While the decision of the highest court of a state is entitled
to the highest respect and consideration from, it is not conclusive
upon, this Court in determining rights secured by a purchaser under
a decree of foreclosure in a federal court at a sale made prior to
the rendition of such decision.
Under the laws of North Carolina and the decisions of the
highest court of that state rendered prior to 1894, there was
nothing to prevent property of a railroad company sold under
foreclosure passing to the purchaser free from any obligation for
debts of the former owner arising thereafter, notwithstanding the
purchaser was not a domestic railroad corporation.
Where the federal court acts in aid of its own jurisdiction and
to render its decree effectual, it may, notwithstanding § 720,
Rev.Stat., restrain all proceedings in a state court which have the
effect of defeating or impairing its jurisdiction.
Page 193 U. S. 94
A purchaser of property sold under a decree of foreclosure in a
federal court, in cases where the federal court by its decree
retains jurisdiction to settle all liens and claims upon the
property and who is in possession of the property under an order
confirming the sale, can maintain an action in the same court to
restrain the holders of judgments obtained in the state courts
against the former owner, in actions to which the purchaser was not
a party, from levying upon and selling the property described in
the decree of foreclosure and the order confirming the sale
thereunder.
On May 2, 1894, a decree was entered in the Circuit Court of the
United States for the Western District of North Carolina
foreclosing a second mortgage of the Western North Carolina
Railroad Company to the Central Trust Company of New York, trustee.
The property was subject to a first mortgage to the same trustee
which was not in default. The decree provided:
"The purchaser or purchasers of the property herein decreed to
be sold," the Western North Carolina Railroad and its
franchises,
"shall be invested with and shall hold, possess, and enjoy the
said mortgaged premises and property herein decreed to be sold, and
all the rights, privileges, and franchises appertaining thereto, as
fully and completely as the Western North Carolina Railroad now
holds and enjoys, or has heretofore held and enjoyed the same, and
further, the said purchaser or purchasers shall have and be
entitled to hold the said railroad and property discharged of and
from the lien of the mortgage foreclosed in this suit, and from the
claims of the parties to this suit or any of them, except the first
consolidated mortgage of September 1, 1884."
In pursuance of this decree the Southern Railway Company, a
corporation of the State of Virginia, became the purchaser. On
August 22, 1894, the sale was confirmed, the decree of confirmation
providing, among other things:
"It is further ordered and decreed that the special master is
hereby authorized and directed, on the request of said purchaser,
to sign, seal, execute, acknowledge, and deliver a proper deed of
conveyance to the said Southern Railway Company, conveying to it,
all and singular, the railroad, equipment, property, and franchises
so as aforesaid sold under the decree
Page 193 U. S. 95
of this court, free from any and all equity of redemption of the
said Western North Carolina Railroad Company, or anyone claiming
by, under, or through it, except the prior mortgage recited in such
decree. Upon the delivery of such conveyance by the special master,
the said Southern Railway Company shall fully possess and be
invested with all of the estate, right, title, and interest in, to,
and of such railroad, equipment, property, and franchises so sold
under the decree of this Court as the absolute owner thereof, to
have and to hold the same to it and its successors and assigns
forever."
"On August 31, 1894, on exhibition of the deed executed and
delivered by the special master herein ordered, the defendant
company is authorized, directed, and required forthwith to deliver
over to the said Southern Railway Company the possession of all and
singular the railroad and property described in and conveyed by
such deed."
"It is also further ordered that, by way of further assurance
and confirmation of title to such Southern Railway Company of the
property so by it purchased under the decree of this Court, the
said The Western North Carolina Railroad Company, by its proper
officers and under its corporate seal, and the Central Trust
Company of New York, trustee, shall, upon request of said Southern
Railway Company, sign, seal, execute, acknowledge, and deliver to
said Southern Railway Company all proper deeds of conveyance,
transfer, release, and further assurance of all the railroad
property and franchises so as aforesaid sold under the decree of
this Court and embraced in the deed of the special master, so as
fully and completely to transfer to, and invest in, the said
Southern Railway Company the full legal and equitable title to all
such railroad property and franchises sold or intended to be sold
under the decree of this Court."
Afterwards, the master conveyed to the Southern Railway
Company:
"All and singular the railroad of the said Western North
Carolina Railroad Company in the State of North Carolina, extending
from Salisbury, in Rowan County, to and through Statesville, in
Iredell County, to Asheville, on or near the
Page 193 U. S. 96
French Broad River, in Buncombe County; thence along French
Broad River to Paint Rock in Madison County, and also from said
Asheville westward to the Tennessee River at or near the mouth of
the Nantahala River, and thence westward to Murphy in Cherokee
County, and all real estate now owned or acquired for the purpose
of said railroad, including all station, depot, or other grounds
held and used in connection therewith, and all rails, railway
tracks, sidings, switches, bridges, fences, turntables, water
tanks, viaducts, culverts, superstructures, passenger and other
depots, station and freight houses, machine shops, buildings,
fixtures, rolling stock, equipment, machinery, tools and implements
whatsoever, now owned or acquired for the purposes or business of
the said Western North Carolina Railroad Company in connection with
the said railroad, and all the franchises, rights, privileges,
easements, income, earnings, and profits of the said Western North
Carolina Railroad Company connected with, issuing from, or relating
to, the said above-described railroad."
