Kilbourne v. Fay

McIlvaine, J.

The same question is presented in each of these cases, and it may be stated thus: When a chattel mortgage has not been filed or refiled as provided in the chattel mortgage act, and the mortgagor, who continued in possession, dies in possession of the mortgaged property, leaving an insolvent estate, can the delinquent mortgagee enforce the lien of his mortgage against the personal representative of the deceased mortgagor, who has succeeded to the possession of the property? The solution of this question depends on the construction of our administration laws and the provisions of the chattel mortgage act.

With a few exceptions declared by statute, all the goods, chattels, moneys, rights and credits of a.deceased person are deemed assets to be administered by the personal representative ; and section 83 of the administration act (S. & C. 580-1), provides : “ Every executor and administrator shall proceed -with diligence to pay the debts of the deceased, and shall apply the assets arising from the personal estate and effects to the payment of debts in the following order:

First. The funeral expenses, those of last sickness, and! the expenses of administration.

Secondly. The allowance made to the widow and children for their support for twelve months.

Thirdly. Debts entitled to a preference under the laws of the United States.

Fourthly. Public rates and taxes, and sums due the state-for duties on sales at auction.

Fifthly. Debts due to other persons.”

Provision is then made for the payment of all debts of each class pro rata. Then section 84 provides : “Nothing-in the preceding section shall affect or impair any lien,, legal or equitable, which any creditor or other person shall have upon the personal estate of the deceased during his-lifetime.”

Plaintiffs seem to think that the provisions of this 83d section forbid the distribution of the assets in the defendant’s hands among the general creditors ratably. But a majority of the court is unable to find any aid to the solution of the main question in its provisions. It will be observed that no lien, legal or equitable, is created or defined by this section. Did the plaintiffs in either of these cases have a lien, legal or equitable, during the lifetime of the deceased as against those for whom the personal representative now claims the funds, is the question. If so, it must be recognized by some law aliunde this section.

The plaintiffs claim a lien under their respective mortgages.

In relation to such mortgages the statute of February 24, 1846 (S. & C. 475), provides:

“ Sec. 1. That every mortgage ,or conveyance, intended to operate as a mortgage of goods and chattels, hereafter-made, which shall not be accompanied by an immediate delivery, and be followed by an actual and continued change of possession of the things mortgaged, shall be absolutely void, as against the creditors of the mortgagor, and as-against subsequent purchasers and mortgagees, in good faith, unless the mortgage, or a true copy thereof, shall be-•forthwith deposited as directed in the succeeding section of ■this act.”

The succeeding section, in so far as it applied to these mortgages, respectively, required the deposit to’ be made in the office of the recorder of the county.

“ Sec. 4. Every mortgage so filed shall be void, as against the creditors of the person making the same, or against ■subequent purchasers or mortgagees in good faith, after the •expiration of one year from the filing thereof, unless within thirty days next preceding the expiration of the said term of one year, a true copy of such mortgage, together with .a statement exhibiting the interest of the mortgagee in the property at the time last aforesaid claimed by virtue of •such mortgage, shall be again filed in the office of the •clerk of the township where the mortgagor shall then re.side, if in this state ; and if "his residence shall not be in •the state, then in the office of the clerk of the township ■in which such property shall then be.”

It will be observed that “ deposited ” and “ filed ” are 'here used as convertible terms, and that the ■ same result -follows the failure to make the original deposit, and to file again a true copy of the mortgage with required statement •within thirty days preceding the expiration of a year from the date of the first filing.

But right here two propositions are made by the plaintiffs : 1. That an unfiled mortgage is valid as against the mortgagor. 2. That such mortgage being a valid lien as .-.against the mortgagor during his lifetime, it is valid as ■against his executor or administrator.

