Ohio Supreme Court, 1896

H. B. Clafflin Co. v. Evans

Ohio Supreme Court · Decided October 20, 1896 · Williams

45 N.E. 3; 55 Ohio St. 183; 55 Ohio St. (N.S.) 183; 36 W.L.B. 271; 1896 Ohio LEXIS 134 (North Eastern Reporter)

Counsel

Powell Minahan for plaintiffs in error. Our first claim in this case is that the deed of assignment was handed to the probate judge before the executions were levied by the sheriff, and therefore no property was seized by the pretended levies, but the entire property of the partnership passed, by the deed of assignment, to the assignee free from any levies, for the benefit of general creditors. Section 6335, Revised Statutes. It is true the probate judge endorsed upon the deed of assignment as the date of filing, 8:10 o'clock instead of 7 o'clock, the time it came to his hands. The endorsement, though the ordinary and most convenient evidence that a paper has been filed, is not essential. File marks are but evidence. Haines v. Lindsay , 4 Ohio, 88 ; Nimmons et al v. Westfall , 33 Ohio St., 213 ; King v. Penn. , 43 Ohio St., 57 . Our next claim is that the confessions of judgment, having been made by one member of the firm of Snodgrass Brothers alone, do not bind his copartners or the firm. Grazebrook v. McCredie , 9th Wend., 437; Elliott v. Halbrook, 33 Ala. 659; McKee v. Bank of Mt. Pleasant , 7 Ohio, part 2, p. 175; Grear v. Hood , 25 Penna. St., 430. It is settled in the findings of facts that before the creditors obtained knowledge of the judgments and levies the deed of assignment for the benefit of the general creditors had taken effect. Wilcoxson v. Burton , 27 Calif. 228 . Finally, we present the question whether an insolvent debtor who is about to make an assignment can prefer such creditors as he may select without any action on their part and without their knowledge or consent. If a creditor voluntarily executes mortgages to certain creditors who are not asking them or pressing him, and then assigns for the benefit of creditors, these mortgages are illegal preferences. McClure Smyser and W. A. Hall , for defendants in error. The plaintiffs in error contend that, under section 6335 of the Revised Statutes, the handing of said deed of assignment to the probate judge by the assignor made it an effective deed of assignment from that moment. It is the intention to deliver that gives validity to the act of delivery. 2 A. S. Rep., 70, 71; Webb v. Christen , 2 A. S. R., 70; Merrills v. Swift , 46 Am. Dec., 316; Johnson v. Sharp , 31 Ohio St. 618 . In the case at bar we maintain that John F. Snodgrass, the assignor, had full control of said deed of assignment up to the time the probate judge was authorized to note the hour of filing on said deed, and to note the filing on the journal of the court, which was eight o'clock and 10 minutes, it being conceded that the executions had been levied at 7 o'clock a. m. same day. Shirley v. Ayers , 14 Ohio, 310 ; Duke v. Spangler , 35 Ohio St., 125 ; Railroad Co. v. Iliff , 13 Ohio St., 235 ; Black v. Hoyt , 33 Ohio St., 203 . Under section 6335, Revised Statutes, two things are to be considered: 1st — Delivery. 2nd — Filing on the journal of the court. What constitutes a valid delivery is a legal question. There must first be a delivery to the probate judge, and after the delivery he must immediately endorse the fact of delivery on the deed of assignment, and note the filing on the journal of the court. There is no question as to the good faith of these judgment creditors. There is no question as to the validity of all the debts for which cognovit notes were given and judgments were entered. The plaintiffs in error herein, as exceptors, attack the validity of the judgments rendered in favor of the defendants in error herein. They offer no evidence whatever. Their objection is solely to the manner in which the preferences were obtained. C. W. Co. v. Hodenpyl et al. , 135 N. Y., 433 . All presumptions are indulged in favor of the judgments when the judgments are attached collaterally. Black on Judgments, section 288, citing 13 Ohio St., 431 and 439. The rule in Ohio is, that a judgment cannot be attacked in collateral proceeding except for fraud or mistake. As no mistake is alleged in this instance, the sole question for consideration is, was the judgment procured by fraud? A judgment irregular, informal and erroneous, if the court had jurisdiction, is protected from collateral attack. 39 Ohio St., 366 . A judgment must be an utter nullity to subject it to attack in a collateral proceeding. 39 Ohio St., 336 . The court cannot correct irregularities or errors in a judgment in a collateral proceeding. 13 Ohio St., 456 , followed in 16 Ohio St., 187 . "To annul a judgment for fraud, legal or technical fraud is not sufficient; actual, positive fraud, or fraud in fact, must be shown." 73 Am. Dec., 211; Starr v. Starr , 1 Ohio, 146 , cited in 35 Ohio St., 126 , and 23 Ohio St. 479 . A creditor at large must reduce his claim to judgment before he can attack a judgment on the ground that it was improperly or fraudulently entered. 135 N. Y., page 630 ; Waite on Fraudulent Conveyances, section 74. But the plaintiffs in error ask the court to infer that John F. Snodgrass had no authority to confess judgment in the name of the firm. So far as the record discloses, they offered no proof whatever on this subject, but as a mere arbitrary inference of law have asked this court to declare said judgments null and void, because of a want of power in the partner to make the confession. If it is true that the court will indulge all presumptions in favor of the validity of a judgment, in the absence of any proof attacking its validity, the contention of the plaintiffs in error is manifestly untenable. 1 Bates on Law of Partnerships, Sec. 380. The court will not infer, without proof, that a confession was unauthorized. Preference may be given by cognovit note. Revised Statutes, Sec. 6355, 1 Ohio St., 242 ; Doremus et al. v. O'Hara et al. 1 Ohio St., 50 . Preferences may be given by a confession of judgment to secure surety from contingent liability. 1 Handy, 375; 1 Ohio St., 237 ; Black on judgments, Sec. 72; Atkinson v. Tomlinson , 1 Ohio St., 243 ; Black on judgments, Sec. 60, Vol. 1. An unauthorized execution may be ratified. 22 Am. St., Rep., 571; Van Fleet on Collateral Attack, 583; Brown Co. , v Webb , 20 Ohio St., 400 . That a failing debtor has a right to prefer creditors has been so repeatedly decided by this court as to render a citation of the authorities upon that subject wholly unnecessary.

