Farmers' Loan & Trust Co. v. Chicago & A. Ry. Co.

• Decision Date: 08 April 1886
• Parties: FARMERS' LOAN & TRUST CO., Trustee, v. CHICAGO & A. RY. CO. and others. [1]
• Court: United States Circuit Court, District of Indiana

27 F. 146

FARMERS' LOAN & TRUST CO., Trustee, v. CHICAGO & A. RY. CO. and others. ^[1]

United States Circuit Court, D. Indiana.

April 8, 1886

B. H Bristow, J. E. McDonald, H. B. Turner, and C. N. Steele, for complainant.

J. H Choate, J. J. McCook, Charles L. Atterbury, Edward Daniels C. W. Fairbanks, and Jacob S. Slick, for defendants.

GRESHAM J.

The Chicago & Atlantic Railway Company, on the thirteenth of June, 1881, by its deed of trust, conveyed to the Farmers' Loan & Trust Company, a New York corporation and Conrad Baker, a resident and citizen of Indiana, its line of railway extending from Marion, Ohio, to Chicago, together with all other property of every character which it then owned or might thereafter acquire, to secure an issue of 6,500 bonds of $1,000 each, payable on November 1, 1920, with interest at 6 per cent. per annum, payable semi-annually on the first days of May and November. On the fifteenth day of September, 1883, the railway company, by a second trust deed, conveyed the same property to the Farmers' Loan & Trust Company and George J. Bippus, a citizen of Indiana, to secure an additional issue of 5,000 bonds of $1,000 each, payable on the first day of August, 1923, with interest at the rate of 6 per cent. per annum, payable semi-annually on the first days of February and August. This suit is brought by the Farmers' Loan & Trust Company against the Chicago & Atlantic Railway Company and George J. Bippus, the co-trustee in the second mortgage; Conrad Baker, the co-trustee in the first mortgage, being dead.

Section 2988 of the Revised Statutes of Indiana, which was in force when the trust deeds were executed, provides that 'it shall be unlawful for any person, association, or corporation to nominate or appoint any person a trustee in any deed, mortgage, or other instrument in writing, (except wills,) for any purpose whatever, who shall not be at the time a bona fide resident of the state of Indiana; and it shall be unlawful for any person who is not a bona fide resident of the state to act as such trustee. And if any person, after his appointment as such trustee, shall remove from the state, then his rights, powers, and duties as such trustee shall cease, and the proper court shall appoint his successor, pursuant to the act to which this is supplemental.'

It is urged that inasmuch as the Farmers' Loan & Trust Company is a New York corporation it was not capable, under this statute, of acting as trustee in the trust deed or mortgage, and that it cannot, therefore, maintain this suit. The Chicago & Atlantic Company conveyed its property in trust to secure its bonds, and it would not, perhaps, as between itself and the bondholders, be permitted to urge this objection against the validity of its own solemn act. Gov. Baker, the co-trustee, who died before the suit was brought, and whose successor in the trust has not been appointed, was a resident of Indiana when the trust deed was executed. This satisfied the requirements of The indiana statute. No court would be expected to hold that the trust deed was void because one of the trustees was not a resident of Indiana. If it be true that the Farmers' Loan & Trust Company was not capable of acting as trustee to the extent of taking title to so much of the mortgaged property as was situated within the state, or that its designation as trustee was to that extent inoperative and void, nevertheless the trust deed was valid when executed, and a trust is never permitted to fail for want of a trustee. The trust property was conveyed as an entirety to secure the payment of the bonds and coupons, and it is not claimed that the Farmers' Loan & Trust Company was incapable of acting as trustee so far as the trust embraced property within the states of Ohio and Illinois. Suits between the same parties, asking the same relief, commonly called 'ancillary' suits, may be, and presumably have been, instituted in the circuit court of the United States for the Northern district of Ohio and the Northern district of Illinois, and the court in either of those jurisdictions would have authority to decree a sale of the mortgaged property as an entirety. Muller v. Dows, 94 U.S. 444.