The first proposition is conceded. It has been so decided in Wilson v. Leslie, 20 Ohio, 161, and in other cases. The .statute does not declare an unfiled mortgage void as against .the mortgagor or his heir or legatee, but only as against •creditors, and subsequent purchasers and mortgagees in good faith. In the case cited, the force of the phrase, “ shall be forthwith deposited,” was under consideration, ■and, while it was well said, that “ until placed in the proper office, a mortgage of chattels in our state would be void as against other creditors of the mortgagor, and subsequent purchasers and mortgagees whose rights then attach ; but when filed with the clerk or recorder, the instrument becomes valid and effective against all men, except those whose rights have previously attached,” still the point decided was, “ that a mortgage of personal property, under the statute of 1846, is ‘ absolutely void ’ as to other creditors of the mortgagor who assert their rights against the property after its execution and before it is deposited with the recorder or township clerk.” It is very true that in Wilson’s case, as in many others decided by this court,, wherein the chattel-mortgage act ivas under consideration, expressions have been used, by the judges reporting the-cases, to the effect that an unfiled mortgage was valid as-against the mortgagor, and also as against creditors who* have not asserted their rights against the property, and that such mortgage is only void as against “ execution creditors,” or “ attaching creditors,” or “ those creditors who-assert their rights.” These expressions must be understood in the light of the case then before the court; and it will be observed that in none of the reported cases has the-question been discussed as to the rights of general creditors^, after the death of the mortgagor, as against an unfiled mortgage.

There is no doubt that such unfiled mortgage is absolutely void as against any creditor of the moi’tgagor, who, in the lifetime of the mortgagor, seizes the property in execution, or attachment, or by any other process known to-the law, unless the mortgagee be in actual possession ; nor has this court, to our knowledge, attempted, in any case,, to define or limit the modes or processes by which any such creditor may assert his rights against a mortgage, which, as to him, is absolutely void.

Indeed, in a very recent case, Hanes v. Tiffany, 25 Ohio St. 549, it was held, that “ A mortgage void as to creditors-is void as against an assignee in trust for the benefit of creditors.” This case involved a chattel mortgage valid as against the mortgagor, but void under this statute, as against creditors, and "White, J., says: “ It is, however, contended that, as the mortgage is good against the mortgagor, it is .also good against the assignee for the benefit of creditors. That the latter stands in no better situation than his assignor. The correctness of this position at common law is admitted; but not so under the statute; the mortgagee not having possession of the mortgaged property, the statute declares the mortgage void as against the. creditors of the mortgagor; the assignee took the property under the assignment, and held it for the exclusive benefit of creditors. The mode of providing for creditors by way of assignment, in trust for their benefit, is recognized and regulated by statute; and we see no good reason why their rights may not be as effectually asserted through the assignee as they could be by judgment and execution in case there had been no assignment.”

This case was not placed on the ground, as counsel seem to suppose, that the assignee, in insolvency was a “ subsequent purchaser in good faith,” but squarely, that the rights of “creditors” could be asserted through an assignee for their benefit, as they could have been by judgment and execution against the property.

This brings us fairly to the consideration of the second proposition above-named: Is an unfiled chattel mortgage valid as against the executor or administrator of an insolvent mortgagor, where the possession of the property passes directly from the deceased mortgagor to the personal representative ?

I shall not stop to cite cases wherein the executor oradministrator has been held to be a trustee for the benefit of the creditors of the estate. The provisions .of the 83d section of the administration act, above-quoted, clearly establishes such relation. The ordinary course of administration is the means and .process provided by law, whereby creditors of a deceased debtor receive payment. It is true that in the case of a solvent estate the heir has also a beneficiary interest in the trust, as a distributee ; but where the estate is insolvent, the interest of the heir is merely technical, as all the assets, in such ease, are administered for the exclusive benefit of creditors. The analogy between the duties of the office of an administrator of an insolvent estate and those of an assignee of an insolvent debtor are so perfect that we might at once affirm that the doctrine of Hanes v. Tiffany must control the decision of the present cases.

