Case Name: Loudenback v. Foster
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1883-01
Citations: 39 Ohio St. 203
Docket Number: 
Parties: Loudenback v. Foster.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 39
Pages: 203–207

Head Matter:
Loudenback v. Foster.
In an action to set aside a conveyance in fraud of creditors, under section 6344, Eevised Statutes, the court found that pending an action against the vendor, a brother of the purchaser, who was at the time insolvent, which was known to the purchaser, in consideration of the deed, absolute in form, the purchaser agreed to pay a debt secured by mortgage on the land, release a debt due to himself also secured by a mortgage and to convey to the vendor a tract of land of the valu'e of $8,000.00, which in the aggregate was a full consideration, and also agreed to suffer the vendor to remain in possession until ho could sell the land and out of the proceeds reimburse himself, and then pay to the vendor the balance, if any remained ; that the plaintiff, a creditor of the vendor, was thereby hindered and delayed in the collection of his debt, whereupon the court held the conveyance to be constructively fraudulent, set the same aside as to creditors, although it also found that the purchaser had no actual intent to defraud the creditors of the vendor.
No notice of the pendency or object of the suit had been given, but as the court found that there were no other creditors of the vendor, ordered the sale of the land, and that out of the proceeds the plaintiff should be paid in full.
Sold: 1. There was no error in the decree finding fraud in the conveyance and setting the same aside.
2. The court erred in ordering a sale of the land and directing the payment in full of plaintiff’s claim.
3. After finding the fraud, the court, under the statute, should have caused a copy of its finding to be certified to the court of probate for the settlement of the insolvent's estate.
Motion for leave to file a petition in error to the District Court of Champaign county.
On June 21, 1880, John Foster recovered a judgment against Martin Loudenback fpr $311, and costs of suit, in the court of common pleas of Champaign county. Pending the action, on May 31, 1880, Martin conveyed to liis brother, David Loudenback, a tract of land containing eighty acres, situate in said county. Foster, afterward being unable to obtain satisfaction of his judgment against Martin by execution,' commenced the original action herein against David Loudenback et al. to subject the lands so conveyed by Martin'to David to its payment. This action was taken by appeal from the court of common pleas to the district court. On the trial in the district court, the facts and the law were found and stated as follows:
“ On May 31, 1880, said Martin was the owner in fee of said land which was subject to mortgage in favor of the Union Central Life Insurance Company of Cincinnati, Ohio, for $2,920.64, and to one in favor of David Loudenback, defendant, $2,484.53, and which said sums wore due and payable. The said Martin on that day was insolvent and unable to pay his debts, he their owing said plaintiff’s debt and other debts to said David Loudenback and others — all of which said David then knew. That the value of said real estate described was about $8,000. That on said May 31, an agreement was entered into between said defendants (David and Martin) whereby it was agreed that said Martin should convey to said David the said real estate by deed in fee-simple — that as consideration therefor the said David was to assume and pay the said mortgage to said Insurance Company, then amounting to $2,920.64, and canceLhis own mortgage on the land, amounting to $2,484.53, and in addition to convey to said Martin a tract of land agreed to be and which was of the value of $3,000, total $8,405.17. And it was further agreed that the consideration to be named in said deed should be $7,500, but it was further agreed that after the deed was made said defendant, David, was to sell said land at the best price he could obtain, and if the proceeds of said sale was sufficient to pay him the said sum of $8,405.17, with eight per cent, interest from said Majr 31,1880, that it was to be so applied, and if there was any residue it was to be paid to the said Martin Loudenback. It was also then agreed that Martin was to occupy the said land so conveyed by him to David, and the other tract conveyed by David to him, and after supporting his family, he was to pay such rent to David therefor as he could. Said Martin thereupon conveyed said land described in the petition to David by an absolute deed in fee-simple, and Martin continued to live on said lands until March 1, 1883, having paid nothing as rent except $36. The 72 acres was not conveyed by David to Martin until March, 1883, although he was put in possession thereof soon after May 31, 1880. In the spring of 1883 David sold the farm conveyed to him by Martin at $8,000, its full value, on long payments bearing 6 per cent. When he conveyed the 72 acres to Martin in March 1883, he at the same time took a mortgage from him on the same for $1,600, being in part for other debts due from Martin to him, and in part for the difference between the sum he had paid for the land, viz.: SS105.17, together with 8 per cent, interest thereon, and the sum received by him for the said land, to wit, $8,000, less the discounts of 2 per cent, on the notes given as purchase money therefor. The court further finds that there was no intention on the part of said David to hinder, delay or defraud the creditors of said Martin.
