
    Common Pleas Court of Payette County.
    The Buckeye State Building & Loan Company v. Grant DeWitt et al.
    
    Decided April 4, 1925.
    
      Wilson & Rector, Columbus, Ohio, attorneys for Plaintiff.
    
      Joseph Hidy, attorney for Peoples & Drovers Bank and Frank DeWitt.
    
    
      C. C. Crabbe, attorney General, R. R. Zurmehly, and Ray Maddox, attorneys for .State of Ohio ex Rel.
    
    
      
       Affirmed by the Court of Appeals, January 28, 1926; motion to certify to the Supreme Court denied April 21, 1926.
    
   Reid, J.

The petition in this action is in a foreclosure against the premises of Grant DeWitt et al., who gave a mortgage in 1917 to secure a loan, on which a balance of $1,934.39 is claimed. The cross-petition of the state of Ohio, on relation of the attorney general on behalf of Mrs. Hoyt M. Hurley, sets forth a judgment obtained against Grant De-Witt under favor of the workmen’s compensation law, June 3, 1924, in the sum of $7,680.90, which it is claimed by virtue of Section 1465-77 of the General Code is the first and best lien against the premises described in the petition and which, the court is asked to order paid as a preferred claim over and above the claims of the other parties to the action.

Cross petitions are also filed on behalf of the Peoples & Drovers.*Bank and Frank DeWitt. The former bases its claim on a judgment lien recovered in 1922 and in 1923, and the latter is based on a second mortgage lien on said premises dated January 15, 1920.

The Buckeye State Building & Loan Company interposes a demurrer to the cross-petition of the state on behalf of Mrs. Hoyt M. Hurley, and a demurrer is also filed by the other cross-petitioners mentioned.

The question to be determined on these demurrers requires a construction of Section 1465-77 of the Code, which is as follows:

“All judgments obtained in any action prosecuted by the board or by the state under the authority of this act shall have the same preference against the assets of the employer as is now or may hereafter be allowed by law on judgments rendered for claims for taxes.”

Counsel, for the state cite some unreported nisi prius and appeal court cases which, it is claimed, construe this section of our code in accordance with their contention, that a judgment so rendered under the workmen’s compensation law has preference over a prior mortgage obtained on the premises.

The first case cited, being Oscar T. Redick v. Biederman Mfg. Co., in Allen county, contains no opinion of the court, but is confined to the correspondence with the prosecuting attorney, showing that the attorney consented to the payment of a small judgment out of the proceeds that would otherwise have been paid to the mortgagee. This could be of no assistance to the court in its construction of the statute.

The second case cited is that of the American Rolling Mill Company v. Champion Iron Co. in the Court of Common Pleas of Hardin county, where the court awarded payment of judgments rendered under the workmen’s compensation law from the assets of the corporation in the hands of the receiver against his objection. The record of this case does not disclose any contest between the mortgagee and the claimants under this section, and for aught that the record discloses it would amount to nothing more than a contest between the judgment claimant and general creditors of the corporation represented by the receiver. The fact that this case was reviewed by the Court of Appeals can, therefore, be of little assistance to the court on the question for consideration.

The last case cited is that of the Citizens Savings & Trust Company, Cleveland, Ohio, v. Pennsylvania & Ohio Railway Company, Ashtabula county. In this case an award was made by the Industrial Commission of $2,340, against the Railway Company, and following the award a receiver was appointed for the company, and this judgment was asserted by a cross petition in that action. There is no opinion published in the case and we are limited to a copy of the journal entry in determining the scope of the judgment. This does not, of course, furnish any reasoning of the court in arriving at a conclusion. If, perchance, the award and judgment was obtained after the receiver was appointed, the lien would have priority over bonded indebtedness of the company independent of the section of the code under question. A railway is a peculiar property of a public nature, and discharging a public work. A broader distinction is made between the preference of a judgment for personal injuries over railway mortgage liens than in that of a private individual or a purely private concern. Brown v. Winterbottom, 98 O. S., page 132.

In the absence of a more intimate acquaintance of the facts involved in the case last cited, we would not feel bound to accept the judgment entry quoted as binding on our construction of the statute being considered. We are unable to find in any of the reported cases, excepting the opinion of Judge Geiger, any attempt to construe this provision of the code. This case is referred to by counsel in their briefs as McDaniels v. Robbins, 25 N. P. N. S. 315 April 6, 1925. The Court of Appeals in State, ex rel., v. Robbins and McDaniel, 10 Ohio App., 382, makes reference to this section, but reach their conclusion in the case upon other grounds, and for that reason give no opinion as to its scope and meaning.