If, under such circumstances, a court of equity has authority to allow the requesting coupon-holders to be made co-complainants with the Farmers' Loan & Trust Company, it would be expected to exercise it instead of dismissing the bill. The facts of this case would perhaps justify the exercise of that authority. But if the Chicago & Atlantic Company be not estopped from denying that the Farmers' Loan & Trust Company was capable of acting as trustee, and if the court is not authorized to allow the coupon-holders, at whose request the suit was brought, to be substituted as complainants or made co-complainants with the Farmers' Loan & Trust Company, the bill must be dismissed, unless the statute relied on is invalid.

It will be observed that this statute does not prohibit foreign corporations from doing business in this state. Obviously that was not the design of the legislature. It is a statute which denies to residents of other states the right to take and hold in trust, otherwise than by last will and testament, real and personal property in Indiana. The right is asserted to deny to persons, associations, or corporations, within or without the state, power to convey to any person in trust, not a resident of Indiana, real or personal property within the state. This is a plain discrimination against the residents of other states. If Indiana may disqualify a resident of another state from acting as trustee in a trust deed or mortgage which conveys real or personal property as security for a debt due to himself alone, or for debts due himself and other creditors, it would seem that the state might prohibit citizens of other states from holding property within the state, and to that extent from doing business within the state. No state can do the latter. A person may, and frequently does, acquire a property interest by a conveyance to him in trust. A citizen of the United States cannot be denied the right to take and hold absolutely real or personal property in any state of the Union, nor can he be denied the right to accept the conveyance of such property in trust for his sole benefit, or for the benefit of himself and others. This right is incident to national citizenship.

Section 2 of article 4 of the constitution of the United States declares that 'the citizens of each state shall be entitled to all the privileges and immunities of citizens in the several states. ' 'Attempt will not be made,' says the supreme court of the United States in Ward v. Maryland, 12 Wall. 418, 'to define the words 'privileges and immunities,' or to specify the rights which they are intended to secure and protect, beyond what may be necessary to the decision of the case before the court. Beyond doubt, those words are words of very comprehensive meaning; but it will be sufficient to say that the clause plainly and unmistakably secures and protects the right of a citizen of one state to pass into any other state of the Union for the purpose of engaging in lawful commerce, trade, or business, without molestation; to acquire personal property; to take and hold real estate. * * * '

But it may be said that the word 'person,' as used in the statute, includes artificial as well as natural persons, and that the statute is capable of enforcement as against corporations only. A careful reading of the act will show that it is not capable of such construction. The latter clause of the section says: 'If any person, after his appointment as such trustee, shall remove from the state, his right as trustee shall cease. ' A domestic corporation cannot remove from the state; and if the words 'a foreign corporation' be read into the statute, they are qualified by the words 'bona fide resident,' and it is plain that a foreign corporation cannot become a 'bona fide resident' of a state which does not create it. A corporation is a mere creation of local law, having no legal existence beyond the sovereignty where created. It dwells in the place of its creation and cannot migrate. Paul v. Virginia, 8 Wall. 168. How, then, can a corporation of another state become a bona fide resident of Indiana? It is true that the existence of a corporation may be and frequently is recognized abroad by the enforcement of its contracts made abroad as well as at the place of its domicile, and in other ways; but that is done purely upon considerations of comity.

In March, 1879, a statute was enacted by the legislature of Indiana, which declared that if any foreign corporation brought a suit in the federal courts for the district of Indiana, or removed a suit pending in a court of the state to such federal courts, it should thereby forfeit its right to transact business in the state, and be prohibited from thereafter transacting any business therein. The passage of this act sufficiently accounts for the phraseology of the statute relied on in this suit. Having gone as far as the legislature deemed it necessary to go in the enactment of the statute of March, 1879, it was doubtless thought unnecessary to make this act, which was passed two months later, apply to foreign corporations as well as natural persons. In enacting the latter statute, the legislature no doubt deemed the former one sufficient to deter any person, association, or corporation from appointing a foreign corporation to act as trustee in any deed or mortgage, and that additional legislation was necessary only to prevent the appointment or designation of natural persons to act as such trustees. The Farmers' Loan & Trust Company was therefore capable of accepting the conveyance as trustee, and of...