effective immediately on the acceptance by the assignee, Robertson, and that no act of the assignee could place it back in tbe assignor’s hands by tbe revocation of bis power by tbe assignor. Union Nat. Bank v. Bank of Commerce, 94 Ill., 271; Brown v. Chamberlain, 9 Fla., 464, 479; Mackellar v. Pillsbury, 48 Minn., 396; Shelldon v. Smith, 28 Barb., 594; Walker v.Crowder, 2 Ired. Eq. (N. C.), 478; Ingram v. Kirkpatrick, 6 Ired. Eq., 463; Hall v. Dennison, 17 Vt., 310; Furmon v. Fisher, 44 Tenn., 626; Baker v. Ham, 71 Tenn., 505.
    And, second, that neither by tbe joint act of tbe assignor and assignee can they deprive tbe creditors of tbe right to enforce tbe trust. In re Golden, 110 Pa., 591; Becker New Cases (N. Y.), 379;Alpaugh v. Robertson, 27 N. J.,(Eq.), 96.
    Again, complaint is by plaintiff in error made that tbe insurance company is not, a party to tbe proceeding. It is too late to raise that question; it should have been done by some proper pleading. We have a right to elect whether we shall follow tbe property or bold tbe trustee responsible. Enc. of Law, vol. 27, p. 261; Gashe v. Young, 51 Ohio St., 388, 389; Otmer v. Piatt, 44 U. S. (3 How.), 333, (Story); Bump on Fraudulent Conveyances, Sec. 537 (Sec. 557); Clapp v. Nordemeyer, 25 N.R., 71.
    We therefore claim,
    First: That this transaction comes clearly within section 6343, of tbe Revised Statutes. ,
    Second: That tbe trust arose eo instanti upon tbe execution and acceptance of tbe bill of sale, February 18, 1896.
    Third: That it was tbe duty of tbe trustee, Jttobertson, to file tbe bill of sale in tbe probate court.
    Fourth: That there was no power of revocation by tbe assignor, nor could tbe trustee divest himself of bis trust in tbe way claimed so as to relieve him from accounting to all bis cestuis 'gue trust for tbe property or its value, and therefore the judgment of circuit court should be affirmed.
   Minshall, J.

We do not differ with counsel for the defendant as to the legal effect of the transfer of the property made by Roth to Robertson, February 18, as agent of the insurance company. Having been made in contemplation of insolvency it became at once a trust for the benefit of all creditors of Roth according to the amount of their claims. This is too well settled by the decisions of this court to admit of dispute. Dickson v. Rawson, 5 Ohio St., 218; Brinkerhoff v. Smith, 57 Id., 610; Lee v. Hennick, 52 Id., 180; Maas v. Miller, 58 Id., 483; Gashe v. Young, 51 Id., 376. The question, however, presented in this case is not what was the legal effect on the property transferred, as found to have been made, but what individual liability, if any, attached to Robertson to whom it was made in the first instance? It was made to him for the benefit of another. Hid the law impose on him the legal duty of retaining the porperty and administering it for the benefit of all the creditors; or might he renounce the trust before any steps had been taken by creditors and restore the property to the assignor? We think he could, and -without making himself individually liable to anyone. The statute it will be observed imposes no such duty on the party to whom such an assignment is made. The duty of the probate court to act by the appointment of a trustee, arises only when a transfer has been declared by the proper court at the suit of a creditor, to have been made in trust to prefer one or more creditors (clause in section 6344, Revised Statutes ) ; and its duty then is to appoint a trustee to .administer the property for the benefit of all creditors. . By such judicial action the property is taken from tlie hands of the person to whom the assignment was made, and placed in the custody of a trustee appointed by the court; and all the rights and duties of the party selected by the debtor in respect to the property are terminated. This judicial action consummates the transaction as an assignment for the benefit of creditors; but without doubt relates back to the assignment made to prefer creditors, as against all who take with notice of the facts. The right then of one who has taken an assignment in trust to prefer one or more creditors to renounce the transfer and restore the property before any proceedings are commenced by a creditor, would seem clear, or even afterwards, as such renunciation would be no impediment to the rights of creditors in pursuing the remedies provided them by statute. After the transfer has once been made with intent to prefer, a trust is impressed on the property in favor of the creditors that cannot be affected by anyone. Its trust character follows the property into whose ever hands it may come with notice. It can be established, and the requisite judgment had as to its character, whether the party to whom the assignment was made retains possession of the property or not. His restoring the property in no way affects the character of the trust that had been imposed on it by law; and would seem to be in harmony with the spirit and policy of the statutes. It amounts to no more than a renunciation of a trust forbidden by law, without affecting the rights of general creditors arising from the transaction.

