Case Name: Shorten et al. v. Woodrow et al.
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1878-12
Citations: 34 Ohio St. 645
Docket Number: 
Parties: Shorten et al. v. Woodrow et al.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 34
Pages: 645–657

Head Matter:
Shorten et al. v. Woodrow et al.
1. The 17th section, as amended February 12,1863 (S. & S. 397), of the act regulating the mode of administering assignments in trust for the benefit of creditors, operates only upon fraudulent transfers, conveyances, and assignments made by the debtor himself.
2. An insolvent debtor purchased real estate, and, with the fraudulent intent to conceal from his creditors his interest or ownership therein, caused the vendor to convey the premises to a third person, who, at the debtor’s request, conveyed the same to the latter’s wife: Held, 1. That neither of said conveyances falls within the operation of the 17¿h section of the act above referred to. 2. That the wife, in equity, holds the legal title to the premises conveyed, subject to the right of her husband’s creditors to subject the same to the payment of their claims.
Error to the Superior Court of Cincinnati.
The original action was brought by Woodrow against Samuel A. Sargent and others to foreclose a mortgage executed by Sargent and wife to Woodrow, on the premises therein described, and to marshal the liens thereon. The amount and priority of all liens were determined and paid, except those which were made the subject of the following special finding of facts:
“First. That on November 4, 1865,- one Asa Clark, by deed duly executed, conveyed to Thomas N. Drake, in fee simple, the premises in controversy; that the purchase-money was wholly furnished by said Sargent; that Sargent was then largely insolvent, and that the intent with which said purchase-money was furnished and the said convey- / anee so taken in the name of said Drake was on the part of said Sargent to conceal his interest in said premises from his creditors, and to hinder and delay them in the collection of their debts.
“Second. That said Sargent, upon the execution of said conveyance to said Drake, entered upon the possession of said premises, and afterward occupied, and continued to occupy the same as a residence for himself and family, until July 2, 1868, without accounting or being required by said Drake to account for the use or occupation of the same.
“Ihird. That on the said 2d day of July,- 1868, said Drake, by direction and at the request of said Sargent, by deed duly executed, conveyed said premises in fee simple to Mary A. Sargent, wife of said Samuel A. Sargent; that no valuable consideration jDassed upon said last-named conveyance, as between said Drake and said Mary A. Sargent, or as between said Mary A. Sargent and said Samuel A. Sargent; and that the said transfer of said title by Drake to Mrs. Sargent was wholly volantary, and made and received by way of gift and settlement by said Samuel A. Sargent to and for the use and benefit of his said wife, which deed of transfer was recorded May 6,1871.
“Fourth. That on the 12th day of April, 1870, execution was duly levied on said premises, which said execution was duly issued upon a judgment rendered in this court, and still in force and unsatisfied, and in favor of Samuel Grant, and against said Samuel A. Sargent, which judgment was rendered on the 8th day of March, A. d. 1870, for the sum of $1,161.64.
“Fifth. That on the 27th day of May, 1870, said premises were duly levied on, under an order of attachment issued in an action then pending in this court for the recovery of money, brought by McMillan and wife against said Samuel A. Sargent; that said proceedings have been had, that final judgment therein has been rendei'ed against said Samuel A. Sargent, and that said judgment remains in full force and unsafisfied, and the same orders said attached premises to be sold; the amount and date of said judgment being as stated in the answer and cross-petition of said McMillan and wife.
“Sixth. That on the 4th day of January, 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 said debt was justly due from said Samuel A. Sargent to the said Shorten, and for the full amount stated in said mortgage; and that at the time of receiving the same the said Shorten did notin fact have notice that said conveyances mentioned in paragraphs numbers first and second of these findings were made or received in the manner and with the purpose and intents therein set forth; but that such debt formed the consideration of said mortgage deed, and the same accrued prior to the execution of said mortgage deed, and that no money or other yaluable consideration was paid by said Shorten at the time of the execution of said mortgage, or on the credit thereof, the amount of said mortgage debt being as set out in answer and cross-petition of said Shorten.
