text:
Matthews v. Memphis and Charleston Railroad Company

On January 8, 1872, a decree was rendered by the chancery court of Alcorn county, in the state of Mississippi, in favor of Narcissa Scruggs, one of the appellants, against the Memphis & Charleston Railroad Company, for the sum of $31,666.66, and interest thereon from January 21, 1871. This decree was, on December 14, 1874, affirmed, on appeal, by the supreme court of Mississippi, and a decree rendered against the railroad company and the sureties on its appeal bond for the amount of the decree of the chancery court of Alcorn county, and interest thereon, and $1,583.33 damages, the whole to bear interest until paid.

The transactions which gave rise to the litigation which resulted in this decree were as follows: On July 7, 1857, John W. Scruggs, the husband of said Narcissa, made a contract in writing with the railroad company by which he agreed to erect on its land at Corinth, Mississippi, which was one of the stations on the company's road, a railroad hotel, and conduct it in a manner acceptable to the railroad company, and pay the company an annual ground rent of $250. It was provided that, should the railroad company at any time become dissatisfied with the manner in which the hotel was carried on, the right was reserved to it to take possession thereof by paying Scruggs its value, and if Scruggs became dissatisfied with the schedule or management of the company, he reserved the right to surrender the improvements put by him on the land, and to require the company to pay their value at the time of surrender. Scruggs erected a hotel building according to the contract, and kept therein a boarding-house for the officers and employes of the railroad company, and a house of refreshment for travelers, until April 21, 1871. About that time he conveyed the hotel building and other improvements by him put upon the land, and his leasehold in the land, to his wife, Narcissa. On the day just mentioned, Scruggs and his wife and the president of the railroad company agreed with each other that the lease should cease and determine, and the property should be surrendered to the railroad company. And as there was some dispute between the parties in reference to the construction of the contract of July 7, 1857, they agreed to submit to arbitrators to decide upon the legal construction of said agreement, and the value of said improvements, and the amount which should be paid therefor by the railroad company to Mrs. Scruggs upon the surrender of the premises. All other questions arising under said agreement, whether as to the rights of the party to recover damages or otherwise, were expressly reserved. It was further agreed that the award of the arbitrators should be entered as a decree of the chancery court of Alcorn county.

The arbitrators, on April 21, 1871, made their award as follows.

'The Memphis & Charleston Railroad Company shall pay to the said Narcissa Scruggs the sum of $31,666.66, in full payment of all the improvements placed on the ground occupied by the Scruggs House, on the grounds of said company, at Corinth, Mississippi, and on payment of said sum of money the said Narcissa Scruggs shall deliver possession of said hotel to said railroad company.

'We do further decide and decree that the true construction of the contract is that by its terms J. W. Scruggs acquires a perpetual lease on the ground occupied by the said hotel on the payment of the sum of $250 per annum rent, and subject to be defeated by the Memphis & Charleston Railroad Company only on the condition that Scruggs failed to keep a first-rate eating-house, and by the said J. W. Scruggs on condition that said Memphis & Charleston Railroad failed to use said hotel as an eating-house.

'We do further determine that, from the evidence in the case and the articles of submission and contract, that the sum to be paid by the Memphis & Charleston Railroad Company to said Narcissa Scruggs is, as heretofore mentioned, the value of the property surrendered to the Memphis & Charleston Railroad Company.'

The railroad company refused to pay the award or to take possession of the property. Whereupon, on May 2, 1871, Narcissa Scruggs filed her bill in the chancery court of Alcorn county to enforce the performance of the award. After the bringing of the bill, the counsel of the parties filed in the case an agreement in writing, as follows:

'In the above case it is agreed that the amount due to the defendant as ground rent for the land upon which the Corintn hotel is built, as specified in the lease to J. W. Scruggs, was not included in the award by the arbitration; and it is agreed that the amount due for the same for said rent shall be deducted from whatever amount may be found to be due by the award of said arbitrators; and that the said Scruggs shall be permitted to set off as against said rents any amount due him by said railroad for board of employes, etc.; the said amount to be adjusted by reference to the master of the chancery court.'

The litigation commenced by this bill resulted in the decree of the supreme court of Mississippi above mentioned. In the mean time, to-wit, on August 13, 1871, John W. Scruggs had died.

On January 8, 1875, upon an attempt by Mrs. Scruggs to enforce the payment of this decree by execution, the bill in the present case was filed by the railroad company in the chancery court of Alcorn county. The bill averred that the decree of the Alcorn chancery court above mentioned, which was affirmed by the supreme court of Mississippi, established a debt in favor of Mrs. Scruggs against the railroad company for $31,666.66, with interest from April 21, 1871, and fixed that date for the surrender of the premises by Mrs. Scruggs to the railroad company, and gave her a lien on the premises for the payment of the decree, and upon failure of the railroad company to pay the same within 30 days, ordered a sale of the property, and that the decree left Mrs. Scruggs as a mortgagee in possession until the sum above mentioned was paid. The bill further averred that the decree should be reduced by the ground rents due the railroad company up to April 21, 1871, and for the use and occupancy, rents and profits, of said premises from that date up to the filing of the bill, which had been enjoyed and received by Mrs. Scruggs, amounting in all to the sum of $25,000. The bill averred that Mrs. Scruggs had caused an execution to be issued against the railroad company and the sureties on its appeal bond to enforce collection of the entire decree; that she was insolvent, and if allowed to collect the decree in full the credit to which the railroad company was entitled would be a total loss. The prayer of the bill was for an injunction to restrain proceedings on the execution, and for a reference to a master to report the amount due the railroad company for ground rents up to Arril 21, 1871, and the amount of rents of the premises received by Mrs. Scruggs from that date to the date of the master's report, and that the amount reported by the master as due the railroad company for ground and other rents might be credited on the decree.

An injunction was allowed as prayed for. Mrs. Scruggs answered the bill, admitting her retention of the possession of the property, but denied her liability for rents, and averred that she was not only entitled to the rents, but also to the amount of the decree and the penalty adjudged by the supreme court, and interest on both, and set up said decree as res adjudicata and conclusive in her favor.

At this stage of the cause it was, on petition of the railroad company, removed to the district court of the United States for the northern district of Mississippi. Upon motion made to the district court, the injunction allowed by the state court was modified so as to restrain the collection of only $20,000 of the decree, and Mrs. Scruggs was required to give, and did give, a refunding bond in the sum of $10,000 for the repayment of any sum which might on final hearing be decreed against her. An execution having issued to collect the residue of the decree, less the said $20,000, the railroad company paid the marshal $19,217.

On September 24, 1875, the railroad company filed its amended bill and bill of interpleader, in which it averred that one J. H. Viser claimed to have a lien on the decree in favor of Mrs. Scruggs against the railroad company, and it brought into court the sum of $2,510, the residue of the decree not enjoined or not paid to the marshal, and made Viser and Mrs. Scruggs defendants, and prayed that the rights of all parties might be settled and determined.

On December 24, 1875, the district court decreed as follows: That the railroad company is entitled to have credited on the amount awarded and decreed (by the supreme court of the state) 'the reasonable rents which she,' Mrs. Scruggs, had 'actually received, or might have received, by prudent management, or for any period she actually, by herself or agent, occupied the hotel and property at Corinth, from May 11, 1871, forward to the date of the receiver's taking possession under a former order of this court,' and ordered a reference to a master to report the amount with which the decree should be credited by reason of the rents received, and the use and occupancy of said premises by Mrs. Scruggs. On the next day the court decreed that Viser was entitled to $1,382 of the $2,510 paid in by the railroad company on filing its bill of interpleader, that being the amount of a judgment recovered by him against Mrs. Scruggs, and for the payment of which the railroad company had been duly summoned as garnishee. Upon the coming in of the master's report, the court refused to deduct from the decree, in favor of Mrs. Scruggs, any sum for ground rents due the railroad company, and having reduced the amount of rent reported by the master as due from Mrs. Scruggs, applied the residue as a credit upon said decree, and as the result of such application found that there was due from Mrs. Scruggs to the railroad company on the refunding bond the sum of $179, for which it rendered a decree in favor of the railroad company against Mrs. Scruggs and the sureties on said bond, and also rendered a decree in favor of Viser against the same parties for $3,807.27. From this decree Mrs. Scruggs, and E. R. Matthews and James Matthews, the sureties on the refunding bond, have appealed to this court. Mrs. Scruggs now complains of the decree, so far as it concerns the railroad company, on the sole ground that it directed the value of the rents and occupancy of the hotel and improvements to be credited upon the decree in her favor against the railroad company. She also insists that the decree against her in favor of Viser was erroneous, for reasons which will be found stated in the opinion of the court.