The state claims that it was the intention of the legislature in the enactment of Section 1465-77 to give a preference to such judgments even against the claim of prior mortgages given in good faith by the employer on- any of his property. This is such a radical departure from the long recognized character and. effect of mortgage deeds' that such intention must clearly appear from the strict analysis of the language employed before a court would feel warranted in giving it the interpretation claimed by the state.

The proposition would not be challenged that if the employer had sold and conveyed by deed his interest in the real estate prior to the rendition of the judgment, that in such event it would not be considered “assets” under this' provision of the code. -

At common law a mortgage was regarded as a conveyance of the absolute legal title to the estate designated therein. A mortgagee became the owner of the premises, though his title might be subsequently defeated by the performance of certain conditions. In equity, however, the rigid rule of the common law was much modified. A mortgagor was given the privilege of redeeming the property after a breach of the condition. In many of the states the common law doctrine of mortgages has been entirely abrogated and has given place to a purely equitable theory, according to which a mortgage is a mere lien or security for a debt creating no title or estate in favor of the mortgagee. There is another large class of cases in which the common law doctrine of mortgages prevails, although it is more or less extensively modified by equitable principles. Ohio is included among the states which follow this rule. While it is true that a mortgage is primarily a security for the payment of a debt or the performance of some other obligations, yet it is in many of its aspects and essentials a conveyance of an estate. It is more than a mere lien. It passes the property conditionally to the mortgagee, giving to him the benefit of all the doctrine applicable to bona fide purchasers for value. (Harkrader v. Leidy, 4 O. S., 602.)

It is construed as a conveyance within the statute of frauds and perjuries. (Webb v. Roff, 9 O. S., 430.) It is construed in the same manner as a deed with reference to the estate which is created, and in the interpretation of-its covenants and clauses. (Brown v. Bank, 44 O. S., 269.)

“A mortgage is in reality a conditional fee, which is as large an estate as a fee simple though it may not be so durable. A mortgage is in reality an actual payment of the debt as well as an actual transfer of the land, though in consequence of the land being sometimes greater in value than the debt, an equity was supposed to arise In favor of the mortgagor which was called his right of redemption.” Raguet v. Roll, 7th Ohio (pt. 2) 70.

In Holmes v. Gardner, 50 O. S., 167, the court says in part at page 176:

“While the mortgage itself is certainly a lien for a debt, it is something more. * * * A mortgage is declared to be a transfer of the property itself as a security for the debt.”

In the case of Campbell v. Sidwell, 61 O. S., 179, the court says at page 187 of the opinion:

“The claim of the judgment creditor is fixed by statute and is purely legal. That of the mortgagee is absolutely statutory, but it rests also on equitable consideration, inasmuch as he has parted with his money upon the faith of a condition, as to title and possession existing by reason of the voluntary act of the vendor. He has not only a lien upon the property, but has a conveyance of the estate by way of pledge, and is in the position of a bona fide purchaser with the right to use the legal title for the purpose of making his security effectual.”

We have called attention to these rules regarding the character of a mortgage deed, because we believed they should be kept in mind in determining the intention of the enactment under investigation in the use of the words “assets of the employer,” against which a preference is allowed in favor of such judgments. Judge Sater, in the case of Mutual Life Insurance Company v. National Bank, Cadiz, Ohio, 173, Fed., 390, gives this definition:

“The term ‘assets’ in modern usage * * * means property, real or personal, tangible or intangible, legal or equitable, which can be made available for or may be appropriated to the payment of debts.”

See also 5 Corpus Juris, 823.

The legislature undoubtedly used the word “assets” in its general sense, including all property, legal or equitable, which the employer then owned that could lawfully be applied to the payment of his debts generally. It certainly does not include property which in good faith had been transferred or conveyed, in whole or in part, by deed. It does include any equitable holdings which the employer held at the time such judgment was rendered. The only interest which the employer in this case held, in the property now being sold under foreclosure proceedings, was an equity of redemption. This was the only interest De-Witt held in the property, which could be applied to the payment of his debts generally. His general creditors would have a right to pursue this equity for the satisfaction of their claims. The judgment asserted by the state would have a preference against the employer’s equity in the property. But counsel for the state say that the real estate tax is a lien against the entire property, the portion conveyed to the mortgagee as well as the portion included in the equity of redemption, and that by this method of reasoning the judgment could not be given the same preference as is allowed for taxes. We think it is a sufficient answer when it must be conceded that an absolute deed by DeWitt for his property, sold in good faith prior to the judgment, would have removed the title to the property from all question of liability for payment of the state’s judgment. However, such conveyance would not have destroyed the lien for real estate tax that may have been on the duplicate at the time of conveyance, or have been placed on the duplicate against the property in the name of DeWitt, even after the conveyance. The lien could not, therefore, have been intended to assume the scope of taxes levied against specific real estate, which would include property in no sense assets of the employer. As already suggested the term “assets” means generally all the legal and equitable interest of the employer in property at the time such judgment is rendered. The preference given such judgment against the assets generally, can be no greater than a judgment rendered on a claim for taxes against the assets of the employer. It must follow that the legislature did not intend to liken this preference, to taxes in rem against respective parcels of real estate. They had in mind the lien for taxes generally against the general assets of the employer.