Inasmuch, therefore, as Robertson, as soon as his acts were disaffirmed by the company, restored the property and renounced any claim to it, we are unable to see the justice or necessity of holding him for the value of it. What did the creditors lose thereby? Nothing. The trust imposed upon the property remained unimpaired; and also the right of any one of them to commence a suit in the proper court, making necessary parties, to have the character of the transfer ascertained and determined, and a trustee appointed to administer the trust. Whether Robertson retained the property or not in no way impaired this right. If he had retained the property or disposed of it, other than by restoring it to Roth, a different case would have arisen. In such a case he might well have been required to account for it, or its value. This is fairly deducible from accurate principles as well as from the following cases: Swift v. Holdridge, 10 Ohio, 230; Hallowell & Co. v. Bayliss, 10 Ohio St., 536, 543; White v. Brocaw, 14 Ohio St., 339, 341; Starr v. Wright, 20 Ohio St., 97, 107. That these cases relate to instances' where there had been a fraudulent conveyance does not affect the principle on which they proceed. So far as moral turpitude is concerned, there is little or no difference between one who takes a conveyance in fraud of creditors and one who takes a conveyance in trust for the benefit of one or more creditors; either in law is a fraud on general creditors. So that if a fraudulent grantee may, by restoring the property, avoid being held as a trustee, there is no reason why a fraudulent grantee in trust, may not avoid being held liable to general creditors by restoring the property and renouncing any claim to it as trustee or otherwise, especially where his act is not shown to have worked any prejudice to other creditors.

The purpose of the statutes requiring conveyances in fraud of creditors to be set aside at the suit of any creditor, and such as are made to a trustee to prefer one or more creditors, to be declared for the benefit of all creditors, is not to inflict punishment or penalties on any of the parties, but to deprive them of the advantages thereby sought to be attained; neither the fraudulent grantee nor the preferred creditors are deprived of their rights as general creditors. Pendery v. Allen, 53 Ohio St., 251; Jaminson v. McNally, 21 Ohio St., 295.

Such assignments are not within section 6335, Revised Statutes. Assignments within this section are voluntary assignments, made for the benefit of all the debtor’s creditors. Those provided for in sections 6343 and 6344 arise from operation of law contrary to the purpose of the parties; and there is no authority in any court to administer them for the benefit of all creditors until their character has been determined and declared by a proper court. The probate court has no such power. In Wambaugh, Trustee v. Insurance Co., 59 Ohio St., 228, the assignment was on its face a voluntary one and expressed to be for the benefit of all the assignor’s creditors, and is not at variance with the views here expressed.

Our attention is called to what is said in Brinkerhoff v. Tracy, 55 Ohio St., at p. 572, that “The legal duty of the trustee, Brinkerhoff, was, under the circumstances, disclosed by the petition, to have filed the agreement with the mortgagor in the probate court, and have had the trust administered as an assignment for the benefit of all the creditors of the plaintiff; for such, in law, was its legal effect.” This was a suit to recover damages for the failure of the trustee to carry into effect the provisions of a mortgage given for the benefit of certain of the plaintiff’s creditors. It was regarded as against public policy, and a recovery was denied. The language was not material to the determination of the question, was made without proper consideration, and is mere obiter.

There seems to have been a defect of necessary parties to the suit, as the insurance company, one of the real parties, was not made a party. But as it is our judgment that Robertson should have been dismissed as prayed for, it is not necessary to consider the question.

■Judgment reversed, and judgment for Robertson.