H. P. Branham, for appellant.

D. H. Poston and W. Y. C. Humes, for appellee.

WOODS, J.


text: Talk:Matthews v. Memphis and Charleston Railroad Company

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text:
Matthews v. Memphis and Charleston Railroad Company/Opinion of the Court

The contention of the appellant is that, having obtained a decree for the value of the hotel and improvements built by John W. Scruggs upon the lands of the railroad company, with damages for the appeal, and interest, to be paid upon the surrender by her of the hotel and improvements to the railroad company, she was entitled to the payment of her decree, with interest, and as long as the railroad company failed to pay the decree, was not chargeable with the rents or the value of the occupancy of the premises while she retained possession. We cannot assent to this claim. It appears, from the agreement to submit to arbitrators, that both parties-the railroad company on the one hand, and John W. Scruggs and Narcissa, his wife, to whom he had conveyed his leasehold and improvements, on the other-had agreed that the property should be surrendered to the railroad company, and that, in pursuance of the original contract between John W. Scruggs and the railroad company, the latter was to pay the value of the improvements. It was mainly to fix the value of these improvements that the reference to arbitrators was made, and it was agreed that on the payment of the sum so fixed Scruggs and his wife should surrender the property to the railroad company, and the amount so fixed should 'be a lien on said property.' The arbitrators decided that on the payment of the sum awarded by them, Mrs. Scruggs should deliver the possession of the hotel to the railroad company. In her bill filed to enforce this award, Mrs. Scruggs prays that the railroad company may be compelled to pay the award, and that 'her lien for the same on said property may be enforced.' The court in which her bill was filed made a decree to the effect that Mrs. Scruggs had a lien on the property for the amount of said award, with interest thereon from January 21, 1871, ordered its payment within 30 days, and in default of payment directed that the property should be sold and the proceeds applied to the payment of the amount due on the award. This decree was in all respects affirmed by the supreme court of Mississippi.

We think that upon these facts Mrs. Scruggs must in equity be treated as if she was a mortgagee in possession. All the parties and the chancery and supreme courts have treated the sum awarded Mrs. Scruggs as a lien upon the property, and it was decreed, and no one disputed, that she was entitled to retain possession until her lien was discharged.

Treating her as a mortgagee in possession, she is accountable for the net rents and profits of the estate. If her possession was by tenant, she is accountable for such net rents and profits as she could with reasonable diligence have received. Moore v. De Graw, 1 Halst. Ch. 348; Benham v. Rowe, 2 Cal. 387; Kellogg v. Rockwell, 19 Conn. 446; Harrison v. Wyse, 24 Conn. 1; Reitenbaugh v. Ludwick, 31 Pa. St. 131; Breckenridge v. Brook, 2 A. K. Marsh. 335; Tharp v. Fitz, 6 B. Mon. 6; Anthony v. Rogers, 20 Mo. 281.

There is no equity in the contention of Mrs. Scruggs that she should receive interest on the debt secured by her lien, and not account for the rents and profits of the property on which her lien rested while it was in her possession.

She says that the railroad company might have had immediate possession by paying the amount of the award. So any mortgagee in possession might say that the mortgagor could take possession on paying off the mortage debt; but this does not excuse the mortgagee from accounting for the rents and profits of the mortgaged property received by him.

It appears that the railroad company had ground for refusing to pay the sum awarded by the arbitrators as the value of the property. The only question submitted to the arbitrators was the true construction of the contract between John W. Scruggs and the railroad company, and the value of the property, or rather, as the arbitrators understood it, the value of the improvements placed by John W. Scruggs on the land of the railroad company. They were not authorized to adjust and settle the accounts between the railroad company and Scruggs. When, therefore, Mrs. Scruggs filed her bill to enforce the award, it was admitted by her counsel that the matter of the ground rent was not included in the award, and that the same ought to be deducted from the amount awarded by the arbitrators, and that she should be permitted to set off as against such rents any amount due by the railroad company for board of employes, the said amount to be adjusted by reference to the master of the court.

The award did not, therefore, settle the controversy between the parties. The railroad company was justified in refusing to pay the award until the deductions therefrom, to which it was admitted that it was entitled, should be ascertained, and in defending the suit brought by Mrs. Scruggs to enforce the payment of the entire award. While this litigation was pending, the rents and profits actually received in cash by her were $10,514, and she herself occupied the premises in person for two years.

The court below found that there was due the railroad company, by reason of rents incurred by Mrs. Scruggs and the occupancy of the premises by her, the sum of $17,414.50. The testimony in the record fully sustains this finding. As Mrs. Scruggs insisted that she should have interest on the amount decreed her by the chancery and supreme courts of Mississippi, she was not entitled also to claim the rents of the premises.

The case, therefore, stands thus: The railroad company was indebted to Mrs. Scruggs in the sum of $31,666, which was a lien upon the premises, and Mrs. Scruggs was in possession. On the other hand, the amount of the decree and interest, it was admitted, were subject to be reduced by the ground rents due to the railroad company. Mrs. Scruggs, who was shown to be insolvent, was proceeding to collect by execution the full amount of her decree, with interest; the railroad company was compelled, in order to protect itself from loss, to file the bill in this case to have the decree credited with the amount due for the ground rents. While this litigation was pending, Mrs. Scruggs received in cash rents to the amount of $10,514, and occupied the premises herself two years. She was clearly liable to account for the rents received by her, and for a reasonable rental while the premises were actually occupied by her. The court below did not charge her with a dollar for which she was not accountable. So far, therefore, as the decree relates to the controversy between her and the railroad company, it is a just and proper decree.

It remains to consider that part of the decree by which the debt claimed by J. H. Viser was ordered to be paid out of the money due from the railroad company on the decree in favor of Mrs. Scruggs. After the bill of interpleader, filed by the railroad company, Viser filed his cross-bill against the company and Mrs. Scruggs, in which he alleged that on May 11, 1869, John W. Scruggs and Narcissa, his wife, executed to him a mortgage upon the leasehold and improvements thereon, known as the Scruggs House, of which said Narcissa was then the owner, to secure a note dated the same day as the mortgage, made by them for the payment to him of $5,000, 12 months after date, and prayed that the railroad company might be compelled to pay to him, out of the moneys due from it to Mrs. Scruggs, the amount due him on said note and mortgage. This relief was resisted by Mrs. Scruggs on the ground that at the date of the note and mortgage she was a feme covert, and incompetent, under the law of Mississippi, to incumber her property for her own or her husband's debts. In the suit which Mrs. Scruggs brought in the chancery court of Alcorn county to enforce the award of the arbitrators, Viser, who had been made a party defendant, had filed his answer and cross-bill, setting up said note and insisting that the mortgage given to secure it was a lien on said property. Upon appeal to the supreme court of Mississippi, that court decided that the mortgage was a good lien on the income of the property covered thereby. Viser v. Scruggs, 49 Miss. 705.

The property covered by the mortgage was represented by the decree rendered in favor of Mrs. Scruggs against the railroad company for $31,666. The income of the decree represented by the interest was, as appears by the report of the master, ample to pay the demand of Viser.

There was no application of the income until the court made the final decree in this case. There were then two funds, the principal and the interest of the decree. Viser had a lien on the interest, and the demand of the railroad company was payable out of either principal or interest. Following, therefore, the practice of courts of equity in marshaling securities, (Aldrich v. Cooper, 8 Ves. 394,) the court directed the payment of Viser's lien out of the interest. In doing this no injustice was suffered by Mrs. Scruggs. The method adopted for calculating the amount due on the decree was according to the established rules in such cases. The debt due Viser was clearly proven. It was payable out of a fund which in effect was in possession of the court, and the court was right in ordering it to be paid. It is contended for Mrs. Scruggs that the debt of Viser could only be satisfied by laying hold of the corpus of the property by a receiver, and through him collecting the income and applying it. But in this case there was no necessity for a receiver, for the property and its income were virtually in the hands of the court. The appointment of a receiver was. under the circumstances of the case, unnecessary and impracticable. The property was a decree of court, of which a receiver could not take possession. Complaint is made by appellants because the decree of the circuit court for the payment of Viser's demand was rendered, not only against Mrs. Scruggs, but against the sureties on the refunding bond given by her. It is said that the bond was payable to the railroad company, and the court was not justified in rendering a decree in favor of Viser against the sureties. The bond took the place of $10,000 which was virtually in possession of the court to do with as justice and equity might require. The court disposed of the sum payable on the bond as if it had been so much money in the registry of the court. It is true, the bond was payable to the railroad company. But the amount decreed to be paid to Viser was deducted from the sum due the railroad company on the refunding bond, and the appellants have no ground of complaint.

We are of opinion that the decree of the circuit court was in all respects right, and it must therefore be affirmed.

FIELD and MATTHEWS, JJ., did not sit in this case, and took no part in its decision.


text: Talk:Matthews v. Memphis and Charleston Railroad Company/Opinion of the Court


text:
Boese v. King

By deed of assignment executed and delivered September 25, 1873, William H. Locke, a citizen of New Jersey, transferred and conveyed to William King, John M. Goetchius, and Edward E. Poor, and the survivor of them, and their and his heirs and assigns, all of his property of every kind and description-except such as was exempt by law from execution-'in trust to take possession of and collect and sell and dispose of the same at public or private sale in their discretion, and to distribute the proceeds to and among the creditors of the said William H. Locke, in proportion to their several just demands, pursuant to the statutes in such case made and provided, and on the further trust to pay the surplus, if any there be, after fully satisfying and paying the said creditors, and all proper costs and charges, to the said William H. Locke.'

Although the deed does not, in terms, refer to any particular statute, it may be taken-the fact being so found-that the intention of Locke and the assignors was to have a distribution made among the creditors of the former in conformity with the requirements of an act of the legislature of New Jersey, passed April 16, 1846, entitled 'An act to secure to creditors an equal and just division of the estates of debtors who convey to assignees for the benefit of creditors.'

