Morgan Bros. v. Dayton Coal & Iron Co.

• Decision Date: 11 January 1916
• Citation: 183 S.W. 1019,134 Tenn. 228
• Parties: MORGAN BROS. ET AL. v. DAYTON COAL & IRON CO., LIMITED, ET AL.
• Court: Tennessee Supreme Court

183 S.W. 1019

134 Tenn. 228

MORGAN BROS. ET AL. v. DAYTON COAL & IRON CO., LIMITED, ET AL.

Supreme Court of Tennessee.

January 11, 1916

Certiorari to Court of Civil Appeals.

Bill by Morgan Bros. and others against the Dayton Coal & Iron Company, Limited, and others. From the decree plaintiffs appeal to the Court of Civil Appeals, and from a judgment affirming the decree in part both parties bring certiorari. Affirmed.

Geo. H West, Williams & Lancaster, and Allison, Lynch & Phillips all of Chattanooga, for plaintiffs.

W. B Miller, for defendant receiver.

John K. Shields, of Morristown, Sizer, Chambliss & Chambliss, of Chattanooga, and Joline, Larkin & Rathbone, of New York City, for defendants.

FRANTZ Special Judge.

The original bill in this cause was filed in the chancery court of Rhea county, Tenn., June 15, 1913, being a general creditors' bill filed for the purpose of administering the assets of the Dayton Coal & Iron Company, Limited, a corporation under the laws of Great Britain. Several amended bills were filed, but the amended and supplemental bill of January 5, 1914, is the one brought into the record in this cause, and contains the detailed charges upon which the issues were made which are now before the court for decision.

Quite a number of questions are raised in the pleadings. We will briefly state those which are here for decision of this court.

The main question involved is the validity of a certain mortgage made to the Central Trust Company of New York, as trustee, on October 1, 1902, to secure bonds to the amount of 100,000 pounds sterling, and the validity of the debentures themselves is assailed upon grounds which will be set out more in detail at a later point in this opinion.

The chancellor decreed that the said mortgage was void because it covered property which was consumable in its use, and annulled and set aside said mortgage. With respect to the validity of the bonds the chancellor decreed that the record would not justify a decree declaring them invalid, but held that the holders of the bonds should produce and prove their claims before the clerk and master on a reference as other creditors. The Court of Civil Appeals affirmed the holding of the chancellor with respect to the mortgage, but held with respect to the debentures that they were entitled to participate as creditors in the assets of the corporation--

"alone upon the basis of the actual consideration they paid for the same, which consideration so paid went into the treasury of the said Dayton Company; Tennessee creditors, as aforesaid, being first paid."

Both complainants and defendants have brought the cause to this court by proper petition for certiorari; and it is likewise brought here by the Bank of Montreal upon a question hereinafter to be discussed; and errors have been assigned, which we will consider.

We are met with a preliminary question pertaining to our jurisdiction to determine this cause, arising as follows:

The James Supply & Hardware Company and other creditors have filed their petition in this cause, the same being filed upon the day the case was heard by this court at the present term (the same having been heard at the last term and reassigned to the docket for argument at the present term) which petition set up substantially that on the 21st day of June, 1913, a petition was filed by them in the District Court of the United States for the Southern Division of the Eastern District of Tennessee, seeking to have the defendant Dayton Coal & Iron Company adjudged a bankrupt and its property administered by that court under the Bankruptcy Act of 1898 (Act Cong. July 1, 1898, c. 541, 30 Stat. 544). It is alleged in the petition that the grounds upon which the bankruptcy proceeding was based was substantially that the proceedings in this cause constituted an act of bankruptcy. It is further shown in the petition and the exhibits thereto that a denial of the facts essential to the adjudication was duly made, and that upon trial in the United States District Court at Chattanooga a directed verdict was had in favor of the contention of the Dayton Coal & Iron Company, and upon appeal to the United States Circuit Court of Appeals at Cincinnati this decision was reversed, that court holding that under the facts in the case complainants were entitled to go to the jury upon the question as to whether or not this corporation had committed an act of bankruptcy within the purview of the act. It was alleged in the petition that the case was remanded to the United States District Court at Chattanooga, where it will stand for trial at the next term of that court. After the recitation of these facts, petitioners pray as follows:

"Wherefore petitioners present the facts for the information of the court, and pray the court to grant a stay of proceedings in this case as required by law."