"The foregoing properties -- real, personal, choses in action,
and franchises -- being embraced in the lien of the second mortgage
of the Western North Carolina Railroad Company executed September
2, 1884, and being sold in foreclosure of the same."
"A more full and particular description of the property intended
to be conveyed by this instrument being contained in said decree of
the 5th of May, 1894, to which reference is hereby made, together
with all the corporate estate, equity of redemption, rights,
privileges, immunities, and franchises of said Western North
Carolina Railroad Company, and all the tolls, fares freights,
rents, income, issues, and profits of the said railroad, and all
interests and claims and demands of every nature and description,
and all the reversion and reversions, remainder and remainders
thereof, including all the said mortgaged premises and property in
said decree directed to be sold at any time owned or acquired by,
and now in the possession of, said Western North Carolina Railroad
Company."
The deed of purchase was duly recorded, and in August, 1894, the
purchaser took possession of the railroad property,
Page 193 U. S. 97
and has ever since been in possession of the road, operating it
as owner.
On March 20, 1897, Mrs. James, as administratrix of her deceased
husband, W. A. James, brought an action in the Superior Court of
Rowan County, North Carolina, against the Western North Carolina
Railroad Company for damages for the wrongful killing of her
husband. The Southern Railway Company was the employer of the
deceased, and he was killed in its service while acting as a
locomotive engineer. In the trial court, a judgment was rendered in
favor of the railroad company. On appeal, the judgment was
reversed, and the cause remanded to the superior court with
directions to enter a judgment for the damages assessed in favor of
the administratrix.
James v. Railroad, 121 N.C. 523.
Judgment was entered accordingly against the Western North Carolina
Railroad Company for $15,000 on February 21, 1898.
On the same day that the James suit was begun, March 20, 1897,
Fannie E. Howard, as administratrix of her husband, John H. A.
Howard, deceased, commenced an action in the superior court to
recover of the Western North Carolina Railroad Company damages
sustained in the death, by wrongful act, of her husband, who was
killed at the same time with James, being a fireman in the employ
of the Southern Railway Company, and recovered damages in the sum
of $5,000 on February 21, 1898. To neither of these suits was the
Southern Railway Company made a party defendant. After the recovery
of these judgments, Mrs. James and Mrs. Howard caused executions to
be issued from the Superior Court of Rowan county and placed the
same in the hands of D. R. Julian, sheriff, who proceeded to levy
the same upon the property as belonging to the Western North
Carolina Railroad Company, to-wit:
"The Western North Carolina Railroad Company, existing in the
State of North Carolina, including its corporate franchises,
rights, privileges, immunities, easements, and appurtenances of
every kind appertaining, belonging to, or in any wise connected
therewith, or issuing out of and relating to the said The Western
North Carolina Railroad Company, together
Page 193 U. S. 98
with all of its property in the State of North Carolina, and
including its roadbed and right of way, its real estate acquired
and owned for railroad purposes, its stations, depots, grounds, its
railway tracks, switches, sidings, bridges, fences, turntables,
water tanks, viaducts, culverts, superstructures, passenger,
freight, and other houses, machine shops, buildings, and fixtures
-- the said railroad extending from the Town of Salisbury through
Statesville, Newtown, Hickory, Morganton, Marian, Asheville, to
Paint Rock in Madison County, and from Asheville westward by way of
Waynesville to Murphy in Cherokee County, reference being had for a
further description of said road and its property, rights, and
franchises to the charter of the said road and the amendments
thereto enacted from time to time by the General Assembly of North
Carolina."
