(Clinton Co., O., Common Pleas,

July, 1900.)

#### IN RE ASSIGNMENT OF JOSEPH W. SUMMERS.

*Constitutional Law*— Act *relating to conveyances by*Insolvents—

1. Section 6343, Rev. Stat., as amended 39 O. L., 290 and 291, providing that every sale, conveyance, transfer, mortgage or assignment made by a debtor or debtors in contemplation of insolvency shall be void, or, in the event of a deed of assignment for creditors being filed within ninety days after the giving thereof, shall be void, if such debtor or debtors were actually insolvent at the time of such _ giving and providing that nothing therein contained shall affect any mortgage made in good faith to secure any debt or liability created simultaneously with such mortgage, if the same be properly filed, as therein described, is constitutional.

*Sec.*6344, *R. S., is also*Constitutional—

2. Section 6344, Rev. Stat., as amen led 39 O. L., 290 and 291, providing that any creditor as to whom any of the acts in sec. 6343 are void may commence an action to have such acts declared void, and any assignee shall bring suit to recover all property so sold, conveyed, mortgaged or assigned, or in case of his failure to commence such suit, upon notice to do so by a creditor, such creditor may himself commence such suit, is constitutional.

*Mortgage by Insolvent*— Validity—

3. A chattel mortgage given by an insolvent person to a bank to secure a certain sum of money, within ninety days before making an ; assignment for creditors, a part of which sum ■ was an old debt owed by the insolvent to the bank, and a part was for money advanced by1 the bank to the insolvent at the time of the giving of the mortgage, is void as to the preexisting indebtedness and valid as to the money so advanced.

Brown, J.

This matter comes before the court on appeal; from the probate court.

Joseph W. Summers made a general assignment for the benefit of his creditors to E. J,. Hiatt and the same was duly filed in the office-of the probate judge of said county on. November 29, 1899, at 12:40 P. M. Hiatt forthwith qualified as assignee and has been acting as such.

On December 12, 1899, the assignee applied to the probate court for an order of sale of the personal property, the personal property was sold and before distribution, the New Vienna Bank, claiming to be a creditor, on January 22, 1900, was made a party defendant and leave was granted to plead forthwith. And thereupon it filed its answer and cross-petition.

It avers that it is a partnership organized under the laws of Ohio for the purpose of carrying on a banking business, waives the issuing and service of summons and voluntarily enters its appearance, and avers that said Joseph W. Summers is indebted to it in the sum of one thousand dollars on a promissory note, dated November 27, 1899; that at the time of the delivering of said note, the said Summers executed and delivered to it a chattel mortgage upon the following described goods and chattels : 135 hogs, 25 long yearling steers, and 25 yearling steers, all being on the farm of said' Summers in Greene township, Clinton county, Ohio, and sets up the condition of the mortgage, that the mortgage was duly filed at 12:3o P. M. on November 27, 1899; that the bank had no other security therefor and asks the court to determine the amount due upon the note and asks for payment from the fund.

The assignee files an answer to this pleading, admitting that the bank is a partnership, averring that he knows nothing of the various-matters set forth in the cross-petition and therefore denies them. For a second defense, says that the note, for a thousand dollars set up by the bank represented an old debt which was-simply renewed about September 27, 1899, for the purpose of giving said New Vienna Bank a preference for the exclusion in whole or in part of the other creditors of Summers; that Summers was, on November 27, 1899, insolvent; that on November 28, at 12:40 P. M., he made a general assignment to the said E. J, Hiatt, who forthwith qualified and is now the assignee; that the execution and delivery of the mortgage to the bank was with" the intent *675-to hinder, delay and defraud the other creditors ■of Summers; denies that the mortgage evidences any new debt or liability created simultaneously with the mortgages, but avers that ■■the sole consideration for the mortgage is a prior debt, and that no new debt or liability, whatever was created at the time of the exe-cution and delivery of the mortgages; and prays that the mortgage may be set aside and ■the property conveyed thereby may be ordered distributed among the general creditors of said Summers.

The bank replied by denying all the allegations contained in the answer of the assignee.

