U.S. Supreme Court
Julian v. Central Trust Co., 193 U.S. 93 (1904)
Julian v. Central Trust Company
Argued January 21-22, 1904
Decided February 23, 1904
193 U.S. 93
While the decision of the highest court of a state is entitled to the highest respect and consideration from, it is not conclusive upon, this Court in determining rights secured by a purchaser under a decree of foreclosure in a federal court at a sale made prior to the rendition of such decision.
Under the laws of North Carolina and the decisions of the highest court of that state rendered prior to 1894, there was nothing to prevent property of a railroad company sold under foreclosure passing to the purchaser free from any obligation for debts of the former owner arising thereafter, notwithstanding the purchaser was not a domestic railroad corporation.
Where the federal court acts in aid of its own jurisdiction and to render its decree effectual, it may, notwithstanding § 720, Rev.Stat., restrain all proceedings in a state court which have the effect of defeating or impairing its jurisdiction. chanroblesvirtualawlibrary
A purchaser of property sold under a decree of foreclosure in a federal court, in cases where the federal court by its decree retains jurisdiction to settle all liens and claims upon the property and who is in possession of the property under an order confirming the sale, can maintain an action in the same court to restrain the holders of judgments obtained in the state courts against the former owner, in actions to which the purchaser was not a party, from levying upon and selling the property described in the decree of foreclosure and the order confirming the sale thereunder.
On May 2, 1894, a decree was entered in the Circuit Court of the United States for the Western District of North Carolina foreclosing a second mortgage of the Western North Carolina Railroad Company to the Central Trust Company of New York, trustee. The property was subject to a first mortgage to the same trustee which was not in default. The decree provided:
"The purchaser or purchasers of the property herein decreed to be sold," the Western North Carolina Railroad and its franchises,
"shall be invested with and shall hold, possess, and enjoy the said mortgaged premises and property herein decreed to be sold, and all the rights, privileges, and franchises appertaining thereto, as fully and completely as the Western North Carolina Railroad now holds and enjoys, or has heretofore held and enjoyed the same, and further, the said purchaser or purchasers shall have and be entitled to hold the said railroad and property discharged of and from the lien of the mortgage foreclosed in this suit, and from the claims of the parties to this suit or any of them, except the first consolidated mortgage of September 1, 1884."
In pursuance of this decree the Southern Railway Company, a corporation of the State of Virginia, became the purchaser. On August 22, 1894, the sale was confirmed, the decree of confirmation providing, among other things:
"It is further ordered and decreed that the special master is hereby authorized and directed, on the request of said purchaser, to sign, seal, execute, acknowledge, and deliver a proper deed of conveyance to the said Southern Railway Company, conveying to it, all and singular, the railroad, equipment, property, and franchises so as aforesaid sold under the decree
of this court, free from any and all equity of redemption of the said Western North Carolina Railroad Company, or anyone claiming by, under, or through it, except the prior mortgage recited in such decree. Upon the delivery of such conveyance by the special master, the said Southern Railway Company shall fully possess and be invested with all of the estate, right, title, and interest in, to, and of such railroad, equipment, property, and franchises so sold under the decree of this Court as the absolute owner thereof, to have and to hold the same to it and its successors and assigns forever."
"On August 31, 1894, on exhibition of the deed executed and delivered by the special master herein ordered, the defendant company is authorized, directed, and required forthwith to deliver over to the said Southern Railway Company the possession of all and singular the railroad and property described in and conveyed by such deed."
"It is also further ordered that, by way of further assurance and confirmation of title to such Southern Railway Company of the property so by it purchased under the decree of this Court, the said The Western North Carolina Railroad Company, by its proper officers and under its corporate seal, and the Central Trust Company of New York, trustee, shall, upon request of said Southern Railway Company, sign, seal, execute, acknowledge, and deliver to said Southern Railway Company all proper deeds of conveyance, transfer, release, and further assurance of all the railroad property and franchises so as aforesaid sold under the decree of this Court and embraced in the deed of the special master, so as fully and completely to transfer to, and invest in, the said Southern Railway Company the full legal and equitable title to all such railroad property and franchises sold or intended to be sold under the decree of this Court."
