89 F. 774 | U.S. Circuit Court for the District of Southern Ohio | 1898
The complainant is a judgment creditor of John W. Corwine, in the sum of $5,044, on a judgment recovered November 21, 1894. As such, it files its bill against John W. Cor-
A large amount of evidence was taken upon the issues of fact raised, all of which I have read with care. I do not propose to discuss tiie evidence, because I have not the time. I can only formulate my conclusions from it. I find the facts to be substantially as follows: John W. Corwine and his wife and his four children, three daughters and one son, were the owners in common of 3,402 acres of fine farming land in Pike county, and 284 acres in Boss county, Ohio. Much of it was Scioto river bottom land, which is the most productive land in the state. By a family arrangement, the lands were divided into four parcels, and, by deeds of partition, each child was given an undivided one-half interest in one of the parcels, while John W. Corwine and his wife each retained an undivided one-four ill interest in all of them. At the same time it was arranged that, by their wills, Corwine and his wife should each devise to their respective children the parcels in which they were co-tenants with their father and mother. The father and mother lived with their daughter Kerziah D. Barger and her husband, John M. Barger, upon one of the tracts, near Waverly, Ohio. A rental was paid to the father and the mother for the interests which they had in the property, but the rental was hardly commensurate with the value of the property. It was sufficient to pay for their support. John M. Corwine, the father, was, during the years of the transactions now to be referred to, a man over 70 years of age, and a farmer by occupation. Prior to 1894, he had become interested in the stock of the National Cotton Seed Oil & Huller Company.
I find, first, that (he reasonable value of the lands conveyed by Convine to his children was not less than $50,000; that the deeds were* the result of a secret family arrangement, the purpose of which was, in ihe alternative, either to tide over the financial stringency of the huller company, and thus, if possible, to save the father from suit upon his indorsements, or, in case of disaster, by a conveyance of the lands to the children at an indefinite price, but in any case less than two-thirds of their actual value, to prevent his creditors from subjecting them to the payment of his debts, and that, therefore, as to the indorsed notes then existing, of which Mary M. Lindley, a cross complainant, holds one for $5,000 in judgment, the deeds were actually fraudulent. It is not a case of constructive fraud, and the case of Jamison v. McNally, 21 Ohio St. 295, has no application.
I find, second, that the four children entered into the arrangement at the suggestion of John M. Barger, and that they committed Us execution to him, and are civilly responsible for his acts in this behalf; that it was essential to the plan to keep-the deeds from record, for otherwise it would have been impossible to secure renewals of the great number of notes outstanding; that the deeds were accordingly concealed at a time when Barger knew that renewals and new loans were being secured-on the faith that Corwine owned the lands which he had now conveyed to his children; that the concealment was therefore fraudulent, and renders the deeds fraudulent as to all loans which were made or renewed between the date of the execution of the deeds, March 22, 1891, and November 10, 1891; and that the judgments of complainant and cross complainants are all founded on notes of this class, except the judgment of Mary M. Lindley, already considered. It is settled by the
With respect to the deed which was made by John W. Oorwine in May, 1894, to John M. Barger, and the mortgage given by Barger •to Hayes, Jones & Co., a somewhat different result must follow. I have no doubt that the deed by Oorwine to Barger was made and withheld from record for the same fraudulent purpose as that which led to the execution of the deeds already discussed; and, were Barger’s interest the only one to be here considered, I should have no difficulty in setting that deed aside also; but the intervention of Hayes, Jones & Co., as the mortgagees of Barger; puts a somewhat different phase on the matter. The facts are that, in May, Oorwine made a deed to Barger of an undivided one-third of 318 acres of bottom land in Boss county, for the recited consideration of $10,000, without the payment of any money whatever; that Barger owned another undivided one-third in the same land; that Barger withheld the deed from record from May until November; that, on the 9th day of November, the day after the fire which destroyed the plant, Barger went to Hayes, Jones & Go., and, presenting the unrecorded deed from Oorwine to himself, obtained from them a loan of $10,000, by a mortgage upon the undivided two-thirds of the land. ' The money thus obtained was deposited in the bank by Hayes, Jones & Co., and was drawn out by agents of Barger,— $5,000 to pay a note of the huller company, upon which Oorwine was indorser, held by Hayes, Jones & Co., and $5,000 to pay a note held by the National Bank at Circleville. I do not find any evidence that Hayes, Jones & Co. were cognizant of the fraud which had been perpetrated by Barger in withholding the deed from record upon the complainant and cross complainants, and, therefore, that, even though the deed of Oorwine to Barger is fraudulent as against the complainant and cross complainants, Hayes, Jones & Co. occupy the position of bona fide purchasers for value to the extent of the mortgage Joan. It is argued that they cannot be bona fide purchasers to the extent of the $5,000 note of the huller company and John W. Oorwine, held by them, which Barger took up with the proceeds of the mortgage, because this, in effect, made the consid-' eration of the mortgage to the extent of $5,000 nothing but a preexisting indebtedness, upon which no claim as a bona fide purchaser can be predicated. I think, however, that this argument cannot be sustained. There was a complete novation of the indebtedness. The time for payment was extended, and Hayes, Jones & Co. released all claim against the other indorsers upon the' note and against the huller company, and returned the security to Barger. It was decided in Bank v. Taylor, 4 C. C. A. 55, 53 Fed. 854, by the court of appeals of the Seventh circuit (Harlan, circuit justice, Woods, circuit judge, and Jenkins, district judge, constituting the court), that:
“When a creditor surrenders and releases liis former obligation and security, extends the time of payment, makes an additional loan, and takes a new mortgage for the entire debt, with the former debtor as surety and a*779 new party as principal debtor, lie becomes a mortgagee for value for the full amount of the entire debt.”
The equities of the situation must be worked out in this wise.. As the mortgage of Hayes, Jones & Co. covers an undivided one-third originally belonging to Barger, and as the complainant and cross complainants have the right to satisfy their debts out of the undivided one-third received by Barger from Corwine, subject only to the lien of Hayes, Jones & Co., the latter firm, having two securities, can he required to satisfy their debts by first exhausting tlx* undivided one-third belonging to Barger upon which the complainant and cross complainants have no lien whatever, and can only look to the undivided one-third received from Corwine to satisfy the balance of the indebtedness due them.
The decree will find the deeds in question here fraudulent, and will set them aside as such, and will direct the sale of all the land of John W. Corwine conveyed by said deeds to be sold, to satisfy the judgment claims of the complainant and cross complainants, and a return of the proceeds to the court for distribution. The costs will be taxed against the defendants. • Counsel may prepare and submit to the court a decree in conformity with this opinion.
Addendum.
It siiusequently having been made to appear to the court that the mortgage deed from Barger to Hayes. Jones & Co. conveyed only the undivided one-third of the 318 acres deeded to Barger by Corwine, and not an undivided two-thirds, as stated by mistake in brief of counsel for defendants, the order for a decree was modified accordingly, and the principle as to the exhausting of one of two securities was not applied.