The sheriff advertised the property levied upon for sale,
whereupon the Central Trust Company of New York and the Southern
Railway Company filed a supplemental bill in the foreclosure
proceeding, making the sheriff party defendant, seeking to quiet
the title to the property and franchise purchased at the
foreclosure sale and to enjoin the sale of the same to satisfy the
judgments rendered in the state courts against the Western North
Carolina Railroad Company. In the answer of the sheriff and of the
administratrices of James and Howard, issue was taken upon the
right of the circuit court to entertain the bill or grant an
injunction, and, among other things, it was averred:
"3. That these respondents deny the truth of the allegations
contained in the third section of the supplemental bill of
complaint, and while they admit that the Southern Railway Company
took a deed from the master purporting to convey the said
franchises and property subject to the lien of the first mortgage
bonds theretofore issued by the said company, they aver that the
Southern Railway Company, being at the time of said sale not a
resident corporation of the State of north Carolina and not subject
to visitation of said state, but attempting to do business therein
by comity, was not allowed or authorized by the laws of North
Carolina to purchase or hold or operate the Western North Carolina
Railroad, or to own its
Page 193 U. S. 99
franchise and property without becoming a domestic corporation,
and that, by virtue of certain laws enacted by the Legislature of
North Carolina at its session of 1879, being chapter 10 of the Laws
of 1879, reenacted in the Code of North Carolina as § 1255, no
mortgage of the Western North Carolina Railroad Company, thereafter
issued, had the legal effect of exempting the property or earnings
of said company from execution for the satisfaction of any judgment
obtained in the courts of said state against said company for torts
thereafter committed by said company, its agents, or employees,
whereby any person should be killed, or any person or property
injured, 'any clause or clauses in such mortgage to the contrary
notwithstanding,' both the first mortgage bonds subject to which
the sale of the franchise and property of said company purporting,
under the decree referred to in the bill of complaint to have been
sold, and the second mortgage bonds, for default in payment of the
interest on which the decree of foreclosure was entered, appear
from said record (Exhibit A to said bill of complaint) to have been
issued long after the enactment of said statute in the year 1871,
and said statute, since its enactment in 1871, has been the law of
the State of North Carolina, in contemplation of which all railroad
companies created by, and organized under, the laws of said state,
have issued all mortgage bonds, the said statute, as these
respondents are advised, informed, and believe, having entered into
and formed a part of every mortgage bond issued by any railroad
corporation operating under the laws of North Carolina since its
enactment in 1871."
"But these respondents deny the truth of the allegation"
"that, at the time of their death (referring to the death of W.
A. James and John H. A. Howard), the Western North Carolina
Railroad Company had no interest in the Western North Carolina
Railroad or the franchises, nor had it any interest or estate in
said railroad or franchise of any kind or nature whatsoever since
the twenty-second day of August, 1894, the day the Southern Railway
Company took possession of said railroad,"
"and these respondents aver that the Supreme Court of North
Carolina, the highest appellate court of said state, held and
adjudged,
Page 193 U. S. 100
in the year A.D. 1898, in actions pending therein on appeal, and
in which these respondents, respectively, were plaintiffs and the
said The Western North Carolina Railroad Company was defendant,
that the said Western North Carolina Railroad Company was still an
existing corporation, liable to be sued in the courts of said
state, and that the said judgments in favor of these respondents,
respectively, and against the Western North Carolina Railroad
Company constituted liens upon the franchise and property of the
company superior to the liens of the said first mortgage bonds or
the said second mortgage bonds mentioned in the said foreclosure
suit, and these respondents are advised, informed, and believe that
the courts of the United States are bound to follow and adopt the
construction given by the highest appellate court of North Carolina
in construing its own Constitution and its own laws. And these
respondents are advised, informed, and believe that, though the
Southern Railway Company had assumed the right to operate the
Western North Carolina Railroad, and had employed the intestates of
these respondents as engineer and fireman when they were killed by
the negligence of said Southern Railway Company, that the Supreme
Court of North Carolina had held and adjudged in the said actions
brought by these respondents against the Western North Carolina
Railroad Company, and wherein they recovered the judgments in
pursuance of which executions have issued, as alleged in the bill
of complaint, that the said The Western North Carolina Railroad
Company was answerable for the torts of the Southern Railway
Company and for any damages to its employees the Central Trust
Company and the Southern Railway Company in operating said
railroad."
Upon hearing upon the bill, answer, and testimony, a decree was
entered in favor of the Central Trust Company and the Southern
Railway Company, and an injunction granted against the proposed
sale of the property levied upon. From this decree an appeal was
taken to the circuit court of appeals, from whose judgment
affirming the decree of the circuit court, 115 F. 956, a writ of
certiorari to this Court was granted.
Page 193 U. S. 101
MR. JUSTICE DAY, after making the foregoing statement, delivered
the opinion of the Court.