On March 21, the probate court found upon the law and the evidence in favor of the said assignee on his said answer and that the mort.gage set out in the cross-petition of the -bank was given to secure a pre-existing indebtedness of the said Summers and for the’purpose of giving the said bank a preference to the exclusion in whole or in part of the other creditors; that Summers was, on November 27,1899, insolvent; that-the assignment was made on November 29, and that the mortgage was made to hinder, delay and.defraud the other creditors of Summers, and that the mortgage is void and of no effect as against the other creditors of Summers, and thereupon vacates and sets aside and cancels the mortgage and renders judgment for costs against the bank. Thereupon a notice of appeal- is given, appeal bond fixed and given by the bank and the matter comes into this court.

A hearing was had and after the close of the testimony, counsel for the bank filed a demurrer to the answer and cross-petition of the assignee upon the following grounds:

> “1. Said probate court had no power or jurisdiction to determine the issues presented in said answer and cross-petition touching the validity of said chattel mortgage held by said the New Vienna Bank.

> “2. Said probate court had no power or jurisdiction to declare said chattel mortgage void as to the other creditors of said assignor, nor as to said assignee, nor to decree a can•cellation thereof, nor to declare that the same inured to the benefit of all the creditors of ■said assignor.

> “3. This court on appeal has no power or-.jurisdiction to inquire into or determine any ■ of the matters aforesaid.”

The testimony shows that on November 27, 1900, the said Summers was indebted to the bank upon an old note upon which his father was security in the sum of $618.78 and he stat- ■ ed to the bank that he desired to purchase some feeding cattle, and hogs, as he had considerable corn and desired to make an additional loan, to make the amount of his indebtedness one thousand dollars, that the bank agreed to increase the loan provided he would give it a chattel mortgage upon the live stock. Thereupon Summers executed his note for one thousand dollars, due in ninety days and gave his chattel mortgage upon the live stock and the bank advanced him ¥371. 72.

The cashier of the bank who transacted the business testified that he had looked upon the mortgage record and knew that there were some mortgages against the farm of Summers, that he asked Summers several times about his business, that he said he was getting along all right and was paying his debts, and that he had no idea that Summers was insolvent at that time, and that he was under the impression that Summers would be able to pay his debts, that he had regarded Summers as a solvent upright man; that he had regarded John J. Summers, the security on the old note as perfectly solvent and a good man, and examined the record as to John J. Summer’s mortgage indebtedness and he found some mortgages but that he considered him good.

It was admitted by counsel at the trial that Joseph W. Summers was insolvent at the time of making the chattel mortgage, that at the time of the execution of the mortgage he had mortgages on his real estate for about five thousand dollars in excess of its value. It is further admitted that the assignee realized $734-95 from the sale of the live stock. There were in fact only nineteen head of cattle instead of the number named in the chattel mortgage.

J. W. Summers testified that at the time of the giving of the chattel mortgage to the bank that he had no intention of making an assignment and no intention of preferring the bank over any other creditor, or to hinder, delay or defraud any other creditor, nor was it his intention at that time to make an assignment for the benefit of his creditors.

The finding of the probate court was founded upon secs. 6343 and 6344, R. S., as amended in 93 O’. L., 290 and 291, as follows:

> “Sec. 6343. Every sale, conveyance, transfer, mortgage or assignment, whether made in trust or otherwise, by a debtor or debtors, and every judgment suffered by him or them, and every act or device done or resorted to by him or them, in contemplation of insolvency, or with a design to prefer one or more creditors to the exclusion in whole or in Part of others, and every sale, conveyance, transfer, mortgage or assignment made or judgment suffered by a debtor or debtors, or procured by him or them to be made, in any manner, with intent to hinder, delay or defraud creditors, shall be *676declared void as to creditors of such debtor or debtors, at the suit of any creditor or creditors, as hereinafter provided, and shall operate as an assignment and transfer of all the property and effects of such debtor or debtors, and shall inure to the equal benefit of all creditors of such debtor or debtors in proportion to the amount of their respective demands, including those which are unmatured. And every such sale, conveyance, transfer, mortgage or assignment made, and every such judgment suffered, and every such act or device done or resorted to, by any debtor or debtors, in the event of a deed of assignment being filed within ninety (90) days after the giving or doing of such thing or act, shall be conclusively deemed and held to be fraudulent, and shall be held to be void as to the assignee of such debtor or debtors, whereupon proof shown, such debtor or debtors was or were actually insolvent at the time of the giving or doing of such act or thing, whether he or they had knowledge of such insolvency or not. Provided, that nothing in this section contained shall vitiate or affect any mortgage mad'e in good faith to secure any debt or liability created simultaneously with such mortgage, if the same be filed for record in the county wherein the property is situated, or as otherwise provided by law, within three (3) days after its execution, and where upon foreclosure or taking possession of such 'property the mortgagee fully accounts for the proceeds of such property.”