That act provides, among other things, that every conveyance or assignment by a debtor of his estate, real or personal, or both, in trust, to an assignee for the benefit of creditors, shall be made for their equal benefit in proportion to their several demands to the net amount that shall come to the hands of the assignee for distribution; and all preferences of one creditor over another, or whereby one shall be first paid or have a greater proportion in respect to his claim than another, shall be deemed fraudulent and void, excepting mortgage and judgment creditors, when the judgment has not been by confession for the purpose of preferring creditors, (section 1;) further, that the debtor shall annex to his assignment an inventory, under oath or affirmation, of all of his property, together with a list of his creditors, and the amount of their respective claims, such inventory not, however, to be conclusive as to the quantity of the debtor's estate, and the assignee to be entitled to any other property belonging to the debtor at the time of the assignment, and comprehended within its general terms, (section 2.) Other sections provide for public notice by the assignee of the assignment; for the presentation of claims of creditors; for filing by the assignee under oath of a true inventory and valuation of the estate; for the execution by him of a bond in double the amount of such inventory or valuation; for the recording of such bond; for the filing with the clerk of the court of common pleas of the county of the debtor's residence, within three months after the date of the assignment, of a list of all such creditors as claim to be such, and the amount of their demands, first making it known by advertisement that all claims against the estate must be made as prescribed in the statute, or be forever barred from coming in for a dividend of said estate, otherwise than as provided; for the right of the assignee or any creditor or person interested to except to the allowance of any claim presented; for the adjudication of such exceptions; for fair and equal dividends from time to time among the creditors of the assets in proportion to their respective claims; and for a final accounting by the assignee in the orphans' court of the county such settlement and adjudication to be conclusive on all parties, except for assets which may afterwards come to hand, or for frauds or apparent error. Sections 3, 4, 5, 6, and 7. The act further provides:

'Sec. 11. If any creditor shall not exhibit his, her, or     their claims within the term of three months as aforesaid,      such claim shall be barred of a dividend unless the estate      shall prove sufficient after the debts exhibited and allowed      are fully satisfied, or such creditor shall find some other      estate not accounted for by the assignee or assignees before      distribution, in which case such barred creditor shall be      entitled to a ratable proportion therefrom.

'Sec. 12. Whenever any assignee or assignees, as aforesaid,     shall sell any real estate of such debtor or debtors as is      conveyed in trust as aforesaid, he or they shall proceed to      advertise and sell the same in manner as is now or may      hereafter be prescribed in the case of an executor or      administrator directed to sell lands by an order of the      orphans' court for the payment of the debts of the testator      or intestate.

'Sec. 13. Every assignee, as aforesaid, shall have as full     power and authority to dispose of all estate, real and and to sue      for and recover in the debtors had at the time of the      assignment, and to sue for and recover in the proper name of      such assignee or assignees everything belonging or      appertaining to said estate, real or personal, of said debtor      or debtors, and shall have full power and authority to refer      to arbitration, settle and compound and to agree with any      person concerning the same, and to redeem all mortgages and      conditional contracts, and generally to act and do whatever      the said debtor or debtors might have lawfully done in the      premises.

'Sec. 14. Nothing in this act shall be taken or understood as     discharging said debtor or debtors from liabilities to their      creditors who may not choose to exhibit their claims either      in regard to the persons of such debtors or to any estate,      real or personal, not assigned as aforesaid; but with respect      to the creditors who shall come in under said assignment and      exhibit their demands as aforesaid for a dividend, they shall      be wholly barred from having afterwards any action or suit at      law or equity against such debtors or their representatives,      unless on the trial of such action or hearing in equity the      said creditor shall prove fraud in the said debtor or debtors      with respect to the said assignment or concealing his estate,      real or personal, whether in possession, held in trust, or      otherwise.'

The estate which came into the hands of the assignees was converted into money in New Jersey,-the amount being nearly $200,000,-and the proceeds, for the convenience of the assignees, were deposited in a bank in the city of New York. No proceedings in bankruptcy were ever taken against Locke.

On the third day of February, 1876, William Pickhardt and Adolph Kutroff recovered a judgment against Locke in the supreme court of the city and county of New York for $3,086.85. Upon that judgment execution was issued and returned unsatisfied. Subsequently, May 27, 1876, in certain proceedings, before one of the judges of that court, supplementary to the return of execution, Thomas Boese, plaintiff in error, was appointed receiver of the property of Locke, and having executed a bond for the faithful discharge of the duties of his trust, he obtained an order from the same court giving him authority, as receiver, to bring an action against the assignees of Locke. Thereupon, June 9, 1876, he commenced this action. It proceeds upon these grounds: (1) That the indebtedness from Locke to Pickhardt and Kutroff arose in New York, where they reside, before the making of said assignment; (2) that the statute of New Jersey with reference to, or under which, said assignment was made, was, by force of the bankruptcy act of 1867, suspended and of no effect; (3) that the assignment was fraudulent and void by the laws of New Jersey, in that it was made with the intent upon the part of Locke to hinder, delay, and defraud his creditors, and in that he had a large amount of money and other property which he fraudulently retained to his own use and not surrender to the assignees.

The prayer of the complaint-the allegations of which were fully met by answer-was for judgment against the defendants; that the assignments be adjudged fraudulent and void; and that the defendants be required to account to plaintiff for all the property and money received, or to which they are entitled under and by virtue of said assignment. It was conceded at the hearing that defendants had in their hands, of the proceeds of the sale of the assigned property, an amount sufficient to pay the judgment of Pickhardt and Kutroff.

The supreme court of New York both in general and special term, sustained the supreme court of New York, against the assignees in favor of Boese, as receiver, for the amount of the demand of Pickhardt and Kutroff. But in the court of appeals that judgment was reversed, with directions to enter judgment for the defendants.

C. Bainbridge Smith, for plaintiff in error.

A. P. Whitehead, for defendant in error.

HARLAN, J.

title: Boese v. King


text: Talk:Boese v. King

title: Talk:Boese v. King


text:
Boese v. King/Opinion of the Court

We are to consider in this case whether the final judgment of the court of appeals of New York has deprived plaintiff in error of any right, title, or privilege under the constitution or laws of the United States. This question arises out of the following facts, which are embodied in a special finding made by the court of original jurisdiction:

We dismiss from consideration all suggestions in the pleadings of actual fraud upon the part either of Locke or his assignees. The court of original jurisdiction found as a fact-and upon that basis the case was considered by the court of appeals that the assignment was executed and delivered by the former and accepted by the latter in good faith and without any purpose to hinder, delay, or defraud any creditor of Locke. It is further found as a fact that the assignment was made with the intent, bona fide, to make an equal distribution of the proceeds of the trust estate among creditors in conformity with the local statute. The supreme court of New York ruled that the statute of New Jersey was, in its nature and effect, a bankrupt law, and the power conferred upon congress to establish a uniform system of bankruptcy, having been exercised by the passage of the act of 1867, the latter act wholly suspended the operation of the local statute as to all cases within its purview; consequently, it was held, the assignment was not valid for any purpose. The court of appeals, recognizing the paramount nature of the bankrupt act of congress, and assuming that the fourteenth section of the New Jersey statute, relating to the effect upon the creditor's claim of accepting a dividend, was inconsistent with that act and therefore inoperative, adjudged that other portions of the local statute which provided for the equal distribution of the debtor's property among his creditors, and regulated the general conduct of the assignee, were not inconsistent with nor were they necessarily suspended by the act of 1867; further, that the New Jersey statute did not create the right to make voluntary assignments for the equal benefit of creditors, but was only restrictive of a previously-existing right, and imposed, for the benefit of creditors, salutary safeguards around its exercise; consequently, had the whole of the New Jersey statute been superseded, the right of a debtor to make a voluntary assignment would still have existed. The assignment, as a transfer of the debtor's property, was, therefore, upheld as in harmony with the general object and purposes of the bankrupt act, unassailable by reason merely of the fact that some of the provisions of the local statute may have been suspended by the act of 1867.

In the view which we take of the case it is unnecessary to consider all of the questions covered by the opinion of the state court and discussed here by counsel. Especially, it is not necessary to determine whether the bankrupt act of 1867 suspended or superseded all of the provisions of the New Jersey statute. Undoubtedly the local statute was, from the date of the passage of the bankrupt act, inoperative in so far as it provided for the discharge of the debtor from future liability to creditors who came in under the assignment and participated in the distribution of the proceeds of the assigned property. It is equally clear, we think, that the assignment by Locke of his entire property to be disposed of as prescribed by the statute of New Jersey, and therefore independently of the bankruptcy court, constituted itself an act of bankruptcy, for which, upon the petition of a creditor, filed in proper time, Locke could have been adjudged a bankrupt, and the property wrested from his assignees for administration in the bankruptcy court. In re Burt, 1 Dill. 440; In re Goldschmidt, 3 N. B. R. 168; In re Smith, 4 Ben. 5. The claim of Pickhardt and Kutroff existed at the time of the assignment. The way was therefore open for them, by timely action, to secure the control and management of the assigned property by that court for the equal benefit of all the creditors of Locke. But they elected to lie by until after the expiration of the time within which the assignment could be attacked under the provisions of the bankrupt act; and now seek, by this suit, in the name of the plaintiff in error, to secure an advantage or preference over all others; this, notwithstanding the assignment was made without any intent to hinder, delay, or defraud creditors. In order to obtain that advantage or preference, the plaintiff in error relies on the paramount force of the bankrupt act, the primary object of which, as this court has frequently announced, was to secure equality among the creditors of a bankrupt. Meyer v. Hilman, 91 U.S. 501; Reed v. McIntyre, 98 U.S. 509; Buchanan v. Smith, 16 Wall. 277.

