In re Boggs-Rice Co.

• Citation: 4 F. Supp. 431
• Court: U.S. District Court — Western District of Virginia
• Decision Date: 27 January 1933
• Parties: In re BOGGS-RICE CO., Inc. ATHENS STOVE WORKS et al. v. FLEMING et al.

4 F. Supp. 431

In re BOGGS-RICE CO., Inc. ATHENS STOVE WORKS et al. v. FLEMING et al.

District Court, W. D. Virginia, at Abingdon.

January 27, 1933.

Benj. S. Gore, of Bristol, Tenn., for Tennessee corporation creditors.

H. H. Haynes, Sr., of Bristol, Tenn., and W. H. Robertson, of Bristol, Va., for Boggs.

J. P. Buchanan, of Marion, Va., and H. E. Widener, of Bristol, Va., for the Lincolns.

Donald T. Stant and S. Bruce Jones, both of Bristol, Va., for trustees of bankrupt estate.

McDOWELL, District Judge.

On May 31, 1932, a voluntary petition for bankruptcy was filed in this court at Abingdon by the Boggs-Rice Company, Inc., a retail dealer in furniture. On June 1st the order of adjudication and reference was signed, and entered on June 8th.

The bankrupt was operating a store in Bristol, Tenn.; one at Glade Springs, Washington county, Va.; one at Marion, Smyth county, Va.; one at Wytheville, Wythe county, Va.; and one at Appalachia, Wise county, Va.

I. Priority Claims of Tennessee Corporations.

By his order of November 17, 1932, the referee disallowed the claims to priority of payment of the following petitioners for review, all of whom are said to be corporations created by the laws of Tennessee: King Printing Company, Empire Chair Company, Inter-State Hardware & Supply Company, Drugan Motor Company, Athens Table & Manufacturing Company, Art Wood Carving Company, Athens Stove Works.

In the case at bar the bankrupt, a Virginia corporation, had qualified itself to do business in Tennessee, and had in that state a stock of furniture and other assets. Among the many creditors of the bankrupt are: (1) Sundry corporations created by the laws of Tennessee; (2) sundry individuals, residents of Tennessee, and many individuals of states other than Tennessee; and (3) sundry corporations created by states other than Tennessee. The Tennessee corporation creditors of the bankrupt claim, under section 2552, Shannon's Code, in respect to the proceeds derived from the bankrupt's assets which were located in Tennessee, a right of priority over both the nonresident individual creditors and the nonresident corporation creditors.

Section 2552 of Shannon's Code is identical with section 5 of the Tennessee Act of March 19, 1877, c. 31, and is quoted in full in Blake v. McClung, 172 U. S. 239, 241, 242, 19 S. Ct. 165, 43 L. Ed. 432. So far as is presently of interest, this statute reads as follows:

"Sec. 5. That the corporations and the property of all corporations coming under the provisions of this act, shall be liable for all the debts, liabilities and engagements of the said corporations, to be enforced in the manner provided by law, for the application of the property of natural persons to the payment of their debts, engagements and contracts. Nevertheless, creditors who may be residents of this State shall have a priority in the distribution of assets, or subjection of the same, or any part thereof, to the payment of debts over all simple contract creditors, being residents of any other country or countries. * * *"

In Blake v. McClung, it was held that the foregoing statute is unconstitutional in respect to nonresident individual creditors of a foreign corporation which had been authorized to carry on business in Tennessee; but valid in respect to corporation creditors nonresidents of Tennessee. See Blake v. McClung, 172 U. S. 239, 19 S. Ct. 165, 43 L. Ed. 432; Id., 176 U. S. 59, 20 S. Ct. 307, 44 L. Ed. 371; Sully v. American National Bank, 178 U. S. 289, 20 S. Ct. 935, 44 L. Ed. 1072; In re Standard Oak Veneer Co. (D. C.) 173 F. 103. None of these Supreme Court cases cited related to bankruptcy. The Standard Oak Veneer Case (Judge Sanford) was a bankruptcy case, but it antedated the Bankrupt Act of 1926.

The question here presented is the effect of the proviso to section 64b(7) of the Bankrupt Act, enacted in 1926, on the ruling of the Supreme Court in Blake v. McClung, supra, 172 U. S. 239, 19 S. Ct. 165, 43 L. Ed. 432; Id., 176 U. S. 59, 20 S. Ct. 307, 44 L. Ed. 371, and Judge Sanford's ruling in the Standard Oak Veneer Case (D. C.) 173 F. 103, in respect to nonresident corporation creditors of a bankrupt corporation which had been authorized to do business in Tennessee.