Afterwards, the master conveyed to the Southern Railway Company:
"All and singular the railroad of the said Western North Carolina Railroad Company in the State of North Carolina, extending from Salisbury, in Rowan County, to and through Statesville, in Iredell County, to Asheville, on or near the
French Broad River, in Buncombe County; thence along French Broad River to Paint Rock in Madison County, and also from said Asheville westward to the Tennessee River at or near the mouth of the Nantahala River, and thence westward to Murphy in Cherokee County, and all real estate now owned or acquired for the purpose of said railroad, including all station, depot, or other grounds held and used in connection therewith, and all rails, railway tracks, sidings, switches, bridges, fences, turntables, water tanks, viaducts, culverts, superstructures, passenger and other depots, station and freight houses, machine shops, buildings, fixtures, rolling stock, equipment, machinery, tools and implements whatsoever, now owned or acquired for the purposes or business of the said Western North Carolina Railroad Company in connection with the said railroad, and all the franchises, rights, privileges, easements, income, earnings, and profits of the said Western North Carolina Railroad Company connected with, issuing from, or relating to, the said above-described railroad."
"The foregoing properties -- real, personal, choses in action, and franchises -- being embraced in the lien of the second mortgage of the Western North Carolina Railroad Company executed September 2, 1884, and being sold in foreclosure of the same."
"A more full and particular description of the property intended to be conveyed by this instrument being contained in said decree of the 5th of May, 1894, to which reference is hereby made, together with all the corporate estate, equity of redemption, rights, privileges, immunities, and franchises4, to which reference is hereby made, together with all the corporate estate, equity of redemption, rights, privileges, immunities, and franchises4, to which reference is hereby made, together with all the corporate estate, equity of redemption, rights, privileges, immunities, and franchises of said Western North Carolina Railroad Company, and all the tolls, fares freights, rents, income, issues, and profits of the said railroad, and all interests and claims and demands of every nature and description, and all the reversion and reversions, remainder and remainders thereof, including all the said mortgaged premises and property in said decree directed to be sold at any time owned or acquired by, and now in the possession of, said Western North Carolina Railroad Company."
The deed of purchase was duly recorded, and in August, 1894, the purchaser took possession of the railroad property, chanroblesvirtualawlibrary
and has ever since been in possession of the road, operating it as owner.
On March 20, 1897, Mrs. James, as administratrix of her deceased husband, W. A. James, brought an action in the Superior Court of Rowan County, North Carolina, against the Western North Carolina Railroad Company for damages for the wrongful killing of her husband. The Southern Railway Company was the employer of the deceased, and he was killed in its service while acting as a locomotive engineer. In the trial court, a judgment was rendered in favor of the railroad company. On appeal, the judgment was reversed, and the cause remanded to the superior court with directions to enter a judgment for the damages assessed in favor of the administratrix. James v. Railroad, 121 N.C. 523. Judgment was entered accordingly against the Western North Carolina Railroad Company for $15,000 on February 21, 1898.
On the same day that the James suit was begun, March 20, 1897, Fannie E. Howard, as administratrix of her husband, John H. A. Howard, deceased, commenced an action in the superior court to recover of the Western North Carolina Railroad Company damages sustained in the death, by wrongful act, of her husband, who was killed at the same time with James, being a fireman in the employ of the Southern Railway Company, and recovered damages in the sum of $5,000 on February 21, 1898. To neither of these suits was the Southern Railway Company made a party defendant. After the recovery of these judgments, Mrs. James and Mrs. Howard caused executions to be issued from the Superior Court of Rowan county and placed the same in the hands of D. R. Julian, sheriff, who proceeded to levy the same upon the property as belonging to the Western North Carolina Railroad Company, to-wit:
"The Western North Carolina Railroad Company, existing in the State of North Carolina, including its corporate franchises, rights, privileges, immunities, easements, and appurtenances of every kind appertaining, belonging to, or in any wise connected therewith, or issuing out of and relating to the said The Western North Carolina Railroad Company, together
with all of its property in the State of North Carolina, and including its roadbed and right of way, its real estate acquired and owned for railroad purposes, its stations, depots, grounds, its railway tracks, switches, sidings, bridges, fences, turntables, water tanks, viaducts, culverts, superstructures, passenger, freight, and other houses, machine shops, buildings, and fixtures -- the said railroad extending from the Town of Salisbury through Statesville, Newtown, Hickory, Morganton, Marian, Asheville, to Paint Rock in Madison County, and from Asheville westward by way of Waynesville to Murphy in Cherokee County, reference being had for a further description of said road and its property, rights, and franchises to the charter of the said road and the amendments thereto enacted from time to time by the General Assembly of North Carolina."
