text:
    Eighth Circuit — Cuyahoga C., O., Circuit Court
    Feb. Term, 1898.
    Before Hale, Marvin and Caldwell, JJ.
    OLIVER M. STAFFORD v. THE PRODUCE EXCHANGE BANKING COMPANY.

      Reserved lien of banlc on its stock for loans to holder thereof—
    (1.) A bank in Ohio, chartered and known as savings and loan association, has power to create a lien upon the stock by it issued for loans owing to the banK from the holder of the stock.

      Same — Lien established by custom—

    (2.) A by-law of a corporation may be created and made binding upon the members there of by custom, where such custom is shown to be a uniform rule of action, and acquiesced in by all the members.

      Same — Notice of such lien printed on face of stock—

    (3.) Where a bank in issuing stock, by proper notice to all its'subscribers for stock, asserts a lien upon the stock, ard the owners of the stock acquiesce in such lien, the lien exists by contract, and such acts being uniform, have the force and effect of a by-law as much as though regularly adopted by the directors of the bank.
    Same—
    If notice of such lien is printed upon the face of the stock certificates, any one buying the same will be presumed to have bought with notice of such lien.

      Same — Duty of purchaser of such stock to inquire—
    ■(5). Where one buys such stock, and between the time of such purchase and the time the purchaser presents the same to the bank issuing the same, for transfer into his name, the vendor becomes indebted to the bank that issued the stock to him without notice that he has sold his stock, such purchaser cannot compel the bank to transfer the stock to him, for the reason that he knew, when he bought the stock, that the bank had a lien on the same for any indebtedness of his vendor created prior to the time the bank had notice of the sale.
    Error to the Court of Common Pleas of Cuyahoga county.
   Caldwell, J.

This case is in this court on appeal from the court of common pleas. It involves a question of very great interest. It seems that one Lauer became a stockholder in the Produce Exchange Banking Company, holding about $2,000 worth of stock. That stock had upon the face of it what it is claimed constituted a lien in favor of the bank issuing it for any indebtedness of the holder to the bank.

Lauer took the stock to the bank with which O. M. Stafford is connected — The Woodland Avenue Savings and Loan "Company — and pledged it for a loan of money. The money was not paid. The stock was sold according to the provisions of law and bought in by the bank, and Mr. Stafford presented it to the Produce Exchange Banking Company to have it transferred upon their books. The Produce Exchange Banking Company refused to transfer the' ■stock, because the one to whom it was issued — -Mr. Lauer — ■ was indebted to the bank at that time.

This bank is incorporated, and is what is known in the-law as a Savings and Loan Association.

The facts are agreed upon in this court; and the question of law is raised, whether under the facts as they are agreed upon, the Produce Exchange Banking Company can be compelled to transfer this stock into the name of Stafford.

The provisions upon the face of the stock certificate areas follows:

‘ ‘ The Produce Exchange Banking Company. 5 ’
“No. 145
“20 Shares.
“Capital Stock, $200,000.00
“2,000 Shares, $100.00 each.
“This certifies that M. Lauer is the owner of 20 shares in the capital stock of the Produce Exchange Banking Company of Cleveland, Ohio, on which 50 per cent., being fifty dollars per share, has been paid, transferable only on the book of the company in person or by attorney, on the surrender of this certificate.
“Not transferable by any stock-holder liable to this company as principal debtor or otherwise, without consent of the board of directors.
“In witness whereof, the president and secretary have hereunto subscribed their names and caused the seal of this company to be affixed at Cleveland, Ohio, this tenth day of February, A. D., 1890.
“R. R. Herrick, Pres.
(ideal) “Chas. O. Evarts, Sec.”
Indorsed on the back:
“The estate of Martin Lauer, deceased,
“By Catilianna Lauer,
“E. T. Lauer, Executors.
“Cornelius A. Lauer,
“Grace E. Collins,
“Witness to Catharine Lauer,
“A. F. Clark.”

It is claimed that, having this language upon the face of it, that stock is not transferable by any stockholder liable to this company as principal debtor or otherwise, without the consent of the board of directors.

It is essential to state, perhaps, that the indebtedness of Lauer to the bank for the stock is not counted upon, although this recites that he has paid fifty cents on the dollar; the remaining fifty cents is not the debt that is counted on here. On or about the 1st day of March, 1890, the certificate referred to above was pledged to the Woodland Avenue Savings and Loan Company by Martin Lauer to secure an indebtedness of $5,000. The fourth finding is that on the 28th day of March, 1891, Martin Lauer became indebted to the said defendant bank in the sum of $2,500, which indebtedness remains unpaid. From that it seems that the entire indebtedness for which the Produce Exchange Bank claims a lien upon this stock, occurred after the time it was issued, and occurred after the time when it was pledged to the Woodland Avenue Savings, and Loan Company by Martin Lauer.

The Produce Exchange Banking Company had no written by-laws upon the subject. There had been no action of the board of directors, nor of the stockholders, determining the exact character of the stock, as to what should be on the face of the stock. There had been no action by any of the officers or any of the stockholders of the company determining that the bank should have a lien upon all of the stock issued, for any indebtedness of the person to whom it was issued by the bank,except this:

The directors authorized C. O. Evarts, an officer in the bank, to procure a book of blank certificates of stock. He procured the stock certificates in the form before set out, and the same form was issued to all subscribers to the stock of the company.

The first question, perhaps, for consideration is, what power has the bank to fix the lien upon the stock which it issues. It is claimed that this power exists under section 3799, which reads as follows:

“The board of directors may prescribe the terms on-which deposits shall be received and paid out,and the mode of transacting, managing, and conducting the affairs and business of the corporation; and the rules and regulations relating to the receipt and payment of deposits, and the interest thereon shall be written or printed in toe pass books of depositors, shall not be altered so as to affect any deposit previously made, and shall be obligatory on such depositors. ”

It is claimed that under this section the bank had the power to engraft upon stock certificates a lien in the manner in which it was done. That the bank might have done this by by-law has been determined in this state in the case of the Bellevue Bank v. Adeline Higbee, 4 Circuit Court Reports, 222, which case was affirmed by the supreme court.. It was determined in that case, that where a banking company, organized under the savings and loan association statute, undertakes by by-law to fasten a lien upon stock, it may do it; that power rests in the corporation. It may not be revealed fully who did it in that case. The presumption is that it was done by the directors, as, under our banking laws, they are the parties who pass the by-laws, as a rule.

That being done in this case, the question remains whether that may be done in the manner in which it was done here. There is no direct lien given upon stock for a bank in this state by statute. The banking laws define the powers of a backing company, and these laws, as they are defined, have been determined by the circuit court and the supreme court to be such as to give the banking company power to engraft the lien by means of a by-law. The power granted, the mode of exercising that power is to be determined in this case, because this case differs from the one that has been decided. This determines it, if at all, by contract, or by by-laws established by consent.

Had the directors of the bank instructed Bvarts to procure stock certificates containing a notice of the bank's liens ■ on the stock, the case would be no stronger than it now is. If the authority of Evarts to procure the form of certificates was not given before he acted, yet the use of the form he procured would be a ratification of his act, which would relate back to the time he was given authority to procure the certificates. Then the form of the certificates becomes the act of the directors. If thereafter this form was used by the ■directors in all the stock issued, and the stockholders have received the same and acquiesced, it would seem clear that no stockholder could deny the lien of the bank; nor can -any one taking the stock with constructive notice of the lien.