The title of the Southern Railway Company to the franchise and
property of the Western North Carolina Railroad Company would seem
to be plain, unless there is something in the North Carolina
statutes or judicial determinations which prevents the foreclosure
proceedings from having effect to pass the title. A railroad
company in North Carolina has full authority to mortgage its
franchises and property. N.C.Code, sec. 1957. This power was also
given by the charter of the Western North Carolina Railroad
Company. By the foreclosure proceedings, the title of the Western
North Carolina Railroad Company to its franchise and property,
except its mere right to be a corporation, was sold and the title
confirmed in the purchaser. By the law of North Carolina, the title
to mortgaged premises is in the mortgagee. The Central Trust
Company, the trustee under the first and second mortgages, was a
party to the foreclosure proceedings. It is estopped to dispute the
effect of the decree, sale, and confirmation clothing the Southern
Railway Company with the full title to the property and franchise
to operate a railroad which had theretofore belonged to the Western
North Carolina Railroad Company. From this record and a
consideration of the litigation that has arisen in the attempt to
collect the James and Howard judgments, it is evident that a
conflict exists between the views of the federal courts and the
Supreme Court of North Carolina as to the effect of the foreclosure
proceedings to relieve the property purchased at the sale from levy
and execution to satisfy the James and Howard judgments. Such
differences, always to be deprecated, should be approached
Page 193 U. S. 102
in a spirit of fairness and comity, with a view to preventing
conflicts of jurisdiction detrimental to the rights of parties and
to the respect and authority due judicial tribunals. The decision
relied upon as justifying the sheriff in the levy of execution and
sale of the property formerly belonging to the Western North
Carolina Railroad Company is
James v. Railroad Co.,
reported in 121 N.C. 523, in which case it was held that the sale
of the railroad company's property upon the foreclosure of the
second mortgage did not extinguish the corporate existence of the
company, nor release it from liability to the public for the manner
in which the property was operated. Further, that the sale under
the decree in the circuit court of the United States foreclosing
the second mortgage did not, under secs. 697, 698 of the Code of
North Carolina, make the purchaser a domestic corporation, and
that, in order to have the effect to dissolve the mortgagor
corporation as provided in section 697 of the Code, another
corporation must be provided, as contemplated in section 1936 of
the Code, to take its place and to assume and discharge the
obligations to the public growing out of the franchise, and until
that is done the old corporation will continue to exist. Speaking
of sections 697 and 698 of the North Carolina Code, the learned
judge, delivering the opinion, said:
"These sections were passed in 1872, and we think should be
considered in connection with section 701, which was passed in
1879, and sections 1936 and 2005 referred to in section 701."
"If this be the correct reading of these sections of the Code,
it would seem that, while section 697 does say that these facts,
ipso facto, dissolved the corporation, another corporation
must be provided, as in section 1936 of the Code, to take its place
before it is dissolved; that there must always be a corporation in
existence liable to the public for the duties and obligations
assumed by the grantee for the privileges conferred in the grant of
the franchise, and that the old corporation must continue to exist
until this is done, and that, when the new corporation is formed it
will be a domestic corporation. It cannot be that the legislature
ever intended, by this general legislation, to create a foreign
corporation here when it could
Page 193 U. S. 103
not do so by positive and direct enactment. 119 N.C. 918, Judge
Dick's opinion in
Bradley v. Railroad, published in the
appendix. By this view of the case, all the interests of the
parties may be harmonized. The 'Southern,' the purchaser of the
equity of redemption of the 'Western,' stands in the shoes of that
company. The Southern is in effect the mortgagor in its relations
to the 'Central Trust Company of New York,' the mortgagee of the
first mortgage, and, being in possession of the road, its property
and franchise, has the right to run and operate the same. But the
old corporation, still in existence, is liable for damages caused
by the maladministration of the Southern, which it allows to run
and operate the road. But the property of this road, which the
'Southern' is allowed to use, will be held liable to the public for
damages.
Chollette v. Railroad Co., 26 Neb. 159;
Brunswick Gas Co. v. United States Gas Co., 35 Am.St.Rep.
385, and note on page 390."
"It therefore follows that, in our opinion, the court below
erred in its ruling upon the third issue. This ruling is reversed,
and judgment should be entered for the plaintiff according to the
verdict of the jury."
James v. Railroad Company, 121 N.C. 523, 528-529.
This decision of the highest court of the state was made after
the rights of the Southern Railway Company, whatever they may be,
had accrued in the property and franchise of the Western North
Carolina Railroad Company, and, while entitled to the highest
respect and consideration, is not conclusive upon this Court in
determining the rights secured to the purchaser under the decree of
foreclosure in the federal court.
Burgess v. Seligman,
107 U. S. 20.
If the North Carolina Supreme Court can be taken to have held
that the property purchased by the Southern Railway Company at the
judicial sale continued liable for debts thereafter accruing
against the Western North Carolina Railroad Company, we are
constrained to dissent from such conclusion. Under section 697,
North Carolina Code, it is provided that the sale under a deed of
trust or mortgage shall pass not only the works and property of a
corporation and those acquired
Page 193 U. S. 104
after the mortgage and before the sale, but all other property
of which it may be possessed at the time of the sale other than
debts due it, and,
"upon such conveyance to the purchaser, the said corporation
shall,
ipso facto, be dissolved, and the said purchaser
shall forthwith be a new corporation by any name which may be set
forth in the said conveyance, or in any writing signed by him and
recorded in the same manner in which the conveyance shall be
recorded."
Section 698 provides that the corporation created by or in
consequence of such sale and conveyance shall succeed to all such
franchises, rights, and privileges, and perform all such duties as
would have been or should have been performed by the first
corporation but for such sale and conveyance, save only that the
corporation so created shall not be entitled to the debts due to
the first corporation, and shall not be liable for any debts or
claims against the first corporation which may not be expressly
assumed in the contract of purchase, nor shall the property,
franchise, or profits of such new corporation be exempt from
taxation. This, with other provisions of section 668, indicate an
intention to clothe the purchaser with all the property of the old
corporation, including the franchise to conduct and operate a
railroad, freed from all debts or obligations of the old
corporation.
