Case ID: ohio-st_38/html/0076-01.html
Source: Caselaw Access Project
Author: {"author": "White, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Shorten v. Drake.
    1. "Where a debtor purchases real estate and causes it to be conveyed to his wife in fraud of his creditors, a bona fide mortgagee from the husband and wife, will not be affected by the fraud.
    2. The possession of the husband and wife at the time of taking the mortgage will not charge the mortgagee with notice of the fraud; nor will he be affected by notice of levies made upon the property as that of the husband, subsequent to the conveyance to the wife.
    3. The levy of an order of attachment, in the absence of process of garnishment, has no greater operation than the levy of an execution.
    4. Where, in a court of equity, the fund in controversy is held for distribution, and the equities of the respective claimants are equal in point of merit, the distribution will be ordered according to the maxim, gut prior est tempore potior est jure.
    
    Error to the District Court of Hamilton County.
    This case was before this court at a former term, and is reported in 34 Ohio St. 645, under the name of Shorten v. Woodrow. In that case the judgment below was reversed and the cause remanded for the ascertainment of the priorities of liens upon the premises in controversy in the case, and for distribution of the proceeds of the sale of such premises. Upon the trial of the case for that purpose, in the superior court, upon the answer and cross-petition, and supplemental answer and cross-petition of Samuel Shorten, and his amended answer and cross-petition, the answer of Alexander McMillan, and Eleanor, his wife, and the amendment to their amended answer and cross-petition, and the answer of said Shorten thereto, the answer and cross-petition of William S. Grant, administrator of Samuel Grant, deceased, and the proof and exhibits submitted by the parties, in addition to the findings of fact reported in 34 Ohio St. 645, that court found: that said Sargent and wife continued to occupy said premises until the sale in this suit; that the judgment in favor of Samuel Grant was based on an indebtedness of said Sargent occurring prior to the said conveyance to Drake, and that at the time of the making of the mortgage hereinafter mentioned, by said Sargent and wife to Shorten, the said Shorten had actual notice of the levying of said execution on said premises as the property of said Sargent; that the order of attachment in the suit of McMillan and wife against said Sargent, was grounded on the statement, verified by-affidavit, that Samuel A. Sargent had property and rights which he concealed for the purpose of defrauding his creditors, and that the indebtedness in said action sued upon arose and was a subsisting cause of action in 1861. At the time of the making of the mortgage by Sargent and wife to Shorten, hereinafter mentioned, the said Shorten had actual notice of the levying of said attachment on said premises, as the property of said Sargent. >
    And as to the Sargent mortgage that court found as follows :
    That on January 1, 1872, the said Sargent and wife executed, in due form of law, a mortgage deed to Samuel Shorten of the premises in controversy, to secure the payment of a debt therein mentioned, which said mortgage was recorded on the day last mentioned; that at the time of the giving of said mortgage the said Shorten was the owner of certain promissory notes given to him by the said Sargent, for money loaned to him by the said Shorten; that on giving of said mortgage the said Shorten surrendered said notes to said Sargent and received in lieu thereof, from said Sargent, the notes described in said mortgage; that at the time of the making of said mortgage the notes, first held by said Shorten, were due; and the amount due thereon was the full amount mentioned in said mortgage, and that by the giving of said mortgage to said Shorten the time for the payment of the amount due from the said Sargent to the said Shorten, was extended by the said Shorten; and that at the time of receiving the mortgage said Shorten did not, in fact, have notice, that said conveyance from Clark to Drake (see first and second findings 31 Ohio St. 615) was made or received in the manner and with the purpose and intent therein set forth, but that the said Shorten, at the time of the taking of said mortgage deed, believed Mrs. Sargent to be the bona fide owner of said premises described in said mortgage deed.
    As conclusion of law from the facts, the superior court found, that MeMillan and wife, by reason of said attachment, acquired a lien on the premises in controversy prior to the claims of all the other defendants except Steele, who was a prior lien bolder; and ordered that tbe unpaid balance of the proceeds of tbe sale of the premises be distributed as follows : 1st. To tbe payment of tbe unpaid costs. 2d.'To Steele, tbe sum of $1,500, with interest from October 27, 1873. 3d. Tbe remainder to McMillan and wife.
    On error to tbe district court, that court affirmed tbe judgment of tbe superior court as to Shorten, and reversed it as to "William Grant, and ordered that out of tbe proceeds of the property there be paid: 1st. All unpaid costs except those adjudged against Samuel Shorten. 2d. To tbe payment of tbe judgment in favor of George W. Steele. 3d. To "William Grant, tbe amount of bis judgment. 4th. Tbe balance to Alexander McMillan and wife.
    This proceeding is on tbe petition in error of Samuel Shorten and tbe cross-petition of Alexander McMillan and wife, prosecuted to obtain tbe reversal of tbe judgment of tlie district court.
    