This petition was answered, and the defenses thereto were: First. That it comes too late; that it is not verified and is not accompanied by a full transcript of the record. Second. That the most that can be said is that the bankruptcy court might have authority, upon proper adjudication, to assume exclusive jurisdiction of the property in question, but that it has not done so; that no adjudication in bankruptcy has been had by the federal court, and that the feedral court has never appointed any receiver of the property, or made any order by which it has attempted to take or assert exclusive jurisdiction of the administration of this bankrupt's property. The latter position is, in our judgment, manifestly sound. We pretermit any discussion as to whether or not, the state court having acquired jurisdiction of this case prior to the filing of the petition in bankruptcy, it is entitled to proceed to final decree with respect to the issues. In the case of New River Loan & Land Co. v. Ruffner Bros., 165 F. 881, 91 C. C. A. 559, the question was passed on by the United States Court of Appeals for the Fourth District. The syllabus of that case is as follows:

"A District Court as a court of bankruptcy has exclusive power to determine whether a suit pending in a state court should be stayed or not, and the exercise of this power rests in the discretion of the judge, which will not be reviewed by an appellate court unless it appears to have been abused."

This holding seems to have been specifically approved in Hobbs v. Head & Dowst Co., 184 F. 414, 106 C. C. A. 519, and in Virginia Iron, Coal & Coke Company v. Olcott, 197 F. 734, 117 C. C. A. 124, and in Benwood Brewing Company (D. C.) 202 F. 326. In the case at bar it is not contended that the federal court has undertaken to take jurisdiction of the administration of the affairs of this corporation. There has been no adjudication in bankruptcy, and, in fact, it appears from the answer of the receivers that that court has refused to appoint any receiver. If, as stated in the Ruffner Case, that court is vested with exclusive jurisdiction to determine whether or not it shall assume exclusive jurisdiction of the controversy, it clearly appears in this case that it has not done so, and indeed has refused to assert or claim such jurisdiction, and under such circumstances it is not only the right, but the duty, of this court to proceed to a determination of the questions before it.

Furthermore, we think the question should have been made, if at all, by proper petition presented to the lower court, which, so far as this record shows, was not done, or, if done, that the action of the lower court was not seasonably invoked thereon, and appeal taken.

The assignment of error filed on behalf of the complainant goes to the action of the court in refusing to declare the debentures null and void by reason of the fact that they are not supported by any valid consideration. We will consider this assignment along with assignments Nos. 7 and 8, filed on behalf of the Central Trust Company and the Scottish Banks. These assignments are to the effect that the Court of Appeals erred in remanding the case to the chancery court for further proof as to the debt of the petitioner banks, and in limiting the participation of the petitioners to the consideration paid which "went into the treasury of the said Dayton Company."

In the consideration of this question we look first to the pleadings in this cause, for the purpose of determining what questions were raised upon which it was competent or necessary to introduce proof, and next to the proof introduced in support of them. With reference to the issues made by the pleadings, it has been said by this court in Kelley Bros. v. Fletcher, 94 Tenn. 7, 28 S.W. 1099:

"The controlling question raised by the assignments of errors and reply thereto is one of pleading and practice. For complainants it is contended that the burden was upon the defendants to show, by proof, independent of the fact of assignment by Lambie and acceptance by the corporation, that the property assigned by him to the corporation was reasonably worth the par value of his stock; while, on the other hand, the contention for the defendants is that it was incumbent upon the complainants first to allege, and then to prove, that the property so assigned was not reasonably worth so much.

The contention of the defendants, both as to the matter of pleading and as to the burden of proof, is well sustained upon principle and upon authority. It is a fundamental maxim in chancery pleading and practice that the complainant must give the defendant notice of the case to be made against him by alleging in the bill the facts intended to be proved, and that proof of facts not so alleged will be rejected because not responsive to the issue. Story on Equity Pleading, §§ 27, 28, 257; 1 Daniell's Chancery...