Bagaley & Co. v. Waters et al.

IV. The conveyance in question is an absolute sale, and not an assignment in trust.

1. It purports to be an absolute sale, and no trust is expressed in it.

2. No interest, legal or equitable, in the property, is created in any person but the vendee.

3. The vendee became the debtor of the persons whose claims he agreed to pay, for the full amount of their claims, irrespective of the value of the property or the amount of its proceeds. See cases next cited.

4. Those creditors became entitled to actions at law, in their own names, respectively, against the vendee, for the full amount of their respective claims. Crumbaugh v. Kugler, 3 Ohio St. 549; 362] *Thompson v. Thompson, 4 Ohio St. 353; Cumberland v. Codrington, 3 Johns. Ch. 254; Starkie v. Starkie, Styles, 296; Green v. Horn, Cumb. 219; Dutton v. Poole, 2 Levinz. 210; 1 Vent. 318; T. Raymond, 302; T. Jones, 102; Martin v. Hind, 2 Cowp. 443; Douglas, 146; Whorewood v. Shaw, Yelv. 25; Shaw v. Sherwood, Cro. Eliz. 729; Feltmaker v. Davis, 1 Bos. & Pul. 102; Schemerhorn v. Vanderheyden, 1 Johns. 139; 1 Chitty's Pl. 4-6.

5. But the trusts contemplated by the statute are such as are cognizable by a court of equity alone.

But here, the creditors could sue at law; and, indeed, could sue in no other forum. Hence, the case is not within the statute.

(a.) The statute is identical in purpose with that of 1838 (Swan's Stat., old ed. 717). Indeed, it is identical in language, except so far as the phraseology is changed in order to make judicial proceedings under it conform to the code.

But the act of 1838 spoke in express terms of the trusts being under the "control of chancery."

The existing act means the same thing by the expression "control of the courts."

For the code does not abolish the difference between law and equity, but only the forms of procedure. See Code Commissioners' Report, 7, 8; Nash Pr. 3.

(b.) The authorities support this view. Harkrader v. Leiby, 4 Ohio St. 613. See also Hill on Trustees (2 Am. ed.), Introductory chap. 49; 2 Fonblanque's Eq. 1, note A; Cooper's Eq. 27, title Jurisdiction; Story's Eq., sec. 29; Ib., sec. 534; Dickson v. Rawson, 5 Ohio St. 222.

Bagaley & Co. v. Waters et al.

V. No case decides that an instrument like that under consideration is an assignment in trust.

The cases in which transfers have been held to fall within the statute are the following: Mitchell v. Gazzam, 12 Ohio, 315; Doremus v. O'Harra, 1 Ohio St. 45; Bloom v. Noggle, 4 Ohio St. 45; Harkrader v. Leiby, Ib. 602; Dickson v. Rawson, 5 Ohio St. 218.

VI. The statute ought not to be extended by construction beyond the fair import of its words; and this case can not be *brought within such fair import. Doremus v. O'Harra, [363 1 Ohio St. 49, 50; Atkinson v. Tomlinson, Ib. 240-242.

C. B. Goddard, for plaintiff :

The form of the instrument will not definitely determine its character. Blank v. Germun, 5 Watts & Serg. 36; Brown v. Webb, 20 Ohio, 389. The cases are common in which absolute deeds have been treated as mortgages.

I claim that any of the creditors enumerated in the agreement between Asa and Israel Waters might immediately have proceeded in equity against them and the fund, had a receiver appointed, or security given by Israel that he would apply the proceeds of the sale to the payment of the debts.

The very nature of the transaction clothes him with a trust-a resulting trust; and the creditors had instantly a right to invoke the aid of a court of equity to take care of the property placed in the hands of the trustee as a means of enabling him to pay their debts.

A court of equity would restrain the sale of the property on the application of any of the enumerated creditors upon an allegation of contemplated fraud and mismanagement by the trustee.

The petition brings the case within the statute. It is not necessary that the petition should aver the conveyance to be a trust. The name is of little consequence if the thing is there. Courts construe an absolute deed to be a mortgage. It is still an absolute deed, and is so called, but its legal effect is that of a mortgage. So courts deal with conditional sales-strip off the artificial covering, with which a loan of money is sought to be disguised, and create mortgages and trusts not intended by the parties.

SCOTT, J. The question reserved in this case is thus stated in the order of reservation: "Whether the contract entered into by

Bagaley & Co. v. Waters et al.

Asa B. Waters, as set forth in the petition, is an assignment of property, within the meaning of the act of assembly, declaring the ef364] fect of assignments to trustees in contemplation of *insolvency?" This question necessarily arises upon the demurrer of the defendant creditors.

The statute of 1853, referred to in the order, is in these words: That all assignments of property in trust which shall be made by debtors to trustees, in contemplation of insolvency, with the design to prefer one or more creditors, to the exclusion of others, shall be held to inure to the benefit of all the creditors, in proportion to their respective demands; and such trusts shall be subject to the control of the courts, which may require security of the trustees for the faithful execution of the trusts, or remove them and appoint others, as justice may require."