      D. Thew Wright, for Shorten :
    Tbe interest of Samuel A. Sargent in bis wife’s property was only an - equitable interest, and therefore could not be levied on either in execution or attachment.
    1. As to executions, see 2 S. & C. 1063; Roads v. Symmes, 1 Ohio, 314; Manly v. Hunt, 1 Ohio, 257; Jackman v. Hallock, 1 Id. 320; Baird v. Kirtland, 8 Id. 21; Scott v. Douglas, 7 Id. 227; Douglas v. Hudson, 6 Id. 156; Haynes v. Baker, 5 Ohio St. 253; Morris v. Way, 16 Ohio, 469; Lawrence v. Belger, 31 Ohio St. 175.
    Tbe code provides bow any “ equitable interest ” in “ real estate ” may be reached. § 458, 2 S. & O. 1086. By proceedings in aid, or “ by action.”
    Why this, if there could be a levy and sale on execution, and this remedy could only be bad after judgment? Drake on Attachments, § 225.
    Tbe very language of tbe code (§ 458,2 S. & 0.1086) shows that an interest like this cannot be levied on.
    
      “ When a judgment debtor has not personal or real property subject to levy on execution, . . . any equitable interest which he may have in ’real estate,” &c., may be subjected “ by action.”
    “ If the equitable interest ” was “ subject to levy,” why the necessity of an “ action ” ? It is because the equitable interest is not subject to levy that the action is a necessity.
    Neither was Sargent’s interest such as that it could be seized in attachment.
    What is it that can be attached % “Lands, tenements, goods, chattels, stocks, or interest in stocks, rights, credits, moneys, or effects.” Code, § 194, 2 S. & C. 1004; R. S. 5524. This interest was attached as “lands or tenements.” The same language is used in regard to what can be taken in execution. Code, § 420 ; 2 S. & C. 1063. But it does not cover equities. Lawrence v. Belger, 31 Ohio St. 180.
    It may be that if McMillan had garnisheed Mrs. Sargent, he might have reached this interest. Section 200, 2 S. & C. 1005, provides that, if the garnishee has “ property ” of defendant, it may be reached. Section 205 provides that the garnishee shall be liable for all property, moneys, and credits in his hands.” Page 1006.
    The learned counsel misconceive the effect of section 221, Code, 2 S. & C. 1009, and Cary v. Fenstemaker, 14 Ohio St. 457. The “ equitable title” referred to in section 221 refers to personal property, as also does the case of Cary v. Fenstemaker. This case' recognizes the general principle that equitable titles cannot be taken in execution at common law, though the code prescribes that, such interests may be attached.
    The property belonged to Sargent’s wife. However fraudulent the deed to her may have been, it is good, until set aside by a proper party and proceeding. Floyd v. Smith, 9 Ohio St. 546; Swift v. Holdridge, 10 Ohio, 230; White v. Brocau, 10 Ohio St. 339; Crumbaugh v. Kugler, 2 Ohio St. 373. The property, therefore, was the wife’s, and the possession of the husband was a possession under her, not in his own right. Possession follows the deed. Lessee of Borland v. Marshall, 2 Ohio St. 308, 313, 314. The following are cases where the insolvent debtor pays for land, but has it conveyed to some one else than himself. Wall v. Fairley, 77 N. C. 105; Rhem v. Tull, 13 Ire. (Law) 57. And, in these cases, it is held that there is no interest of the Judgment debtor that can be levied on and sold. Freeman on Judgments, § 347.
    The case of Jeffries v. Sherburn, 21 Ind. 112, is a case where the debtor held an equity, coupled with possession, yet a judgment was not a lien thereon; and the same is held in Modisett v. Johnson, 2 Blackf. 431.
    
