The decision in
Blake v. McClung, 172 U.
S. 239, referred to, and it is held that the judgment
now under review was not in conformity with the opinion and mandate
in that case -- the court adjudging, as it had adjudged in the
previous case, that when the general property and assets of a
private corporation, lawfully doing business in a state, are in the
course of administration by the courts of such state, creditors who
are citizens of other states are entitled, under the Constitution
of the United States, to stand in all respects upon the same plane
with creditors of like class who are citizens of such state, and
cannot be denied equality of right simply because they do not
reside in that state, but are citizens residing in other states of
the Union.
The case is stated in the opinion of the Court.
Page 176 U. S. 60
MR. JUSTICE HARLAN delivered the opinion of the Court.
This case has been heretofore in this Court upon writ of error
brought to review a final decree of the Supreme Court of Tennessee.
Blake v. McClung, 172 U. S. 239.
That decree was rendered in a suit instituted by C. M. McClung
& Co. for the administration of the property and affairs of the
Embreeville Freehold, Land, Iron & Railway Company, Limited, an
insolvent British mining and manufacturing company doing business
in Tennessee. Among the creditors who filed intervening petitions
in the suit were C. G. Blake, a citizen of Ohio; Rogers, Brown
& Company, the members of which firm were also citizens of
Ohio, and the Hull Coal & Coke Company, a corporation of
Virginia.
It was adjudged by the Supreme Court of Tennessee that all the
creditors of the British corporation who resided in Tennessee were
entitled to priority of payment out of its assets, real and
personal, over all other creditors who did not reside in Tennessee,
whether they were residents of other states of the United States or
of the Kingdom of Great Britain, and that all creditors residing
out of Tennessee, whether in other states of the Union or in the
Kingdom of Great Britain, had the right and must share equally and
ratably in the distribution of the assets of the company after the
residents of Tennessee should have been first paid in full.
The decree so rendered was in conformity with a statute of
Tennessee passed March 19, 1877, the fifth section of which
provided:
"That the corporations, and the property of all corporations
coming under the provisions of this act, shall be liable for all
the debts, liabilities, and engagements of the said corporations,
to be enforced in the manner provided by law for the application of
the property of natural persons to the payment of their debts,
engagements, and contracts. Nevertheless, creditors who may be
residents of this state shall have
a priority in the
distribution of assets, or subjection of the same, or any part
thereof, to the payment of debts over all simple contract
creditors, being residents of any other country or countries,
and also over mortgage or judgment creditors, for all debts,
Page 176 U. S. 61
engagements, and contracts which were made or owing by the said
corporations previous to the filing and registration of such valid
mortgages, or the rendition of such valid judgments. But all such
mortgages and judgments shall be valid, and shall constitute a
prior lien on the property on which they are or may be charged as
against all debts which may be incurred subsequent to the date of
their registration or rendition. The said corporations shall be
liable to taxation in all respects the same as natural persons
resident in this state, and the property of its citizens is or may
be liable to taxation, but to no higher taxation, nor to any other
mode of valuation, for the purpose of taxation, and the said
corporations shall be entitled to all such exemptions from taxation
which are now or may be hereafter granted to citizens or
corporations for the purpose of encouraging manufacturers in this
state, or otherwise."
Acts of Tennessee 1877, c. 31, p. 44.
The validity of that statute was drawn in question by Blake and
Rogers, Brown & Company, as well as the Hull Coal & Coke
Company, who specially claimed that the judgment based upon the
statute had denied to them respectively rights secured by the
second section of the Fourth Article of the Constitution of the
United States, providing that "the citizens of each state shall be
entitled to all privileges and immunities of citizens in the
several states," as well as by the first section of the Fourteenth
Amendment, declaring that no state shall "deprive any person of
life, liberty, or property without due process of law, nor deny to
any person within its jurisdiction the equal protection of the
laws."
The supreme court of the state sustained the constitutionality
of the state, and from its final judgment, Blake and Rogers, Brown
& Company, and the Hull Coal & Coke Company prosecuted a
writ of error to this Court.
