Chattanooga, R. & C. R. Co. v. Evans

• Decision Date: 02 April 1895
• Docket Number: 203.
• Parties: CHATTANOOGA, R. & C.R. CO. et al. v. EVANS.
• Court: U.S. Court of Appeals — Sixth Circuit

66 F. 809

CHATTANOOGA, R. & C.R. CO. et al. v. EVANS.

No. 203.

United States Court of Appeals, Sixth Circuit.

April 2, 1895

[Copyrighted Material Omitted]

The Chattanooga, Rome & Columbus Railroad Company is a corporation of the state of Georgia. Its road was constructed in 1887, and included about 157 miles of railroad, extending from Carrolton, in the state of Georgia, to Chattanooga, in the state of Tennessee, the remainder being within the state of Georgia. The Savannah & Western Railroad Company is another Georgia corporation, owning and operating a line of railroad in that state. In May, 1891, the first-named railroad sold and conveyed its entire line of railroad, and all of its equipments and assets of every kind, to the latter company. This sale by the one company to the other was fully authorized by the charter of each of the contracting companies. The complainant Evans is a judgment creditor of the selling company, with an execution returned nulla bona. His original bill was filed in the Tennessee chancery court for the purpose of subjecting so much of the property of the Chattanooga, Rome & Columbus Railroad Company as was situated within the state of Tennessee. The entire property of the selling company was at the time of sale subject to two mortgages, the Central Trust Company of New York being the trustee in each. The first mortgage was to secure 2,240 5 per cent. gold bonds, of the denomination of $1,000 each; and the second included the same property, as well as the income of the mortgagor company. This latter mortgage was to secure 'income bonds,' aggregating $1,400,000. Both these mortgages had been duly executed before Evans became a creditor. The object of his bill was to subject the Tennessee property to the satisfaction of his debt, notwithstanding these mortgages and the conveyance of the equity of redemption to the Savannah & Western Railroad Company. His contention, briefly stated, was as follows: (1) That his judgment was for work and labor done on the property of the Chattanooga, Rome & Columbus Railroad, and that under the statute law of the state no mortgage made by a railroad in the state was valid as against an execution upon such a judgment. (2) That both the selling and buying railroad companies were nonresidents of the state of Tennessee; that neither was incorporated under the law of Tennessee, and neither was authorized to buy, sell, own, or operate a railroad in that state, neither having registered its charter as required by the law of that state; that the deed made by the debtor company was absolutely void for noncompliance with the requisite conditions authorizing nonresident corporations to do business in that state. (3) That the sale to the Savannah & Western Railroad Company was made with the purpose and intent of hindering, delaying, and defrauding the general creditors of the selling company, and that this purpose was known and participated in by the buying corporation. (4) That the selling company was wholly insolvent at the time of the sale, and that its property was therefore a trust fund for the equal benefit and that its property was therefore a trust fund for the equal benefit of all its creditors, and that a sale which deprived it of all its assets, and made no provision for its general creditors, was fraudulent in law and fact. Evans' bill was filed for the benefit of himself and all other creditors who might choose to intervene and become parties. An attachment was prayed and granted, which was levied, not only on the railroad situated within the state, but upon locomotive engines, cars, machinery, tools, office furniture, etc., found within the jurisdiction. The property thus attached was replevied, under a provision found in the Tennessee Code, by the purchasing company and its lessee, the Richmond & Danville Railroad Company, and by the Central Trust Company, trustee, under the two mortgages heretofore mentioned. Subsequently the suit was removed from the state court into the United States circuit court for the Eastern district of Tennessee by two of the defendant corporations. Upon a final hearing the circuit court held that the attached property was subject to the claim of Evans, as well as to the claims of two other creditors who had become parties by intervention, and a decree was pronounced against all the parties to the replevin bonds for the full amount of the claims adjudged. From this decree all the defendants have appealed and assigned errors.

