McClung v. Embreeville, etc., Co.

| Tenn. | Oct 4, 1899

Beard, J.

This case, as presented now, involves alone a controversy between adversary counsel with regard to the nature of the decree which should be entered under the mandate of the Supreme Court of the United States.

The Embreeville Ereehold, Land, Iron and Railway Company (limited), a corporation organized under the laws of Great Britain and Ireland for mining and xnantifactnring purposes, after registering its charter in this State, as required by Chapter 31, of the Acts of 187Y, began business which in a few years ended in' insolvency. In 1893 the present complainants filed the bill in this cause as a general creditors’ bill for the purpose of winding up the insolvent corporation. Among its creditors were citizens 'of the State of Tennessee, citizens of other States of the United States, and citizens of Great Britain and Ireland. The cause was regularly conducted as an insolvent proceeding until, the case having reached this Court, a final decree was pronounced, in which, among other things, it was adjudged that, under the fifth section of the Act already referred to, Tennessee creditors had a priority in the distribution of the assets of the corporation over simple contract creditors of all other countries. The effect of this decree was to place creditors, whether citizens off other States of the United States or citizens of foreign countries, upon the same footing, and to postpone all alike until the Tennessee creditors were fully satisfied. Among the creditors affected by this decree were C. G. Blake - and Rogers, Brown & Company, citizens of the State of Ohio, and the Hull Coal and Coke Company, a corporation of Virginia, who were of the class of simple contract creditors .of this insolvent corporation. Being dissatisfied with this decree, these parties sued out a writ of error from the Supreme Court of the United States. Upon a hearing in that Court it was held, reversing the decree of this Court, that the fifth section of the Act of 1877, in so far as it gave priority to home creditors over creditors of the same class , of other States of the Union, was in violation of the second section of the fourth article of the Constitution of the United States, which provides that “the citizens of each State shall he entitled to all privileges and immunities of citizens in " the several States hut it also held that a corporation created under the laws of another State of the United States was not a “citizen” within the meaning of this clause of the Constitution. The result was that a judgment was entered affirming the judgment of this Court as to the Hull Coal and Coke Company and reversing it as to C. G. Blake anci Rogers, Brown & Co., and remanding the cause for further proceedings not inconsistent with the opinion delivered in that- Court. This opinion is reported in Vol. 172, at p. 239, of United States Supreme Court Reports.

The respective counsel of Blake and Rogers, Brown & Co. and of the Tennessee creditors and alien creditors of this corporation differ radically in their construction of the opinion and mandate. The contention for the first named creditors is that the judgment of the Supreme Court of the United States places them in the same class with the Tennessee creditors, and that with the latter they are entitled to full satisfaction of their claims before the Hull Goal and Coke Company, and the creditors who are residents of foreign countries are let in to share in the distribution of the assets of this corporation. On the other hand, the contention of the Tennessee creditors and of the creditors who are residents of foreign countries, is that the mandate of that Court is fully satisfied when these Ohio creditors are permitted to participate as general • creditors in this distribution, without priority over any one, and that when they have received their pro rata on the basis of all creditors being included,, then they shall stand aside, and the Tennessee creditor, taking under the Act of 1SYY, are to be satisfied, and when this is done, then the Hull Goal and Coke Company and these creditors residing in foreign countries take pro rata of the balance of the assets, if any.

Under this contention, the claims of all- creditors, without regard to this statutory preference, are to be tabulated for the purpose of ascertaining the pro rata to be paid to each, and when so ascertained and the shares of these Ohio creditors are paid to them, the whole of the balance of the assets ofthe corporation must be applied, if need be. to the extinguishment of the Tennessee • claims, and thereafter as already indicated. The insistence of the Ohio creditors is rested upon, the opinion of that Court, the gist of which is found in the following paragraph:

“We adjudge that when the general property and assets of a private corporation, lawfully doing business in a State, are in course of administration by the courts of such State, creditors who are citizens of other States are entitled, under •the Constitution of the States, to stand upon the same plane with creditors of like- class who are citizens of such State, and cannot be denied equality of right simply because they do not reside in that State but are citizens residing in other States of the Union. The individual plaintiffs in error were entitled to contract with this British corporation, lawfully doing . business in Tennessee, and deemed and taken to be a corporation of that State; and no rule in the distribution of its assets among creditors could be applied to them as resident citizens of Ohio, a.nd because they were not citizens of Tennessee, that was not applied by the Courts of Tennessee to creditors of like character who were- citizens of Tennessee.” 172 U. S. Rep., 259.

It is contended by these creditors that in this paragraph the Court, in express terms, announced the rule of equality between themselves and the Tennessee creditors, and that this equality can only be secured by giving them the same preference in distribution which the latter creditors have secured to them under the statute.

On the other hand, the creditors citizens of Tennessee and the creditors who are citizens of foreign countries, as -well as the Hull Coal and Coke Company, insist that the Supreme Court of the United States, by its opinion, has expressly recognized the fifth section of the Act of 1877 as within the constitutional power of the Legislature of the State, save as it sought to place in one inferior and subordinate class creditors who were citizens of other States of this Union, and that by the express terms of that Act the home creditors are preferred, and that _ to give these Ohio creditors the same preference would be to do so when not only they are not named in the Act, but when they have successfully impeached as unconstitutional that part of it which refers to the class of creditors to which they belong.

It is further insisted by them that the Supreme Court o'ff the United States did not, by its mandate, intend to direct this Court 'to interpolate the Act of 1877, tvith a provision giving preference to creditors who had repudiated it, but that its mandate is fully complied with when • this Court, in favor of the Ohio creditors, directs an administration of the assets of this insolvent corporation so as to give them full and proportionate shares, as if this Act was not iu existence, and that having thus done equity in their favor, the fifth section of this Act immediately becomes operative, under the terms of which complainants, as preferred creditors, work out a satisfaction of their claims.

A majority of the Oourt adopt this latter view, believing it to be a sound construction of the mandate, and a decree will be entered in accordance with it. In this view I do not concur.

While it is possible the Supreme Oourt of the United States did not have in mind this phase of the question, yet I think in its opinion there is laid down in general, but clear and unmistakable terms, a rule under which the' Ohio creditors are entitled to what they now claim. .That Court has said that, so far as they were concerned, the fifth section of the Act was void, because violative of that clause of the Federal Constitution which provides, “the citizens of each State shall be entitled to all privileges and immunities of citizens in' the several States,” and the case has been remanded to this Court, with direction that we see. no advantage accrues to home creditors over the Ohio creditors. It is evident that administering the assets as it is now adjudged shall be done, a valuable “privilege” is secured to the Tennessee creditors, of. which the Ohio creditors are deprived. I think this is in the face of the opinion and mandate.