The general question presented for determination by this Court
was thus stated in its opinion:
"Beyond question, a state may through judicial proceedings take
possession of the assets of an insolvent foreign corporation within
its limits, and distribute such assets or their proceeds among
creditors according to their respective rights. But may it
exclude
Page 176 U. S. 62
citizens of other states from such distribution until the claims
of its own citizens shall have been first satisfied? In the
administration of the property of an insolvent foreign corporation
by the courts of the state in which it is doing business, will the
Constitution of the United States permit discrimination against
individual creditors of such corporation because of their being
citizens of other states, and not citizens of the state in which
such administration occurs?"
Upon a review of prior decisions, this Court said:
"The foundation upon which the above cases rest cannot, however,
stand if it be adjudged to be in the power of one state, when
establishing regulations for the conduct of private business of a
particular kind, to give its own citizens essential privileges
connected with that business which it denies to citizens of other
states. By the statute in question, the British company was to be
deemed and taken to be a corporation of Tennessee, with authority
to carry on its business in that state. It was the right of
citizens of Tennessee to deal with it, as it was their right to
deal with corporations created by Tennessee. And it was equally the
right of citizens of other states to deal with that corporation.
The state did not assume to declare, even if it could legally have
declared, that that company, being admitted to do business in
Tennessee, should transact business only with citizens of
Tennessee, or should not transact business with citizens of other
states. No one would question the right of the individual
plaintiffs in error, although not residents of Tennessee, to sell
their goods to that corporation upon such terms in respect of
payment as might be agreed upon, and to ship them to the
corporation at its place of business in that state. But the
enjoyment of these rights is materially obstructed by the statute
in question, for that statute, by its necessary operation, excludes
citizens of other states from transacting business with that
corporation upon terms of equality with citizens of Tennessee. By
force of the statute alone, citizens of other states, if they
contracted at all with the British corporation, must have done so
subject to the onerous condition that, if the corporation became
insolvent, its assets in Tennessee should
Page 176 U. S. 63
first by applied to meet its obligations to residents of that
state, although liability for its debts and engagements was"
"to be enforced in the manner provided by law for the
application of the property of natural persons to the payment of
their debts, engagements, and contracts."
But clearly the state could not in that mode secure exclusive
privileges to its own citizens in matters of business. If a state
should attempt, by statute regulating the distribution of the
property of insolvent individuals among their creditors, to give
priority to the claims of such individual creditors as were
citizens of that state over the claims of individual creditors,
citizens of other states, such legislation would be repugnant to
the Constitution upon the ground that it withheld from citizens of
other states as such, and because they were such, privileges
granted to citizens of the state enacting it. Can a different
principle apply, as between individual citizens of the several
states, when the assets to be distributed are the assets of an
insolvent private corporation lawfully engaged in business and
having the power to contract with citizens residing in states other
than the one in which it is located?
Referring to the established rule that the property of a
corporation was a trust fund for the payments of its debts in the
sense that, when it is lawfully dissolved and its affairs closed,
or when it is insolvent, all its creditors are entitled in equity
to have their debts paid out of the corporate property before any
distribution thereof among stockholders, this Court further
said:
"These principles obtain, no doubt, in Tennessee, and will be
applied by its courts in all appropriate cases between citizens of
that state, without making any distinction between them. Yet the
courts of that state are forbidden by the statute in question to
recognize the right in equity of citizens residing in other states
to participate upon terms of equality with citizens of Tennessee in
the distribution of the assets of an insolvent foreign corporation
lawfully doing business in that state. We hold such discrimination
against citizens of other states to be repugnant to the second
section of the Fourth Article of the Constitution of the United
States, although, generally speaking, the state has the power to
prescribe
Page 176 U. S. 64
the conditions upon which foreign corporations may enter its
territory for purposes of business. Such a power cannot be exerted
with the effect of defeating or impairing rights secured to
citizens of the several states by the supreme law of the land.
Indeed, all the powers possessed by a state must be exercised
consistently with the privileges and immunities granted or
protected by the Constitution of the United States."