J. H. Barr and Alex. C. King, for appellants.

R. P. Woodward, Clark & Brown, and Charles R. Evans, for appellees.

Before TAFT and LURTON, Circuit Judges, and SEVERENS, District Judge.

LURTON Circuit Judge, after stating the foregoing facts, .

The decree of the circuit court seems to have been rested upon two propositions: First. That the sale and transfer of the Chattanooga, Rome & Columbus Railroad Company was fraudulent and void as to the creditors of that company, and the property conveyed subject to attachment. Second. That the obligation of the several replevy bonds executed to secure the discharge of the attached property from the custody of the court was such that the obligors therein were absolutely liable for the amount of the claim of each attaching creditor, and that this liability could not be discharged by the return of the replevied property. Those bonds were conditioned to pay off the claims of the several attaching creditors, or return the replevied property to the custody of the court, in case it should be determined that the property for which these bonds were a substitute should be held subject to attachment. Entertaining the opinion that the liability of the obligors in those bonds may be discharged by the performance of either alternative, it has become necessary to determine the rights of the appellees in case the property shall be returned. This involves a series of difficult and important questions, which will be considered in the following order: (1) Was the deed of May 1, 1891, conveying all the assets of the Chattanooga, Rome & Columbus Railroad Company, so obnoxious to the statute law of Tennessee concerning foreign corporations as to be absolutely void, for any and all purposes? (2) Have the complainants, by reason of the character of their several claims, any such equity or lien as entitles them to a preference over the two mortgages mentioned, or to follow the corporate property into the hands of a bona fide purchaser for value? (3) Was the deed of May 1, 1891, voidable for fraud by the creditors of the grantor corporation?

First. What is the effect of the Tennessee statute of March 26, 1891, upon the conveyance of May 1, 1891, to the Savannah & Western Railroad Company? The insistence of appellees is that the deed then made by the Chattanooga, Rome & Columbus Railroad Company is absolutely void as to so much of said road as was within the state of Tennessee, and that the title to the Tennessee portion remained in the grantor company. The second and third sections of that act are as follows:

'Sec. 2. Be it further enacted, that each and every corporation created or organized under or by virtue of any government other than the state, for any purpose whatever, desiring to own property or carry on business in this state of any kind or character, shall first file in the office of the secretary of state a copy of its charter, and cause an abstract of same to be recorded in the office of the register in each county in which the corporation desires to carry on its business or to acquire or own property, as now required by section 2, of chapter 31, of Acts of 1877.

'Sec. 3. Be it further enacted, that it shall be unlawful for any foreign corporation to do or attempt to do any business or to own or acquire any property in this state without having first complied with the provisions of this act; and a violation of this statute shall subject the offender to a fine of not less than $100 or more than $500, at the discretion of the jury trying the case.'

That the grantor company was lawfully doing business in the state, and had power to convey to one capable of acceptance, is not seriously resisted. It had acquired by gift or grant a right of way, and had constructed and operated its road for several years before the passage of the act of 1891. When that act was passed it certainly had the option to abandon business in the state, or, by complying with its requirement, obtain the necessary authority to continue doing business. If not permitted to 'own or acquire any property,' it was clearly not the intent to prohibit a sale of that which it lawfully had, especially if made for the purpose of discontinuing business. Such a construction would operate to deprive the corporation of its property without due process of law, and would be a practical confiscation. That it was lawfully in the state was clearly recognized by the act of March 14, 1890, which recognizes it as a Georgia corporation owning and operating a railroad from Chattanooga to the Georgia state line, and empowered the city of Chattanooga to ratify a subscription to its corporate stock theretofore irregularly made, on condition that the amount thereof should be expended within the city in acquiring depot facilities, shops, etc. Independently of this, we think that the state had licensed the construction of this road by the act of March 23, 1887. That act reads thus:

'Section 1. Be it enacted by the general assembly of the state of Tennessee, that any railroad corporation created by the laws of any other state, shall be authorized and empowered to extend its railroad into this state a distance of not exceeding five miles from the point of its entrance into this state, for the purpose of reaching a terminal point, or a

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