But, it is urged, that by former decisions of this court, the doctrine of Planes’ case can not apply to the case of ah executor or administrator. Gill v. Pinney, 12 Ohio St. 88, is relied on. In that case, it was held that a mortgage of real estate, not recorded till after the death of the mortgagor, is not, for that reason, inoperative as against the general creditors of the estate. The act to provide for the proof, acknowledgment, and recording of deeds and other instruments of writing, 29 Ohio L. 346, which regulates legal titles and incumbrances of real estate, controlled Gill’s ■case, and although it was in said act provided, that all mortgages shall take effect from and after the time the same ■are recorded, or, as afterward declared, from the time of delivery to the recorder, yet the 8th section of' the act, which declared the effect of not recording as therein prescribed, only provided, that such unrecorded instruments “ should he deemed fraudulent so far as relates to any subsequent dona fide purchaser having, at the time of making such purchase, no knowledge of the existence of such former deed •or other instrument of writing.” Now, although Gill’s ease, which preferred a real estate mortgage not recorded at the death of the mortgagor, to the claims of general creditors, was decided after it had been settled that an unrecorded mortgage must be deferred to the legal lien of a ■subsequent judgment, it by no means follows that the same •conclusion would have been reached, if the registry act had •declared unrecorded mortgages absolutely void as against creditors.

Our attention has also been called to Benjamin v. Le Baron’s Adm’r, 15 Ohio, 517, wffierein it was held, “that an 'administrator can not maintain an action of trover to recover goods transferred by his intestate to defraud creditors.” At common law, the injured creditor might sue such fraudulent vendee as executor de son tort, and recover for his own ■benefit; but as no such relation as executor of his own wrong is recognized in our system of administration, I can see no good reason why the rightful representative of the estate should not be allowed to prosecute such wrongdoer for the benefit of creditors, to the end that a ratable disbursement should be made among them ; yet it is not neces.sary now either to approve or disapprove of that decision. It is one thing for the representative of an estate to pursue, by action at law, the fraudulent vendee of the deceased •fraudulent debtor for the recovery of goods fraudulently-transferred; while it is quite a different thing for such executor in possession to defend, for the sole benefit of creditors, such possession ■ against a claim which by statute is •declared absolutely void as against creditors.

The earliest case, to our knowledge, in which a distinction is made on account of possession at the time of the death •of a fraudulent grantor, is Bethel v. Edward Stanhope, Croke’s Eliz. 810. Thomas Vaughan, having made a gift to his daughter in fraud of his creditors, died in possession •of the goods. After the defendant had intermeddled, the daughter, by this gift, took the goods; and afterward administration of the goods of the deceased was committed to .defendant. Scire facias against the defendant as executor de son tort. The question was, whether he could be •charged as executor,and whether these goods were assets in his hands. After argument, it was adjudged, for the plaintiff': “ Eor first, when he meddled with the intestate’s goods, although he was neither executor or administrator, and afterward administration was committed unto him, a creditor hath election to charge him as executor or administrator. . . . Secondly. All the court held, that this gift of the goods is in itself fraudulent, as appears by the condition ; and the covin is expressly found by the jury, and then it is utterly void against the creditors by the 18th Eliz. c. 5, •and the intestate died in possession of them; and when the «donee afterward took them, it is a trespass against the administrator,■ for which he hath his remedy; and they are assets in his hands. But if the trespasser takes goods from a testator in his lifetime, so that they never were but a chose in action to the executor or administrator, they are not assets until recovered. "Wherefore, notwithstanding this taking of them by the donee, yet they always remained as assets in the hands of the administrator. And therefore he is chargeable for them as executor de son tort, by his intei'meddling with them before administration committed, and: the goods by law remained always in his possession.”

In Welsh v. Beekey, 1 Penn. 57, it was held that a mortgage of personal property, without delivery of possession or other indicia of ownership, is fraudulent as to creditors,, and upon the death of the mortgagor, the mortgagee is not entitled to preference over other creditors. In delivering the opinion in the case, Gibson, C. J., said: “ In reply to the argument that the contract, although fraudulent as to third persons, is good between the parties, it is proper to remark, that the contest with the executor is virtually a contest with the creditors, it being exjDressly made a part of the case that the estate is insolvent.”

In Shears v. Rogers, 3 Barn. & Ad. 362, a lease was held to be assets in the hands of the executor, where the testator, who had made an assignment which was void as to creditors under 13 Eliz. c. 5, retained the possession. Lord Tenterden, C. J.: “ The authorities show that wherever a man makes a gift of goods which is fraudulent and void as against creditors, and dies, he is considered to have died in full possession with respect to the claims of creditors, and the goods are assets in the hands of the executor.” A nr? Patterson, J., said: “As the statute says that this fraudulent deed shall be utterly void and frustrate, and as the lease was in the hands of the testator at the time of his death, it passed to the executor and was assets in his hands.”