It can hardly be that a court is obliged in vindication of an act of congress to lend its aid to those who, neglecting or refusing to avail themselves of its provisions, seek to accomplish ends inconsistent with that equality among creditors which those provisions were designed to secure. If it should be assumed, for the purposes of this case, that the statute of New Jersey was, as to each and all of its provisions, suspended when the bankrupt act of 1867 was passed, it does not follow that the assignment by Locke was ineffectual for every purpose. Certainly that instrument was sufficient to pass the title from Locke to his assignees. It was good as between them, at least until Locke, in some appropriate mode, or by some proper proceedings, manifested a right to have it set aside or canceled upon the ground of a mutual mistake in supposing that the local statute of 1846 was inoperative. And in the absence of proceedings in the bankruptcy court impeaching the assignment, and so long as Locke did not object, the assignees had authority to sell the property and distribute the proceeds among all the creditors, disregarding so much of the deed of assignment as required the assignees, in the distribution of the proceeds, to conform to the local statute. The assignment was not void as between the debtor and the assignees simply because it provided for the distribution of the proceeds of the property in pursuance of a statute, none of the provisions of which, it is claimed, were then in force. Had this suit been framed for the purpose of compelling the assignees to account to all the creditors for the proceeds of the sale of the property committed to their hands, without discrimination against those who did not recognize the assignment and exhibit their demands within the time and mode prescribed by the New Jersey statute, a wholly different question would have been presented for determination. It has been framed mainly upon the idea that by reason of the mistake of Locke and his assignees in supposing that the property could be administered under the provisions of the local statute of 1846, even while the bankrupt act was in force, the title did not pass for the benefit of creditors according to their respective legal rights. In this view, as has been indicated, we do not concur.

We are of opinion that, except as against proceedings instituted under the bankrupt act for the purpose of securing the administration of the property in the bankruptcy court, the assignment, having been made without intent to hinder, delay, or defraud creditors, was valid, for at least the purpose of securing an equal distribution of the estate among all the creditors of Locke, in proportion to their several demands, (Reed v. McIntyre, 98 U.S. 509;) and, consequently, we adjudge only that the plaintiff in error is not entitled, by reason of any conflict between the local statute and the bankrupt act of 1867, or by force of the before-mentioned judgment and the proceedings thereunder, to the possession of the assigned property or of its proceeds, as against the assignees, or to a priority of claim for the benefit of Pickhardt and Kutroff upon such proceeds.

The judgment is affirmed.

title: Boese v. King/Opinion of the Court


text: Talk:Boese v. King/Opinion of the Court

title: Talk:Boese v. King/Opinion of the Court


text:
Warren v. King

G. P. Lowrey, for appellants.

''E. M. Johnson, Benj. Harrison, and W. H. Peckham'', for appellees.

BLATCHFORD, J.

title: Warren v. King


text: Talk:Warren v. King

title: Talk:Warren v. King


text:
Warren v. King/Opinion of the Court

In November, 1876, William King and others, holders of second-mortgage bonds and of Springfield Division bonds of the Ohio & Mississippi Railway Company, filed a bill in the circuit court of the United States for the district of Indiana, to foreclose two mortgages on the property of the company, subject to a first mortgage. In August, 1877, Allan Campbell, a defendant in that suit and trustee of one of the two mortgages, called the second mortgage, and also of the first mortgage, filed a bill and a cross-bill in the same court to foreclose those two mortgages. In January, 1879, the two suits were consolidated. In December, 1879, George Henry Warren and others, as owners of preferred stock of the company, having been made parties defendant to the consolidated suit, filed a cross-bill. To this cross-bill a general demurrer for want of equity was interposed. The court sustained the demurrer, and entered a decree dismissing the cross-bill for want of equity. King v. Ohio & M. R. Co. 2 Fed. Rep. 36. From this decree the plaintiffs in that bill have appealed to this court.

The sole question involved is whether the preferred stockholders are entitled to have their shares of stock declared to be a lien on the property of the company next after the first mortgage. As the question arises on demurrer, the allegations of the cross-bill are to be taken as true. The Ohio & Mississippi Railroad Company, having been incorporated by Indiana in February, 1848, was incorporated by Ohio in March, 1849, and by Illinois in February, 1851. Under a second mortgage made by it in January, 1854, all the property and franchises of the Illinois company were sold, on a foreclosure of that mortgage, in June, 1862, to the Ohio & Mississippi Railroad Company, an Illinois corporation created in February, 1861, for the purpose of purchasing the property and franchises of the Illinois corporation of February, 1851. The property and franchises of the Indiana and Ohio corporations were sold, under judicial decrees, in January, 1867, subject to certain mortgage debt recited in the decrees, to Allan Campbell and others, 'trustees of creditors and stockholders of said Ohio & Mississippi Railroad Company, (Eastern Division.)' This trust was created by an instrument in writing, dated December 15, 1858, and known as the 'turst agreement of creditors and stockholders of the Ohio & Mississippi Railroad Company of Indiana and Ohio.' By it Allan Campbell and others were created trustees, for the purpose of providing for and protecting claims of judgment creditors and other persons holding liens on the property and franchises of the company, and also certain holders of unliquidated demands against it, and also the interests of the stockholders of the company. Such interests of the creditors and stockholders became vested in the trustees from time to time, so that on the fourteenth of September, 1867, they were the owners, subject to the terms of the trust agreement, of the rights, claims, and interests of all the creditors and stockholders of the company in its property and franchises, except those existing under a first mortgage made in May, 1853. The trustees issued, in exchange for the interests they so acquired, certificates in two classes, preferred and common. Under an amendment, made in April, 1863, to the trust agreement, the trustees purchased, for the benefit of the trust and the persons interested therein under the agreement of December, 1858, all the stock and a portion of the bonds of the Illinois company of 1851, sometimes called the Western Division.

On the fourteenth of September, 1867, the certificate holders, by an instrument known as 'Amendments to the trust agreement of December, 1858,' resolved that the trustees had made the purchase of January, 1867, for the benefit of those interested in the trust agreement of December, 1858, and had, in virtue of the amendment of April, 1863, purchased all the stock and a portion of the bonds of the Illinois company of 1851; that, by such purchases, the whole road from Cincinnati to St. Louis had become the property of the trust, subject only to outstanding mortgages; that it was the intention of all parties interested in the trust to form a new corporation, to which the entire property of the trust might be transferred, in accordance with the original agreement, such property to consist of all the rights and interests in the railroad in the three states; that the capital stock of the new corporation should consist of 35,000 shares of preferred stock and 200,000 shares of common stock, being in all $23,500,000 of stock, which should be issued and distributed to the owners of trustees' certificates registered on the books of the trust, as follows, namely, to owners of prefered certificates, preferred full-paid stock, for the amount of such preferred certificates, at the rate of one share of preferred stock for every $100 of preferred certificates; that it should 'be declared upon the face of said preferred stock that it is to be and remain a first claim upon the property of the corporation after its indebtedness;' that the holders thereof shall be entitled to receive from the net earnings of the company 7 per cent. per annum upon the amount of said stock, payable semi-annually, 'and to have such interest paid in full, for each and every year, before any payment of dividend upon the common stock of said corporation, and that whenever the net earnings of the corporation which shall be applied in payment of interest on the preferred stock and of dividends on the common stock shall be more than sufficient to pay both said interest of 7 per cent. on the preferred stock in full, and 7 per cent. dividend upon the common stock for the year in which said net earnings are so applied, then the excess of such net earnings, after such payments, shall be divided upon the preferred and common stock equally, share by share;' that the common stock should be issued to holders of common certificates at the same rate; that the new corporation should be authorized to create a new mortgage on its entire property, consisting of 340 miles of railroad from Cincinnati to St. Louis, and upon the contemplated improvements thereon, for an amount not exceeding $6,000,000, $4,000,000 whereof should be used exclusively to take up the then outstanding bonds issued under the mortgages theretofore created on said road; that, if a branch should be built to Louisville, the new corporation might increase the preferred stock at the rate of $10,000 for each mile in length of such branch, and the $6,000,000 mortgage to the amount of $15,000 for each mile of such branch; and that holders of the outstanding bonds of the old company, both eastern and western divisions, and holders of bonds to be issued by the new corporation, should be entitled to one vote for each $100 of bonds so held, at all stockholders' meetings, and on all affairs of the corporation.

Under statutes of Indiana and Ohio, Allan Campbell and others, as such trustees, became a corporation in those states by the name of the Ohio & Mississippi Railway Company. Its capital stock was fixed at 35,000 shares, of $100 each, of preferred stock, and 200,000 shares, of $100 each, of common stock, and provision was made, in the certificate of incorporation, for increasing its preferred stock in an amount not exceeding $10,000 a mile for each mile of a branch to Louisville. In November, 1867, the Illinois company and the Indiana and Ohio company were consolidated under the name of the Ohio & Mississippi Railway Company, by articles of consolidation which provided for issuing preferred and common capital stock of the consolidated company to the extent above stated, and that the consolidated corporation should be authorized to create a new mortgage on the road for $6,000,000, of which $4,000,000 should be appropriated and used to take up the then existing mortgage bonds of the property, and should have 'all such further powers and rights as are conferred and contemplated in certain amendments adopted by the certificate-holders at a meeting held by them on the fourteenth day of September, A. D. 1867, of an agreement dated December 15, A. D. 1858, of the creditors and stockholders of the Ohio & Mississippi Railroad Company of Indiana and Ohio, said agreement representing a trust which, at the date of said amendments, embodied the entire ownership of the property of both said companies so consolidated.'