> “Sec. 6344. Any creditor or creditors, as to whom any of the acts or things prohibited in the preceding section are void, whether the claims of such creditor or creditors has matured or will thereafter mature, may commence an action in a court of competent jurisdiction to have such acts or things declared void, and such court shall appoint a trustee according to the provisions of this chapter, who upon being duly qualified shall proceed by due course of law to recover possession of all property so sold, conveyed, transferred, mortgaged or assigned, and to administer the same for the equal benefit of all creditors, as in other cases of assignments to trustees for the benefit of creditors. And any assignee as to whom any thing or act mentioned in the preceding section shall be void, shall likewise commence a suit in a court of competent jurisdiction to recover possession of all property so sold, conveyed, transferred, mortgaged or assigned, and shall administer the same for the equal benefit of all creditors as in other cases of assignments to trustees for the benefit of creditors; provided, that where such assignee fails or declines, upon notice by any creditor or'creditors to institute such suit, such creditor or creditors may themselves institute such suit within five days after serving notice upon such assignee to commence such suit, and the procedure and administration shall be the same as is hereinbefore provided for suit commenced by any creditor or creditors.”

The question of the constitutionality of these-sections as amended was raised by counsel for the bank, and a demurrer was afterward*, filed for that purpose. The origin of these sections in controversy was the act of 1835, Curwen, 161, which -inhibited only fraudulent conveyances. This was amended in 1838, Cur-wen, 424, which referred to all assignment*, of property in trust to trustees in contemplation of insolvency with design to prefer one or more creditors to the exclusion of others, should be held to inure to the benefit of all of the creditors. This act was amended in 1853, giving the court control of such trust, with authority to require security from the trustees. This act was amen ’ed in 1859, S. & C, page 712, sec. 16 of the Insolvent Debtors Acts, which provided that all assignments in trust to a trustee or trustees made in contemplation of insolvency with intent to prefer one or more creditors shall inure to the equal benefit of all creditors in proportion to the amount of their respective claims, and the trusts arising under the same shall be administered in conformity with- the provisions of this act.

This act was carried into the revision of 73 O. L., 938, and the two sections of that act were carried into the revision of 1880 and became secs. 6343 and 6344, R. S.

Under .these sections two classes of assignments are declared voidable. Under section 6343 assignments in trust to a trustee in contemplation of insolvency and with intent to prefer one or more creditors, and under section 6344 to hinder, delay and defraud creditors and unless the transaction came under these sections creating a trust or were made with specific intent to defraud, it was valid. All preferences were not condemned and only under these circumstances did the special assignment for particular creditors become a general assignment for all creditors. The debtor although- hopelessly insolvent might still prefer his creditors by paying money, by the transfer of any of his property either by mortgage or deed, by confessing judgment, by collateral security. This is clearly stated in *Cross, Trustee*v. *Carstons,*49 Ohio St., 548, and the cases therein cited and referred to.

Counsel argue that under these sections as now in force, every sale, conveyance, transfer, mortgage or assignment, whether made in trust *677or otherwise, every judgment suffered and every act done by a debtor — (1) in contemplation of insolvency, or (2) with design to prefer, or (3) with intent to hinder, delay or defraud, shall be declared void at the Suit of any creditor, and (4) in every act as afore: said done or suffered, in the event of an assignment being made by such debtor within ninety days after, shall be conclusively deemed fraudulent and void as to his assignee whether he was actually insolvent at the time of the giving or doing of such act or thing, and whether he or they had any' knowledge of such insolvency or not; that all possible forms of transferring property and all possible modes of acquiring security are condemned, the trust feature of the old statute being eliminated; that a party who deals with a debtor is left absolutely at the debtor’s mercy; that even if the transaction is honest when made with no fraud or illegality, it may by one party be converted into a conclusively fraudulent transaction by simply making an assignment within ninety days.

Counsel in this case argue very elaborately and at great length, citing examples and au-thorities to show that this law' was in contravention of the constitution, was unconstitutional and void, and that, therefore, secs. 6343 and 6344, R. S., should remain as they were prior to this enactment.