A by-law of a corporation may be shown to exist not only. by the formal action of the directors in adopting the same, but as well by the custom of the company. Morgan v. The Bank of North America, 8 S. & R., 72-88; Bank of Holly Springs v. Pinson, 58 Miss., 421; The Union Bank of Maryland v. Ridgely, 1 H. & G., 324-413.

If it was not correct to treat what was done by the ‘bank as a by-law, yet a stockholder's between himself and the bank, must be held to have contracted that the bank ■shall have a lien. Any dealing with the stock with notice -of the lien will be postponed to the lien of the bank.

The objection raised in argument to a contract of this ’kind is two-fold: first, that the corporation can not deal in its own stock; and second, that it creates a secret lien; and that for both of these reasons a contract of this character is against public policy. There are provisions in our banking laws against banks dealing in their own stock- — -being owners of their own stock- — except in certain ways and in a certain manner. But the case already determined in the 4th circuit court, and affirmed by the supreme court, must necessarily settle the fact that the legislature has bestowed upon the bank, power to in some manner at least take its own stock as collateral security,and engraft a lien upon that stock at the time it issues it.

This being true, we can not see any ground for holding: that such contract is against public policy for the reason' that a corporation can not deal in its own stock. We mustc. regard that as a settled question in this state.

It is urged that this is against public policy, because it! is a secret lien. Our law makes bank stock personal property, and it is to be dealt with as personal property, and any lien upon it must accomplish the same objects and the-same purposes that a lien upon personal property must accomplish in this state.

The mode of obtaining a lien upon personal property in> this state — save by chattel mortgage — -is by taking a lien upon the property, and all that remains thereafter is the mode- and manner of giving notice to the pubUc. Laws are provided by which that may be done. The mode and manner of giving notice may, perhaps, be' varied. It is claimed' that in this state it is not determined that the mere passage-of a by-law by a banking company is sufficient to bind third' parties; that if third parties are to be bound, there must besóme notice that is equivalent at least to the notice required’ where a lien is secured upon personal property in this state, and therefore, this is an open question in this state, whether or not, after all, as to third parties, this is not a secret lien, whether it be declared by by-law, or whether notice is* sought to be given of it by printing upon the face of the-certificate.

Many cases have been cited upon the trial of this cause,, bearing upon this question and upon other questions connected with it.

In the first place, a great many authorities have been cited' to us as to whether or not under a statute like ours,or similar to ours, there is an implied authority to create a lien at all. Upon that question, although we regard it settled in this-state, yet it is one upon which authorities must necessarily differ from the very fact that the statutes of different states; differ.

It has been declared by the highest courts in some states that the statute is such that it is not within the power of a banking company to declare a lien in any manner whatever; it not being declared by the statute, nor implied in any powers that are given, the corporation can not create it.

On the other hand, there are states holding that this lien may be created.

The statutes differ, and we should expect, accordingly, different constructions of the statutes. The differences, to begin with, found in the authorities exist very largely on account of these differences in statutes. Another source of difference is this: Some courts are inclined to construe according to one rule, while other courts are inclined to construe according to another rule. At common law there is no lien upon the stock of a banking company, by the bank. It does not exist; and some courts cite that fact, and say that if the statute is in derrogation to common law, there must be a strict construction. We find that in other states they look upon it more as an enabling statute, or a remedial statute, as a remedy to the bank to secure and enable it to collect what is due. In the states that follow that rule, the statute is more liberally construed, and some of them liberal enough so that a lien is permitted under the statute' that would not be in any other state where the rigid rule is adhered to.

As tojffie mode of creating this lien, there are authorities holding that a by-law is not sufficient to bind third parties; that it is not sufficient notice. In Mississippi the statute gives a lien, and requires that the lien should be made known upon the face of the stock of the company. The company declared the lien, but failed to put it on the stock, and it was held that the third party was not bound by it. In principle the same holding was had in Iowa, and in various states. And even in the 63rd California, 359, it was held that a mere by-law was not sufficient notice to third parties dealing with the stock, to give the bank priority over a bona fide purchaser of the stock. But the same state, in the 79th California, 323, held that where a notice of a lien was upon the face of the stock,printed upon the face of the stock, that it was sufficient to bind third parties dealing with the stock. The same is held in several other cases cited. In 77 New York State Reports, 550, Buffalo German Insurance Company v. The Third National Bank of Buffalo, a case in the supreme court at a special term in Erie county, February 4, 1897, the syllabus is as follows:

“Pledges — Sale after death of Pledgor — A purchaser of stock certificates which give a corporation a lien on the stock to secure any indebtedness of the original holder of such certificates, takes the stock subject to the lien, though he has no knowledge thereof; the presumption that he read the certificate being conclusive,”

New York has held that a corporation can not charge a Men by by-law upen its stock; that there is no implied authority of a corporation to engraft such a lien; and yet the •case last cited holds that such a lien may be created by contract between the parties, and that anyone taking the stock •containing the notice of such lien will be bound by the contract agreement for lien between the bank and the stockholder, and will acquire only the rights that the owner of the stock had when the purchaser obtained the same. As to this matter of notice, I read from 77 N. Y. St., 553:

“The second claim advanced by the defendant, to the •effect that the defendant, by the terms of the contract of pledge between Levi and the plaintiff, has, or at any rate ib entitled to have a lien upon the stock superior to that of the plaintiff,” (the bank that issued the certificate was the defendant), “as an original proposition, and independent of the National Banking Law, seems to be sound. It was plainly stated in the body of the certificates that the defendant was entitled to a lien upon them as against the •owner, as security for any indebtedness from the owner to the bank. The defendant is organized under the National Banking Act of 1864, which prohibits the making of such a contract as that between Levi and the defendant, which is evidenced by the recital in the certificates giving the bank the right to a lien upon his stock under the circumstances disclosed by the evidence at the trial of this case. In order to justify such a contract under the statute, it was incumbent upon the defendant to prove that it was necessary to prevent loss upon a debt previously contracted in good faith, and no evidence was given upon that question. The significant and the important provision of the law the effect of which is in dispute here, is the provision prohibiting the defendant from making loans on the security of its own capital stock. The statute itself prescribes no penalty for its violation. It is not claimed that the defendant has ever purchased, oris the holder of the stock in question; so that the statutory provision that it shall neither purchase nor hold its own capital stock, unless it be necessary for it to do so to prevent loss upon the debt previously contracted, has no particular bearing upon the question to be decided here. The claim of the defendant, then,that it has, or is entitled to have, a lien superior to that of the plaintiff, rests upon the fact that it was agreed between Levi and the defendant when the stock was issued, that it should have a lien for any indebtedness from him; and the plaintiff, when it took the stock in pledge, had notice of the agreement,and took it subject to such lien, or right to a lien. If the contract thus embodied in the certificate was valid and binding as between the defendant and Levi, the right of the plaintiff must be measured by, and can not be greater than, those of its assignor. Where a pledgee has actual or constructive notice of any infirmity in the title of the holder of stock,he gets only the rights of the pledgor. It becomes the duty of one who has received knowledge of such fact as should put him on inquiry, to make such inquiry with all due diligence and in good faith; and anything short of this will impose upon the negligent party, the same liability as though he had acted with full knowledge of all that the inquiry would have disclosed. In the case of Crocker v. Whitney, reported in 71 N. Y., 161, which went to the United States Supreme Court, whose decision may be found in 103 U. S., page 99, it was finally held that real estate mortgaged to a national bank to secure future advances, taken in violation of the National Banking Act, was valid security for such advances on the ground that the National Banking Act contains no provision prescribing a penalty for such a violation of the statute; and the violation only laid the bank open to proceedings by the government, to annul its charter, and could not be taken advantage of by private parties, To the same effect is Thompson v. Bank, 146 U. S., 240. That the plaintiff here took the stock in pledge with constructive notice of the claim of the defsndant that the stock was subject to a lien in its favor for any claim it then had against Levi, is plain, notwithstanding the fact that the plaintiff did not discover the provision in the certificate to that effect till long afterward.” (Citing authorities,) “The plaintiff, when it took the certificates, was bound by the provisions in the certificates, whether it read them or not. The presumption that it did read them is conclusive as matter of law, although false in fact.”

