In re CD Hauger Co.

• Decision Date: 11 December 1931
• Docket Number: No. 3027.,3027.
• Citation: 54 F.2d 117
• Parties: In re C. D. HAUGER CO.
• Court: U.S. District Court — Panama Canal Zone

54 F.2d 117 (1931)

In re C. D. HAUGER CO.

No. 3027.

District Court, N. D. Texas, Dallas Division.

December 11, 1931.

Livingston & Henderson, of Memphis, Tenn., for creditor.

W. B. Harrell, of Dallas, Tex., for trustee.

ATWELL, District Judge.

The Shawmut Investment Corporation filed a claim for $4,375 against the bankrupt, seeking priority. The creditor is a Georgia corporation. The bankrupt is a Kentucky corporation. Each was doing business in the state of Tennessee by proper qualification.

Unsecured claims have been allowed against the bankrupt in the sum of about $110,000. Excepting $2,000 unsecured creditors in the state of Tennessee, and excepting petitioner's claim, all creditors reside in states other than Tennessee, including the states of Ohio, Missouri, New York, Massachusetts, Louisiana, Pennsylvania, and Texas.

A Tennessee statute (Acts 1877, c. 31, § 5) provides:

"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."

This statute was held to be unconstitutional as to individuals, and constitutional as to foreign corporations permitted to do business in that state. Blake v. McClung, 172 U. S. 240, 19 S. Ct. 165, 43 L. Ed. 432. This distinction was made on the theory that a corporation is not a citizen within the meaning of that provision of the Constitution (article 4, § 2) which guarantees that the citizens of each state shall be entitled to all privileges and immunities of citizens in the several states. This construction is not altered by the reasoning in Kentucky Finance Corporation v. Paramount Auto Exchange Corporation, 262 U. S. 544, 43 S. Ct. 636, 67 L. Ed. 1112, because it is reiterated in Liberty Warehouse Company v. Tobacco Growers' in 276 U. S. 89, 48 S. Ct. 291, 72 L. Ed. 473.

Nor did the general purpose of the Bankrupt Act, which is a uniform sharing by all creditors of the debtor's property, prevent the applicability of the Tennessee statute. In re Standard Oak Veneer Co. (D. C.) 173 F. 103. See, also, Collier on Bankruptcy, vol. 2, page 1474; Bradford v. Graham (C. C. A.) 287 F. 686; Courtney v. Fidelity Trust (C. C. A.) 219 F. 57; In re Iroquois Machine Co. (D. C.) 166 F. 629; In re Crow (D. C.) 116 F. 110; Lumber Co. v. Globe-Wernicke Co., 4 Tenn. App. 522; Coke & Coal Company v. Steel Co., 123 Tenn. 428, 131 S. W. 988, 31 L. R. A. (N. S.) 278.

But the Bankrupt Act was amended in 1926 so that subdivision 7, § 64b, 11 USCA § 104(b) (7), reads, as follows: "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."

Concededly this amendment to the act was for the purpose of doing away with the distinction that the Tennessee citizen had theretofore enjoyed by reason of the statute above quoted. See report of special committee on practice in bankruptcy, American Bar Association, p. 51, Collier Pamphlet Edition: "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 the distribution of assets over residents of other states or countries. The United States supreme court held this act unconstitutional except insofar as it related to foreign corporations, with the result that a foreign corporation, doing business in Tennessee, is subordinated to all Tennessee creditors, as was held in Standard Oak Veneer Company (D. C.) 173 F. 103, 22 A. B. R. 883. Clearly such...