But these sections, it is said in the
James case, must
be read in connection with section 701 and sections 1936 and 2005,
referred to in section 701. They are set forth in the margin.
Page 193 U. S. 105
And it is said, as the result of these provisions, that, unless
the purchaser shall organize a new domestic corporation to take the
place of the old corporation, the property continues liable, though
in the hands of the purchaser, upon a cause of action asserted
against the old corporation for the conduct of the new owner, and
this in actions to which the purchaser is not a party, and whose
knowledge of the suit and judgment may come with the seizure of the
property to satisfy the judgment. For, it is said,
"there must always be a corporation in existence liable to the
public for the duties and liabilities assumed by the grantee for
the privileges conferred in the grant of the franchise."
This reasoning, it seems to us, assumes that the franchise to
operate the road did not pass by the sale
Page 193 U. S. 106
unless such new domestic corporation is organized. As we have
seen, the North Carolina statutes authorize the conveyance by
mortgage of the property and the franchise to use and operate it.
The decree of foreclosure undertakes to sell, and the confirmation
to secure the purchaser in the use and enjoyment of, the property.
The power given to mortgage the franchise of the corporation must
necessarily include the power to bring it to sale with the property
to make the sale effectual as a means of transferring the right to
use the thing conveyed.
New Orleans &c. Railroad Co. v.
Delamore, 114 U. S. 501.
It is true, the right to be a corporation is not sold. By the
statute, the corporation is declared to be dissolved by the sale,
and, under other sections of the North Carolina Code, its affairs
are to be wound up. But the franchise to operate and use the
property has passed at the sale, and must have done so to make the
purchase of any value. This principle, recognizing the distinction
between the mere right or franchise to be a corporation and the
franchise of maintaining and operating the railroad, was distinctly
pointed out by Mr. Justice Matthews in
Memphis R. Co. v.
Commissioners, 112 U. S.
619:
"The franchise of being a corporation need not be implied as
necessary to secure to the mortgage bondholders or the purchasers
at a foreclosure sale, the substantial rights intended to be
secured. They acquire the ownership of the railroad and the
property incident to it, and the franchise of maintaining and
operating it as such, and the corporate existence is not essential
to its use and enjoyment. All the franchises necessary or important
to the beneficial use of the railroad could as well be exercised by
natural persons. The essential properties of corporate existence
are quite distinct from the franchises of the corporation. The
franchise of being a corporation belongs to the corporators,while
the powers and privileges vested in and to be exercised by the
corporate body as such are the franchises of the corporation. The
latter has no power to dispose of the franchise of its members,
which may survive in the mere fact of corporate existence, after
the corporation has parted with all its property and all its
franchises. "
Page 193 U. S. 107
It is true the sections of the North Carolina Code herewith
given clothe the purchaser with the right and privilege of
organizing a corporation to operate the purchased property, but we
find no requirement that he shall do so. The language of the last
paragraph of section 1936 is
"such purchaser or purchasers may associate with him or them any
number of persons, and make and acknowledge and file articles of
association as prescribed in this chapter; such purchaser or
purchasers and their associates shall thereupon be a new
corporation, with all the powers, privileges, and franchise, and be
subject to all the provisions of this chapter."
This confers a privilege, but does not prevent the purchaser
from transferring the property to a company already formed and
authorized to purchase and operate a railroad.
People v.
Brooklyn &c. Ry. Co., 89 N.Y. 75.
The Southern Railway Company was authorized by its charter,
among other things, to purchase or otherwise acquire the property
of any railroad company organized under the laws of another state.
We have been cited to no statute of the State of North Carolina
forbidding the purchase of a railroad at foreclosure sale by a
corporation of another state. It is said that the state requires a
domestic corporation organized under, and subject to, its laws to
become the purchaser of a railroad under the North Carolina
statutes already cited. But the Southern Railway Company, in
purchasing a franchise granted by the State of North Carolina, and
undertaking to operate a railroad within the state, is subject to
regulation by the law of the state.
Runyan v.
Coster, 14 Pet. 122;
Christian Union v.
Yount, 101 U. S. 352,
101 U. S. 354.
This principle is not qualified because the right of removal of
suits for diverse citizenship still exists, as was held in
Southern Railway Co. v. Allison, 190 U.
S. 326. It is urged that the Supreme Court of North
Carolina, by a course of decisions antedating the mortgage and
foreclosure, had established the rule of law contended for as to
the continuing liability of a railroad corporation unless a
domestic corporation is organized to own and operate the property.
We have examined these cases, and do not find such to be the case.