I have read so much of this case, because it seems to be in direct line with the 79th California and the 26th Connecticut, to the point that where a lien is printed upon the face of the stock itself, and is part of it, that it binds any third person who takes that stock, regardless of whether he knew it or did not know it as a matter of fact, because he will be considered as knowing it as a matter of law.

Now, although we have a provision in our statute, as I have already said, for the mode of giving notice of a lien upon personal property, yet if any other mode is followed which is conclusive — obvious to the party who buys that personal property, it is difficult to see why the person is not bound by the lien. Take a wagon; if it is printed all over it that some party has a lien upon it,and a person buys it who by seeing the wagon could have read if he desired to do so, the printing upon it, it seems that such notice would be as effectual as though he had notice in the manner prescribed by statute. A party is about buying personal property, and ffie is given notice at the time he is about to buy, that A has a lien upon the property for anything that may be due at any time from him during the duration of that lien; it would certainly be sufficient notice.

Here is a certificate of stock that is notice to any one who undertakes to purchase it or loan money upon it. It bears the evidence upon the face of it. In the case in Iowa the law required that the by-laws should be posted up in the .room, in the office, and in various places. That was not done, and it is held the bank could not hold a lien as against the third party who had acquired an interest in the stock. But if the law had been complied with, by posting the notice, it would then have been regarded sufficient; and yet that would not be as effectual notice as printing it upon the face of the stock itself.

We are inclined to think that under the authorities — and • some of these authorities are from states where it has been held that it is not sufficient notice to merely pass a by-law which is found upon the records of the company; yet these very states, such as California and even Connecticut, have held that it is sufficient notice of a lien when it is printed upon the face of the stock itself. The same is true of New York, if the case above cited is to be regarded the law of 'that state.

New York has held repeatedly that these liens are not -good under the state statute. Formerly it was held that the liens were not good under the statute of the United 'States; but lately it seems that decisions in the United States courts are to the effect that a third party cannot ■ take advantage of that law; that there being no penalty ■ attached to the prohibition against the company, the government can alone enforce the law by way of proceedings ■ against the company directly. This construction of the U. '■S. statute is very applicable, indeed, to section 8802:

“No director or other officer of such corporation shall borrow or use the funds of the corporation, except to pay-the necessary and current expenses, to an amount greater-than one-half of the amount of stock by him owned or held?, nor shall any officer or director be surety, or in any manner an obligor, for any loan made by the corporation.”

Squire, Sanders & Dempsey, for Plaintiff.

Wilcox, Gollister, Hogan & Parmely, for Defendant.

Here is a prohibition the same as the United States statute upon banks. There is no penalty attached to it.

I do not know why the construction placed upon the-United States statute by the United States court in the two-cases referred to, and in the New York case, is not entirely applicable to this construction of the statute in this state;, that it is a provision available, not to a third party dealing-in the stock, but only to the state itself.

We hold the lien of the defendant good, and that the-plaintiff has not the right to have the stock placed in his-name on the books of the bank.

The plaintiff’s petition is dismissed,at his costs.


source: Caselaw Access Project

author: Parker, J.

license: Public Domain

text:
    (Sixth Circuit — Sandusky Co., O.,Circuit Court
    May Term, 1898)
    Before Haynes, King- and Parker, JJ.
    N. B. ERVIN v. WILLIAM M. MASTERMAN et al.
    ' Mining partnership to operate oil well — What will constitute— Partners’ lien—
    (1). Co-owners of an oil and gas lease of certain lands agreed to form a partnership for the sinking, equipping- and operating ■ oil wells thereon, upon the terms that each member was to-contribute toward the cost of operations and any losses that might occur in proportion to his share or interest in such property, the necessary funds to be raised by assessments-made upon and collected from the members, and each member to receive and sell on his account and at his own pleasure his share of the gross product, i. e. the oil produced; and in pursuance of this agreement a firm name was adopted and' the business carried on accordingly. Held: — That this consti-tuted.a¡partnershippartaking of certain characteristics'of a “mining partnership.”
    (2) . In such case the parnerts’ lien may be enforced the same as in cases of ordinary commercial partnership.
    (3) . Sec. 4112a, R. S., does not prevent the taking effect or enforcement of the partners’ lien upon such property, nor the application thereto of the equitable doctrine that property purchased with partnership funds for partnership purposes shall be deemed and treated as partnership property, though the title may be taken in the name of an individual.
    Appeal from Court of Common Pleas of Sandusky county,
   Parker, J.

This, case comes into this court on appeal from the court of common pleas of this county. The petition sets forth, in substance, that about March, 1896, the plaintiff and the defendants William M, Masterman, H. W. Townsend, F, W. Zorn and F. C. Hornung, entered into a contract of partnership under the firm name..of the Ervin Oil Company, for the purpose of owning, operating and developing a certain leasehold of oil lands, and to produce and market the product of said lease; said leasehold being known and described as the Kimball lease, situate in Freedom township, Wood county, Ohio, and containing about sixty acres of land. That since March, 1896, said partnership has been in the open and actual possession of said premises, and engaged in drilling wells thereon, and producing oil therefrom. That the place nf business and office of said partnership is at Gibsonburg, Sandusky county, Ohio. That by the terms of said partnership agreement said leasehold and partnership property, consisting of structures, machinery, wells, engines, boilers, derricks, tanks, tools and other equipments of said property for the development of oil, was to be held, owned and operated by said partnership, and said partners respectively were to own the property of said partnership all and singular and to bear its expenses and share its gains in the following proportions: N. B. Ervin, Wm. M. Masterman and H. W. Townsend, each, a fourth interest, and said F. W. Zorn and F. C. Hornung, each an eighth interest.

