Dickson v. L. & S. Rawson , 5 Ohio St. 218 ( 1855 )

Ranney, C. J.

In the carefully considered cases of Doremus v. O'Harra, and Atkinson v. Tomlinson, 1 Ohio St. Rep. 45, 241; as well as in Bloom v. Noggle, and Harkrader v. Leiby, 4 Ohio St. Rep. 45, 602, the extent, operation, and proper construction of the act of March 14, 1838, relating to the assignment of property by insolvent debtors, in trust, with the design of preferring some creditors to the exclusion of others, were fully discussed, and the conclusions of this court have been explicitly stated.

It is only necessary now to repeat, that the act does not extend to, or in any way affect, conveyances or mortgages made by a failing debtor to his creditor for the purpose of paying or securing his debts; but that it does control every transfer or conveyance of property, whether by mortgage or otherwise, made by an insolvent debtor, in- view of his insolvency, to be held by the person taking it, for the benefit of some one or more of the creditors of the debtor, other than himself. To bring the case within the operation of the statute, the conveyance must be in trust, and the person receiving the property, thereby constituted a trustee for some one or more of the creditors of the debtor, to the exclusion of others. Whether it is so in trust, and the assignee or grantee such trustee, depends upon the question whether, by the terms of the instrument-or by necessary implication, he is liable to account to the preferred creditor for the property in his hands, and for the manner in which he disposes of it. If a court of chancery, at the instance of the creditor, would compel him thus to account, the character of the transfer, and his own position, are thereby determined ; and the statute then steps in and enlarges the trust, and makes it inure to the benefit of all the creditors, and distributes the fund to all, in proportion to their respective demands.

In the caso now before us, the assignment was made by debtors confessedly insolvent, and in view of their insolvency, to a part only of their creditors. The assignees are directed to convert the property into money, and after paying the expenses and the debts due to themselves, to pay over to Daniel Groff a sum not exceeding five hundred dollars, to indemnify him as a surety of the assignors to one Harris. Neither Groff nor Harris are amongst the assignees to whom the property was transferred; and for this reason it is claimed by the complainants, that the liability to account and the character of the conveyance are determined, and the case brought within the terms of the statute.

The defense rests upon the denial that Groff was a creditor within the meaning of the statute ; and upon the establishment of the fact, that the avails of the property turned out to be no more than sufficient to pay the debts due to the assignees, and left no surplus to be applied to the indemnity of Groff.

We have carefully considered both these positions, and are of the opinion, that neither of them can avail to take the case out of the operation of the statute.

1. “ The design to prefer one or more creditors,” it is very true, must be established ; but we do not consider it necessary to inquire, whether a surety merely, before paying the debt, is a creditor within the meaning of the act; as the solution of the question could, in no possible case, be of the least materiality. The assignors must be presumed to have designed the necessary legal effect of their own act. What this was, is clearly and definitely settled. As said by Bronson C. J., in Vail v. Foster, 4 Com. R. 314: “It is a settled rule in equity, that the creditor shall have the benefit of any counter bonds or collateral securities which the principal debtor has given to the surety, or person standing in the situation of a surety, for his indemnity. Such securities are regarded as trusts for the better security of the debt, and chancery will compel the execution of the trusts for the benefit of the creditor.” See also 4 Kent’s Com. 307 ; 1 Story’s Eq., secs. 502, 638 ; Green v. Dodge, 6 O. R. 80.

In legal effect, therefore, the indemnity provided for Groff in the assignment, was a security of the debt upon which he was surety, and entitled the creditor, Harris, to bring the trustees to account, and to compel an application of the trust fund to the payment of his debt. This review of the subject, makes it entirely immaterial, in all cases, whether the assignment is made for the direct benefit of the creditor, or to indemnify the surety of the assignor to such creditor ; the obligation to account to the creditor, if not expressly stated, arising “ by necessary implication ” from the terms of the instrument.

2. We are equally clear upon the other ground of defense. Upon general principles it has come to be well settled, that an assignment for the benefit of particular creditors, and securing a benefit to the assignor before all his creditors are paid, is fraudulent and void. Goodrich v. Downs, 6 Hill 438 ; Barney v. Griffin, 2 Com. 371. And in these cases, it has been definitively determined, that the assignment cannot be aided by extrinsic evidence that the assigned property would not sell for enough to pay the creditors provided for. See also Grover v. Wakeman, 11 Wend. 187. In the case of Goodrich v. Downs, the court say : “ It is said that there will be no surplus for the debtor after paying the four creditors who are provided for by the assignment, and consequently that the deed may stand. The parties to the assignment, after having expressly provided for a surplus, are not at liberty to say that such a state of things was not contemplated at the time the conveyance was made. They are estopped by the deed to deny it. And besides, the case does not turn upon the contingency of how much or how little the property may bring, but upon the nature of the transaction.” * * * * “ Although the other trusts, if they stood alone, might be supported, the illegal trust vitiates all the rest.”

The statute, it is true, does not avoid the conveyance, but it nullifies the attempt of the debtor to confine its benefits to a part only of his creditors, and makes it inure to the benefit of all. The declaration of trust is illegal, and the statute avoids it, and compels the assignees to become trustees for all the creditors of the assignor. It is of no importance that the assignees have claims which they might have secured upon the property, if they had attempted nothing more. When they consent to become trustees for any other creditor, “ they become of necessity, by force of the statute, trustees for all, and in respect to all the property transferred by the assignment.” Harkrader v. Leiby, 4 O. St. R. 613. Once impressed with this character, they are subject to the supervision and control of a court of equity, and the cestuis que trust include all the creditors of the assignor. They all have a pro rata interest in the trust property, and are all entitled to the appropriate remedy to compel its application. We are, therefore, of opinion, that the character and legal effect of such an assignment is determined at the time it is made and accepted, and is not changed by the fact, that the property assigned turns out to be no more than sufficient to pay the assignees. If, at the time it is made and accepted, it subjects the assignees to account to any other creditor of the assignor, the assignment is in trust, and the assignees trustees within the meaning of the statute.

Decree for complainants.