The Supreme Court of North Carolina had held a lessor liable for
the conduct and management
Page 193 U. S. 108
of the lessee, and in
Pierce v. North Carolina Railroad
Co., 124 N.C. 83, decided in March, 1899, that court said:
"The motion to dismiss the complaint and for judgment of nonsuit
appears from brief of defendants' counsel to be intended to raise
again the question whether the lessor company, The North Carolina
Railroad Company, the defendant herein, is liable 'for all acts
done by the lessee in the operation of the road,' as was held in
Logan v. Railroad, 116 N.C. 940, but why the counsel
should feel 'encouraged to believe' that this Court will retire
from the position it has taken upon the question we are not
advised. We have perceived no lack of 'soundness of reasoning'
therein. The decision in
Logan's case was made after full
deliberation and with full appreciation and careful discussion of
the important principle now again called in question, and it was
held that"
"a railroad company cannot escape its responsibility for
negligence by leasing its road to another company unless its
charter or a subsequent act of the legislature specially exempts it
from liability in such case,"
"and it was made in an action to which the appellant herein was
the party raising the question. The same proposition had been
theretofore laid down by Smith, C.J., in
Aycock v.
Railroad, 89 N.C. at page 330, with cases there cited, and
Logan's case upon this point has been expressly cited and
sustained in
Tillett v. Railroad, 118 N.C. at page 1043;
James v. Railroad, 121 N.C., page 528;
Benton v. North
Carolina R. Co., 122 N.C. 1007 (decided May 24 last), and
Norton v. Railroad, same volume, at pages 936-937. In the
last two cases this point was again held against the same
corporation, which is the appellant in this case; the verdicts were
for considerable sums, and in
Norton's case, the defendant
was represented by the same counsel as in the present case."
But this is far from holding that, in the case of a sale, the
corporate property shall remain liable for the debts of the old
corporation in suits against it until a new domestic corporation is
organized to take the place of the old one. The cases cited hold
the lessor to a continued liability, notwithstanding a lease. In
the case in hand, the property and franchise have been sold,
Page 193 U. S. 109
and there is no contractual relation between the companies, nor
permissive operation of the road by the new company.
Nor can we see any room for the application of section 1255 of
the North Carolina Code, making liens for judgments for torts
superior to mortgages of incorporated companies. In this case, the
tort was committed after the judgment debtor had parted with all
its property and there was nothing for such judgment to operate
upon.
Jeffrey v. Moran, 101 U. S.
286.
Objection is made to the right of the corporation to maintain
this bill. To determine this question, reference must be had to the
attitude of the parties and the nature of the remedy sought. By the
decree of the circuit court, all the property of the Western North
Carolina Railroad Company was ordered to be sold, and was conveyed
and confirmed to the purchaser, the Southern Railway Company; it
was placed in possession of the property and has operated it ever
since. The judgments in controversy were obtained for acts
committed more than two years after the confirmation of the sale,
and were rendered about four years after the court adjudicated a
sale of all the property of the Western North Carolina Railroad
Company. To these actions the Southern Railway Company was not a
party, yet it is sought to levy upon and sell the very property
conveyed to it by the decree of the federal court, and this upon
the theory set up in the answer herein that the property is still
liable for the debts of the Western North Carolina Railroad Company
because of the failure to organize a domestic corporation to take
its place after the sale. The return of the sheriff shows that he
has levied upon all this property, said to be of the value of five
millions of dollars, to pay these judgments of twenty thousand
dollars.
It is not claimed that the Western North Carolina Railroad
Company acquired the property by any new title, but in effect it is
sought to annul the order and decree of the federal court because
it has not operated to transfer the title to the purchaser.
Examining the decree under which this property was sold, we find
certain provisions which are important in this connection. It is
provided:
Page 193 U. S. 110
"The purchaser or purchasers at said sale shall, as part of the
consideration for such sale, take the property purchased upon the
express condition that he or they, or his or their assigns approved
by the court, will pay off and satisfy any and all claims filed in
this cause, but only when the court shall allow such claims and
adjudge the same to be prior in lien to the mortgage foreclosed in
this suit, and in accordance with the order or orders of the court
allowing such claims and adjudging with respect thereto, and the
purchaser or purchasers, or their approved assigns, shall be
entitled to appeal from any and all orders or decrees of the court
in respect to such claims or any of them, and shall have all the
right in respect to such appeals which the complainant Central
Trust Company of New York would have in case such appeals had been
taken by it. The purchaser or purchasers at said sale shall also,
as part of the consideration, in addition to the payment of the sum
or sums bid, take the property purchased upon the express condition
that he or they, or his or their assigns approved by the court,
will pay off and satisfy all debts or obligations incurred or to be
incurred by the receivers having possession of such property which
have not been, or shall not be paid by said receivers, and which
shall be adjudged by the court to be debts or obligations properly
chargeable against the property purchased, and to be prior or
superior to the lien of the mortgage foreclosed in this suit."