That in the prosecution of said business said partnership borrowed large amounts of money, which were used by said partnership in its business of drilling, shooting and completing oil wells on said lease, and for other expenses of said firm, and that the real value of said lease consisted of said wells and equipment and the product of said wells;, 'that said partnership owes for money borrowed and used as aforesaid to different creditors something over five thous- and dollars; that said W. M. Masterman has become, and is, wholly insolvent. Francis H Steel is also made a party defendant, and it is averred with respect to him, that he claims some interest in, or lien upon said partnership property growing out of certain alleged transfers and incumbrances said to have been made by said W. M. Master-man to him, and that he is claiming a right to sell, and has sold certain of said partnership property, and is threat-' ening to cause a sale of certain other parts of said property of said partnership, and its oil product, by virtue of said transfers from Masterman, without an adjustment of the affairs of said partnership, the payment of its debts, or the determination of the rights of the plaintiff and his co-partners, and that the alleged transfers and incumbrances made by Masterman to Steel were for the purpose of securing and providing for the payment of a private indebtedness of said Masterman to Steel. That the interest of Masterman in the partnership property is not more than sufficient to satisfy his just proportion of the partnership debts. That since about April 1st, 1897, Steel has sold one fourth of the oil product of said partnership property, and kept and retained the proceeds thereof in violation of the rights of said partnership. 'That because of the facts alleged it has become impossible do continue the business of said partnership. And plaintiff iprays that the partnership may be dissolved and its affairs 'Wound up; that an accounting may be taken of the business ■ and affairs of said partnership, and the partnership property applied to -the payment óf the debts and expenses of the firm, and that Steel may be required to account for the value of the oil which he has sold. This petition was filed •on September 4th, 1897. The date of service of summons upon Steel does not appear from the papers in our hands, but on October 2nd, 1897, Steel filed his separate answer in which he°avers, that on the 20th day of April, 1897, .Masterman was the owner of an undivided one-fourth part ■of said leasehold, and that on that date, by writing duly •executed and acknowledged, he sold and transferred unto said Steel all his right, title and interest in and to said leasehold estate, the assignment aforesaid being recorded •in volume “X”, at page 167, of the records of leases of Wood county. He admits that h3 claims an estate and interest in the leasehold estate aforesaid, and denies every ■other allegation of the petition, and prays that plaintiff’s ■petition may be dismissed.

To this answer the plaintiff replies denying the allegations thereof, and averring that any assignment made by Masterman to Steel was solely as security or mortgage to secure payment of a loan made by Steel to Masterman, individually, and was not for any debt of said partnership or loan to the same. That all -of the property aforesaid was ■purchased with partnership funds; that the title thereto was taken and is held for the benefit and use of said partnership, and that any conveyance, assignment or transfer of any interest in the same that Steel may have received from Masterman, was so received with full knowledge upon the part of Steel of the facts aforesaid, and of the interest of «the paxtnershp in said property. The other defendants filed answers in which they admit and adopt the averments*contained in the pleadings field by plaintiff.

From the evidence submitted, it appears that on the 15th day of November, 1894, Joel Kimball and wife executed an: instrument in which it is set forth that in consideration of seventy-five dollars, the receipt of which is acknowledged, they do grant unto N B. Ervin and William M. Masterman and their assigns,all the oil and gas in and under the premises descibed in the petition,together with the right to enter thereon at all times for the purpose of drilling and operating for oil, gas or water; to erect and maintain all buildings and structures, and lay all pipes necessary for the transportation of oil, gas and water taken from said premises, excepting and reserving, however, the one-sixth part of all the oil produced and saved from said premises to be delivered in the pipe line to the credit of the grantors.. And this instrument provides that Ervin ad Masterman and their assigns are to have and hold the premises on certain other conditions as to the amount to be paid for gas-used off the premises; as to gas being furnished to the grantors for their dwelling house; as to the burying of oil and gas lines, paying damage to growing crops, etc., and-various other provisions usual in instruments of this character, which are commonly known and designated as oib and gas leases. This instrument was duly executed and acrknowledged, and was recorded in the, lease records of Wood* county, on April 5th, 1895. By an instrument bearing: date of April 20th, 1889, W. M. Masterman and - N B, Ervin assigned and.transferred to H. W. Townsend an undivided one-fourth interest in said leasehold, and to F. CL Hornung and F. W. Zorn, each an undivided one-eighth interest therein. This instrument is also duly executed* and acknowledged, and was recorded, on September 13th,. 1897.

On April 25th, 1895, all of the alleged partners, together with Joel Kimball, the owner of said land, joined in the-■execution of what is known among oil operators as a “transvfer” or “division order,” which set forth their respective interests in the oil product from this lease as before stated, -and which was filed with the Paragon Transportation Company for its information and guidance in settling for the oil which might be delivered to it from the farm. This paper certifies that they are the legal owners of the “Erwin & Co.” wells, being the wells on the Joel Kimball farm' described in the petition, and that Kimball is entitled to one-sixth of the oil by way of royalty. It will be observed that one of the principal issues is as. to whether rtnere was and is in fact a partnership as alleged in the petition. The evidence bearing upon this issue consists of •the instruments before mentioned, and certain books of account kept by the alleged firm, and certain note's, checks, ■ etc.',given by the alleged partners in the course of the carrying on of this business, and of the testimony of the plaintiff and of F. W.Zorn as to the partnership agreement and course ■ of business, which testimony is practically undisputed. Mr. Ervin testifies that the lease was originally taken by himself • and Mr. Masterman in 1894, and that interests were transferred to the other parties in April, 1895, as appears from the instruments referred to; that at the time this lease was ■acquired and these interests were transferred, there had been no oil development upon this land or elsewhere within three quarters of a mile of it; that at or about the time the transfer was made, all of the parties then interested in ■the lease agreed to drill a test well; that they then formed •a patnership with the understanding that they were to drill ,-a test well, and that, if that should prove to be a failure, the arrangement would be terminated, and they would ■give up the lease; but if it proved to be successful, they would go on and operate the lease. Each was to bear a just proportion of the expenses of drilling the test well, and if it ■should prove successful, each was to bear a just proportion of the cost of equipping and operating the well; that they were to share this expense in the proportion of their respective interests in the lease as before stated. In regard' to the sale of the oil,each was to sell his own, as the witness states “in lieu of a dividend”; that this was done so that each member might control his own share of the product, taking advantage of the markets and selling according to his-own judgment. Witness also testifies that each 'was to. bear his share of the losses if any occurred in the course of' drilling and opearting wells upon the lease; that Zorn was to be the book-keeper for the firm, and was to have charge of the financial business of the firm, but witness was to assist him therein, and that the firm-name adopted was. “The Ervin Oil Company,” That in pursuance of this arrangement they drilled a well, which, proving, sucessful, they continued to drill and operate until they have upon the. premises eight wells'; that whenever it became necessary to. have funds to carry ou these operations, assessments were made upon the members according to their holdings, and that these assessments have all been paid by the different-members of the firm, including Masterman,' but that the indebtedness of the firm, which has not been discharged by assessment, and which was incurred in purchasing casing,., tubing, machinery, boilers, rigs, drilling wells, etc., amounts to over five thousand dollars; twenty-four hundred dollars and interest being due to the New London National'Bank on a promissory note, which is signed “Ervin Oil-Company, by E. W. Zorn”, and also by the members of' the company individually, and $589,48 being due the-National Supply Company upon a note which is singed “Ervin Oil Company, by F. W. Zorn,” but is not signed by any of the individual members of the company. This-witness produces checks drawn upon the account of the Ervin Oil Company in the bank of the Gibsonburg Banking-Company in payment of debts of the^Ervin Oil Company-for supplies, equipment, etc. for the lease, signed “Ervim Oil Company, by F, W. Zorn,” and states that that was the usual method of transacting the business of the company; that a fund belonging to the partnership was kept in the bank in the name of the Ervin Oil Company, which fund was produced by the collection of assessments upon the members as before stated. The books of the Ervin Oil Company, introduced in evidence, show' that the accounts were kept in a manner consistent with a partnership business and with the statements of this witness as to the manner in which the business of the Ervin Oil Company was carried on. As to the possession of the premises described in the lease, this witness and others testify that after they began operations they continued in the daily and constant occupation of the premises, producing oil therefrom, so that a person going upon the premises at anytime would have found them or their employes at work there. He testifies that all of the contracts made with the employes, and with contractors to drill wells, and in short, that all dealings with the company, were made on behalf of the partnership and in the name of the -Ervin Oil Company; and that all obligations were discharged by the company’s checks upon a fund in the bank as before stated, signed .“Ervin Oil Company, by F. W. Zorn.’’ The testimony of Mr. Zorn agrees in the main with that of'Mr. Ervin, He states that the total cost of equipping and óperating the lease since they began, all discharegd in the manner stated excepting something over five thousand dollars, still unpaid, amounts to about sixteen thousand dollars. -

