1. Upon review of a judgment of a state court, not explained by
any opinion, grounds of decision involving constitutional questions
but not appearing in the record cannot be merely assumed. P.
273 U. S.
272.
2. Save in exceptional circumstances, decisions of state courts
on questions of common law as locally applicable are binding in
this Court. P.
273 U. S.
272.
3. A judgment pronounced by a state court, with jurisdiction,
after a fair hearing, is not violative of due process under the
Fourteenth Amendment, even if erroneous, if it is not evasive of a
constitutional issue or a result of arbitrary or capricious action.
P.
273 U. S.
273.
4. Petitioner, a Delaware corporation, was organized under
agreement of the interested parties, during the War, to take over
the business and operative properties of all the principal express
companies; which it did, paying them with shares of its capital
stock issued for the purpose. No provision was made for paying
obligations of the old companies.
Held that indebtedness
in Kentucky of one of the old companies, which arose previously
from its express business there, could constitutionally be enforced
by the Kentucky
Page 273 U. S. 270
courts against the new company, the old one not being dissolved
or insolvent but retired to another state where it still had the
stock received from the new company and other valuable property. P.
273 U. S. 274.
Affirmed.
Certiorari (264 U.S. 579) to a judgment of the Court of Appeals
of Kentucky which affirmed a judgment against the American Railway
Express Company for the aggregate of numerous judgments previously
recovered against the Adams Express Company by the Commonwealth of
Kentucky.
MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
Without opinion, the Kentucky Court of Appeals affirmed a
judgment by the Harlan Circuit Court against petitioner and in
favor of the commonwealth for the aggregate sum of 44 judgments
against the Adams Express Company theretofore granted on account of
alleged defaults during 1916.
The Adams Company is a "joint-stock association" organized under
the laws of New York. For many years, it operated as a common
carrier of goods in Kentucky and other states and owned therein
valuable property essential to the conduct of this business. In
Kentucky, it owned no other property.
The petitioner is a Delaware corporation, organized under an
agreement of the interested parties for the purpose of taking over
the business and operating property
Page 273 U. S. 271
of all the principal express companies of the country by issuing
stock to the several owners. Directly after its organization, and
on July 1, 1918, it acquired the entire express business and all
property connected therewith of the Adams Company, and issued
therefor several million dollars of its capital stock. (Like
transfers were made by the other express companies.) The seller
immediately ceased to operate in Kentucky, and the purchaser
continued the business. Neither company made any provision for
paying the outstanding obligations of the Adams Company contracted
in Kentucky, but the latter held in its treasury at New York the
stock received from the purchaser, possessed other valuable
property located there, and was solvent.
Respondent claimed that petitioner became liable for unsatisfied
obligations of the Adams Company. After a full and fair hearing
upon pleadings and proof, the Court of Appeals sustained this
theory, but assigned no reason. That court, it is said, determined
the same issues as here presented in
American Railway Express
Co. v. Kentucky, 190 Ky. 636, and supported the judgment by an
elaborate opinion. But the record now before us fails to show any
reference whatever to that opinion when the present cause was
decided.
The petition for certiorari affirmed that the cause involved the
following questions of constitutional law, and, because of them,
asked a review. We go no further than their consideration
requires.
(1) Whether it is a lack of due process of law for the Kentucky
court to deprive the petitioner of its property on the following
assumptions, which are unsupported by the record and contrary to
fact: (a) that the Adams Express Company is a corporation; (b) that
the State of Kentucky was a creditor of the Adams Express Company
on June 30, 1918; (c) that the stock issued to the Adams Express
Company was distributed by it among its shareholders.
Page 273 U. S. 272
(2) Whether petitioner is denied the equal protection of the
laws by a decision of a state court which holds that a corporation
which pays cash for property is a holder for value, but that a
corporation which issues less than a controlling interest of its
own stock for property is a donee, and takes such property subject
to existing claims of the vendor's creditors.
(3) Whether it is lack of due process for the State of Kentucky
to enforce a rule that a
bona fide purchaser for value of
all the Kentucky property of a solvent vendor is liable to Kentucky
creditors of the vendor to the extent of the value of the property
acquired.