      O. B. Matthews, for McMillan :
    1. No lien was obtained by Grant’s levy. A mere equity cannot be taken upon execution. Haynes v. Baker, 5 Ohio St. 255; Roads v. Symes, 1 Ohio, 281; Morris v. Way, 16 Ohio, 478; Baird v. Kirtland, 8 Ohio, 25.
    The reason of this is very obvious. An execution is a legal process — the legal machinery whereby the debtor’s property is applied to the payment of a judgment. The law does not recognize equitable interests. Its machinery has not that elasticity necessary in order to deal with them.
    A mere possessory interest may be sold upon execution, because it is recognized by the law as a legal interest, though the lowest. Scott v. Douglass, 7 Ohio, 228. If Sargent had any equitable estate at all, it was the fee, but it did not arise by reason of his possession, if he had any, but from the payment of the purchase-money. His alleged possession alone would not enable him to go into a court of equity to control the property. Therefore it would seem plain that the equity could neither coalesce with nor follow the legal possession. Huntington v. Rogers, 9 Ohio St. 511. It is doubted whether the principle that a possessory interest may be sold is one of universal application. The court declines to decide whether the equity goes with such a sale. But Sargent was not in possession at all. The possession of Sargent was the possession of Mrs. Sargent. Lessee of Barton v. Heirs of Morris, 15 Ohio, 430.
    Sargent had no equitable title, either because no trust would result to him under the circumstances. Vanzandt v. Davies, 
      6 Ohio St. 52. Therefore there was no kind of interest in Sargent to be sold upon execution. We say upon execution, because that there was an interest somewhere that could be appropriated by other means is certain. A sale on execution carries only what belongs to the judgment debtor. Klein's Lessee v. Graham, 3 Caines, 188. The effect of a conveyance in fraud of creditors is that the conveyance is good as to all the world except creditors. Bump on Fraudulent Conveyances, 256, 448, 451, 456. It is good as to all creditors except those who institute the proper proceedings to annul it. Bump on Fraudulent Conveyances, 452, 454, 455. The statute of frauds is merely declaratory of the common law. Bump on Fraudulent Conveyances, 256; Story Eq. Jur. 350, 352, 371, 377, 381; Lessee of Barton v. Heirs of Morris, 15 Ohio, 430.
    II. The attachment of McMillan was based on the fraud of Sargent. The judgment in that case was for the amount, and was entered on the date stated in the answer and cross-petition of McMillan and wife, in this cause, and it ordered the said land to be sold to satisfy it. The estate was subject to the levy and lien of an order of attachment, and was so bound from May 27, 1870. Section 191 of the Code, 2 Swan. & Or. 1002, provides that the plaintiff in a civil action may have an attachment against the property of the defendant, upon the grounds, among others : 7. That the defendant “ has property or rights in action which he conceals.” Or 8. “ Has assigned, removed or disposed of, or is about to dispose of his property, or a part thereof, with the intent to defraud his creditors.” . Here are statutory provisions in favor of attaching creditors in excess of those in favor of execution creditors. These provisions are very broad, and must reach property situated as this land was, or else, under the seventh ground and a part of the eighth, no real estate could be reached. A debtor may conceal his interest in real estate only by suffering the legal estate actually, or apparently, to remain in another. Actually, by not taking any deed or taking a deed in the name of another, or apparently, by abstaining from recording his deed. The creditor cannot, so far as the record informs him, ascertain which means have been adopted. The eighth clause reaches eases where he has conveyed real estate with the intent to defraud his creditors. In which case he has neither legal nor equitable title, for, as against him the conveyance is good, but upon the principle that he must be just before he is generous, the law allows creditors to step in by process of attachment, and reclaim that which was substantially their own before the conveyance. Section 221 of the Code (2 Swan & Cr. 1009), provides : “ If judgment be rendered for the plaintiff, it shall be satisfied as follows : So much of the property remaining in the hands of the officer, after applying the moneys arising from the sale of perishable property, and so much of the personal property, and lands, and tenements, if any, whether held by legal or equitable titles, as may be necessary to satisfy the judgment, shall be sold by order of the court, &e. And tile money arising therefrom, &c., shall be applied to satisfy the judgment and costs. The two sections settle the matter beyond dispute. An attachment issued as a provisional remedy, under the code, authorized the sheriff to seize any property which the defendant therein has disposed of in any manner with intend to defraud his creditors. Hall v. Stryker, 27 N. Y. 596; Rinchey v. Stryker, 28 N. Y. 45; Rinchey v. Stryker, 31 N. Y. 140; Sykes v. Keating, 118 Mass. 517. The claim of McMillan and wife is not a mere equity.- They obtained a specific statutory lien at the date of the attachment. Skinner v. Oettinger, 14 Abb. Pr. (N. Y.) 109.
    III. As to Shorten’s mortgage. It was taken nearly two years after the levy of McMillan’s attachment, at a time Avhen this suit-was pending, and after an order for the sale of the premises had been entered. The property was already incumbered by four prior mortgages which subsisted until paid out of the proceeds of the sale herein. He also took his mortgage with full actual notice of the attachment of McMillan and wife, and without advancing any money at the time, but merely extended a subsisting indebtedness. As Shorten took his mortgage after the court had ordered a sale he took nothing but a lien on the proceeds. For that reason, and further, because the legal estate had been conveyed to a prior mortgage, he did not get in the legal estate. Shorten was not a bona fide purchaser or mortgagee. He paid nothing for his security. As between Sargent and himself a mere extension of payment would be a consideration, but as between McMillan and wife and him, it was not a valuable consideration, otherwise he might create it for the very purpose of defrauding them without costing him anything. A bona fide purchaser must pay a valuable consideration without notice of the rights of others. Shorten paid nothing and had notice. He advanced his money without security, and knowing that Sargent was being sued and having his property levied on, took what he could get ut a venture. Could he, knowing of the rights of McMillan, by his own act, a mere extension of time, which cost him nothing, make himself a bona fide purchaser ?
    