The consolidated company issued preferred stock to the amount of 35,000 shares, upon certificates in the following form:

'OHIO AND MISSISSIPPI RAILWAY COMPANY.

'Reorganized and consolidated

'Preferred Stock.

'This is to certify that _____ is entitled to * 05r shares of     the preferred capital stock of the Ohio & Mississippi Railway      Company, of $100 each, transferable only on the books of said      company, in the city of New York, in person or by attorney,      on the surrender of this certificate. The preferred stock is     to be and remain a first claim upon the property of the      corporation after its indebtedness, and the holder thereof      shall be entitled to receive from the net earnings of the      company 7 per cent. per annum, payable semi-annually, and to     have such interest paid in full, for each and every year,      before any payment of dividend upon the common stock; and whenever the net earnings of the      corporation which shall be applied in payment of interest on      the preferred stock and of dividends on the common stock      shall be more than sufficient to pay both said interest of 7      per cent. on the preferred stock in full, and 7 per cent. dividend upon the common stock, for the year in which said     net earnings are so applied, then the excess of such net      earnings after such payments shall be divided upon the      preferred and common shares equally, share by share.'

These preferred shares were issued in exchange for the trustees' preferred certificates, in pursuance of the resolutions of September 14, 1867. The cross-bill alleges that the certificate-holders, by the resolutions of September 14, 1867, intended and declared that the preferred stock to be issued should give to its holders, not only a preference in respect to dividends over the common stock, but also the preference of a specific and continuing lien and security upon the property of the new corporation, next after the then existing mortgage indebtedness; that it was in accordance with and in execution of this intention that the certificate-holders further resolved that it should be declared upon the face of the certificates of such preferred stock that it should be and remain a first claim upon the property of the corporation after its indebtedness; that the indebtedness referred to in the resolutions, and in the preferred-stock certificates, was such indebtedness only as should arise under the $6,000,000 mortgage, that amount being designed to represent, and having been authorized for the purpose of taking up and canceling, the indebtedness existing at the time of the consolidation on the property of the two consolidating companies; and that the consolidated company, under the articles of consolidation, became bound to perform the provisions of the amendments of September, 1867, to the trust agreement, as to preferred stock, and the securing the same on the property of the consolidated company to the full intent thereof.

Besides the preferred stock to the amount of $3,500,000, further preferred stock, in the above form, to the amount of $800,000, was issued on the building of the Louisville branch. The plaintiffs in the cross-bill, as owners of shares of such preferred stock, aver that they, in common with the other preferred stockholders, had and have a lien and security and first claim upon all the property and franchises of the consolidated company which existed at the time of the original issue of such preferred stock, in or about the year 1867, next after and subject only to the indebtedness under the $6,000,000 mortgage, as authorized by said articles of consolidation, as representing and designed to cover and cancel the only indebtedness on either of the consolidated roads which was outstanding at the time of such consolidation, and are entitled to the payment of interest, as stipulated in the certificate, out of such net earnings of the company as may remain after the payment of interest on first-mortgage bonds, and in priority and preference to the payment of any interest or indebtedness under any mortgage subsequent in date to the first mortgage, that being a mortgage executed in December, 1867, under which bonds to the amount of about $6,800,000 have been issued. Under the so-called second mortgage, issued in March, 1871, and sought to be foreclosed in the original suit, $4,000,000 of bonds have been issued. The other mortgage sought to be foreclosed in the original suit is called the Springfield Division mortgage, and was executed in January, 1875, to secure $3,000,000 of bonds.

The bill prays for a decree that such preferred stockholders are entitled, as such, to, and have always had, a specific and continuing lien and security and first claim upon and in all the property and franchises of the company, next after, and subject only to, the interest and security therein which is given under the first mortgage of December, 1867, and have been and are entitled to receive 7 per cent. interest upon their shares, out of the net earnings of the company remaining after the payment of interest to the holders of the first-mortgage bonds. It also prays that, in any decree of foreclosure of either of the mortgages so sought to be foreclosed, the rights of the preferred stockholders may be declared to be a lien and security on the property and franchises of the company next after that secured by the first mortgage of December, 1867; that, in case of foreclosure of the first mortgage, all surplus, after the satisfaction of claims thereunder, be applied, first, to payment in full, or pro rata, of the par value of their shares, to the preferred stockholders; and that, in case of foreclosure of either the second mortgage or the Springfield Division mortgage, the decree therein shall provide that any sale, in either of such cases, shall be subject to not only the amount due under the first mortgage, but also, and next in order, to the amount at par of the preferred stock, with all unpaid interest due thereon at 7 per cent.

The rights of the holders of preferred stock in this case must be determined by the language of the stock certificate. That is exactly the smae as the language of the written instruments which preceded the issuing of the certificates. The shares are shares of the capital stock of the company, though shares with different privileges from shares of the common stock. The certificate declares the quality of the preferred stock in two respects: (1) Its relation to the property of the company; (2) its relation to the net earnings.

As to the property, it is declared that the preferred stock is to be and remain a first claim on the property of the company 'after its indebtedness.' But it is stock, and part of the capital stock, with the characteristics of capital stock. One of such characteristics is that no part of the property of a corporation shall go to reimburse the principal of capital stock until all the debts of the corporation have been paid. It would require the clearest language to admit of the application of a different rule to any capital stock. Section 5 of the statute of Indiana of June 15, 1852, 'establishing provisions respecting corporations,' (1 Davis' St. 369,) enacted as follows: 'If any part of the capital stock of such company shall be withdrawn and refunded to the stockholders before the payment of all the debts of the company, all the stockholders of such company shall be jointly and severally liable for the payment of such debts.' The railroad law of Indiana of March 3, 1865, (1 Davis' St. 730,) entitled 'An act to authorize, regulate, and confirm the sale of railroads, to enable purchasers of the same to form corporations and to exercise corporate powers, and to define their rights, powers, and privileges, to enable such corporations to purchase and construct connecting and branch roads, and to operate and maintain the same,' under which law this company was reorganized, provided, in section 5, that the corporation should have power to 'make preferred stock, make and establish preference in respect to dividends in favor of one or more classes of stock over and above other classes, and secure the same, in such order and manner, and to such extent, as said corporation may deem expedient;' and section 20 of the general law of Indiana of May 11, 1852, providing for the 'incorporation of railroad companies,' (1 Davis' St. 706,) provided that a corporation organized under it might issue 'a preferred stock to an amount not exceeding one-half of the amount of its capital, with such priority over the remaining stock of such company, in the payment of dividends, as the directors of such company may determine, and shall be approved by a majority of the stockholders.' It would be difficult to say that these statutory provisions allowed any preference in shares of capital stock, except a preference among classes of shares, or any preference of any class of shareholders over creditors. It is not to be supposed that those engaged in reorganizing this company intended to violate the law of Indiana, or the general principles of law applicable to private corporations. Nor is there anything to show that they did. The language of the certificate is entirely satisfied by referring it to a priority in rank of the preferred stock over the common stock; to a first claim of the preferred stock on the property of the corporation, after its indebtedness should be paid, when there should be moneys to be divided among stockholders,-a claim which should be first as compared with the claim of other stock. Claims of stockholders, as such, on the corpus of the property of the company in which they are stockholders, do not arise until the debts of the company are paid. Until then the shares confer rights merely as regards profits and voting power.

It is urged, for the appellants, that the expression 'after its indebtedness' means, next after the indebtedness then existing or then authorized; that the preferred stock was issued to the holders of preferred certificates, owners of the property, as a quasi purchasemoney mortgage on its sale; and that they intended to preserve their position except as to the new $6,000,000 mortgage, because they authorized that and did not authorize any other. It is very certain that at best the words 'after its indebtedness' are, by themselves, ambiguous on their face, and are as capable of being applied to future indebtedness as of being limited to then existing indebtedness. Under the general rules applicable to the position of the stockholders of a corporation as regards its creditors, a claim of the kind here made should rest on clear and not doubtful language. But the provision which follows, as to the rights of the preferred stock in the net earnings of the company, leaves no doubt as to the meaning of the whole. There is a unity of right in the claim of the preferred stock on the property of the company, and in the title of its holder to receive a share of the net earnings of that property. His proprietorship in those earnings is a right to receive from them so much a year, if earned, before the common stock receives any dividend therefrom, and, when the two classes of stock have each received the same specified amount out of the year's net earnings, he has the right to share equally in the surplus with the holder of common stock. Thus he can have no income on his stock unless there are net earnings. Those net earnings are what is left after paying current expenses and interest on debt, and everything else which the stockholders, preferred and common, as a body corporate, are liable to pay. The holders of preferred stock have the same relation, by virtue of the certificate, to the corpus of the property, which they have to its net earnings. Their position in regard to both is one inferior to that of all creditors. They are not preferred as to reimbursement of principal, or as to a right to net earnings, over any one but the holders of common stock. The interest to be paid to them is not to be paid absolutely, as to a creditor, but only out of net earnings the same fund out of which the dividends on common stock are to be paid. Though called 'interest,' it is really a dividend, because to be paid on stock and out of net profits. There was no restriction on the creation of future indebtedness, and, necessarily, the net earnings of future business would be ascertained in reference to such future indebtedness and the interest on it; and the words 'its indebtedness,' in the same sentence, naturally mean 'its future indebtedness,' in reference to which the net earnings subsequently treated of are to be ascertained. Creditors may resort to the body of their debtor's property for interest as well as principal. But these holders of preferred stock are limited, for any income or interest, to the net earnings. There is nothing in the certificate which clothes them with a single attribute of a creditor, while it specially gives them, as stockholders, an equal interest with the common stockholders in the excess of net earnings in each year, after paying therefrom 7 per cent. on each share of stock, preferred and common.