In our opinion this evidence establishes a partnership, If not án ordinary commercial partnership, at least' a partnership inter sese, partaking of the characteristics of a mining partnership, having as one of its incidents a right, in each member to require that partnership property shall' be applied to the debts due to the creditors of the partnership before it shall be devoted to the discharge of the individual indebtedness of the members thereof. • There is much in the nature of the business of mining for oil as carried on in this country that likens it to mining operations and the uses of mining properties where ore instead of oil is the product, and we think that many of the special rules applicable to mining partnerships so called, should be applied to the operations carried on by co-owners of oil producing property in order that the ends of justice may be reached, both as respects said co-owners, and those transacting business with them; and it is immaterial whether such co-owners shall be regarded as tenants in common or joint tenants, and whether the property used in such business shall be real estate, chattels real, or personal chattels. One of the incidents of a mining partnership is that, if a member sells his interest in the mine, the purchaser takes it subject to any lien existing in favor of a co-partner for debts due the creditors or for advances made for the use of the concern, unless he becomes a purchaser in good faith for a valuable consideration without notice of such lien. And, if a person sells his interest in a mining company while it is engaged in working its mining ground, the purchaser will be deemed to have bought with • notice of any lien resulting from the relation of the partners to each other and to the creditors of the partnership. Duryea v. Burt, 28 Cal., 569.

Each partner may transfer his interest without consulting his fellow partners, and such transfer will not work a dissolution of the partnership. Jones v. Clark, 42 Cal., 180.

It is a matter of common knowledge that customarily co-owners of oil leases and the equipment thereof, transfer their respective interests in such property, as well as in the product, without th'e consent of those interested with them as co-owners, and that purchasers thereof, are admitted into the company or firm as a matter of right, and the business is continued and no dissolution of the partnership occurs from, such transaction merely.

Quoting from Lindley on Partnerships, sections 54 & 55.'

“Tenants in common or joint tenants of a mine or quarry may, or may not be partners; and the mine or quarry it•self may or may not be part of the common stock. But it is highly inconvenient, if not altogether impossible, for co-owners of a mine or quarry, to work it themselves without becoming partners, at least in the profits of the mine, and partners who work a mine or quarry in common, are regarded rather as partners in trade than as mere tenants in ■common of the land.’’

In Butler Savings Bank v. Osborn et al., 159 Pa. St., page 10, it is held that tenants in common, engaged in the improvement or development of the common property, will be presumed, in the absence of proof of a contract of partnership, to hold the same relation to each other during such improvement or development as before it began; that as to each other, their relations depend on their title until, by their agreement with each other, they change it, and that when tenants in common of on oil lease, agree to carry on operations upon their land, each contributing toward the expenses in proportion to his respective interest in the land, they will be considered with respect both to themselves and third persons, as the' ordinary owners of and working their respective shares of the wells, responsible only for their own acts, subject to no law of partnership whatever, and possessing distinct rights in the property; :and in that case the tenants in common, having entered into an agreement with each other to drill wells on the leasehold property, each to pay one-half of the costs of Sinking ’the wells and pumping the oil, the oil produced to be run into pipe lines serving the district, and there credited one-half to each of the tenants in common, it was held that ■no partnership existed between the tenants in common. *But in that case as W9Ü as in Dunham, Appellant, v. Love-rock, 158 Pa. St. 197,.and Neill, Appellant, v. Shamburg, lb. 263, and other cases decided by the courts of Pennsylvania, the doctrine is fully recognized that a partnership for the operation of an oil lease may exist between co-owners, and that the agreement of the parties with respect to the carrying on of the business has a controlling effect. In the case at bar we have the'undisputed testimony of the-witnesses as to the fact that a partnership was agreed upon,, and as before stated, the method of carrying on the business, as shown, by the evidence, including the books; checks, notes, etc., introduced in evidence, is consistent with a partnership arrangement, and tends to corroborate and confirm the statements of the witnesses that there was-a partnership. In Lindley on Partnerships, which is an-English work, it is said that a partnership will not result under an agreement to share the gross returns, or the gross products; but that result does not seem to follow in the United States. In this country a partnership may exist though the agreement is to share the gross products. Indeed it is not apparent why the English rule obtains. The actual or gross returns include profits, if profits have been made, and while such returns do not include losses, if losses are incurred, yet, where the persons associated together in business, agree to and do meet all the expenses and financial demands of the business through the medium of assessment or otherwise, though they divide the gross product, they have in the end, as the result of their enterprise, the net profit only, and the result is precisely the same as if the agreement were in the first instance to share the net profit instead of the gross product.

In the Farmers’ Ins. Co. v. Ross & Lennan, 29 Ohio St., page 429, Judge Gilmore speaking for the court at page 432, quotes the following paragraph from Story on Partnership section 27, to-wit:

“When each of the parties contributes labor and services and materials in the manufacture of any articles of trade, and the articles, when made, are to be equally or proportionately shared between them, they will be deemed partners inter sese-, for the articles manufactured, and so to be • divided, may well be deemed the profits or losses of their: joint undertaking and business.”

And, while the decision of that case does not rest upon the principle quoted, yet, this language from Justice Story’s work is quoted with approval, and it is distinctly intimated that if necessary it would have been applied to-that case. This doctrine finds support in Autary v. Fries, 59 Ala., 587; Everett et al. v. Chapman et al., 6 Conn., 347; Stapleton v. King, 33 Iowa, 28; Curtis v. Cash, 84 N. C. 41, and Jones v. McMicheal, 12 Rich., (S. C. ) 176.

We hold that where all the other indicia of a partnership ’ are unquestionably present, the mere fact that the gross■■ product is to be divided, instead of the net profit; will not necessarily prevent a partnership, especially where by reason of the partnership obligations being met from time to-' time by means of assessment or otherwise, the result to the partnership is precisely the same as if the net profits were • the subject of division, instead of the gross product.