In 1 Reports of American Bar Association, p. 502, is a proposed amendment to section 64b of the Bankrupt Act of 1910, which in part reads: "And (7) debts owing to any person who by the laws of the states or the United States is entitled to priority; Provided, however, that priorities granted by any state law to its residents and to domestic corporations over non-resident and foreign corporations shall not be recognized or allowed."

Again, at pages 490, 491 is the following: "The reasons for this amendment grow out of the fact that there is now existing in Tennessee, and perhaps, in other states, a statute which provides that resident creditors shall have priority in distribution of assets over residents of other states or countries. The U. S. Supreme Court held this act unconstitutional, except in so far as it related to foreign corporations, with the result that a foreign corporation, doing business in Tennessee, is subordinated to all the Tennessee creditors, as was held in Standard Oak Veneer Co. (D. C.) 173 F. 103, 22 A. B. R. 883. Clearly such an unfair discrimination and preferential outcome should not be perpetuated or left possible."

In the Bankrupt Act, subsection 7 of section 64b, amended in 1926 (11 USCA § 104(b) (7), reads: "(7) debts owing to any person who by the laws of the States or the United States is entitled to priority: Provided, That the term `person' as used in this section shall include corporations, the United States and the several States and Territories of the United States."

In order to save others some profitless labor, I should say here that I have learned nothing of value from a search of the Congressional Record. See volume 67, pp. 7681, 9609, 9610. As the bill passed the Senate, the proviso to section 64b(7) used the language suggested by the bar association. The House passed the bill with numerous changes, and it went to conference. At the conference, the bar association wording was stricken out, and the wording of the proviso as it appears in the act of 1926 was substituted. So far as I have discovered, no statement of the reason for this substitution was shown in any committee report, and this matter was not discussed on the floor of either house.

In the light of the foregoing, it seems to me an unavoidable conclusion that the intent of the lawmakers was to briefly incorporate the purpose of the bar association as well as to give the United States and the states and territories the rights of individuals as creditors of a Tennessee corporation, or of a corporation admitted to do business in Tennessee.

But entirely without reference to any information as to the amendment as proposed by the bar association, and looking only at the words of the statute as enacted, I can see no reason for avoiding the conclusion that the intent of the statute is to nullify the foregoing rulings, and to require the courts of bankruptcy, in distributing the proceeds of bankrupt estates, to treat corporate creditors as having the same rights as individual creditors. Unless so construed, corporations are not treated as "persons," and the court would be ignoring the language chosen by the lawmakers.

This conclusion was reached in the case of In re C. D. Hauger Co. (D. C. Tex.) 54 F.(2d) 117. In that case the bankrupt was in the same situation as the bankrupt in the case at bar, but the corporation creditor there was created by the laws of Georgia, and had been qualified to do business in Tennessee. In that single respect the question before Judge Atwell was not exactly the same as the entire question now under discussion. However, the Hauger Case raised the question of the intent of the amendment of 1926 of the proviso, and the opinion is in point here.

To this date I have not found any other case in point.

It follows that the referee's ruling in respect to the Tennessee corporation creditors must be affirmed. This ruling was inadvertently omitted from the referee's order, but his opinion shows clearly that he so ruled.

In this connection it should be said that I have some doubt if Art Wood Carving Company is a corporation. Its proof of claim (No. 13) suggests that it is not. However, the question is unimportant. If the Art Wood Carving Company is merely a name used by an individual, his claim of priority must be denied. I shall state the reason for this conclusion when I reach the E. W. King claim.

II. The E. W. King Claim.

King is a citizen and resident of Tennessee. The referee denied King's claim to priority, but allowed his claim as an unsecured debt in the amount of $6,983.73. Both King and the trustees of the bankrupt estate have petitioned for review.

1. King's petition for review is based only on the referee's denial of King's supposed right of priority under the Tennessee statute discussed above. The intended beneficiaries of that statute include individual residents of Tennessee as well as corporations created by the laws of that state. By force of Blake v. McClung, supra, 172 U. S. 239, 258, 259, 19 S. Ct. 165, 43 L. Ed. 432, that statute is void as to nonresident individual creditors, whether the creditors claiming the benefits of the Tennessee statute are individuals or corporations; and the Bankrupt Act, as amended in 1926 (section 64b(7), as I read it, gives nonresident corporation creditors the rights of nonresident individual creditors. In the case at bar there are numerous scheduled creditors who are nonresident individuals, as well as numerous nonresident corporations. It seems to me that an individual creditor, who is a resident of Tennessee, has no higher right to priority than has a corporation created by the laws of Tennessee. It follows that the referee's ruling denying King's claim of...