      John W. Herron, for Grant:
    As to creditors, the property in dispute belonged to Sargent. It is admitted that he purchased and paid for it, and, for the purpose of cheating his creditors, caused the title to be placed in another. He was in possession of it all the time. He owned the property. There was nothing outstanding but a naked legal title, left outstanding for the purpose of cheating his creditors. And hence it was subject to execution, levy and sale as his property. Scott v. Douglas, 7 Ohio, 228; Minor v. Wallace, 10 Ohio, 404; Bunker v. Rand, 19 Wis. 259; Jackson v. Scott, 18 Johns, 94; Turner v. Saunders, 4 Scam. 527. The cases cited seem to me to establish these points : 1. The possessory title of the defendant may be seized on execution and sold. 2. Neither the debtor nor those claiming under him will be permitted to deny as against the purchaser at such sale, that he owned the property at the time of the sale. It has been held in a variety of cases cited in Freeman on Executions, § 189, that the interest of a party under a resulting trust may be seized on execution and sold. Foote v. Colvin, 3 Johns. 216. So the interest of a mortgagor in possession, after condition broken, was always held subject to levy, and yet his interest was merely an equity of redemption. Is the case different where the property, as in the present case, was conveyed to another for the purpose of concealing it from the creditors of the judgment defendant, the purchase-money having been furnished by him ? What was the interest of the judgment defendant in this property ? As to creditors, it was his property. Had the conveyance been made by him to Drake, it would have been void and the property subject to levy by any creditor having a judgment. If the conveyance is procured to be made to a third party in order to defraud creditors, declaring the conveyance void would not help the creditors. The rule is stated by Bump, page 265. The debtor will not be permitted to set up his own fraud, and therefore he cannot claim the benefit of a resulting trust in his favor; but as to the creditors, no such disability prevails. They can pursue and hold the property and subject it to the payment of their claims, by execution ; by attachment; by proceedings in aid of execution, or by an action to subject it. The law will not quibble about the mode of procedure; it will not permit justice to be defeated or evaded by subterfuges; it will take the debtor’s property wherever it may find it, and hold it for the benefit of the creditors. Winder v. Starling, 7 Ohio, 539; Rankin v. Harper, 23 Mo. 579; Ghormly v. Potter, 29 Ohio St. 598.
   White, J.

This case was before this court at a former term, and is reported in 34 Ohio St. 645. It was there held that the conveyance from Clark to Drake, and the subsequent one from Drake to Mrs. Sargent are not within the operation of section 17 of the act regulating the mode of administering assignments in trust for the benefit of creditors, as amended February 12, 1863. S. & S. 397; 1 Sayler, 354. The judgment of the court below was reversed and the cause remanded for distribution of the proceeds of the sale of the property.