The allegations of the petition being admitted by the demurrer, we must regard the transfer of property made by Asa B. Waters to I. R. Waters, as having been made by a debtor, in contemplation of insolvency, with the design to prefer a portion of his creditors to the exclusion of others. But this is not enough to bring the case within the operation of the statute.

It is true that equality is generally the rule of equity. But, however equitable it may seem, that the assets of a failing debtor should be distributed pro rata among his creditors, it would be impracticable to enforce such a distribution in all cases, without taking away the necessary security, and so destroying confidence in the business. transactions of every department of trade. At all events, the statute contemplates no such purpose. So far as it operates, it places all the creditors upon an equal footing. But it does not seek to prevent a debtor from applying his property to the payment in full of the bona fide claims of one or more creditors, though nothing be left for the satisfaction of other claims equally meritorious. One creditor may be amply secured by a mortgage, though the debtor have no means from which to pay or secure others. But there is one mode, in which a debtor is not permitted, in contemplation of insolvency, to exercise this conceded right of prefer

ence.

The sole object of the statute is to prevent his effecting this purpose by an assignment in trust. And this it does, not by making 365] such assignments void, but by declaring that they "shall be

Bagaley & Co. v. Waters et al.

held to inure to the benefit of all the creditors, in proportion to their respective demands."

In the case before us, it is not charged that the contract of sale set out in the petition, was merely colorable; no secret trust is claimed to exist, nor any agreement touching the subject-matter, to have been made between the parties, other than the written contract. The question, then, is upon the proper construction and legal effect of this contract. Is it, though purporting on its face to be an absolute sale and conveyance of property, to be regarded, under the circumstances, as an assignment in trust, within the meaning of the statute?

In Dickson et al. v. Rawson et al., 5 Ohio St. 218, it was well said by Chief Justice Ranney: "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."

The statute of 1853, now under consideration, is copied from the third section of the act of 1838 (1 Curwen, 424), and there is no good reason why the same construction should not be given in each of these acts, to the terms "assignments of property in trust." The act last referred to expressly declared the trusts therein spoken of, to be "subject to the control of chancery, as in other cases." This provision is properly varied in the act of 1853, because the distinction between the forms of proceeding in chancery and at law was then abolished. But this does not change the character of the trusts referred to, which is expressed in the same terms in [366 both acts. They are trusts of which the jurisdiction and cognizance properly belong to courts of chancery.

Does, then, the written contract of the parties create a liability on the part of Israel R. Waters, to account to the preferred credit

Bagaley & Co. v. Waters et al.

ors, or either of them, for the property conveyed to him by Asa B. Waters, and for the manner in which he disposes of it? Would a court of chancery, at the instance of any or all of the preferred creditors, compel him thus to account?

The agreement purports, on its face, to be an absolute and unconditional sale of property, for which I. R. Waters, the vendee, agrees to pay to certain creditors of the vendor, the specified amounts in full, of their respective claims, forming in the aggregate a fixed and specified sum.

Now, in such a case, what remedy could a court of chancery afford to these preferred creditors, which they could not obtain at law? An account could only become necessary for the purpose of ascertaining and fixing the extent of the vendee's liability to them. But by the terms of the contract this liability is commensurate with their claims, which he has personally stipulated to pay in full. And that they could severally enforce this personal liability by actions at law, admits, we think, of no doubt. On this subject, the law is thus stated in 1 Chitty's Pleadings, 5: "When a contract not under seal is made with A to pay B a sum of money, B may maintain an action in his own name; but if the promise had been to pay A for the use of B, A is a trustee, and B, having no legal interest, can not sue." In Starkie v. Starkie, Styles, 296, the case was this: " The father gave goods to his son in consideration that the son would pay the plaintiff twenty pounds." Roll said: "There is a promise in law made to the plaintiff, though there be not a promise in fact; there is a debt here, and assumpsit is good." The cases of Green v. Horn, Cumb. 219; Dutton v. Poole, 1 Vent. 318; Martin v. Hind, 2 Cowp. 443; and Whorewood v. Shaw, Yelv. 25; all affirm the same doctrine. So in Schemerhorn v. Vanderheyden, 1 Johns. 139, the court said: "Where one person 367] makes a promise to another for the benefit of a third person, that third person may maintain an action on such promise." And such is the settled law in this state. In Krumbaugh v. Kugler, 3 Ohio St. 549, the court say: "If for a valuable consideration A promise B to pay C a sum of money, C may recover it, in an action of assumpsit against A." And so in Thompson v. Thompson, 4 Ohio St. 353.

By the agreement in this case, then, the absolute legal relation of debtor and creditor was created between Israel R. Waters and each of the creditors whose claims he promised to pay; and upon his