Whatever position the holders of preferred certificates occupied before they accepted preferred stock, whatever special right of lien they had, they became corporators, proprietors, shareholders, and abandoned the position of creditors, and took up towards existing and future creditors the same position which every stockholder in a corporation occupies towards existing and future creditors. His chance of gain, by the operations of the corporation, throws on him, as respects creditors, the entire risk of the loss of his share of the capital, which must go to satisfy the creditors in case of misfortune. He cannot be both creditor and debtor, by virtue of his ownership of stock. In this case all the parties holding trustees' certificates united to form the new corporation, and converted themselves into stockholders in it.

It seems very clear that if the trustees representing the holders of trustees' certificates had gone on and operated the road for them, not organizing a new company, any debts contracted by the trustees in the business would have had priority over the claims of the holders of such certificates. So, in becoming stockholders in the new company, with the right to vote as to its management, and to share in its earnings, they must have intended to allow, through the corporation, a priority of like debts over their claims as stockholders.

The same principles must govern the present case which were applied by this court in St. John v. ''Erie Ry. Co.'' 22 Wall. 136, where creditors took preferred stock. It was held that they ceased to be creditors and could be regarded only as stockholders, with a chance for dividends out of net earnings and the power of voting, and a priority over holders of common stock, but not a priority over debts subsequently contracted.

Much stress is laid on the averment in the cross-bill that the existence of the preferred stock and of the certificates therefor and of their contents was known to the trustees under the subsequent mortgages before those mortgages were made, and to the bondholders under those mortgages before they became such; and it is urged that the assent of the preferred stockholders to the creation of the subsequent mortgages should have been obtained. The answer to this view is that the preferred stockholders had no rights which made their assent necessary to the validity, as against them, of the mortgages in question; and that, represented as they were by the corporation and its directors, the act of making the mortgages was a sufficient assent of the preferred stockholders, if assent were necessary, there being no allegation in the cross-bill inconsistent with the fact that the issuing of the mortgages was known to and participated in and sanctioned by those who were holders of the preferred stock when the mortgages were created.

As to the claim that the appellants, if they have no priority over the second mortgage, have, at all events, as against the company, a lien next after the second mortgage on the property not covered by the Springfied Division mortgage, and have, in any aspect of the case, a valid claim on the surplus assets of the company, after paying its debts, superior to the claim of the common stockholders, it is sufficient to say that we do not deem it proper that those questions should be disposed of on a demurrer to this cross-bill, as they can be raised and decided under the answer which these appellants have filed as defendants in the consolidated suit.

The decree of the circuit court is affirmed.

title: Warren v. King/Opinion of the Court


text: Talk:Warren v. King/Opinion of the Court


text:
Application of Devoe Manufacuring Company for a Writ of Prohibition

[Syllabus from page 401 intentionally omitted]

[Statement of Case from page 401 intentionally omitted]

H. J. Scudder, for petitioner.

[Argument of Counsel from pages 401-403 intentionally omitted]

Franklin A. Wilcox, in opposition.

BLATCHFORD, J.


text: Talk:Application of Devoe Manufacuring Company for a Writ of Prohibition


text:
Application of Devoe Manufacuring Company for a Writ of Prohibition/Opinion of the Court

The question involved in this case is as to the territorial jurisdiction of the district court of the United States for the district of New Jersey. In April, 1882, a libel in admiralty, in personam, for damages growing out of a collision, was filed in that court against the Devoe Manufacturing Company, a New York corporation. In October, 1882, process was issued by the court to the marshal, commanding him to cite the respondent if it should be found in the district, and, if it could not be there found, to attach its goods and chattels within the district. On this process the marshal seized a tug belonging to the corporation and made return that he had attached the tug, as its property. At the time of the seizure the tug was afloat in the Kill van Kull, between Staten island and New Jersey, at the end of a dock at Bayonne, New Jersey, at a place at least 300 feet below high-water mark and nearly the same distance below low-water mark, and about half a mile from the entrance of the Kill into the bay of New York, and was fastened to the dock by means of a line or fastening running from the tug and attached to piles on the dock, and was lying close up to the dock. The respondent, insisting that the tug, when seized, was within the exclusive jurisdiction of the eastern district of New York, and not within the jurisdiction of the district of New Jersey, applied to the court to set aside the service of the process. The court denied the application, holding that the tug, being, when seized, fastened to a wharf or pier on the western side of the Kill van Kull, was within the exclusive jurisdiction of the district of New Jersey. The respondent now applies to this court to issue a writ of prohibition to the district court, restraining it from exercising the jurisdiction so asserted.

By section 2 of the act of September 24, 1789, 'to establish the judicial courts of the United States,' (1 St. at Large, p. 73, c. 20,) the United States were divided 'into 13 districts, to be limited and called as follows: * *  * one to consist of the state of New York, and to be called New York district; one to consist of the state of New Jersey, and to be called New Jersey district;' and, by section 3, a court called a district court was created in each of said districts, and, by section 9, exclusive original cognizance was given to such district courts of all civil causes of admiralty and maritime jurisdiction, within their respective districts. By these provisions the territorial limits of the respective states of New York and New Jersey were made the territorial limits of the respective judicial districts of New York and New Jersey.

By section 1 of the act of April 9, 1814, (3 St. at Large, p. 120, c. 49,) it was enacted that the state of New York 'shall be and the same is hereby divided into two districts, in manner following, to-wit, the counties of Rensselaer, Albany, Schenectady, Schoharie, and Delaware, together with all that part of the said state lying south of the said above-mentioned counties, shall compose one district, to be called the southern district of New York; and all the remaining part of the said state shall compose another district, to be called the northern district of New York.' By virtue of this act all that part of the state of New York which was bounded on the line between New York and New Jersey fell within the southern district of New York. The boundary line between the states still formed the boundary line of jurisdiction between the districts.

By section 3 of the act of April 3, 1818, (3 St. at Large, p. 414, c. 32,) the counties of Albany, Rensselaer, Schenectady, Schoharie, and Delaware were transferred from the southern district of New York to the northern district of New York, but the boundaries of the southern district of New York were otherwise not altered.

A dispute existed for a long time between the states of New York and New Jersey respecting the boundary line between them as to property and jurisdiction. The history and circumstances of this dispute, some particulars of which are to be found in the reports of the cases of State v. Babcock, 1 Vroom, 29; People v. Central Railroad Co. of New Jersey, 42 N. Y. 283; and Hall v. Devoe Manuf'g Co. 14 Fed. Rep. 183, are not material to the determination of this case, in the view we take of it, any further than to show what was the subject-matter of the dispute. For the purpose of having it settled, the state of New Jersey filed a bill in equity in this court against the state of New York, in February, 1829. That bill sets forth the patent of March 12, 1664, from Charles the Second to the duke of York; the conveyance of lease and release by the duke of York, of June 24, 1664, to Lord Berkeley and Sir George Carteret, of land constituting the state of New Jersey; the division of the land, by various conveyances, into East New Jersey and West New Jersey; its settlement and the institution of proprietary governments therein, which continued until May, 1702, when the proprietors surrendered their right of government to Queen Anne; and the union of the two divisions into one province and government, under the crown of England, which continued until July 4, 1776. The bill sets forth—

