Sully v. American National Bank, 178 U.S. 289 (1900)

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Sully v. American National Bank

No. 266

Argued April 26, 1900
Decided May 28, 1900
178 U.S. 289

ERROR TO THE SUPREME COURT

OF THE STATE OF TENNESSEE

Syllabus

Bills were filed in Tennessee by the American National Bank and others against the Carnegie Land Company, a Virginia corporation, doing business in Tennessee under the provisions of the act which was under review in Blake v. McClung, 172 U.S. 239; 176 U.S. 69, and also against various creditors of that company. The prayer of the bill was that it might be taken as a general creditors’ bill, and it was alleged that the company was insolvent, having a large amount of property in the state which it had assigned for the benefit of its creditors, without preferences, which was in disregard of the statute of the state, that a receiver should be appointed, the assets marshaled and the creditors paid according to law. The company answered denying that it was insolvent, and claimed that the assignment should be held valid, and the trust administered by the assignees. During the pendency of the suit, Sully and Carhart, New York creditors, filed a bill setting up that nearly all the assets, if not all of them, in the hands of the assignee of the company and sought to be impounded by the bill filed by the bank were covered and conveyed to Sully, as trustee, and that Carhart was entitled to priority over all other creditors of the defendant in the appropriation of the assets covered by the deed of trust to Sully. They asked for leave to file that bill as a general bill against the land company, or, if that could not be done, that they might file it in the case of the bank against the land company, as a petition in the nature of a cross-bill against that company. Other proceedings took place which are set forth in detail in the statement of the case. They ended in the consolidation of the various proceedings into one action and a reference to a master to take proof of all the facts. The master made his report, upon which a final decree was entered. It was decreed that the land company, by its deed of general assignment of June 3, 1893, in making disposition therein for the payment of its creditors, without any preferences, attempted to defeat the preferences given by law to creditors, residents of Tennessee, over nonresident creditors and mortgagees, whose mortgages were made subsequent to the creation of the debts due resident creditors, and that such deed was fraudulent in law, and void; that the making of the deed was an act of insolvency by the land company, and that the bill filed by the bank was properly filed, and should be sustained as a general creditors’ bill, and that the assets of the company under the jurisdiction of the court were subject to distribution under the law relating to foreign corporations doing business in Tennessee, and as such should be decreed in the action then pending. The decree further adjudged that Carhart was a bona fide holder of the bonds mentioned in his bill, and that he was entitled to recover thereon as provided for in the decree, but subject to the payment of debts due residents of Tennessee prior to the registration of such mortgage. It was also decreed that the Travelers’ Insurance Company, by its mortgage, acquired a valid lien upon the property covered by it, subordinate, however, to debts due residents of Tennessee contracted prior to the registration thereof, and also subject to some other liabilities of the land company. The case was taken to the Court of Chancery Appeals, which modified in some particulars the decree of the chancellor, and after such modification, it was affirmed. Upon writ of error from the Supreme Court, the case was there heard, and that court held that the statute in question, providing for the distribution of assets of foreign corporations doing business in that state, was constitutional, and was not in contravention of any provision of the Constitution of the United States. The decree of the court of appeals was, after modifying it in some respects, affirmed. The case was then brought here on writ of error.

Held:

(1) That on an appeal from a state court, the plaintiff in error in this Court must show that he himself raised the question in the state court which he argues here, and it will not aid him to show that someone else has raised it in the state court, while he failed to do so; but if he raised it in the supreme court of the state, it is sufficient.

(2) That the allegation in Carhart’s case that he was a resident of New York is a sufficient allegation of citizenship, no question having been made on that point in the courts below.

(3) That a Tennessee general creditor has the same right of preference as against a resident mortgagee that he has against a nonresident, and the same burden that is placed upon nonresident mortgagees and judgment creditors is by the statute placed upon resident mortgagees and judgment creditors.

(4) That there is no foundation for the claim made on behalf of Carhart that section 5 of the Tennessee act of 1877 violates section 1 of the Fourteenth Amendment to the Constitution of the United States in that it deprives the nonresident mortgagee of his property without due process of law, but, on the contrary, the question has been decided the other way in Blake v. McClung.

(5) That there has been no denial by the Tennessee of the equal protection of the laws to any person within its jurisdiction.