Opinion of the Court

*190 Williams, C. J.

The plaintiffs in error, it is conceded, are entitled to share in the fund for distribution by the assignee, ratably with the creditors who were accorded priority by the judgment below, unless the assignment is invalid, or did not take effect until after the executions were levied.

The validity of the assignment is questioned on the g’round that, though, executed in the name of the firm, it was so executed by one of the partners only, and without having obtained the consent of the other.

That one member of an insolvent firm cannot make a valid assignment of the partnership effects to a trustee for the benefit of its creditors, against the expressed will of a copartner, or without his assent when he is present or accessible, was held by this court in Holland v. Drake, 29 Ohio St., 441.

That decision is placed upon the ground that the appointment of a trustee to dispose of the effects of the firm for the benefit of its creditors, is not within the contemplation of the ordinary partnership, or the usual course of its business, and therefore beyond the scope of the agency arising from the partnership relation. The contrary doctrine is maintained by high authority, and with much show of reason. It is not doubted that one partner may sell any part of the partnership property to one or more of the creditors in payment of the partnership indebtedness, or sell all of its effects to all of its creditors, and if insufficient to satisfy their debts, in full, the sale may be so made to them as to secure a pro rata division ; and it is not surprising- that authorities are found which strenuously maintain that the power of the partner to accomplish the same result by an assignment to a trustee to make such distribution is included in the *191 agency resulting from the partnership relation. The dissolution of the partnership ensues not less certainly from a sale of the whole of its effects directly to the creditors, than from the transfer to a trustee for their benefit. But we are not disposed to depart from the rule laid down in Holland v. Drake, supra, nor are we disposed to extend it. It does not apply where the partner whose assent has not been obtained to the assignment was not accessible in the exigency which seemed to call for immediate action; nor, where his authority or assent may be fairly implied from the situation of the parties, or the .manner of conducting the business. In the ease referred to, the partner whose assent was lacking- not only resided in the city where the partnership had its place of business, but he was the active managing member of the firm having control and management of its property and business. The circumstances were such as to repel, rather than give rise to any inference of authority or assent by him to a final disposition of the firm effects by his copartner who had taken no active part in its affairs. The situation is reversed in the case we have before us. Here, the partner who executed the assignment was the active managing member of the firm, having the entire charge and control of the partnership business and custody of its property; and it is plainly inferable from the permanent absence of the other partner, and his total inattention to the business, that he intended to entrust the affairs of the firm wholly to the resident partner. The absent partner having withdrawn from participation in the conduct of the partnership affairs, and, being inaccessible for consultation and advice, might reasonably expect and be held to intend that the member placed in con *192 trol should, not only exercise the implied powers of agency ordinarily possessed by a partner, but, in addition, should have the discretionary power in case of emergency to do what, under the circumstances, should appear to be just and proper in the disposition of the firm property. And, where a commercial house so situated is overtaken by financial distress amounting to obvious insolvency, the authority of the acting partner to appropriate the property .to the creditors equally, by placing it in the hands of a trustee for that purpose, may well be presumed, in the absence of express dissent by the copartner, or of circumstances which 'would fairly indicate his dissent. Equality among creditors of equal merit is favored in equity, and accords with natural justice; and a disposition of the partnership assets, in case of insolvency, which secures that equality, the courts will not be eager to disturb.

