Carruthers v. Kennedy
| Decision Date | 29 May 1929 |
| Docket Number | 21576 |
| Citation | 121 Ohio St. 8,166 N.E. 801 |
| Parties | Carruthers Et Al v. Kennedy Et Al. |
| Court | Ohio Supreme Court |
Insolvent debtors - Conveyance in contemplation of insolvency - Valid if insolvency, design to prefer or intent to defraud unknown to grantee - Sections 11104 and 11105, General Code.
A conveyance by an insolvent debtor in contemplation of insolvency, made with a design to prefer the purchaser to the exclusion in whole or in part of other creditors, the purchaser not knowing of such insolvency or of the design to prefer but believing the vendor to be solvent, is valid.
A conveyance by an insolvent debtor in contemplation of insolvency, made with intent to hinder, delay and defraud creditors, the purchaser not knowing of such insolvency or of such fraudulent intent, is valid.
That part of Section 11105, General Code, which provides that the provisions of Section 11104 shall not apply unless the person or persons to whom a sale, conveyance, transfer, mortgage or assignment is made knows of such fraudulent intent on the part of the debtors, has application to a design to prefer one creditor to the exclusion in whole or in part of other creditors, and likewise has application to a conveyance made with intent to hinder, delay and defraud creditors.
This cause originated in the Court of Common Pleas of Guernsey county, Ohio, as a suit in equity to set aside a deed from Elsa Kennedy to his brother James Kennedy. The petition alleged four grounds: (1) That the conveyance was made in contemplation of insolvency, with a design to prefer James Kennedy as a creditor to the exclusion of other creditors, (2) that the conveyance was made with intent to hinder, delay, and defraud creditors; (3) that Elza Kennedy was incompetent to make or execute the deed at the time it was made and executed; (4) that the deed was never in fact delivered. In the court of common pleas the deed was ordered canceled. On appeal to the Court of Appeals, where the case was heard de novo, that court reached the opposite conclusion and sustained the deed. Upon request therefor the Court of Appeals made separate findings of fact and conclusions of law. The court found that the deed was in fact delivered and that Elza Kennedy was competent to make and execute the deed. Upon the first two grounds the finding of the court was:
We further find that the said Elza Kennedy made and delivered said deed in contemplation of insolvency and with a design to prefer the said James Kennedy to the exclusion in whole or part of his other creditors, but we do not find that the said James Kennedy knew of such insolvency or that he knew of such design or intent upon the part of Elza Kennedy, but to the contrary, find that the said James Kennedy did not know of the same nor of any indebtedness, save and except about six hundred ($600) dollars.
"As to the second issue joined, as to whether the said Elza Kennedy did convey said property to his brother, James Kennedy, with the intent to hinder, delay and defraud his creditors we find that said conveyance was made with such intent, but we further find that said James Kennedy did not know of such intent upon the part of said Elza Kennedy."
On the question of insolvency the court found as a fact that the property conveyed was a farm off the value of about $6,000, and that Elza Kennedy owed James Kennedy $3,900 at the time of the conveyance, and that James Kennedy assumed a mortgage in the sum of $1,700 and agreed to pay from $600 to $800. The court further found that Elza Kennedy had other property of the value of about $3,200, and owed other amounts sufficient to render his estate insolvent, but that James Kennedy did not know of any other indebtedness, except about $600.
The judges of the Court of Appeals were of the opinion that the judgment of that court in this case is in conflict with the judgment of the Court of Appeals of the Fourth District of this state upon the same question, in Prose v. Beardsley, reported in 18 Ohio App. 211, and have therefore certified the record of this case to this court for review and final determination.
Mr. Geo. D. Dugan and Mr. Chas. S. Sheppard, for plaintiffs in error.
Mr. James Joyce and Messrs. Glenn & Glenn, for defendants in error.
There was a conflict of evidence upon each of the issues. There was, however, evidence to support the findings of fact of the Court of Appeals upon each of the issues. Following its well-settled policy, this court will not weigh the evidence to determine whether or not the Court of Appeals reached correct conclusions. The findings of fact made by the Court of Appeals will be the basis of the discussion as to whether or not the Court of Appeals reached correct conclusions of law. The findings of fact upon the issue of mental capacity and delivery present no legal questions. It is, however urged that even though the design on the part of Elza Kennedy to prefer and his intent to hinder, delay and defraud his creditors was sufficient to vitiate the transaction, even though James Kennedy did not know of the design to prefer or the intent to defraud, and even though as found by the Court of Appeals James Kennedy had no knowledge of the insolvency of his brother Elza, the conveyance was nevertheless valid.
At common law a debtor might give a preference to one of his creditors. In 1859, 56 Ohio Laws, 235, the Legislature of Ohio enacted a law which later became Section 6343, Revised Statutes, which provides: "All assignments in trust to a trustee or trustees, made in contemplation of insolvency, with the 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."
While that statute remained unchanged, this court in 1892 decided the case of Cross v. Carstens, 49 Ohio St. 548, 31 N.E. , 506, in which it was held: "A failing debtor, knowing his insolvency, and in contemplation of making an assignment for the benefit of creditors, may prefer one or more creditors to others, provided he does so in good faith, and by means calculated to hinder other creditors no more than is incidental to the preference," etc.
In 1898 (93 Ohio Laws, 290) the Legislature amended Section 6343, Revised Statutes, whereby it is declared that any sale, conveyance, transfer, mortgage or assignment, whether made in trust or otherwise with a design to prefer one or more creditors to the exclusion of others in whole or in part, and every sale, conveyance, transfer, mortgage or assignment made with intent to hinder, delay or defraud creditors, shall be declared void as to the creditors of such debtor at the suit of any creditor.
In 1902 (95 Ohio Laws, 608), Section 6343 was further amended whereby a proviso was inserted: "Provided, however, that the provisions of this section shall not apply unless the person, or persons to whom such sale, conveyance, transfer,...
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