I have studied this question very closely, and while I frankly admit to counsel that I have grave doubts as to some of the features of the act, I cannot make up my mind that it is such a case as should warrant a common pleas judge in holding an act of such great importance (and which has been acted upon for over two ' years in this state without having been so declared by a higher court as) unconstitutional and void.

I have come to the conclusion that the interpretation placed upon it by counsel of the bank is somewhat strained notwithstanding his many able arguments, citations and illustrations. The intention of the legislature was evidently to rearrange and add to these sections, as suggested by Judge Spear in *Cross, Trustee*v. *Carstons,*49 Ohio St., 548, 566, wherein he says:

“Had it intended to include within the class of instruments which were to be held as general assignments for the benefit of creditors equally, all transfers and conveyances whatever made by a failing debtor, what more easy way than to say just that thing?

The sections have been changed by the addition of the provision as to suffering or procuring judgments by the insolvent debtor, —otherwise the only change from the effect of the original is the addition declaring certain acts done within ninety days “shall be conclusively deemed and held to be fraudulent and shall be held to be void as to the assignee whereupon proof shown” such debtor or debtors was or were actually insolvent at the time, whether the creditor had knowledge of such insolvency or not. The amendment simply limits the time to ninety days within which time “upon proof shown” that the debtor was actually insolvent whether the debtor knew it or not, the sales, etc., provided for in the "original section shall be conclusively deemed and held to be fraudulent and shall be held to be void as to assignee. Under this-amendment, if a debtor was actually insolvent whether known or not, the conveyance is *per se*fraudulent, but this must be established by proof.

The only change made from the original section in regard to transfers is that in regard to judgments and that any such conveyance and judgments made within ninety days of the assignment shall be deemed-fraudulent and void if the proof shows the debtor was actually insolvent.

And leaving the question of intent which it was necessary to show under the original sections, it is only when a deed of assignment is made that the conveyance becomes fraudulent and void by the suit of the assignee, not of the debtor.

Before the amendment, if the sale, etc., was-made in contemplation of insolvency, etc., an action could be brought by any creditor to set the same aside, and if the proof was sufficient, the same was declared void and a trustee appointed. Under these sections as amended, no other or greater rights were given to the i creditors, but only as to the assignee is the 1 same fraudulent and void “upon proof shown” i that the debtor was insolvent. If the proof I should show that the debtor was not insolvent but “became insolvent afterwards, then this provision does not apply. Unless there was an attempt to prefer, to hinder, delay or defraud, or the debtor was insolvent at the time, .there could have been no trusteeship declared 1 under the old statute, and there cannot be 1 under the^e amended sections unless such: facts ; exist and are proven. There are’ no greater rights conferred upon the creditor or the debtor by the amendment than existed under the old statutes, and the amendment simply declared that all such sales and judgments suffered; with this exception, being those included in the original sections “upon proof shown” that the debtor was insolvent at the time, that shall be held fraudulent and void as to the assignee in a suit brought by him for that purpose with which power this amendment clothes him and *678which, the assignee could not do under the former sections.

*D. B. VanPelt*and *Mr. Moore,*for bank.

*Mills & Clevenger,*for assignee.

It is not a strained construction to say that in this section as amended every sale, etc., made in contemplation of insolvency or with intent to prefer, or to hinder, delay or defraud, should be declared void as to creditors, and shall operate as an assignment, and in the event of a deed of assignment being filed within ninety days after such act, it shall be conclusively deemed fraudulent as to the assignee “upon proof shown” that the debtor Was insolvent at the time of such act, whether the debtor or the creditor had knowledge of such insolvency at that time or not.

In this case under this statute, Summers being an insolvent at the time the chattel mortgage was given and the assignment having been made within the ninety days provided in the section, there was conclusively under this ■section, a design'to prefer as to the pre-existing debt, and to that extent the chattel mortgage was properly declared void, but as to the money advanced at that timé, it was not fraudulent or void, and does not come within this section of the statute. The amendment does not interfere with *bona fide*contracts and sales and so forth, where t'he relation of creditor and ■debtor did not theretofore exist, and there was no fraud in the transaction. Where creditors seek payment on security they must know the condition of the debtor, and if they take the risk of an assignment within ninety days, they do so with their eyes open.

Demurrer overruled.

The finding will, therefore, be that the New Vienna Bank is entitled to receive from the assignee the amount of $371.12 less legitimate expenses and no lien on the fund as to the balance of their claim, but it will be allowed as a claim in the general assignment, and the ■costs of this proceeding adjudged against the ■assignee.