Au appeal from a decree of the circuit court of the United
States dismissing a bill filed by creditors to set aside a mortgage
by their debtor is within the jurisdiction of this Court as to
those creditors only whose debts severally exceed $5,000.
The filing of a voluntary assignment for the benefit of
creditors and of the assignee's hood in a probate court under the
statutes of Ohio, does not prevent a creditor who is a citizen of
another state and has not become a party to the proceedings in the
state court from suing in equity in the circuit court of the United
States to set aside a mortgage made by the debtor contemporaneously
with the assignment.
In Ohio, a mortgage by an insolvent trading corporation to
prefer some of its creditors, having been held by the supreme court
of the state to be invalid, under its constitution and laws,
against general creditors such a mortgage must be held invalid in
the courts of the United States.
This was a bill in equity filed November 4, 1885, by a
corporation of Michigan against the Simpson and Gault Manufacturing
Company, a corporation of Ohio, Sayler, a citizen of Ohio and
assignee of that company, under the laws of Ohio, McGroarty,
Simpson, Gault and Fitch, also citizens of Ohio, and Charles, a
citizen of New York.
The bill alleged that the defendant company, on May 25, 1885, by
a deed of assignment filed in the Probate Court of Hamilton County
in the State of Ohio, granted and assigned all its property, real
and personal, to Sayler, in trust to sell and dispose of it, and to
apply the proceeds, after paying the
Page 136 U. S. 238
expenses of executing the trust, to the payment of all its
creditors; that Sayler accepted the trust, and gave bond as
required by the laws of Ohio, and entered on his duties as assignee
under that deed, and sold all the property, and was about to
distribute the proceeds; that the company then and still was
indebted to the plaintiff in the sum of $1,461.72 and interest from
February 3, 1885; that on May 23, 1885, the company, being deeply
insolvent and contemplating and intending to make a general
assignment of all its property to Sayler as aforesaid, and as part
of one and the same transaction with that assignment, and by the
procurement of Simpson, who was President of the defendant company,
and of one O'Hara, its treasurer, executed and delivered mortgages
of all its property to the five individual defendants, Simpson,
McGroarty, Gault, Fitch and Charles, severally, in fraud of the
plaintiff and other creditors of the company, and with a fraudulent
intent to prefer the mortgagees as creditors of the company,
contrary to the provisions of the statutes of Ohio regulating
assignments for the benefit of creditors, and that the company, and
Sayler as its assignee, had been requested by the plaintiff, and
had refused, to take proceedings to have the mortgages set
aside.
The bill prayed that the mortgages might be declared to enure to
the benefit of the plaintiff and all other general creditors of the
company, and that Sayler might be ordered to distribute the fund in
his hands accordingly, and be restrained from applying it to the
payment of the debts secured by the mortgages, and for further
relief.
No service was made upon Charles, and, upon the plaintiff's
motion, the bill was dismissed as to him and was amended by joining
as plaintiffs three citizens of the State of New York, partners
under the name of W. & F. Livingston, and by alleging that they
had recovered judgment against the defendant company in November,
1885, for the sum of $10,822.89, which remained unreversed and upon
which execution had been issued and returned unsatisfied.
Sayler, Simpson, McGroarty, Fitch and Gault demurred to the bill
for want of equity and because the matters stated in
Page 136 U. S. 239
the bill, and all questions touching the validity of the
mortgages and the distribution of the proceeds of the sale of the
property, were within the exclusive jurisdiction of the Probate
Court of Hamilton County. The court sustained the demurrers and
dismissed the bill, and the plaintiffs appealed to this Court.
MR. JUSTICE GRAY, after stating the case as above, delivered the
opinion of the Court.
The claim of the plaintiff company, being for less than $5,000,
is insufficient to give this Court jurisdiction, and the appeal
must therefore be dismissed as to that company.
Stewart v.
Dunham, 115 U. S. 61;
Gibson v. Shufeldt, 122 U. S. 27. But
the claim of W. & F. Livingston, citizens of New York, who by
leave of the circuit court and amendment of the bill were joined as
plaintiffs, is more than $10,000, which is sufficient to give this
Court jurisdiction of the appeal so far as concerns their claim,
and Charles, also a citizen of New York, who was originally joined
as defendant, not having been served with process, and the bill
having been dismissed as to him, the case in regard to the
citizenship of the parties was within the jurisdiction of the
circuit court.