That the Hudson river was, by the said grants, the dividing     boundary between New Jersey and New York; and New Jersey was      bounded on her eastern shores by the waters formed by the      confluence of the Hudson and East rivers, and also by the      waters of Staten Island sound, or Kill van Kull, or Arthur      Kull, which sound is distinct from Hudson river or bay; that      soon after the grant to Berkeley and Carteret the inhabitants      of East New Jersey proceeded to use the waters of the Hudson      and sound adjoining the New Jersey shore for the purposes of      fishing, navigation, wharfing, and other purposes, and      erected docks and piers at Jersey City and Hoboken, and on      the shores of the Hudson, and far beyond low-water mark,      without interruption from the inhabitants or public      authorities of New York; and the citizens of New Jersey had      always exercised full and absolute right and enjoyment over      the river Hudson and the other adjoining waters to the midway      or channel thereof, and also a common right of navigation and      use over the whole of the river and dividing waters in common      with the state of New York; that by the fair construction of      the said grants, and by the principles of public law, New      Jersey is entitled to the exclusive jurisdiction and property      of and over the waters of the Hudson river from the      forty-first degree of latitude to the bay of New York, to the      filum aquce, or middle of the river, and to the midway or      channel of the bay of New York, and the whole of Staten Island sound,      together with the land covered by the water of the river,      bay, and sound, in the like extent; that while the said two      states were colonies, New York became wrongfully possessed of      Staten island and the other small islands in the dividing      waters between the two states; that the possession thus      acquired by New York had been since acquiesced in, New York      insisting that her possession of said islands had established      her title; that New York has no other pretense of title to      said islands but adverse possession; that, as such possession      has been uniformly confined in its exercise to the fast land      thereof, the title of New Jersey to the whole waters of the      Staten Island sound remains clear and absolute in New Jersey,      according to the terms of said grants; that, though the      people of the state of New York formerly recognized the      rights and jurisdiction of New Jersey as so set forth, they      had lately asserted an absolute and exclusive right of      property, jurisdiction, and sovereignty over all the waters      of the Hudson river and bay and Staten Island sound, and that      quite up to high-water mark on the New Jersey shore, and, by      late public statutes, had extended the west lines of her      counties lying opposite to New Jersey, on the east side of      the Hudson river, to the west bank of the river, and had      enforced the said unjust pretension by enacting that      penalties should be imposed on any person who should execute,      or attempt to execute, civil or criminal process on any part      of the dividing waters by virtue of any other authority than      her own laws; that, under color of said statutes, her      officers had occasionally executed process on the west side      of Hudson river, and on the wharves so erected on the west      bank of the river, within the territory and jurisdiction of      New Jersey; that New York pretends that all that part of said      tract of country granted to the duke of York, and which he      did not convey to Berkeley and Carteret, remained in him;      that no part of Hudson river was granted to Berkeley and      Carteret; and that, when New York became an independent      state, all the said domain of the duke of York, with the      Hudson river and the other dividing waters, vested in full      propriety and sovereignty in New York; and that New York has      always * claimed and possessed the same accordingly; that New Jersey      insists that, in the grants to Berkeley and Carteret, the      equal use and property of the river Hudson and sound is      expressly and in terms conveyed to them; and, accordingly,      Berkeley and Carteret and their grantees and assigns before      the revolution, and New Jersey, as one of the United States,      since the revolution, had always claimed, exercised,      occupied, and enjoyed right, title, and jurisdiction, as well      over the territory as the waters of Hudson river and bay,      equal in extent to those used and exercised by New York; that      the citizens of New Jersey, both before and since the      revolution, under the authority, jurisdiction, and control,      as well of the colonial as of the state government of New      Jersey, had, ever since the first settlement of the colony,      used, occupied, and enjoyed the territory and waters of the      Hudson river and bay and Staten Island sound, and all other      dividing waters between the said states, by building and      constructing docks and wharves thereon extending far below      low-water mark on the westerly shores thereof, by locating      and appropriating several fisheries therein and exercising      the rights of common fishery in other parts thereof, by      locating and appropriating oyster grounds therein and      planting them with oysters under rights derived from New      Jersey, and by navigating the same with her ships and      vessles, which would, at pleasure, lie at anchor in the      Hudson river, bay, and sound, and also by the docks and      wharves so constructed under the authority and jurisdiction      of New Jersey, without interruption, and by various other      acts and uses; that, even though said grants may not have      conveyed any right of property in said river, yet, inasmuch      as no part of said river was ever granted to the colony of      New York, it remained in the duke of York until his accession      to the throne of England, in 1685, when said river became      reannexed to the crown by his accession thereto, and remained      a royal river until the American revolution; and, upon the      independence of New York and New Jersey being achieved, this      public navigable river became the common boundary of the two      states, with a right of property and jurisdiction in each to      the midway thereof; that at the time of the said grants to      the duke of York and from him to Berkeley and Carteret, and for many years after, the general understanding      of all parties interested in the subject-matter of those      grants was that no part of the waters of the Hudson river      belonged to New York, but said river, so far as respected the      colony of New York, her counties and the city of New York      especially, was the mere natural boundary of the said colony,      in which no right of property existed or could exist; that      all the ancient grants made by the duke of York to      individuals while he remained a duke and after he became the      king, or by the colonial government established by him in the      state of New York, are limited to low-water mark on the east      side of the Hudson river; that the first charter to the city      of New York, made in 1686, gives the city boundary and      assigns to it all Manhattan island as far as low-water mark;      that the colonial legislature of New York, by an act passed      in 1691, revised the previous act or ordinance laying off      several counties in New York, and the county boundaries fixed      by the said Revised Statutes were prescribed and based upon      the principle that New York had no claim to the waters on the      New Jersey side of the Hudson, the city and county of New      York and the counties of Westchester and Dutchess being      expressly located on the east bank of the Hudson; and that      New Jersey had uniformly resisted and apposed said      encroachments and pretensions of New York from their first      existence. The bill prays that the eastern boundary line     between New Jersey and New York may be ascertained and      established; that the rights of property, jurisdiction, and      sovereignty of New Jersey may be confirmed to the filum equoe      or middle of Hudson river, from the forty-first degree of      north latitude on said river through the whole line of the      eastern shore of New Jersey, as far as said river washes and      bounds New Jersey, down to the bay of New York and to the      channel or midway of the said bay, and to all the waters and      the land they cover lying between the New Jersey shore and      Staten island, and all other waters washing the southern      shores of New Jersey within and above the Narrows; that New      Jersey may be quieted in the full and free enjoyment of her      property, jurisdiction, and sovereignty in said waters; and      that the right, title, jurisdiction, and sovereignty of New Jersey in and over the same, as part of her public      domain, may be confirmed and established by the decree of      this court.

The averments made by New Jersey in said bill show that claims she made, and what her understanding was as to the claims made by New York, and as to the assertion of claims theretofore by the respective states. It is alleged by the counsel for the applicant that in early colonial times the waters surrounding Staten island were regarded as the waters of the Hudson river, and Staten island was regarded as lying in the waters of the Hudson river; that, in the grant to Berkeley and Carteret, New Jersey was bounded on the east partly by the main sea and partly by the Hudson river; that the same boundary was contained in the subsequent grant of East Jersey to Carteret; that, in 1682 and again in 1709, the legislature of East Jersey, by statute, bounded Bergen county, the site of the present dispute, on the bay and the Hudson river; that such legislation of New Jersey as to the boundary of Bergen county remained unchanged until 1807; that the Montgomerie charter to the city of New York, in 1730, expressed the jurisdiction of that city as extending 'to lowwater mark on the west side of the North river, or so far as the limits of our said province extend there;' and that the boundaries of New York were asserted by it, in its Revised Statutes of 1830, to embrace the waters of Kill van Kull to low-water mark on the New Jersey side.

The matters in dispute between the two states as to boundary being those thus set forth, the dispute was brought to a close by an agreement or compact entered into on the sixteenth of September, 1833, between commissioners appointed by the two states, which agreement was confirmed by the legislatures of the two states respectively. The consent of the congress of the Unites States was given to said agreement, 'and to each and every part and article thereof,' by an act approved June 28, 1834, (4 St. at Large, p. 708, c. 126.) That act sets forth the agreement at length. The first five articles of it, which are all that are important here, are as follows:

'Art. 1. The boundary line between the two states of New York and New Jersey, from a point in the middle of     Hudson river, opposite the point on the west shore thereof,      in the forty-first degree of north latitude, as heretofore      ascertained and marked, to the main sea, shall be the middle      of the said river, of the bay of New York, of the waters      between Staten island and New Jersey, and of Raritan bay, to      the main sea, except as hereinafter otherwise particularly      mentioned.

'Art. 2. The state of New York shall retain its present     jurisdiction of and over Bedlow's and Ellis' islands, and      shall also ratain exclusive jurisdiction of and over the      other islands lying in the waters above mentioned, and now      under the jurisdiction of that state.

'Art. 3. The state of New York shall have and enjoy exclusive     jurisdiction of and over all the waters of the bay of New      York, and of and over all the waters of Hudson river lying      wast of Manhattan island and to the south of the mouth of      Spuytenduyvel creek; and of and over the lands covered by the      said waters to the low-water mark on the westerly or New      Jersey side thereof, subject to the following rights of      property and of jurisdiction of the state of New Jersey; that      is to say:

'(1) The state of New Jersey shall have the exclusive right     of property in and to the land under water lying west of the      middle of the bay of New York, and west of the middle of that      part of the Hudson river which lies between Manhattan island      and New Jersey.

'(2) The state of New Jersey shall have the exclusive     jurisdiction of and over the wharves, docks, and improvements      made and to be made on the shore of the said state, and of      and over all vessels aground on said shore, or fastened to      any such wharf or dock, except that the said vessels shall be      subject to the quarantine or health laws, and laws in      relation to passengers, of the state of New York, which now      exist or which may hereafter be passed.

'(3) The state of New Jersey shall have the exclusive right     of regulating the fisheries on the westerly side of the      middle of said waters: parovided, that the navigation be not      obstructed or hindered.

'Art. 4. The state of New York shall have exclusive     jurisdictrion of and over the waters of the Kill van Kull      between Staten island and New Jersey to the westernmost end of Shooter's island in respect to such quarantine laws, and      laws relating to passengers, as now exist or may hereafler be      passed under the authority of that state, and for executing      the same; and the said state shall also have exclusive      jurisdiction for the like purposes of and over the waters of      the sound from the westernmost end of Shooter's island to      Woodbridge creek, as to all vessels bound to any port in the      said state of New York.

'Art. 5. The state of New Jersey shall have and enjoy     exclusive jurisdiction of and over all the waters of the      sound between Staten island and New Jersey lying south of      Woodbridge creek, and of and over all the waters of Raritan      bay lying westward of a line drawn from the light-house at      Prince's bay to the mouth of Mattavan creek, subject to the      following rights of property and of jurisdiction of the state      of New York; that is to say:

'(1) The state of New York shall have the exclusive right of     property in and to the land under water lying between the      middle of the said waters and Staten island.