“ That the deed of July 2,1868, made by Thomas N. Drake to Mary A. Sargent, was made to hinder, delay, and defraud the creditors of the husband, Samuel A. Sargent; that the debt upon which the judgment against Samuel A. Sargent and in favor of Alexander McMillan and wife was rendered arose in the year 1864, before the execution of the deed from the said Clark to the defendant, Drake, of July 2, 1868, and that the defendant, Mary A. Sargent, wife of the defendant, Samuel A. Sargent, remained in possession of the premises described in the petition after July 2,1868, and until they were sold in this cause.
“And the court do further find, as conclusions of law upon the facts found, that the deed to Mary A. Sargent is void, that the same inures to the benefit of the general creditors of the said Samuel A. Sargent after the payment of the mortgage liens already paid out of the proceeds thereof, and that she was a trustee of said premises for said creditors; that said Alexander McMillan and wife, William S. Grant and Samuel Shorten obtained no lien upon said premises, nor priority over each other or the general creditors of said Samuel A. Sargent.
“ Wherefore, it is ordered that if no assignee be appointed by the Probate Court of Hamilton county, or-any of the creditors of said Samuel A. Sargent appear within twenty days of the entry hereof, and ask to set up their claims, after first allowing the said Alexander McMillan and wife, William S. Grant and Samuel Shorten their reasonable costs and expenses for obtaining the fund to be distributed, and set up their claims by answer, then the fund to be divided between the said Alexander McMillan and wife, William S. Grant, administrator of Samuel Grant, deceased, and Samuel Shorten, in proportion to the amount of their respective claims.
“ To which finding and judgment, and to each of the said conclusions of law, the said Alexander McMillan and wife, and the said Samuel Shorten, and the said William S. Grant, administrator of Samuel Grant, deceased, severally excepts.”
During the pendency of the action, Samuel Grant died, and William S. Grant, his administrator, was made defendant.
There were $1,500 remaining of the fund to be distributed.
Shorten filed a petition in error, assigning as error:
“ That the said superior court, in general term, erred in finding as a conclusion of'law from the facts found that the said Samuel Shorten, by the mortgage made to him by Samuel A. Sargent and wife, dated January 4, 1872, obtained no lieu on the premises described in said mortgage, and no priority over Alexander McMillen and wife, William S. Grant and the general creditors of said Samuel A. Sargeut.”
McMillen and wife filed a cross-petition in error, assigning :
“ First. The said court erred in holding that the fund distributed by its judgment was by law to be distributed under and in accordance with the provisions of the seventeenth section of the act entitled “An act regulating the mode of administering assignments in trust for the benefit of creditors, passed April 6, 1859.”
“ Second. The court erred in finding and declaring that said cross-petitioners in error acquired no lien upon the said fund or the land out of which the same proceeded, under and by virtue of the attachment levied thereon at their suit against Samuel A. Sargent.
'“ Third. The court erred in not finding and declaring that the lien of these cross-petitioners acquired by their said attachment was the first and best lien upon said fund, and entitled to be first paid in full therefrom.”
M. S. Williamson, and Dodds § Wilson, for Shorten:
On the state of facts the question in the case is: Did Shorten, by the mortgage made to him by Sargent and wife, obtain a lien on the premises described in said mortgage prior to the claim of McMillan and wife, Grant, and the general creditors of Sargent ?
We claim that he did — 1st, on the principle that where the equities are equal, the legal title must prevail; 2d, because he is a bona fide purchaser without notice; 3d, Sargent had a right to prefer Shorten over his other creditors.
I. Where the equities are equal, the legal title must prevail. Under 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., 327), lands conveyed for the purpose of defrauding creditors inure to the benefit of such creditors, and any one of them, whether his claim be reduced to judgment or not, may bring an action to set aside such conveyance, and have the proceeds of the land applied to the payment of the credi tors, as provided in said section. Combs v. Watson, Supreme Court Commission, February 6, 1878.
Each creditor of Sargent had the equitable right to have the conveyances from Clark to Drake and from Drake to Mrs. Sargent set aside, and the proceeds of the land applied to the payment of the creditors. In that respect the equities of the creditors of Sargent are equal. But Shorten, in addition to having that equity in common with the creditors of Sargent, has obtained the legal title, and that legal title must prevail over the equities of the other creditors. Jamison v. McNally, 21 Ohio St. 295 ; Oliver v. Moore, 26 Ohio St. 298.