The sheriff advertised the property levied upon for sale, whereupon the Central Trust Company of New York and the Southern Railway Company filed a supplemental bill in the foreclosure proceeding, making the sheriff party defendant, seeking to quiet the title to the property and franchise purchased at the foreclosure sale and to enjoin the sale of the same to satisfy the judgments rendered in the state courts against the Western North Carolina Railroad Company. In the answer of the sheriff and of the administratrices of James and Howard, issue was taken upon the right of the circuit court to entertain the bill or grant an injunction, and, among other things, it was averred:
"3. That these respondents deny the truth of the allegations contained in the third section of the supplemental bill of complaint, and while they admit that the Southern Railway Company took a deed from the master purporting to convey the said franchises and property subject to the lien of the first mortgage bonds theretofore issued by the said company, they aver that the Southern Railway Company, being at the time of said sale not a resident corporation of the State of north Carolina and not subject to visitation of said state, but attempting to do business therein by comity, was not allowed or authorized by the laws of North Carolina to purchase or hold or operate the Western North Carolina Railroad, or to own its
franchise and property without becoming a domestic corporation, and that, by virtue of certain laws enacted by the Legislature of North Carolina at its session of 1879, being chapter 10 of the Laws of 1879, reenacted in the Code of North Carolina as § 1255, no mortgage of the Western North Carolina Railroad Company, thereafter issued, had the legal effect of exempting the property or earnings of said company from execution for the satisfaction of any judgment obtained in the courts of said state against said company for torts thereafter committed by said company, its agents, or employees, whereby any person should be killed, or any person or property injured, 'any clause or clauses in such mortgage to the contrary notwithstanding,' both the first mortgage bonds subject to which the sale of the franchise and property of said company purporting, under the decree referred to in the bill of complaint to have been sold, and the second mortgage bonds, for default in payment of the interest on which the decree of foreclosure was entered, appear from said record (Exhibit A to said bill of complaint) to have been issued long after the enactment of said statute in the year 1871, and said statute, since its enactment in 1871, has been the law of the State of North Carolina, in contemplation of which all railroad companies created by, and organized under, the laws of said state, have issued all mortgage bonds, the said statute, as these respondents are advised, informed, and believe, having entered into and formed a part of every mortgage bond issued by any railroad corporation operating under the laws of North Carolina since its enactment in 1871."
"But these respondents deny the truth of the allegation"
"that, at the time of their death (referring to the death of W. A. James and John H. A. Howard), the Western North Carolina Railroad Company had no interest in the Western North Carolina Railroad or the franchises, nor had it any interest or estate in said railroad or franchise of any kind or nature whatsoever since the twenty-second day of August, 1894, the day the Southern Railway Company took possession of said railroad,"
"and these respondents aver that the Supreme Court of North Carolina, the highest appellate court of said state, held and adjudged,
in the year A.D. 1898, in actions pending therein on appeal, and in which these respondents, respectively, were plaintiffs and the said The Western North Carolina Railroad Company was defendant, that the said Western North Carolina Railroad Company was still an existing corporation, liable to be sued in the courts of said state, and that the said judgments in favor of these respondents, respectively, and against the Western North Carolina Railroad Company constituted liens upon the franchise and property of the company superior to the liens of the said first mortgage bonds or the said second mortgage bonds mentioned in the said foreclosure suit, and these respondents are advised, informed, and believe that the courts of the United States are bound to follow and adopt the construction given by the highest appellate court of North Carolina in construing its own Constitution and its own laws. And these respondents are advised, informed, and believe that, though the Southern Railway Company had assumed the right to operate the Western North Carolina Railroad, and had employed the intestates of these respondents as engineer and fireman when they were killed by the negligence of said Southern Railway Company, that the Supreme Court of North Carolina had held and adjudged in the said actions brought by these respondents against the Western North Carolina Railroad Company, and wherein they recovered the judgments in pursuance of which executions have issued, as alleged in the bill of complaint, that the said The Western North Carolina Railroad Company was answerable for the torts of the Southern Railway Company and for any damages to its employees the Central Trust Company and the Southern Railway Company in operating said railroad."
Upon hearing upon the bill, answer, and testimony, a decree was entered in favor of the Central Trust Company and the Southern Railway Company, and an injunction granted against the proposed sale of the property levied upon. From this decree an appeal was taken to the circuit court of appeals, from whose judgment affirming the decree of the circuit court, 115 F.9d 6, a writ of certiorari to this Court was granted. chanroblesvirtualawlibrary