The validity of an assignment of the partnership property, executed by one partner in the name of the firm, under circumstances similar to those existing in the present case, was sustained in an opinion by Chief Justice Marshall, in Anderson v. Tompkin, 1 Brock., 456, and also by the same learned judge, in Harrison v. Sterry, 5 Cranch, 289. And it was held in McCullough v. Sommerville, 8 Leigh, 415, that “when a partner resides out of the state where the partnership business is carried on, the managing partner in charge of the business may make a valid assignment of the firm effects for the benefit of its creditors.”

We find no difficulty, therefore, in sustaining this assignment, both on reason and authority, without calling in question the decision in Holland v. Drake, supra.

*193 There having been a valid execution of the assignment, the question is presented, when did it take effect so as to vest the title, to the property in the assignee? This question is answered by the statute, which provides that every assignment for the benefit of creditors shall take effect from the time of its delivery to the probate judge of the proper county, and such delivery may be made by the assignor to the probate judge, “either before or after its delivery to the assignee;” and the probate judge shall endorse thereon the exact time of its delivery and “note the filing on the journal of the court.” Revised Statutes, section 6335. The instrument of assignment in question was delivered to the probate judge of Delaware county when it was handed to him by the assignor on the morning of the 30th. day of June, 1892.

True, it was so handed to him, as shown by the findings of fact, with instructions not to endorse upon it the exact time of delivery, but to make the date of its delivery appear to be subsequent to the levies of the executions, and thus enable the execution creditors to secure a lien giving them priority over the other creditors. The assignment was nevertheless delivered to the probate judge when it was placed in his possession, and there was no condition attached to the delivery. It was the purpose and intention of the assignor that the instrument should become operative as an assignment, and it thereafter remained in the custody of the judge. There was no other delivery of it.

The assignee qualified under it, and has proceeded in the execution of the trust. By the positive terms of the statute, the assignment became effective from the time of such actual delivery; and the observance by the probate judge of the assignor’s *194 instructions to delay making the endorsement of the filing and so make it as to show its filing of a date later than its delivery, could not defeat or postpone its operation, nor change the legal consequences which resulted from its delivery. Upon receiving the instrument, the probate judge.had a plain statutory and official duty to perform, which was to endorse thereon the exact time it was so received, and make a corresponding entry on the journal of the court. The presumption, of course is, that duty was performed, and the endorsement speaks the truth. The endorsement, however, is but prima facie evidence of the time of the filing, and, the true date of the delivery of the instrument may be shown. It is established by the finding of the trial court that the deed of assignment in question was in fact delivered to the probate judge before the executions were levied, but was held by him and not endorsed filed until after the levies were made, in obedience to the instructions of the assignor; from which that court concluded, erroneously as we think, that as a matter of law, there was not a delivery until the date of the filing was so endorsed thereon. It seems clear that any such understanding or arrangement must be wholly ineffectual to displace or interfere with the rights which accrued upon the delivery of the assignment.

The judgment below must be reversed; the application of the defendants in error overruled; and the cause remanded to the probate court for further proceedings.

Judgment accordingly.

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