It is zealously contended, however, on behalf of the defendant Steel, that where the title to real estate or chattels real amounting to a right to produce oil is vested in an individual or individuals, section 4112a of the Revised Statutes precludes a court of equity from giving effect, to the . principles which govern such courts in other cases where-they treat such property as partnership property, and such-titles as held in trust for the partnership, and that this same section of the statutes prevents the courts from giving effect to the ‘‘partners’ lien” upon such property. The attaching of the partners’ lien, or of the equity which results in real estate, or an interest therein, being regarded" and treated as partnership property, though the legal title-is vested in a member or members of the firm, does not, in our judgment, come within the purview of section 4112a-Revised Statutes, which provides: “that all leases, licen-ses and assignments thereof or of-any interest therein, here'tofore executed, given or made, for, upon, or concerning ;any lands or tenements in this state, whereby any right is given-or granted to a party to sink or drill wells thereon for natural gas and petroleum, or either,or pertaining there'to, -shall be recorded in the lease record * * * and shall not have any force or effect until filed for record as ■ aforesaid,’’etc. Such equitable results arising from the pur- • chase money having been paid by the partnership, and the property having been used for partnership purposes, are not affected by this statute. They do ’ not arise out of the terms or provisions of leases or licenses or assignments thereof, or of any interest therein, or other instrument falling under the provisions of this section; nor does the recognition of such equities amount to a transfer of an interest in land, either by the parties or by the courts, within the meaning of said section. Land, or interests in land, may be regarded and treated as partnership property notwithstanding the provisions of the statute of frauds, or the statute governing conveyances and incumbrances, including section 4112a Revised Statutes. Norwalk National Bank v. Sawyer, 38 Ohio St., page 339; Page v. Thomas, 43 Ohio St., 38; Kemper v. Campbell, 44 Ohio St., 210; Bank v. Johnson et al., 47 Ohio St., 306.

The defendant Steel is not in a situation to object to ■ the application of these rules giving effect to the partners’ ’ lien and to the trust in favor of the partnership. Taking ■no account of the evidence which tends to show that he was advised of this partnership relation, or, by the firm’s • possession of the property, was put upon inquiry and had constructive notice as to such relation, and the rights growing out of it, we look for a moment at the nature of ' his claim and the circumstances under which it arose. About November 30th, 1896, Masterman borrowed from ’ Steel two thousand dollars, for which he gave his promissory note; at the same time he signed and gave to .Steel a certificate of transfer, addressed to the Paragon Refining, Company (a branch of the same corporation as the Paragon Transportation Company, before referred to), of which. Steel was the vice president and general manager, authorizing said company to transfer to Steel, upon their books-,, the one-fourth interest of Masterman in the wells on theKimball farm. This paper, which was received by Steel and which bears his signature upon that part which certifies-to the Paragon Refining Company that he is the owner of the interest thus transferred. to him, names the interest transferred as “an interest in the wells of the Ervin Oil Company’’ on the Joel Kimball farm. Afterwards, on the 20th of April, 1897, and before the maturity of this note,. Masterman executed in due form an assignment to .Steel of' his interest in the Kimball lease.. This was recorded on-September 27th, 1897, in the lease records of Wood county, Ohio. Omitting the acknowledgment, it reads as follows:

“This assignment made this 20th day of April, A. D. 1897, by and between W. M. Masterman, of Gibsonburg,. Ohio, of the one part, and F..H, Steel, of Toledo, Ohio,, of the other part, witnesseth, that for'and in consideration of one dollar to me paid to my full satisfaction by the said F. H. Steel, I have sold, assigned and transferred, and by these presents do hereby sell, assign and transfer unto the-, said F, H. Steel, all my right, title and interest in the - following leases of land situate in the counties of Sandusky and Wood, and state of Ohio, described, as follows: A-half interest in the west half of the north half of the northeast quarter of section 12; also the north half of the southeast quarter of the southwest quarter of section 1, both of Woodville township* Sandusky county, Ohio, containing sixty (60) acres leased by Wm. Bidke. A one quarter interest in the south sixty (60 )acres of the northeast quarter-of section 25, Freedom township, Wood county, Ohio,, leased by Joel Kimball to N. B. Ervin and W. M. Master-man. To have and to hold all my right, title and interest m the above mentioned leases, (subject to the con-editions mentioned therein), together with the wells, tubing, ■ casing and fixtures thereon, or which pertain thereto, to ■ the said F. H. Steel, his heirs and assigns. In witness whereof, I have hereunto set my hand and seal the day and year first mentioned.
Hpi(Signed)
‘‘W. M. Masterman.”
N‘In the presence of,
‘‘D. D. Grant, Thos. Kelly.”
■(Acknowledged in due form.)

From the testimony of Steel and Masterman, as well as fiom this instrument, it appears that the transfer certificate of Novemebr 30th, 1896, was given as a security for this loan, and that this assignment of April 20th, 1897, was given as a further security for the debt then existing, and that there was no additional or new consideration therefor.

That Steel was not in the situation of an innocent purchaser for value is quite clear from the authorities.

Eaton & Company v. Davidson, 46 Ohio St., 355; Page v. Thomas, 43 Ohio St., 38; Grever & Sons v. Taylor, 53 Ohio St., 621.

We hold, therefore, that the prayer of plaintiff’s petition should be and it is granted, excepting as to the oil sold by Steel before he was served with process in this case. It ap. pearing that the partnership agreement authorized each partner to sell his respective interest in the oil produced, we hold that Steel acquired by the transfer certificate a perfect title to the oil produced and sold prior to the time the suit to reach Masterman’s interest in the oil, as well as the property, was pending as to Steel. That, while a perfect title to the oil produced could be conveyed, yet the •partners had a right to impress the partners’ lien upon the oil production not actually brought to the surface, reduced to possession and sold, as well as upon the other partnership property; that the institution of the suit was notice, not only of the partners’ rights, but of their purpose in that respect, and that it operated by way of Us pendens as to all of the property aforesaid.

Bartlett & Wilson, Andrews & Andrews, for Plaintiff.

.Sivayne, Hayes & lyler, for Defendants.

Since this is an action to wind up the business of the •partnership, and in doing this it becomes necessary to ascertain the state of the account of each partner, and the in■terst of each, including Steel, in the partnership- stock and property, we conclude to order that all’the costs, including 'those incurred upon the trial of the issues between Steel and ¡the others,shall be paid out of the partnership fund.

A decree will be entered accordingly.


text:
    TOWNSEND v. MASTERMAN et al.
    [Case involving same question of law as above. ]
    Appeal from the Court of Common Pleas of Sandusky -county.
   Parker, J.