'(2) The state of New York shall have the exclusive     jurisdiction of and over the wharves, docks, and improvements      made and to be made on the shore of Staten island, and of and      over all vessels aground on said shore or fastened to any      such wharf or dock, except that the said vessels shall be      subject to the quarantine or helth laws, and laws in relation      to passengers of the state of New Jersey, which now exist or      which may heleafter be passed.

'(3) The state of New York shall have the exclusive right of     regulating the fisheries between the shore of Staten island      and the middle of the said waters: provided, that the      navigation of the said waters be not obstructed or hindered.'

The act of June 28, 1934, provides that nothing contained in said agreement 'shall be construed to impair or in any manner affect any right of jurisdiction of the United States in and over the islands or waters which form the subject of the said agreement.'

It is apparent, from the terms of the various provisions of the agreement, that it is an greement settling the territorial limits and jurisdiction of the two states in respect to the waters between them, from a point in the middle of the Hudson river, in the forty-first degree of north latitude, to the sea. The boundary line is declared to be the middle of the said river, of the bay of New York, of the waters between Staten island and New Jersey, and of Raritan bay, except as afterwards otherwise particularly mentioned. What may be the effect of the exception, whether it affects the boundary line itself, or only amounts to the concession of extraterritorial jurisdiction to the one state and the other beyond the territorial boundary,-is not necessary to be decided in the present case. For, in either view, it is clear that the waters in which the tug was lying when she was seized, were within the boundaries of the state of New Jersey. The only jurisdiction given to the state of New York, beyond the boundary line specified in article 1, over the waters of the Kill van Kull, is that specified in article 4, by which it is declared that 'the state of New York shall have exclusive jurisdiction of and over the waters of the Kill van Kull between Staten island and New Jersey to the westernmost end of Shooter's island in respect to such quarantine laws, and laws relating to passengers as now exist or may hereafter be passed under the authority of that state and for executing the same.' The rest of that article relates to Staten Island sound west of Shooter's island, and has no reference to this case. The jurisdiction thus conceded to New York is, clearly, a limited one, and cannot, in any view, be regarded as altering the general boundary line; and as the tug, when seized, was on the New Jersey side of that line, she was within the stae of New Jersey, not because she was fastened to a dock on the shores of New Jersey, but because she was within that part of the waters between Staten island and New Jersey which, by article 1 of the agreement, is set apart to New Jersey.

Being thus within the state of New Jersey, was the tug within the district of New Jersey and within the territorial jurisdiction of the district court of the United States for the district of New Jersey? We are all of the opinion that, when the act of congress of 1789 declared that the New Jersey district should consist of the state of New Jersey, it intended that any territory, land, or water which should at any time, with the express assent of congress, form part of that state, should form part of the district of New Jersey. By sections 530 adn 531 of the Revised Statutes the state of New Jersey constitutes a judicial district. The intention is that the boundary of the district shall be coterminous with the boundary of the state. The same thing is true as to the southern district of New York, and as to the district across the water at the locus in quo, which is the eastern district of New York. That district was created by the act of February 25, 1865, (13 St. at Large, p. 438, c. 54,) to consist of 'the counties of Kings, Queens, Suffolk, and Richmond, in the state of New York, with the waters thereof.' By section 541 of the Revised Statutes, the northern district of New York is defined as including the counties of Albany, Rensselaer, Schoharie, and Delaware, with all the counties north [and west] of them; the eastern district as including 'the counties of Richmond, Kings, Queens, and Suffolk, with the waters thereof;' and the southern district as including 'the residue of said state, with the waters thereof.' It is consonant with the convenience and habits of the people that, when any place is within the limits and jurisdiction of a state, it should not be joined to the whole or a part of another state, as to the jurisdiction of the courts of the federal government; and it is not to be presumed, in view of the terms of the statues on the subject, and of the necessity for the consent of congress to all compacts between the states, that such separation can be intended unless clearly expressed. Where congress declares that such a judicial district shall consist of such a state, and afterwards the boundary of the state is so lawfully altered as to include or exclude a particular piece of territory, it is a reasonable construction to say that the judicial district shall, ipso facto, without further legislation by congress, expand or contract accordingly. When the state of Massachusetts ceded to the state of New York, in 1853, its sovereignty and jurisdiction over the district of Boston Corner, and the latter state accepted the same, and congress consented to such cession and annexation, (Act of January 3, 1855, c. 20, vol. 10, St. at Large, p. 602,) there was no special transfer by congress of the annexed territory from the district of Massachusetts to the southern district of New York, but it fell within that district by becoming a part of Columbia county, in the state of New York.

The provision in the act of June 28, 1834, that nothing in the agreement between New York and New Jersey shall impair 'any right of jurisdiction of the United States in and over the islands or waters which form the subject of the said agreement,' is well satisfied without construing it as applying to the then existing jurisdiction of any particular court of the United States. Article 2 of the agreement provides that 'the state of New York shall retain its present jurisdiction of and over Bedlow's and Ellis' islands; and shall also retain exclusive jurisdiction of and over the other islands lying in the waters above mentioned, and now under the jurisdiction of that state.' Other articles of the agreement provide for the exclusive jurisdiction of New York or New Jersey over specified waters. In giving consent to the agreement, and 'each and every part and article thereof,' congress was consenting, apparently, as against any rights of jurisdiction which the United States then had, to the exclusive jurisdictions of New York and New Jersey, respectively, over the islands and waters referred to. Hence, for abundant caution, the clause in question was added. New York had, by an act passed February 15, 1800, (1 Rev. Laws, 189,) ceded to the United States jurisdiction over 'all that certain island called Bedlow's island, bounded on all sides by the waters of the Hudson river, all that certain island called Oyster island,' (known afterwards and now as Ellis' island,) 'bounded on all sides by the waters of the Hudson river,' and also Governors' island, reserving to the state the right to serve and execute, on those islands respectively, civil or criminal process issuing under the authority of the state.

Reference is made to article 6 of the amendments of the constitution, which provides that, 'in all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed, which district shall have been previously ascertained by law;' and it is suggested that the boundaries of a district could not be ascertained by law, if they were left to change with such local changes as coterminous states might agree upon with each other as to their respective boundaries and limits. Article 6 was one of 10 articles proposed by the first congress, as amendments to the constitution, on the twenty-fifth of September, 1789, the day after the judiciary act was approved, providing that the New York district should consist of the state of New York, and the New Jersey district of the state of New Jersey, and defining and ascertaining by law all the other districts which it established, solely by naming the several states as districts. There were two disputes as to boundary, existing at that time, between Massachusetts and Rhode Island, both of them running back to colonial times, one respecting the northern boundary of Rhode Island and the other respecting the eastern boundary of Rhode Island. The particulars of the first dispute appear in the record of a suit in equity brought in this court by Rhode Island against Massachusetts, in 1832, (12 Pet. 657,) to settle such northern boundary. In December, 1845, by a decree of this court, the bill in the suit was dismissed on the merits, and the northern boundary of Rhode Island was established on the line claimed by Massachusetts. In 1854, Massachusetts filed a bill in equity, in this court, against Rhode Island, to settle said eastern boundary. A conventional boundary line, different from that claimed by either state, was agreed upon, and sanctioned by congrees, by an act approved February 9, 1859, (11 St. at Large, p. 382, c. 28,) and established by a decree of this court made December, 16, 1861, to take effect March 1, 1862. The act of congress declared that the new line should 'be taken and deemed to be, for all purposes affecting the jurisdiction of the United States, or of any department of the government thereof,' the true line of boundary between Massachusetts and Rhode Island. In the latter case, as in the present one, the boundary between the two disputing states was settled on a line different from that claimed by either. The judiciary act defined the state as the district, not the state as either party to the dispute claimed it to be; and the effect of the change of state boundary in the present case, on the limits of judicial districts, must be held to be as potent as that in the case of Massachusetts and Rhode Island, notwithstanding the affirmative provision, in the act in the latter case, as to the jurisdiction of the United States and of the departments of its goverment. Congress has always left judicial districts to be confined within state limits. Of course, the district, as a place of trial, must be ascertained by law before the crime was committed, and a person charged with a crime cannot be tried for it in a district which did not include, when the crime was committed, the place where it was committed. Whether a change in the boundary of a state, and thus of a district, after the commission of a crime, and before a trial for it, would have the effect of preventing a trial in any district, is a question which must be decided when it shall arise. The mode adopted by congress of ascertaining districts by law, in such manner that their boundaries shall change as the boundaries of the states change, is one at least sufficient and convenient for practical purposes in all cases except where a person charged with crime, and placed on trial in a particular district, may be able to establish that his rights under article 6 of the amendments of the constitution are being violated.

Views not in harmony with those above set forth were expressed by the district court for the southern district of New York in the case of U.S. v. The Julia Lawrence, and the case of The L. W. Eaton, 9 Ben. 289. The former case was decided by Judge BETTS, in 1860, and from that time forward the district court for the southern district of New York exercised its jurisdiction on the view that that jurisdiction was not to be governed by the provisions of the agreement between New York and New Jersey. Our attention has not been called to any case before the present one where a federal court in New Jersey has passed on the question of the limits of the district of New Jersey, as affected by that agreement. There being thus a conflict of interpretation between the judicial authorities of the two districts, as to the question of the territorial jurisdiction of those districts, it is important that the effect of the agreement between the two state on that jurisdiction should be clearly defined. This we have endeavored to do. The result is that the application for the writ of prohibition must be denied.


text: Talk:Application of Devoe Manufacuring Company for a Writ of Prohibition/Opinion of the Court