The contest in this case arises out of the insolvency of the Carnegie Land Company, a Virginia corporation doing business at the time of its insolvency in the State of Tennessee under the provisions of the act of the legislature of that state passed in 1877, and which was under review in this Court in Blake v. McClung, 172 U.S. 239; 176 U.S. 59.

The contest is between creditors of the company above named, who are nonresidents of the State of Tennessee, both those who are unsecured, as well as those who are secured, by mortgages upon the property of the company in that state, and creditors of such company who are residents of the state.

The questions to be decided arise out of the provisions of the fifth section of the above-mentioned act, the material portion of which reads as follows:

SEC. 5. That the corporations, and the property of all corporations coming under the provisions of this act, shall be liable for all the debts, liabilities, and engagements of the said corporations, to be enforced in the manner provided by law, for the application of the property of natural persons to the payment of their debts, engagements, and contracts. Nevertheless, creditors who may be residents of this state shall have a priority in the distribution of assets, or subjection of the same, or any part thereof, to the payment of debts over all simple contract creditors, being residents of any other country or countries, and also over mortgage or judgment creditors, for all debts, engagements, and contracts which were made or owing by the said corporations previous to the filing and registration of such valid mortgages or the rendition of such valid judgments. But all such mortgages and judgments shall be valid, and shall constitute a prior lien on the property on which they are or may be charged, as against all debts which may be incurred subsequent to the date of their registration or rendition.

Acts of Tennessee, 1877, p. 44.

On November 27, 1893, the American National Bank and others filed their bill against the Carnegie Land Company and various named creditors of that company, and prayed that the bill might be taken as a general creditors’ bill against the company on behalf of the complainants and of all the other creditors of the company, and that those named as creditor defendants might represent the class, their number being too great to make them all parties to the bill. The complainants alleged that they were creditors of the land company; that the company was insolvent; that it had a large amount of property in the state; that it had assigned the same for the benefit of its creditors without giving preferences, which was in disregard of the statute of the state (above referred to), and asked that the creditors of the company should prove their claims in that suit; that a receiver should be appointed, the assets marshaled, and the creditors paid according to law.

To this bill the land company made answer, denying its insolvency, or that it had ceased to do business, or had abandoned its franchises, and claimed that its assignment was good and valid, and that the trust should not be taken out of the hands of its assignee.

During the pendency of this suit, Wilberforce Sully and A. B. Carhart, residents of the State of New York, filed a bill against the land company and certain corporations in the State of Connecticut, called the Travelers’ Insurance Company and the Connecticut Trust & Safety Deposit Company. The complainants alleged that the Carnegie Land Company had duly determined to issue $300,000 worth of bonds, secured by mortgage upon its property in the State of Tennessee, and of that amount of bonds but $85,000 had actually been issued; that Sully was the mortgagee in trust in the mortgage executed by the company for securing the payment of the bonds, and that Carhart was the bona fide holder of all of the $85,000 of such bonds; that the mortgage was executed on January 2, 1893, and was duly registered in the office of the Register of Washington County,

Tennessee, on February 10, 1893; that the interest had not been paid as it became due, and that, by virtue of a provision of the mortgage, the whole principal sum had become due and payable, and that the land company was in default in the payment of the principal and interest due on such bonds. The bill alleged the commencement of the suit already spoken of, brought by the American National Bank and others against the land company, and it alleged that nearly all of the assets, if not all of them, in the hands of the assignee of the company, and sought to be impounded by the bill filed by the American National Bank, were covered and conveyed to the complainant Sully, as trustee, and that the complainant Carhart, the holder of the outstanding bonds, was entitled to priority over all other creditors of the defendant in the appropriation of the assets covered by the deed of trust executed to Sully, as above stated. Complainants prayed that they might be allowed to file this bill as a general bill against the land company, or, if for any reason this could not be done, that they should be allowed to file the same in the above cause of the bank against the land company and others as a petition in the nature of a cross-bill against the said company.

To this bill the complainants in the first bill, the American National Bank and others, made answer and denied that the land company had ever executed any mortgage, or that any bonds were ever issued under any mortgage, and denied that the land company ever in any way or manner, either in law or in fact authorized the issuing of any bonds under such mortgage, or to be secured thereby, and they denied that any such bonds constituted any binding obligation as against the land company.