The plaintiffs, in the brief filed in their behalf, expressly
"disclaim any intention to impeach the transaction in controversy
as one made with intent to hinder, delay, or defraud creditors,"
and seek to maintain their bill on the sole ground
"that the transaction shown by the bill is within the operation
of section 6343 of the Revised Statutes, and that therefore the
attempted preferences should be decreed to inure to the benefit of
the general creditors."
By § 6335 of the Revised Statutes of Ohio of 1880,
"When any person, partnership, association, or corporation shall
make an assignment to a trustee of any property, money, rights, or
credits in trust for the benefit of creditors, it shall be the
Page 136 U. S. 240
duty of said assignee"
to file the assignment in the probate court of the county in
which he resides, and to give bond, with sureties approved by that
court, for the performance of his duties as assignee.
By § 6343,
"All assignments in trust to a trustee or trustees made in
contemplation of insolvency with the intent to prefer one or more
creditors shall inure to the equal benefit of all creditors in
proportion to the amount of their respective claims, and the trusts
arising under the same shall be administered in conformity with the
provisions of this chapter."
Subsequent sections provide for publishing notice of the
appointment of the assignee and for an appraisement and inventory
of the property, the examination of the assignor and assignee on
oath, the conversion of the property into money, the discharge of
encumbrances, the proof of debts, and the distribution of the
property among the creditors.
The objection taken to the jurisdiction of the circuit court of
the United States upon the ground that the Probate Court of
Hamilton County had exclusive jurisdiction of the matters in
controversy cannot be sustained. Upon the allegations of the bill
admitted by the demurrer, nothing appears to have been done in that
court before the commencement of this suit except to file the
voluntary assignment of the debtor and the bond of the assignee,
and the circuit court clearly had jurisdiction of a bill by
citizens of other states (who did not, so far as appears by this
record, become parties to the proceedings in the state court) to
set aside the mortgages as fraudulent or invalid as against them.
Shelby v.
Bacon, 10 How. 56;
Green v.
Creighton, 23 How. 90;
Payne v.
Hook, 7 Wall. 425;
Arrowsmith v. Gleason,
129 U. S. 86.
The defendants rely on the decision in
Sayler v.
Simpson, 45 Ohio Stat. 141, in which it appears that in a
controversy to which these assignees, these mortgagees, and W.
& F. Livingston were parties, the Supreme Court of Ohio held
that the probate court had jurisdiction to determine the rights of
the mortgagees; but neither that decision nor the facts stated in
that report have been pleaded or appear of record in this case.
Page 136 U. S. 241
The present case is to be decided by the application of the law
of Ohio to the facts stated in this bill and admitted by the
demurrer, and the best evidence of that law, as affecting the
validity of the mortgages and assignment, is to be found in the
decisions of the Supreme Court of Ohio.
Union Bank v. Kansas
City Bank, ante, 136 U. S. 223,
136 U. S.
235.
In the recent case of
Rouse v. Merchant's Bank, 46 Ohio
Stat. 493, that court, upon a similar state of facts, adjudged that
mortgages made by a trading corporation, after it had become
insolvent and had ceased to do business, to prefer some of its
creditors were invalid and ineffectual against its creditors
generally, without regard to the question whether the mortgages
were or were not parts of the same transaction as an assignment
under the statute.
That decision, it is true, proceeded in part upon a theory that
the property of an insolvent incorporation is a trust fund for its
creditors in a wider and more general sense than could be
maintained upon general principles of equity jurisprudence.
Graham v. Railroad Co., 102 U. S. 148,
102 U. S. 161;
Wabash, St. Louis & Pacific Railway v. Ham,
114 U. S. 587,
114 U. S. 594;
Richardson v. Green, 133 U. S. 30,
133 U. S. 44;
Fogg v. Blair, 133 U. S. 534,
133 U. S. 541;
Peters v. Bain, 133 U. S. 670,
133 U. S.
691-692. But it also proceeded in large part, as the
opinion clearly shows, upon the Constitution of Ohio and the law
and policy of that state as declared in previous decisions of its
highest court, and should therefore be accepted by this Court as
decisive of the law of Ohio upon the subject. It would be an
extraordinary result if the courts of the United States, in
exercising the jurisdiction conferred upon them with a view to
secure the rights of citizens residing in different states, should
hold such a conveyance to be valid against citizens of other states
as the Supreme Court of Ohio holds to be void as against its own
citizens.
Decree reversed and case remanded for further proceedings in
conformity with this opinion.
MR. JUSTICE BREWER, not having been a member of the Court when
this case was argued, took no part in its decision.