“Martin was married, the head of a family, and entitled to a homestead, at the time of the conveyance.
“ On consideration whereof the court find that said arrangement and conveyance was, in law, fraudulent as to the plaintiff and operated as an assignment of his property in trust for all the creditors of said Martin, and it appearing to the court that there ax-e no other creditor's of the said Martin, it is ordered and adjudged, by the court, that the said claim of the plaintiff is a lien upon said real estate, and that unless said David Loudenback pay to the plaintiff the amount of said plaintiff’s judgment against the said Martin Loudenback, amounting to $365.19, referred to and set out in plaintiff's petition, together with the cost of the ease in which said judgment was recovered and also the costs herein taxed to $ , within 10 days from this date, then an order of sale issue to the sheriff of Champaign county, Ohio, commanding him to caxxse.said land in plaintiff’s petition described to be appraised, advertised and sold, that he apply the proceeds of such sale, or so much thereof as may be neces sary to the payment of sueh judgment and costs, and that he bring the residue thereof into court to abide its further order as to distribution,” &c.
It is to reverse the above order and decree that .this proceeding is now prosecuted by David Loudenbaek, the plaintiff in error.
Franlc Chance, for the motion.
L. Geiger, contra.

Opinion:
MoIlvaine, J.
On the foregoing finding of facts, the district court was right in its holding that the land conveyed •by Martin to David Loudenbaek'was subject to the payment of the grantor's indebtedness. Although no actual fraud was intended by David, and a full consideration was paid by him for the land, nevertheless he, knowing that Martin was insolvent, assumed to pay the claim of the insurance company, which, notwithstanding its mortgage security, was thereby preferred; and although the conveyance was in form absolute, nevertheless a secret trust was created in favor of Martin without any provision for his other creditors. The conveyance was, in fact, in trust to sell and apply the proceeds to the payment of the insurance company's claim, the claim of the vendee secured by mortgage, and the purchase price of the laud sold by, David to Martin, the balance to be paid to Martin, who, iu the meantime, was to continue in possession of the land. All these dealings between David and Martin were had during the time Poster, a creditor of Martin, was seeking by due process of law to enforce his claim, and resulted in preventing him from obtaining satisfaction of his judgment by ordinary execution. A hindrance and delay of the creditor, caused by the trust assumed by David, constitute a constructive fraud and bring the case within section 6311 of Revised Statutes in relation to " insolvent debtors." Jamison v. McNally, 21 Ohio St. 295.
But having decreed the deed void, the district court erred in proceeding to order the sale of the land and directing the payment of Foster's judgment from the proceeds, &c. There was no notice given of the pendency and object of the suit, as provided in section 6344. Hence, it was the duty of the court, under said section, after declaring the deed to be void, because in fraud of creditors, to cause a copy of its judgment to be certified to the probate court of the county, to the end that a trustee might be appointed to administer the insolvent's estate. The only authority, under the statutes, for the court declaring a conveyance void as against creditors to proceed to administer the trust, is where such notice has been given. True, the court below found there were no other creditors. That finding may have been true, but it did not conclude anybody. Notice, before the estate can b5 settled, must be given to creditors either in the manner provided in this section, or by the trustee appointed by the probate court. Again, if we could assume that all the creditors of Martin Loudenback were before the district court, the order was not justified, for it appears that David Loudenback wrasthe principal creditor of Martin, whose claims alone were equal to the probable value of the property, so that it was improper to order the payment of any claim of creditors in full, until a sale of the property and proof of claims were made. An account must be taken, and the proportion payable to each creditor ascertained, before payment in full can be ordered. Motion granted, and the judgment of the district court must be modified, in accordance with the views above expressed.
Cause remanded.