(4) Whether a decision of a state court which is contrary to the
common law, and justifiable only as an exercise of the state's
police power, can be retroactively applied to affect vested
rights.
The grounds upon which the Court of Appeals rested its judgment
are not revealed; there was no opinion. Consequently, petitioner's
argument, which rests upon alleged assumptions, is impertinent.
The record discloses no ruling that a corporation which pays
cash for property holds for value, but, if property is acquired by
issuing less than a controlling interest of stock, it takes subject
to claims of the seller's creditors.
As there was no controlling statute, the state court necessarily
determined the rights and liabilities of the parties under the
general rules of jurisprudence, which it deemed part of the law of
Kentucky and applicable in the circumstances. It went no further.
No earlier opinion was overruled or qualified, and no rule was
given any retroactive effect. Save in exceptional circumstances,
not now present, we must accept as controlling the decision of the
state courts upon questions of local law, both statutory and
common.
"The due process clause does not take up the laws of the several
states, and make all questions pertaining to them constitutional
questions, nor
Page 273 U. S. 273
does it enable this Court to revise the decisions of the state
courts upon questions of state law."
Enterprise Irrigation District v. Farmers' Mutual Canal
Co., 243 U. S. 157,
243 U. S.
165-166.
The Kentucky court had jurisdiction, and has determined only
that, under common law principles, in the peculiar circumstances
above narrated, where the facts were or might have been known to
the purchasing corporation, it became liable for claims against the
vendor resulting from transactions within the state. The action of
the court followed a fair hearing, and there is no pretense that
the challenged views were adopted in order to evade a
constitutional issue. We cannot interfere unless the judgment
amounts to mere arbitrary or capricious exercise of power or is in
clear conflict with those fundamental "principles which have been
established in our systems of jurisprudence for the protection and
enforcement of private rights."
Pennoyer v. Neff,
95 U. S. 714,
95 U. S. 733;
Booth v. Illinois, 184 U. S. 425,
184 U. S. 429;
Truax v. Corrigan, 257 U. S. 312,
257 U. S.
329.
It is firmly established that a merely erroneous decision given
by a state court in the regular course of judicial proceedings does
not deprive the unsuccessful party of property without due process
of law.
Arrowsmith v. Harmoning, 118 U.
S. 194,
118 U. S. 195;
Iowa Central Ry. Co. v. Iowa, 160 U.
S. 389,
160 U. S. 393;
Tracy v. Ginzberg, 205 U. S. 170,
205 U. S. 177;
Bonner v. Gorman, 213 U. S. 86,
213 U. S. 91;
McDonald v. Oregon R. Co. & Nav. Co., 233 U.
S. 665,
233 U. S.
669.
Considering the circumstances disclosed by the record, there was
nothing arbitrary or obviously contrary to the fundamental
principles of justice in requiring the petitioner, organized for
the purposes shown, to satisfy claims against the Adams Company
which arose out of business within the state. The transfer of all
the latter's property located in the state materially interfered
with the ability of Kentucky creditors to enforce their claims,
and,
Page 273 U. S. 274
as to them, might have been declared fraudulent. It seems clear
that the state, without conflict with the Fourteenth Amendment,
might have enacted through its legislative department a statute of
precisely the same effect as the rule of law and public policy
declared by the Court of Appeals, and its decision is just as valid
as such a statute would have been.
Prudential Insurance Co. v.
Cheek, 259 U. S. 530,
259 U. S. 548.
The above-expressed view is sufficiently confirmed by what this
Court said in
Mutual Reserve Association v. Phelps,
190 U. S. 147,
190 U. S.
158-159, which upheld the validity of a statute
providing for service of process after a corporation had ceased to
do business within and had withdrawn all agents from the state, and
Lemieux v. Young, Trustee, 211 U.
S. 489,
211 U. S. 492,
211 U. S. 495,
and
Kidd, Dater Co. v. Musselman Grocer Co., 217 U.
S. 461,
217 U. S. 472
et seq., which sustained the power of a state to impose
liability for the seller's debts upon a purchaser of merchandise in
bulk.
The judgment of the court below must be
Affirmed.
MR. JUSTICE SUTHERLAND and MR. JUSTICE BUTLER dissent.