The bank also alleged that if the bonds to the extent of $85,000 had in fact been issued, yet still the debts sued on by the bank and its co-plaintiffs in the first bill above mentioned were contracted by the land company, and were incurred long before the execution and registration of the mortgage securing such bonds, and therefore they claimed that the debts owing to citizens and residents of Tennessee prior to the execution and registration of the mortgage above mentioned should have priority under the law over any debts secured or pretended to be secured by the mortgage.

The Travelers’ Insurance Company and the Connecticut Trust & Safety Deposit Company also filed an answer to the bill of Sully and Carhart in which the Travelers’ company alleged that the land company was indebted to it in the sum of $30,000 and three years’ interest, and in other sums amounting to several thousand dollars, which amount was secured by a mortgage or deed of trust to the Connecticut Trust & Safety Deposit Company, on what is known as the Carnegie hotel property, which is a portion of the property of the land company, and is situated in the State of Tennessee. It also denied the existence of the bonded indebtedness claimed on the part of complainants, and alleged that, in any event, the debt of the Travelers’ company against the land company was older than, and the mortgage to the Trust company was prior to, that of the complainants Sully and Carhart, and it denied that these last-named parties had any debt as claimed by them, or a lien of any kind on the property of the land company.

The insurance company also filed a petition in the suit brought by the bank, in which it set up the existence of its mortgage, and also prayed to be allowed to become a party to that cause, and to have its note, which was secured by the mortgage, declared a preferred claim, and decreed to be paid in full out of the proceeds of the sale of the property specifically mortgaged to it.

An amended petition was filed by it in which it alleged that it was the owner of another claim against the land company in favor of P. Fleming & Company, for a little less than $2,000, under the circumstances mentioned in the petition.

October 11, 1895, Mary P. Myton and A. B. Carhart filed a petition in each of the above suits, in which they described themselves as Mary P. Myton, a resident of the State of New York, and A. B. Carhart, a resident of the City of Brooklyn. In that petition, Mary P. Myton alleged a claim against the land company, as existing on November 27, 1894, in the sum of $4,094.54, with interest from November 27, 1892, while A. B. Carhart alleged a claim as of the date of November 27, 1894, of $2,248.66, and they asked to become parties to the above-named causes for the purpose of setting up these demands and for a decree against the company for their amounts, with interest.

(It is stated that the two debts represented by these notes were actually in existence prior to the execution of the mortgage to secure the bonds owned by Carhart, the notes being, in truth, renewals of other ones executed prior to that time.)

These various proceedings were consolidated into one action, and the case was referred to a master to take proof of all the facts. The master made his report, upon which a final decree by the chancellor was entered. It was decreed that the land company, by its deed of general assignment of June 3, 1893, in making disposition therein for the payment of its creditors, without any preferences, attempted to defeat the preferences given by law to creditors, residents of Tennessee, over nonresident creditors and mortgagees whose mortgages were made subsequent to the creation of the debts due resident creditors, and that such deed was fraudulent in law, and void, that the making of the deed was an act of insolvency by the land company, and that the bill filed by the bank was properly filed, and should be sustained as a general creditors’ bill, and that the assets of the company under the jurisdiction of the court were subject to distribution under the law relating to foreign corporations doing business in Tennessee, and as such should be decreed in the action then pending.

The decree further adjudged that Carhart was a bona fide holder of the bonds mentioned in his bill, and that he was entitled to recover thereon as provided for in the decree, but subject to the payment of debts due residents of Tennessee prior to the registration of such mortgage. It was also decreed that the Travelers’ Insurance Company, by its mortgage, acquired a valid lien upon the property covered by it, subordinate, however, to debts due residents of Tennessee contracted prior to the registration thereof, and also subject to some other liabilities of the land company.

The case was taken to the court of chancery appeals, which modified in some particulars the decree of the chancellor, and after such modification, it was affirmed. Upon writ of error from the supreme court, the case was there heard, and that court held that the statute in question, providing for the distribution of assets of foreign corporations doing business in that state, was constitutional, and was not in contravention of any provision of the Constitution of the United States. The decree of the court of chancery appeals was modified in some respects, and after modification it was affirmed, and the cause remanded to the chancery court for execution.

The case has been brought here on writ of error in behalf of certain unsecured creditors, nonresidents of Tennessee, and also in behalf of the Travelers’ Insurance Company and of the holder of the bonds issued by the land company.