Again:
"The statute of Tennessee did not make it a condition of the
right of the British corporation to come into Tennessee for
purposes of business that it should at the outset, deposit with the
state a fixed amount to stand exclusively or primarily for the
protection of its Tennessee creditors. It allowed that corporation,
after complying with the terms of the statute, to conduct its
business in Tennessee as it saw fit, and did not attempt to impose
any restriction upon its making contracts with or incurring
liabilities to citizens of other states. It permitted that
corporation to contract with citizens of other states, and then in
effect provided that all such contracts should be subject to the
condition (in case the corporation became insolvent) that creditors
residing in other states would stand aside, in the distribution by
the Tennessee courts of the assets of the corporation, until
creditors residing in Tennessee were fully paid -- not out of any
funds or property specifically set aside as a trust fund, and at
the outset put into the custody of the state, for the exclusive
benefit, or for the benefit primarily, of Tennessee creditors, but
out of whatever assets of any kind the corporation might have in
that state when insolvency occurred. In other words, so far as
Tennessee legislation is concerned, while this corporation could
lawfully have contracted with citizens of other states, those
citizens cannot share in its general assets upon terms of equality
with citizens of that state. If such legislation does not deny to
citizens of other states, in respect of matters growing out of the
ordinary transactions of business, privileges that are accorded to
it by citizens of Tennessee, it is difficult to perceive what
legislation would effect that result. We adjudge that, when the
general property and assets of a private
Page 176 U. S. 65
corporation, lawfully doing business in a state, are in the
course of administration by the courts of such state, creditors who
are citizens of other states are entitled, under the Constitution
of the United States, to stand upon the same plane with creditors
of like class who are citizens of such state, and cannot be denied
equality of right simply because they do not reside in that state,
but are citizens residing in other states of the Union. The
individual plaintiffs in error were entitled to contract with this
British corporation, lawfully doing business in Tennessee, and
deemed and taken to be a corporation of that state, and no rule in
the distribution of its assets among creditors could be applied to
them as resident citizens of Ohio, and because they were not
residents of Tennessee, that was not applied by the courts of
Tennessee to creditors of like character who were citizens of
Tennessee."
In relation to the Hull Coal & Coke Company, this Court held
that it was not a citizen of the United States within the meaning
of the second section of the Fourth Article of the Constitution,
and, although a "person" within the meaning of the Fourteenth
Amendment, that company was not deprived of its property without
the due process of law guaranteed by that Amendment, and not being
within the jurisdiction of Tennessee, it could not invoke the
protection of the clause forbidding the denial by a state of the
equal protection of the laws to persons within its
jurisdiction.
By the final order of this Court, the judgment of the state
court was affirmed as to the Hull Coal & Coke Company upon the
ground that no right, privilege, or immunity secured to it by the
Constitution of the United States had been denied. As to the other
plaintiffs in error -- Blake and Rogers, Brown & Company -- the
judgment was reversed and the cause remanded for further
proceedings not inconsistent with the opinion of this Court.
After the decision here, the cause was again heard in the
Supreme Court of Tennessee on the motion of Blake and Rogers, Brown
& Company for a decree in conformity with the opinion and
mandate of this Court.
That court adjudged:
"1. That the effect and purpose of
Page 176 U. S. 66
the opinion and mandate of the Supreme Court of the United
States in respect to the rights of C. G. Blake and Rogers, Brown
& Company, is to adjudge and decree that the said C. G. Blake
and Rogers, Brown & Company are entitled to participate in the
assets of the said Embreeville Freehold, Land, Iron & Railway
Company, Limited, upon the basis of a broad distribution of the
assets of said corporation among all of its creditors, without
preference or priority, as though the act of 1877, c. 31, had not
been passed, and it is ordered that there be made a computation of
the aggregate indebtedness due from the said insolvent corporation
to its creditors of every class, wherever residing, and that there
shall be paid to the said C. G. Blake and the said Rogers, Brown
& Company the percentage and proportion which is found to be
due to them as creditors of said corporation in the aggregate of
assets thus ascertained."