The plaintiff avers that on November 11th, 1895, he and the defendant Masterman entered into a partnership under the firm name and style of Townsend & Masterman, for the •purchase of a certain lease of oil lands, hereinafter described, and to develop and operate oil wells upon said territory. "That by the terms of said contract plaintiff and Masterman «were to be equal partners, and were to share in the profits, ■and bear and pay the debts of said partnership business in •equal proportion, and own equal interests in the property •of the partnership. That thereupon’ each paid into a partnership fund two hundred and fifty dollars, and said partnership thereupon purchased and became the owner of a lease for oil and gas purposes in certain real estate in San--dusky county, described in the petition, together with the wells and machiney, tanks, etc., upon said premises. That •said firm has been in the actual and open possession of said property, and has continually held, used and operated the .¡same ever since,^and that]for the purpose of carrying on its said business, said partnership borrowed from plaintiff, on< or about November 4th, 1895, seven thousand dollars; that-the same was paid to said firm by plaintiff, and was used in the business and operation of said firm. Said partnership-is still indebted to said plaintiff for the sum of seven thous- and dollars and interest. That Masterman has become insolvent, and has, by transfer to.F. H. Steel, incumbered his-interest in the partnership property. That Steel acquired whatever interest he has in the property on account of a preexisúng debt, and with full notice of the partnership character of the property, and of the rights of the partnership in the premises; that the business of the partnership cannot be longer prosecuted, and plaintiff prays for the taking of an-account of the affairs of the firm, of the debts and property thereof, and for a sale of the property and application thereof to the discharge of the partnership debts. By way of supplemental petition he sets forth that, since the beginning of the suit, said Steel has sold part of the oil anc appropri-' ated the proceeds to his own use, and has otherwise interfered with the rights of plaintiff and the firm.

Upon plaintiff’s prayer Steel was enjoined from selling-any more oil, but by arrangement between the parties the oil has been sold from time to time, and the proceeds have-been brought into court to abide the judgment and order of the court in the case. The parties to this suit are all parties-to the suit of B. N. Ervin v. William M. Masterman et al. just decided, and the claim of the defendant Steel in this-case, ffhich is set forth in his answer, arises oni of the same loan and transaction between him and Masterman referred to-in the other case. The discussion of the facts and the law in the case just decided make it unnecessary to do more in this case than to refer to such facts as are peculiar to it, and to the law applicable thereto. It appears that in this case a partnership was formed between Townsend and Masterman; that a partnership fundi was created by their contribution, and that the leasehold in the first instance was purchased with such partnership funds. The title to the leasehold was taken to H. W. Townsend and W. M. Masterman, but it is clear that the purpose was to acquire the property for the firm of Townsend & Master-man, and the legal results of this transaction have already been sufficiently discussed. This case differs from the other in this, that the gross product was not divided; that each did not sell or control an undivided one half thereof, but that the same was run to the credit of Townsend & Master-man, and was sold from time to time by Townsend & Masterman. It also appears that all of the business was transacted in the firm name of Townsend & Masterman. We think that the defendant, Steel, was fairly apprised of the fact that this property was owned and the business was being transacted by a partnership composed of the plaintiff Townsend, and the defendant Masterman. At all events, such facts were brought to his attention as would fairly put him upon inquiry, and would charge him with the knowledge he would have acquired by reasonable investigation or inquiry.

Bartlett & Wilson, Andrews & Andrews, for Plaintiff. ■

Swayne, Hayes & Tyler, for Defendants.

The assignment under which he claims is the same as has been read in deciding the other case. It is a security taken for a pre-existing debt without any new or additional ' consideration. The plaintiff is not only one of the partners, but is a creditor, and is interested in the enforcement of the partners’ lien.

The decree will be entered in accordance with this opinion in favor of the plaintiff, and costs to be paid out of the partnership property, the same as in case of Ervin VMasterman et al., just decided.


author: Hale, J.

text:
    (Eighth Circuit — Cuyahoga Co., O., Circuit Court —
    May Term, 1898.)
    Before Hale, Marvin and Caldwell, JJ.
    FIRST NATIONAL BANK OF YOUNGSTOWN, OHIO, v. PRICE McKINNEY, RECEIVER OF CORRIGAN, IVES & COMPANY.

      „ Insolvent corporation — Power to make judgment note to creditor —When sec. 6344 will not apply—
    (1.) An Illinois corporation having no property in Ohio, executed in Ohio a judgment note to a resident of Ohio, one of its creditors, who thereupon went to Pennsylvania, where property of the corporation was located, secured judgment on his note there, and the property was taken on execution, sold, and the proceeds paid over to him on his judgment. He thereupon took the proceeds so paid to him, to the place of his residence in Ohio. In a suit by another Ohio creditor of the corporation, Held: That there was no law forbidding the insolvent corporation to execute a judgment note. The purpose of the note being not to hinder, delay or defraud creditors, but to pay an honest debt, although it resulted in the preference of a creditor, sec. 6344, R. S., does not apply to the transaction.

      Judgments of courts of other state on notes made in Ohio — Jurisdiction—
    (2. )J,The fact that the note upon which the judgment was rendered, was executed in Ohio did not deprive the court of Pennsylvania of its jurisdiction to render that judgment and distribute the property within its jurisdiction according to the laws of Pennsylvania.

      Proceeds of judgment in other state, brought into Ohio, not interfered with by Ohio courts — ■
    (3.) Although the proceeds of the Pennsylvania judgment were brought into this state, yet there is now no property in Ohio-belonging to the corporation subject to distribution, either in equity or by our statute. The courts of this state will not ' taue from a creditor of this state, that which has been rightfully adjudged to him by the laws of a sister state.

      Judgment by court of other state on note made in Ohio valid—
    (4.) A note given in Ohio may be enforced in Pennsylvania, whether so intended or not, and if it is paid in a lawful way there, it is cancelled, and it makes not the slightest difference that it was made in Ohio if it has in a lawful way been paid and can-celled.

      Transaction in other state by insolvent non-resident corporation preferring creditor, not subject to principles of Merchants’ National Bank v. Bouse, 46 Ohio St., 493.

    (D.) It is neither unlawful nor wrongful fora foreign corporation, although insolvent, to make to a creditor in this state, a judgment note with the intent that judgment thereon shall be taken in another state and property there situated appropriated to its payment in accordance with the laws of the state where the property is found, although the effect is a preference of such creditor; nor does the assignment by a foreign corporation to a creditor residing in this state, of the accounts which it owns, and which, of course, have their situs at the home of the corporation, fall within the principles of Rouse v. Merchants’ National Bank, 46 Ohio St., 493.
    Er’-or to the Court of Common Pleas of Cuyahoga county.
   Hale, J.

The case of the First National Bank of Youngstown, Ohio, against Price McKinney, receiver, et al., comes into this court by appeal, and has been submitted upon the evidence. There is very little disagreement or conflict of testimony as to the facts,

The essential facts are, that the Douglas Furnace Company is a corporation incorporated under the laws of Illinois. The objects and purposes of the incorporation were to manufacture, among other things, iron. The business of the corporation was prosecuted in the state of Pennsylvania where its tangible property was located. In the progress of its business it had become, prior to the 18tb of July, 1893, indebted to the firm of Corrigan, Ives & Company,in this state, in the sum of $175,000 for ore, which that firm had furnished to the corporation. Corrigan, Ives & Co., at the date I have named, July 18, 1893, for some reason bad gone into the hands of a receiver, and its affairs were being conducted by Price McKinney,, as receiver.

On the 18th day of July, 1893, this corporation made and delivered to Price McKinney, the receiver, its note, with power of attorney authorizing confession of' judgment attached, for the whole sum due from the corporation, the Douglas Furnace Company, to Corrigan, Ives & Company. That note was made and executed in the city of Cleveland, in this state, At the same time, the corporation, through its officers, assigned and transferred to Price McKinney, receiver, all the ' accounts which it held against parties, amounting to some $10,000. The Douglas Furnace Company, at the time, was probably insolvent. The plaintiff, the Youngstown National Bank, was a corporation organized under the Banking Act of the United States, and doing business at Youngstown, Ohio. The Sharon National Bank was a corporation organized under the same act, and doing business at Sharon, Pennsylvania.