The question now before the court is as to the respective rights on distribution of Grant, a judgment creditor, whose judgment was recovered March 8, 1870, and execution levied April 12, following; McMillan and wife, attachment creditors, whose attachment was levied May 27, 1870; and Shorten, a mortgagee, whose mortgage was executed by Sargent and wife January 4, 1872, and recorded the same day.

1. As to the priority of the mortgage. At the time of taking tbe mortgage the legal title was held by Mrs. Sargent, and the findings show that the mortgagee had no notice of any fraud or infirmity in it. The mortgage is supported by a valuable consideration passing a* the time of its execution, and the mortgagee took it, as is said in the finding, believing Mrs. Sargent to be the bona fide owner of said premises described in said mortgage.”

The mortgagee therefore stands on the footing of a bona fide purchaser for value of the legal title, and is entitled to be protected as such.

This position of the mortgagee is sought to be impugned on two grounds; (1) That Sargent, the judgment debtor, was in possession at the date of the mortgage, and that the mortgagee was chargeable with notice of such possession; (2) That he had notice of the levies of the execution and of the attachment.

As to the first ground. ‘The possession of Sargent was not adverse to the title in his wife, but consistent with it, and in the absence of fraud, his possession was referable to his marital rights in her property. The notice of possession with which the mortgagee was chargeable was the possession as it existed at the time of taking his mortgage, and not as it may have existed anterior to the conveyance to Mrs. Sargent.

As to the second ground. The execution and the attachment were not against Mrs. Sargent, in whom was vested the legal title, but against her husband, a stranger to the title, except as respects his possession in his marital right, which, under the statute concerning the rights of married women, was not subject to be taken in payment of his debts. The levies were subsequent to the conveyance to the wife, and could not affect a bona fide purchaser or mortgagee under such conveyance.

2. After satisfying the mortgage, the remaining question is as to the priority between the execution and the attachment.

In the first place it may be remarked that no question arises as to what rights may be acquired by the creditor under the process of garnishment in the proceeding in attachment. No such process was had in the present case. The levy of the attachment, like that of the execution, was made as upon the lands and tenements of the debtor ; and where the attachment is thus executed its operation is no greater, in our opinion, than the levy of an execution. It has the like effect before judgment that an execution has after judgment.

The present suit is in equity. The fund, in controversy was raised by a sale made in a court of equity, and is now held for distribution upon the principles by which such courts are governed. The only parties that can be supposed to have any interest in the distribution are the execution and the attachment creditors, the debtor, and his wife. The title of the wife is held in fraud of the rights of the creditors; hence cannot be set up to defeat those rights. In equity, as against these creditors, she stands on the same footing as though her title had not been acquired. The debtor himself can of course assert no claim to the fund, neither as against his wife nor the creditors.' The question then simply is as to the respective rights of the execution creditor and the creditors in the attachment. Their equities are equal in point of merit; and where the equities are equal, the law or the analogy of law will prevail. The maxim in such case is, qwi prior est tempore potior est jure.

In Adams’ Equity (*p. 162) it is said: “If there be no legal right, or, in respect of equitable subject-matter, no perfect equitable right in any of the claimants, as, for example, if the estate be still outstanding in the original owner, or in some third person not constituted a trustee for any claimant individually, the claims will be satisfied in the order of date.”

In Brewster v. Power (10 Paige, 562), the application of the principle is thus declared : “ Where there is a resulting trust in favor of the creditors of the person who pays the consideration for real estate and takes a conveyance in the name of another, in fraud of their rights, it seems that a judgment recovered by one of such creditors is in equity a lien upon such real estate, except as against bona fide purchasers without notice ; although such estate cannot be sold under an execution upon the judgment.” The same principle is applied in Lynch v. Utica Ins. Co., 18 Wend. 236, 253.

In the present case the equities of the creditors were perfect against Mrs. Sargent to have the property subjected to the payment of their judgments; and they are entitled to share in the proceeds according to the dates at which their respective equities accrued.

Judgment reversed, <md distribution ordered in aocorda/nee with the foregoing opinion.