"2. It it further adjudged and decreed that after thus setting
apart to the said C. G. Blake and Rogers, Brown & Company the
proportion and percentage thus found to be due to them, that all
the rest and residue of the estate of the said Embreeville
Freehold, Land, Iron, and Railway Company, Limited, is applicable
first to the payment of the indebtedness due to the
creditors of said corporation
residing within the State of
Tennessee, as provided in section 5 of c. 31 of the Acts of
Tennessee, 1877, and that the residue of said estate, if any, shall
then be applied
pro rata to the payment of the debts of
the alien and nonresident creditors of said corporation, other than
the said C. G. Blake and Rogers, Brown & Company."
The cause was remanded to the court of original jurisdiction for
the collection and distribution of the fund then in that court, and
for the making of such further orders as might be found necessary
to the final settlement of the cause. Mr. Justice Beard dissented
upon grounds stated in his opinion, which is published in 52 S.W.
1001.
Blake and Rogers, Brown & Company excepted to the action of
the state court
"in determining that creditors residing in Tennessee were
entitled under the act of 1877, c. 31, ยง 5, to any priority or
preference, by way of increased
Page 176 U. S. 67
percentages in distribution,"
over them, on the ground that such priority and preference was
in violation of section 2 of Article Four of the Constitution of
the United States, and was not consistent with the opinion and
mandate of this Court. The present writ of error was brought to
review the last judgment.
We are constrained to hold that the judgment of the Supreme
Court of Tennessee is not in conformity with the opinion and
mandate of this Court. The thought expressed in our former opinion
was that Blake and Rogers, Brown & Company, citizens of Ohio
and general creditors of the Embreeville Freehold, Land, Iron &
Railway Company, were entitled, in the distribution in Tennessee of
the assets of that insolvent corporation, to stand upon the same
plane with citizens of Tennessee who were also general creditors of
the same corporation, and that the judgment of the state court
heretofore under review,
172 U. S. 172 U.S.
239, so far as it gave priority to citizens of Tennessee over
citizens of other states, was inconsistent with the second section
of the Fourth Article of the Constitution of the United States,
providing that "the citizens of each state shall be entitled to all
privileges and immunities of citizens in the several states."
By the judgment now under review, certain creditors, solely
because of their being citizens of Tennessee, are accorded
advantages in the distribution of the assets in question which are
denied to other creditors solely because of their being citizens of
another state than Tennessee. That judgment gives to the plaintiffs
in error respectively their percentage of the entire assets of the
insolvent corporation upon the basis of equality among
all
the creditors,
wherever residing, and, that being done,
the court in effect directs the idea of equality among all
creditors to be abandoned, and "all the rest and residue of the
estate" of the insolvent corporation to be applied
first
to the payment of the debts due to citizens of Tennessee. Thus, the
decree gave a decided advantage to Tennessee creditors over Ohio
creditors, when, as Mr. Justice Beard correctly said, the cause was
remanded by this Court substantially with direction that the state
court should see
Page 176 U. S. 68
to it that no advantage accrued to Tennessee creditors over the
Ohio creditors.
It is not within the province of this Court to prescribe the
form of a decree to be entered for the distribution of the assets
in question. But it is both its province and duty to adjudge, in
accordance with the supreme law of the land, as we now do, that the
plaintiffs in error, citizens of Ohio, are entitled to share in the
distribution of the assets of this insolvent corporation upon terms
of equality, in all respects, with like creditors who are citizens
of Tennessee. No decree giving to the latter privileges or
advantages that are denied to the former is, as we have heretofore
adjudged, consistent with the Constitution of the United States. In
the distribution of what is called in the decree "all the rest and
residue of the estate of the Embreeville Freehold, Land, Iron &
Railway Company," or in the proceeds thereof, the plaintiffs in
error should be placed upon the same plane of equality with
Tennessee creditors. The plaintiffs in error cannot be denied
participation in any of the assets of the insolvent corporation
that are taken into account when ascertaining the rights of the
Tennessee creditors and the amounts to be paid to them on their
respective demands. Whatever rule is applied for the benefit of the
latter must be applied in behalf of the Ohio creditors.
The judgment is reversed, and the cause remanded for such
further proceedings as may be consistent with this
opinion.