"The court reserves the right to retake and resell said property
in case of the failure or neglect of purchaser or purchasers, or
his or their assigns approved by the court as aforesaid, to comply
with any order of the court in respect to payment of prior lien
claims above mentioned within twenty days after service of a copy
of such order upon said purchaser or purchasers, or his or their
assigns,"
And, in the decree affirming the sale, we find:
"Thereupon the court orders and decrees that the said report of
the special master be spread at large upon the record, and be in
all things approved, and the sale made by him to the said Southern
Railway Company, being all and singular the railroad, equipment,
property, and franchises of the Western
Page 193 U. S. 111
North Carolina Railroad Company as described in and by the
decree of foreclosure entered in this cause on May 5, 1894, at and
for the sum of five hundred thousand dollars ($500,000) by it bid,
be, and the same is, in all things ratified, approved, confirmed,
and made absolute, subject, however, to all the mortgages,
receivers' debts and preferential claims, and to all equities
reserved, and to all and singular the conditions of purchase as
recited in said decree, and the continued right of the court to
adjudge and declare what receivers' or corporate debts are prior in
lien or in equity to the lien of the mortgage herein foreclosed, or
ought to be paid out of such proceeds of sale in preference to the
bonds secured thereby. And this Court expressly reserves for future
adjudication, and power thereby to bind the property sold, all
liens and claims and equities specified in, and reserved by, the
said final decree of foreclosure so as aforesaid entered on May 5,
1894."
"And the court accepts the said Southern Railway Company as the
purchaser of all and singular the railroad property and franchises
sold under the decree in this cause, and holds it obligated as such
purchaser to complete and fully pay its said bid and to comply with
all the orders of the court heretofore entered, or hereafter from
time to time to be entered by it obligatory on such purchaser. And
the court reserves full power, notwithstanding such conveyance and
delivery of possession, to retake and resell the property this day
confirmed to such purchaser, if it fails or neglects fully to
complete such purchase and comply with the orders of court in
respect to the full payment and performance of its bid, or to pay
into court in accordance with such decree of sale all such sums of
money hereafter ordered by the court to be paid into its registry
to discharge any and all such debts, liens, or claims as it may
decree ought to be paid out of the proceeds of sale in preference
to the mortgage of the Western North Carolina Railroad Company
herein foreclosed."
It is obvious that, by this decree of sale and confirmation, it
was the intention and purpose of the federal court to retain
jurisdiction over the cause so far as was necessary to determine
all liens and demands to be paid by the purchaser. It accepted
Page 193 U. S. 112
the purchaser, and thereby made it a party to the suit.
Blossom v.
Railroad, 1 Wall. 655. The court reserved the right
to retake the property if necessary to enforce any lien that might
be adjudged against the same. On the other hand, the purchaser
agreed to pay only such demands as the circuit court might declare
and adjudge to be legally due, with the right of appeal from such
judgment. These provisions make apparent the purpose of the court
to retain jurisdiction for the purpose of itself settling and
determining all liens and demands which the purchaser should pay as
a condition of security in the title which the court had decreed to
be conveyed. If the sheriff is allowed to sell the very property
conveyed by the federal decree, such action has the effect to annul
and set it aside, because, in the view of the state court, it was
ineffectual to pass the title to the purchaser. In such case, we
are of opinion that a supplemental bill may be filed in the
original suit with a view to protecting the prior jurisdiction of
the federal court and to render effectual its decree.
Central
Trust Co. of New York v. St. Louis, Arkansas &c. Railroad
Co., 59 F. 385;
Fidelity Ins. Trust & Safe Deposit Co.
v. Norfolk & W. R. Co., 88 F. 815;
State Trust Co. v.
Kansas City &c. R. Co., 110 F. 10.
In such cases, where the federal court acts in aid of its own
jurisdiction and to render its decree effectual, it may,
notwithstanding section 720, Rev.Stat., restrain all proceedings in
a state court which would have the effect of defeating or impairing
its jurisdiction.
Sharon v. Terry, 36 F. 337, per Mr.
Justice Field;
French v. Hay,
22 Wall. 250;
Dietzsch v. Huidekoper, 103 U.
S. 494.
Nor is it an answer to say that these judgments were for causes
of action arising subsequent to the confirmation of sale. The
federal court by its decree, reserved the right to determine what
liens or claims should be charged upon the title conveyed by the
court, and by the levy and sale to pay these judgments the title is
charged with other liens, established in another court, in a
proceeding to which the purchaser was not a party. The federal
court, in protecting the purchaser
Page 193 U. S. 113
under such circumstances, was acting in pursuance of the
jurisdiction acquired when the foreclosure proceedings were
begun.
In
In re Farmers' Loan & Trust Co. (original),
129 U. S. 206
129 U. S. 213,
Mr. Justice Miller said:
"But the doctrine that, after a decree which disposes of a
principal subject of litigation and settles the rights of the
parties in regard to that matter, there may subsequently arise
important matters requiring the judicial action of the court in
relation to the same property and some of the same rights litigated
in the main suit, making necessary substantive and important orders
and decrees in which the most material rights of the parties may be
passed upon by the court, and which, when they partake of the
nature of final decisions of those rights, may be appealed from, is
well established by the decisions of this Court."