II. Shorten stands in the position of a bona fide purchaser.
The finding of facts states that Shorten’s mortgages were taken to secure a pre-existing debt from Sargent, and without notice of the fact that the conveyances from Clark to Drake, and from Drake to Mrs. Sargent were fraudulent. As against the other creditors of Sargent, this made Shorten a bona fine purchaser, and his claim superior to that of Grant by execution, or that of McMillan and wife by attachment. Lewis v. Anderson, 20 Ohio St. 281; Bank v. Teetors, 31 Ohio St. 36.
III. Shorten had a right to take a mortgage from Sargent, and is entitled to the priority thus obtained.
A creditor of an insolvent debtor may lawfully take from him a mortgage to secure such debt and will be protected in priority thus obtained. Brown v. Webb, 20 Ohio, 389; Fassett v. Traber et al., 20 Ohio, 545; Doremus v. O'Harra, 1 Ohio St. 49, 50; Atkinson et al. v. Tomlinson ct al., 1 Ohio St. 239; Bloom et al. v. Noggle et al., 4 Ohio St. 45.
G. B. Matthews, for McMillan and wife:
I. The original conveyance to Drake, vested in him the legal title merely in trust for Sargent, who was the beneficial owner of the equitable estate in fee simple.
The conveyance by Drake to Mrs. Sargent operated sim ply to devolve the legal title upon her, leaving Sargent’s equitable estate entirely unaffected. Perry on Trusts, 51; Livingston v. Livingston, 2 Johns Ch. 541; Dickinson v. Davis, 43 N. H. 647; Wallace v. Bowens, 28 Vt. 638.
II. This equitable estate of Sargent, was subject to the levy and lien of an order of attachment, and became so bound on the 27th day of May, 1870, by the attachment of McMillan and wife. § 191 of the Code, 2 S. & C. 1002; § 221 of the Code, 2 S. & C. 1009; Bond v. Swearingen, 1 Ohio, 395 ; Carty v. Fenstemaker, 14 Ohio St. 457. See also, Armstrong v. McAlpin, 18 Ohio St. 184; Morgan v. Spangler, 20 Ohio St. 38.
An attachment, issued as a provisional remedy under the code, authorizes the sheriff’*to seize any property which the defendant therein has disposed of in any manner, with intent to defraud his creditors. Rinchey v. Stryker, 28 N. Y. 45 ; Ib. 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 upon the interest of Samuel A. Sargent, which dates from the levy of the attachment. Skinner v. Oettinger, 14 Abb. Pr. 109 N. Y.
III. We claim priority to Grant because he obtained no lien by his judgment and levy. Morris v. Way, 16 Ohio, 469.
IY. We claim priority over the general creditors, for the reason that the transaction disclosed here does not bring the ease within the operation of the seventeenth section of the act regulating the mode of administering assignments; for here there was no transfer or conveyance by Sargent to hinder, delay, or defraud creditors, as in Conrad & Bro. v. Pancoast, 11 Ohio St. 685 ; Stanton v. Keyes, 14 Ohio St. 443; Thomas v. Talmadge, 16 Ohio St. 437; Jamison v. McNally, 21 Ohio St. 295. But it is governed by the principle of Fowler v. Trebein, 16 Ohio St. 493.
Sargent concealed his property, but the statute was aimed at one class of frauds, namely, that of a conveyance or transfer by the debtor himself of his title, legal and equitable, so as to be effectual as against himself.
Collins <f* Herron, for Grant:
Did Grant’s levy effect a lien in Ms favor? The levy, in point of time, was prior to the seizure in attachment in favor of McMillan, and also prior to the mortgage made by Sargent and wife to Shorten. Shorten had, therefore, at least constructive notice of it.
If Grant had proceeded to sell on his levy, the sheriffs deed would have passed whatever title, possessory and equitable, Sargent had. Boyd v. Longworth, 11 Ohio, 235, 252 ; Oviatt v. Brown, 14 Ohio, 285.