Price McKinney, on receiving the judgment note of the Douglas Furnace Company, immediately went to Pennsylvania where the tangible property of the corporation was located, procured a judgment upon his note, and levied an execution upon the property of the insolvent corporation. The property was sold on execution and, by the order of the court in which the judgment was taken, distributed to the parties entitled to receive it according to the judgment of that court. Certain preferred claims were paid to laborers, taxes, etc., and the balance was paid over to McKinney.

Now the Youngstown Bank, and the Sharon Bank by its cross-petition, are claiming that the money collected by the receiver, McKinney, on the accounts that were transferred as I have stated, and the money paid in Pennsylvania, should be declared as held by McKinney in trust for the creditors of the insolvent company, or at least the two banks represented in the case.

It will be noticed that the corporation was a foreign corporation, organized under the laws of Illinois; that the tangible property of that corporation was all in Pennsylvania; two of the creditors interested in this action resided in Ohio; one in Pennsylvania..

It will be noticed that the case presents, then, some very interesting questions of law upon these facts,and deserves a moré extended discussion than we are able to give it this morning. We shall content ourselves with announcing at least one reason for the judgment that we shall enter, and shall not discuss very many of the interesting questions that, might be discussed in the disposition of the case.

The petition, on its face, seems to be aimed, and by its terms intended to invoke the remedy provided by the Re-, vised -Statutes of Ohio, sec. 6344,and asks to have declared void the transactions between the Furnace Company and Price McKinney, receiver, and declared void the transactions by which the money was received by Price McKinney through the Pennsylvania courts, and McKinney declared to. hold all this property in trust for the benefit of the creditors of the Douglas Furnace Company.

First, we hold that the transaction is not within the terms of statute sec. 6344, and the action is not properly brought under the provisions of that statute, and can not be sustained as such action. The language of the statute is that “All transfers, conveyances and assignments, made by a debtor,or procured by him to be made,with intent to hirider, delay, or defraud creditors, shall be declared void at the suit of any creditor;” and then provides for the administering of any property thus fraudulently conveyed.

This transaction was not, in the judgment of the court, a conveyance made by the Douglas Furnace Company to Price McKinney, receiver, with the “intent to hinder, delay, or defraud creditors.” The purpose of the transaction was to secure an honest debt, which resulted in a preference of one creditor over others; and the real question is whether this preference can be maintained in equity against the claims of the plaintiff, the Youngstown Bank, and the cross-petitioner, the Sharon National Bank.

It may well be doubted whether any other relief under the allegations of the petition, is sought than that provided by the statute. But we have considered the question as an equitable action based on the decision of the case of Rouse, Trustee, v. The Merchants’ National Bank, 46 Ohio St. 493.

Oan the claim of the plaintiff be sustained upon this theory? The plaintiff, as we have seen, is a corporation organized under the National Banking Act, doing business in Ohio. The cross-petitioner is a corporation organized under the same act, doing business in Pennsylvania. Price McKinney, the receiver, is a resident of Ohio, and was at the time of these transactions; so was the firm which he represented. The judgment note was executed in Ohio.

The object of the action is, then, to enforce an equitable distribution of the assets of the insolvent corporation now in the hands of one creditor, between that one creditor and two others. The basis of the jurisdiction invoked is, that the property of the insolvent company within the jurisdiction of this court should be distributed according to the laws of this state.

When the Douglas Furnace Company made and delivered its judgment note to McKinney, receiver, it had no property of any kind or description within the state of Ohio. Speaking now of the property of that corporation, other than accounts, can it be said that there is now property of the insolvent corporation in the state, subject to distribution by the courts of this state?

The insolvent corporation having its location in Illinois, had property in Pennsylvania. It made the note referred to, in Ohio, and the payee, McKinney, took it to Pennsylvania, and according to the laws of that state, and by the judgments of the courts of that state, obtained a judgment against the Douglas Furnace Company. Property in Pennsylvania was seized on, and by virtue of an execution issued on such judgment, the property seized was sold in accordance with the laws of that state, and under the judgment of the court distributed to the persons entitled to receive it — 'a portion to preferred claims, costs and taxes; and the balance to Price McKinney, receiver, to be applied upon the judgment that he had taken in that state. The judgment,to the extent of this payment,has been cancelled. The debt was merged in the judgment, and the judgment cancelled, all in strict accordance with the laws of Pennsylvania. The fact that the note upon which that judgment was rendered, was executed in Ohio, or made in Ohio, did not deprive the court of Pennsylvania of its jurisdiction to render that judgment and distribute the property within its jurisdiction according to the laws of the state of Pennsylvania.

Uuder these circumstances, we are of the opinion that there is now no property in Ohio, belonging to the Douglas Furnace Company, subject to distribution, either in equity or by our statute. Certainly it can not be that the courts of this state will take from a creditor of this state, that which has been rightfully adjudged to him by the laws of a sister state.

The contract — the note given to McKinney — was enforced in Pennsylvania, whether so intended or not. We do not perceive that it makes the slightest difference that that note was executed in Ohio. It has in a lawful way been paid and cancelled. It is not denied that contracts are to be interpreted by the law of the place where executed; but we know of no rule of law in this state, that makes it unlawful for an insolvent corporation to make and deliver to one of its creditors a judgment note; if done with the intent to give a preference to one creditor over others and to enable him 1o seize and appropriate the property of others in this state in preference to other creditors, it might not be sustained. The doctrine in the case of Rouse v. Merchants- National Bank, however, may not be extended to a transaction of that kind. However that may be, we are of the opinion that it is neither unlawful nor wrongful for a foreign corporation, although insolvent, to make and deliver to a creditor residing in this state, a 'judgment note with the intent that judgment thereon shall be taken in another state and property there situated appropriated to its payment in accordance with the laws of the state where the property is found; and that we think was this transaction. Nor do we think that the assignment by a foreign corporation to a creditor residing in this state, of the accounts which it has and owns, and which,of course,have their situs in the place, the home of the corporation, falls within the decisions and principles of the case of Rouse v. Merchants’ National Bank.

Webster, Angelí & Cook, for Plaintiff.

Burke & Ingersolls, O. C. Pinney, for Defendant.

It is quite clear, as a question of fact, that under the laws of Pennsylvania the trust doctrine announced in the Rouse case does not prevail. Neither does it prevail in the state of Illinois,

The proof offered, however, to establish the fact that that rule does not prevail in the state of Illinois, hardly establishes that fact. The decisions of the state however, do fully establish that fact, outside of those that were offered in evidence. With those facta established that in Illinois this corporation held its property precisely as an individual; with the same right of disposing of it as an individual, and the fact that in the state of Pennsylvania the corporation .held its property precisely as an individual would hold it, with the same rights, the corporation being in the one state, and the property in another, we fail to” see how this court would have jurisdiction over the corporation to compel the distribution of this property as claimed. However that may be, we hold that the case made can not be sustained as a proceeding under the statute; and we also hold that it can not be sustained in equity to enforce a trust in favor of the petitioner and the cross-petitioner, and the petition and cross-petition will be dismissed, and judgment rendered for the defendant McKinney.