We think this case belongs to the class instanced by the learned
Justice, and that the circuit court, by the order made, retained
jurisdiction of the case to settle all claims against the property
and to determine what burdens should be borne by the purchaser as a
condition of holding the title conveyed. In such cases, the
jurisdiction of the court may be invoked by supplemental bill or
bill in the nature of a supplemental bill, irrespective of the
citizenship of the parties.
Freeman v.
Howe, 24 How. 450,
65 U. S. 460.
The authorities are collected in a note to section 97, vol. 1, of
Bates on federal Equity Procedure, and the doctrine thus
summarized:
"It would seem that the prevention of a conflict of authority
between the state and federal courts, and the protection and
preservation of the jurisdiction of each, free from encroachments
by the other, are considerations which lie at the very foundation
of ancillary jurisdiction. A bill filed to continue a former
litigation in the same court, or which relates to some matter
already partly litigated in the same court, or which is an addition
to a former litigation in the same court, by the same parties or
their representatives standing in the same interest, or to obtain
and secure the fruits, benefits, and advantages of the proceedings
and judgment in a former suit in the same court by the same or
additional parties, standing in the same interest, or to prevent a
party from using the proceedings and judgment
Page 193 U. S. 114
of the same court for fraudulent purposes, or to restrain a
party from using a judgment to perpetrate an injustice, or obtain
an inequitable advantage over other parties to the former judgment
or proceeding, or to obtain any equitable relief in regard to, or
connected with, or growing out of, any judgment or proceeding at
law rendered in the same court, or to assert any claim, right, or
title to property in the custody of the court, or for the defense
of any property rights, or the collection of assets of any estate
being administered by the court, is an ancillary suit."
While recognizing the weight which should be given to decisions
of the supreme court of a state in construing its own laws, and
being disposed to follow them and accept the conclusions reached in
construing local statutes in every case of doubt, we are here
dealing with a right and title conferred by authority of the decree
of a federal court, which may be virtually set aside and held for
naught if the property awarded can be taken upon execution in suits
to which the purchaser is not a party. It is conceded that the
federal right could be set up in the state court from which the
execution issued, and, if denied, the ultimate rights of the
parties can be determined upon writ of error to this Court. In the
view we have taken of this case, the federal court had not lost its
jurisdiction to protect the purchaser at its sale upon direct
proceedings such as are now before us.
We find no error in the judgment of the circuit court of
appeals, and the same is
Affirmed.
*
"SEC. 701. This chapter, unless otherwise declared herein, or in
the chapter entitled railroads and telegraphs, shall apply to all
corporations, whether created by special act of assembly, by
letters of agreement under this chapter, or by the chapter entitled
railroads and telegraphs. And this chapter and the chapter on
railroads and telegraphs, so far as the same are applicable to
railroad corporations, shall govern and control, anything in the
special act of assembly to the contrary notwithstanding, unless in
the act of the general assembly creating the corporation the
section or sections of this chapter, and of the chapter entitled
'Railroad and Telegraph Companies,' intended to be repealed, shall
be specially referred to by number, and as such specially
repealed."
"SEC. 1936. There shall be a board of six directors and a
president of every corporation formed under this chapter, to manage
its affairs, and said directors and president shall be chosen
annually by a majority of the votes of the stockholders voting at
such election, in such manner as may be prescribed in the bylaws of
the corporation, and they may and shall continue in office until
others are elected in their places. In the election of directors
and president, each stockholder shall be entitled to one vote
personally or by proxy on every share held by him thirty days
previous to any such election, and vacancies in the board of
directors shall be filled in such manner as shall be prescribed by
the bylaws of the corporation. The inspectors of the first election
of directors shall be appointed by the board of directors named in
the articles of association. No person shall be a director or
president unless he shall be a stockholder owning stock absolutely
in his own right and qualified to vote for directors at the
election at which he shall be chosen, and at every election of
directors the books and papers of such company shall be exhibited
to the meeting if a majority of the stockholders present shall
require it. And whenever the purchaser or purchasers of real
estate, track, and fixtures of any railroad corporation which has
heretofore been sold or may be hereafter sold by virtue of any
mortgage executed by such corporation or execution issued upon any
judgment or decree of any court shall acquire title to the same in
the manner prescribed by law, such purchaser or purchasers may
associate with him and them any number of persons, and make and
acknowledge and file articles of association as prescribed in this
chapter; such purchaser or purchasers and their associates shall
thereupon be a new corporation, with all the powers, privileges,
and franchise, and be subject to all the provisions of this
chapter."
"SEC. 2005. When any railroad corporation shall be dissolved, or
its property sold and conveyed under any execution, deed of trust,
mortgage, or other conveyance, the owner or purchaser shall
constitute a new corporation, and the property, franchise, and
profits of said new corporation shall be taxed as other like
property, franchise, and profits are rated."