“ If a judgment debtor is in possession of land, it may be levied upon and sold.” Haynes v. Baker, 5 Ohio St. 255.
Inasmuch as the finding is, that Sargent caused the title to be placed in Drake, “ to conceal his (Sargent’s) interest in the premises, such deed was fraudulent and a nullity, and a judgment creditor might, notwithstanding, levy his judgment, and cause the land to be sold as Sargent’s, for the satisfaction of his judgment.” Westerman v. Westerman, 25 Ohio St. 510; Gormley v. Potter, 29 Ohio St. 599.

Opinion:
Boynton, J.
The judgment of the superior court was placed upon the ground that the conveyance from Drake to Mrs. Sargent was void, under section 17, as amended February 12, 1863 (S. & S. 397), of the act regulating the mode of administering assignments in trust for the benefit of creditors, and being so declared, that the fund arising from the sale of the property conveyed to her,inured to the benefit of the creditors of Samuel A. Sargent, to be distributed in accordance with the provisions of that section. It appears from the finding that at the time Clark conveyed the premises to Drake, Sargent was insolvent, and that the object of taking the conveyance in the name of Drake was to conceal Sargent's interest in the property, and to hinder and delay his creditors in the collection of their debts. The same purpose was found to accompany the conveyance from Drake to Mrs. Sargent. Thomas A. Sargent never held the legal title. The question therefore arises whether section 17 of the act above referred to operates upon conveyances made by a trustee Of the debtor, or is limited in its operation to conveyances made by the debtor himself. That section provides, that " all transfers, conveyances, or assignments made with intent to hinder, delay, or defraud creditors, shall be declared void at the suit of any creditor, and the probate judge of the proper county, after any such transfer, conveyance, or assignment shall have been declared by a court of competent jurisdiction to have been made with the intent aforesaid, shall, on the application of any creditor, appoint an assignee, according to the provisions of this act, who, upon being duly qualified, shall proceed by due course of law to recover possession of all property so transferred, conveyed, or assigned, and administer the same as in other cases of assignments to trustees for the benefit of creditors."
It was not the object of this provision of the statute to enlarge the class of transfers or conveyances, which section 2 of the statute of frauds declares " shall be deemed utterly void and of no effect." Its purpose was to supply a new remedy to creditors, by authorizing the fraudulent conveyance or transfer to be converted into an assignment at the suit of a creditor, and the fund to be distributed, if the creditors so elect, in the same manner as if the debtor had formally assigned the property conveyed for the equal benefit of all his creditors. But the conveyance, which lays at the foundation of the proceeding, and upon which alone the statute was designed to operate, is the fraudulent conveyance of the debtor himself. It has no - application to a conveyance made by a mere trustee of the legal title, although such conveyance is made at the instance of the cestui que trust or beneficial owner.
It is the same conveyance which the statute of frauds declares utterly void and of no effect, and which, being void, leaves the title, as between him and the creditor, in the fraudulent grantor. The judgment given in the court below, declaring the conveyance of Drake to Mrs. Sargent void, left the legal title in Drake; and if this conveyance was one upon which, the statute operated, so was the one from Clark to Drake ; and if that were set aside, the title would revest in Clark. It does not help the matter to say that, although the conveyance is ineffectual to carry the estate to the grantee, it still is so far valid as'to divest the title of the grantor, and vest it in the assignee to be appointed by the probate court. It may be that no assignee will be appointed. The appointment can be made only upon the application of a creditor, and no application may be made.
It is also true that the court, declaring the conveyance void, may, where no assignee is appointed, proceed to execute the trust and distribute the fund, in accordance with the provisions of the statute. Conrad, v. Pancost, 11 Ohio St. 685. This, however, the parties to the suit may not desire. The fraudulent conveyance having been adjudged void, and the cloud thereby cast on the title of the grantor removed, the creditors attacking the conveyance may be quite content to be left to their remedy by execution. Where this is the case, and the action goes no further, the title remains in the grantor, and the property may be seized and subjected to the payment of his debts, precisely as if no conveyance had been made.