Buehler v. Gloninger, 2 Watts, 226, was an action of replevin by the grantee of goods under a contract void as to creditors under the statute of 13 Eliz. The defendants •were the administrators of the fraudulent grantor, who died in possession of the property. On the trial the defendants offered to prove that the estate was insolvent.. Eor rejecting this testimony the judgment below was reversed. In the opinion the court say : “ Inasmuch as we are to take it that the estate of Buehler is insolvent, this is-substantially a contest between the fraudulent grantee and the creditors of the fraudulent grantor, and, as such, comes-within the prohibition of the statute of 13 Elizabeth. The administrator is the trustee of the creditors, and in that capacity is bound to protect their interests. The personal representatives [heirs] in fact have no interest in the controversy, as the case supposes that the assets are insufficient to pay the debts of the estate.”

There are some reported cases of high authority on the other side of this question, yet there are still others which favor the view of those above cited. It is true, most of them relate to transactions within the statute of 13 Elizabeth, which makes void all transfers of property with intent to defraud creditors. But we are unable to distinguish-between the legal effect of a contract void under that statute, and one “ absolutely void as against creditors ” under our chattel mortgage act.

In order to sustain the claims of the plaintiffs in these cases,, it is necessary to give effect to the 1st section of the chattel mortgage act as though it declared that an unfiled mortgage-is absolutely void as against the creditors of the mortgagor during his lifetime; but after his death it shall be valid as against them; thus making the death of the mortgagor a substitute for the filing of the mortgage. The statute contains no such limitation or condition ; but it 'does declare that every unfiled mortgage, without an actual and continued change of possession of the things mortgaged, shall be absolutely void as against the creditors of the mortgagor, and as against subsequent purchasers and mortgagees in good faith. The creditors of a mortgagor do not cease to be such by his death ; and so long as they continue to be such, creditors, such mortgage is void as against them. By relation, the executor or administrator of the mortgagor be■came trustee for the creditors from the death of the mortgagor. But it is said that, under section 84 of the administration act, all legal and equitable liens on the property during the lifetime of the mortgagor must be first paid, and that such lien existed in favor of the mortgagee during the lifetime of the mortgagor. As against whom? We admit that in life the mortgagor could not deny the validity ■of the mortgage; and the same may be affirmed of the heirs after his death. But the creditors, after the death as before it, were not affected by the mortgage either in law ■or in equity. This suit is virtually a contest between the mortgagee and the creditors. The latter are now asserting their claims against the assets in the only mode provided by law for the appropriation of the assets of their debtor to the payment of their claims. That the mortgaged property is assets in the hands of the personal representative must be admitted in order to claim, the benefit of the 84th section. For it has relation to liens on assets in the hands of the executor or administrator, and nothing else. Conflicting claimants now assert their respective rights in the property; and he should prevail who has the better right as between themselves. The statute provides the rule for the •decision. The mortgage is absolutely void as against the ■creditor's.

After a cai’eful considei’ation of these cases, a majority of the court, both upon authority and reason, hold, that where a chattel mortgage is absolutely void as against the •creditor's of the moitgagor, who dies in possession of the mortgaged pi-operty, leaving an insolvent estate, such px’op-exty becomes assets in the hands of his executor or administx’ator, to be administered for the sole benefit of such •creditors, and disbursed ratably among them, notwithstanding such mortgage be a valid lien as against the mortgagor during his lifetime, and against the distributees of his estate after his death, and that it is the duty as well .as the right of such executor or administrator to defend bis possession of such property against the claim of such mortgagee.

These conclusions render it unnecessary to consider the-other questions in the case of Kilbourne v. Kay, further than to any that we regard the assignment of the interest of H. T. Eay, as legatee under the will of Lincoln Goodale,, to the plaintiff, a sufficient and valid assignment for the purpose stated. This legacy was not the subject-matter of a chattel mortgage, and its assignment was not, therefore, subject to the infirmity of the mortgage arising from the-failure to file it.

In that case, therefore, the demurrer to the answer is overruled, and cause remanded to the distinct court for further proceedings.

In Keller v. Shaeffer, the judgment of the court below will be affirmed.

Judgment accordingly.