Guardian Trust Deposit Company v. Fisher

• Decision Date: 02 January 1906
• Docket Number: No. 75,75
• Citation: 26 S.Ct. 186,50 L.Ed. 367,200 U.S. 57
• Parties: GUARDIAN TRUST & DEPOSIT COMPANY and Guarantee Trust & Deposit Company, Petitioners , v. B. J. FISHER, A. M. Scales, Assignee of A. A. Hinkle; A. M. Scales, Assignee of Hodgin, Pegram, & Co., and Helen G. Brown
• Court: U.S. Supreme Court

200 U.S. 57

26 S.Ct. 186

50 L.Ed. 367

GUARDIAN TRUST & DEPOSIT COMPANY and Guarantee Trust & Deposit Company, Petitioners,

v B. J. FISHER, A. M. Scales, Assignee of A. A. Hinkle; A. M. Scales, Assignee of Hodgin, Pegram, & Co., and Helen G. Brown.

No. 75.

Argued November 28, 1905.

Decided January 2, 1906.

Statement by Mr. Justice Brewer:

Section 1255 of the Code of North Carolina of 1883 reads:

'Mortgages of incorporate companies upon their property or earnings, whether in bonds or otherwise, hereafter issued, shall not have power to exempt the property or earning of such incorporations from execution for the satisfaction of any judgment obtained in courts of the state against such incorporation, for labor performed [nor for material furnished such incorporation], nor for torts committed by such incorporation, its agents or employees, whereby any person is killed, or any person or property injured, any clause or clauses in such mortgage to the contrary notwithstanding.'

This was subsequently amended by leaving out the matter inclosed in brackets.

In 1887 a corporation was organized under the laws of North Carolina, which soon after secured the passage of an ordinance by the city of Greensboro, giving to it the exclusive right to the use of the streets, sidewalks, and public grounds for the purpose of constructing, operating, and maintaining a complete system of waterworks, A later ordinance provided that 'said water company shall be responsible for all damage sustained by the city, or any individual or individuals for any injury sustained from the negligence of the said company, either in the construction or operation of their plant.'

The corporation constructed the waterworks and also executed a mortgage or deed of trust, conveying its entire property and plant to secure the payment of fifty thousand dollars of bonds. A subsequent mortgage or deed of trust was foreclosed and the title to the property passed to a new corporation, subject to the lien of the first mortgage. After its purchase the new corporation executed a further mortgage or deed of trust. Subsequently two fires occurred, destroying property belonging to the respondents. Actions were commenced in the superior court of Guilford county by the owners of the property destroyed against the new corporation, and judgments recovered, the judgment entries each reciting that the recovery was 'for the injury and damage done him by the negligence of the defendant.' 128 N. C. 375, 38 S. E. 912. Proceedings having been commenced in the circuit court of the United States to foreclose the existing mortgages, a decree was entered and a sale made. Thereupon the judgment creditors intervened, insisting that, in the distribution of the proceeds, they were entitled to priority over the mortgage liens by virtue of the statute above referred to. The circuit court decided in their favor. 115 Fed. 184. Its judgment was taken on appeal to the court of appeals, from which court the case was brought here on certiorari.

Messrs. John Peirce Brunts, Archibald H. Taylor, and W. P. Bynum, Jr., for petitioners.

[Argument of Counsel from pages 59-62 intentionally omitted] Mr. Aubrey L. Brooks for respondents.

[Argument of Counsel from pages 62-64 intentionally omitted] Mr. Justice Brewer delivered the opinion of the court:

It is contended that neither the plaintiff in the pending suit nor the bondholders whom it represents were parties or privies to the actions in the state court; that therefore the judgments of the latter court were not conclusive in the foreclosure proceeding as to the nature of the causes of action; that whether they were for torts or breaches of contracts is for the determination of the Federal court, and further, that when the property passed from the old to the new water company, it passed subject to the fifty-thousand dollar mortgage, and that under this statute, if applicable at all, only the interest in the property acquired by the second water company was responsible for the damages caused by its negligence. On the other hand, it is contended that the statute deals with judgments,—not claims for damages caused by negligence; that the decision of the state court as to the nature of the cause of action is as much a part of the judgment as the determination of the amount to be recovered; that a judgment which in terms is for damages caused by negligence, if entered by a court having jurisdiction, is made by the statute superior to any mortgage; that, by the mortgage, the mortgagee and the bondholders it represents agree to accept such judgment as conclusive, and to subordinate their mortgage to its lien; that to hold that the transfer of property encumbered by a mortgage from one company to another puts that mortgage outside the statute practically destroys its beneficial intent; that such has been the holding of the supreme court of the state, and is a holding which the Federal courts will follow.

We shall assume, without deciding, that the nature of the causes of action upon which the state judgments were rendered is open for consideration in the Federal court in the foreclosure proceeding. The statute subordinates the mortgage to judgments for torts. Now, what is the judgment? It is a determination that, upon the facts stated, the plaintiff is entitled to recover so much money. It may not be essential that it recite whether the facts stated show a breach of contract or a tort, but it is essential that the judgment should be considered as a determination that, upon those facts, the plaintiff is entitled to recover. And it must be assumed that under the statute the mortgagee and the bondholders it represents agree to accept the judgment as conclusive in this respect, or, if not conclusive, at least prima facie evidence. In this foreclosure proceeding the record of the proceedings in the state courts was introduced in evidence. Taking the Fisher Case, for illustration, the complaint set out fully the contract made between the city of Greensboro and the water company, and the proceedings by which the title to the property passed from the one company to the other; alleged the destruction by fire of the plaintiff's property, and that he was free from all negligence in the matter. It added:

'The plaintiff alleges, . . . that the defendant company was culpably negligent and wilfully careless of its duty and obligations, both to the city of Greensboro and its inhabitants, under the said contract, and by virtue also of the duties, obligations, and responsibilities which it assumed when it undertook to supply water to the city of Greensboro and its inhabitants for a stipulated price, which was paid to it by the said city.'

It then set forth as matters of negligence on the part of the water company the 'carelessly, wilfully, and negligently failing to keep a sufficient quantity of water in its storage water tank in the said city of Greensboro, necessary for the purpose of extinguishing fire, together with the other uses to which it was...