That the statute was designed to operate exclusively upon fraudulent transfers and conveyances made by the debtor himself, is not only clear upon principle, but is well sustained by authority.
In Bump on Fraudulent Conveyances, 262, the author, in commenting on the object of the statute, says: It " intends simply to guard a creditor from the fraudulent attempt of his debtor to delay, hinder, or defraud him in the recovery of his debt, by disposing of the property which he would have a right to seize as soon as he obtains a judgment." And, on the exact question involved in the present controversy, the author remarks: "At one time, there was some question whether creditors could reach property which was paid for by the debtor, when the title was fraudulently conveyed by the vendor to another. The statute makes all fraudulent conveyances void; but if such a transfer were void, the title would remain in the grantor, and, consequently, the creditors could not seize the property. Such a contrivance is manifestly not within the provisions of the statute." Id. 265.
In Gowing v. Rich, 1 Ired. 553, land was purchased by A. , but the title was made to her daughter, B. The land was levied on as the property of A., and the court instructed the jury that if A. bought the land, and placed the title in B. , for the purpose of defeating her creditors in the collection of their debts, the conveyance was within the statute of frauds, and void, and the levy therefore valid.
The reviewing court held the instruction to be erroneous, saying: " Where the estate was once in the debtor, and has been conveyed by him in trust for himself, the redress of the creditor is plain at law. lie may treat the conveyance as fraudulent, and null ab initio, under the act of 13 Eliz. (Rev. Stat., ch. 50, § 1), and therefore as leaving the legal title in the debtor. But this is invoking a statute which is not applicable to a case like that before us; which is not of a conveyance, by a debtor, of land before owned by her, but that of a purchase by the debtor and a conveyance to a trustee for her. That the statute of Elizabeth does not apply to the case of a purchase by the debtor is clear from the consideration that it operates entirely by making void the assurances within its purview. In this case, that would leave the title in the vendor, which would not serve the plaintiff's purpose. As has been already mentioned, however, before the statute 29 Charles II, purchases were daily made in England in the name of trustees ; and, though equity found means of paying out of the estate the debts of the person, who, in the view of that court, was the owner, yet the purchase and conveyance to the trustee were never deemed within the statute of Elizabeth, so as to subject the land to a legal judgment and execution."
The same construction was adopted in Gray v. Faris, 1 Yerg. 155, the court holding, that " the act declaring every conveyance void, if made with intent to hinder and delay creditors, means creditors of the grantor."
To test the question of the application of the statute to a case like the present, let it be supposed that Clark, after Sargent was entitled to a conveyance, had retained the legal title at the latter's request. In' such case, there would have been no'conveyance or transfer of the title for the statute to affect or operate upon. Yet the same relation would have existed between Clark and Sargent that existed between Drake and Sargent, after Drake succeeded to the legal title. Nor were the relation of the creditors of Sargent to the property, and their right in equity to subject it to the payment of their claims against him, in the least affected by a change in the person holding the legal title. Whoever received it by voluntary conveyance, held it subject to the undoubted right of Sargent's creditors to subject the property to the payment of their debts by the ordinary process afforded by courts of equity, where the remedy at law proves inadequate.
It follows, that the court erred in holding the conveyance from Drake to Mrs. Sargent to be within section 17 of the act regulating the mode of administering assignments in trust for the benefit of creditors, and that McMillan and wife and Shorten obtained no lien upon the premises over the general creditors, and that neither obtaiued any priority over the other.
The conclusion reached by the court below, rendered it unnecessary to determine the priority of liens, and for that reason the findiug of facts may not be as full as it otherwise would have been.
There is no finding respecting Shorten's knowledge of the attachment lien of McMillan and wife, or of Thomas A. Sargent's interest in the premises conveyed, at the time he took his mortgage. And, while it is found that the consideration of Shorten's mortgage was a pre-existing debt, and that no money or other valuable consideration was paid, we are left in doubt whether an extension of time for the payment of such debt formed any part of the-consideration of the mortgage deed. And without any intimation as to the effect of such facts, or the want of them,, we think the question involved between the parties claiming the fund to be distributed, can be better determined: when the same are ascertained.
Judgment reversed and cause remanded.