Counsel for the state claim that this would constitute no preference. With this' we do not agree. This provision of the code was enacted looking to the insolvency of the employer, otherwise there would be no need for speaking of preferences.

Section 11138 of the Code provides that—

“Taxes of every description existing against the assignor upon personal property held by him before his assignment must be paid by the assignee or trustee out of the proceeds of the property assigned in preference to any other claims against the assignor.”

This section also provides a preference for labor performed within twelve months preceding the assignment. The following section provides that these provisions as to taxes and labor shall not prejudice or effect securities given or liens obtained in good faith.

In a recent opinion rendered by Judge Scarlett of Franklin county in the case of Mortgage Co. v. Syferd, 24 N. P. (N. S.), 157, the matter of preferences for taxes against personal property is fully discussed, and the priority of such claims as against all classes of general creditors is recognized when the property is in the hands of a receiver, as well as in the hands of an assignee under the statute just quoted.

In our opinion the reference in the code to judgments rendered for claims for taxes was not intended to include decrees in the foreclosure of tax liens against specific property, but rather judgments on claims for taxes prosecuted against the employer in which personal judgments were rendered which become a lien on the assets generally of the employer. Personal judgments may be rendered upon taxes due upon lands in which event the judgment claim would be entitled to a preference generally against the assets of the debtor. Krepps v. Baird, 3 O. S., 278.

The construction which we have placed upon the term “assets” as used in this section of the code, is further aided by the opinion of the court in the case of Henkle v. Trust Co., 47 N. J. Eq., 333, 21 Atl., 861; Wright v. Iron Co., 48 N. J. Eq., 29, 21 Atl., 862, which decisions were reviewed in the case of Fitzgerald et al. v. Maxim Powder Co., 33 Atl., 1064. In the two cases first mentioned it will be observed that the court was construing an act of the legislature which provided in substance as follows:

“In case of the insolvency of any corporation, the laborers in the employ thereof shall have a lien upon the assets thereof for the amount due to them respectively, which shall be paid prior to any other debt or debts of said company.”

It will be observed in these cases that a receiver was appointed who took possession of the property which was subject to a mortgage. The court held that in the hands of the receiver this .property was an asset only to the extent of the equity of redemption; that the title was in the mortgagee. The court also held that the claims of laborers under this statute were not entitled to precedence in payment over liens acquired by judgment, execution and levy thereon, which antidate the time when the court adjudges the corporation’s insolvency.

It will be observed in the Fitzgerald case, 33 Atl., 1064, that the legislature for the express purpose of changing the law in that state had enacted a new provision somewhat similar to Section 11138.of our code, and that in construing the new exactment the court gave the term “assets” a scope and meaning that was in keeping with the later legislative enactment. In other words the prior enactment in New Jersey was general in scope like the statute under consideration in this case, in the use of the word “assets,” while the later enactment specifically provided that such lien for labor should be prior to any and all other liens, excepting mortgages given more than two months preceding the date of insolvency. Following the rule in these cases, we think it is manifest that the lien of this judgment only attaches to such right or interest in the real estate as the debtor owned therein at the time of the rendition of the judgment. Sullivan v. Corn Exchange Bank, 139 N. Y. S., 97.

The case at bar is distinguished from the liquor tax assessments such as we find reported in Trust Company v. Stich, 71 O. S., 459, and others cited by counsel, in that, the assessment under this law was against the property-in which the business was conducted, and was a tax in favor of the state against the realty itself. The reasoning which impels us to place the construction we have on Section 1465-77, does not and could not apply to the assessments based on trafficking in intoxicating liquors.

To adopt the construction which the state claims for this section, in our judgment, would be equivalent to holding that the property, which was owned by plaintiff long prior to the rendition of this judgment or even the existence of the liability which resulted in the judgment, could be taken by the state to pay the judgment debt of the employer.

We, therefore, conclude that the “assets” of DeWitt, which this sub-division makes liable by preference to the satisfaction of the judgment asserted by the state, consists of his equity in the real estate at the time such judgment was obtained after payment of the mortgages then existing, and that the demurrer of plaintiff to the cross-petition of the state should be sustained.  