Blake v. McClung (172 U.S. 239)/Dissent Brewer

by David Josiah Brewer

United States Supreme Court

172 U.S. 239

Blake  v.  McClung

Mr. Justice BREWER, dissenting.

I am unable to concur in the opinion of the court in this case. In my judgment it misconceives the language of the statute, the issues presented by the pleadings, and the decision of the state court. The act does not discriminate between citizens of Tennessee and those of other states. Its language is, creditors 'residents of this state shall have a priority * * * over all simple contract creditors being residents of any other country or countries.' The allegation of the amended bill is, 'Your orators are all residents of the state of Tennessee, and were such at the time the various debts sued on in this cause were created,' and that by virtue of the statute they are entitled to priority over the 'defendant Rogers, Brown & Co., and all other creditors of said insolvent corporation who do not reside in the state of Tennessee, or did not so reside at the time their credits were given.' The intervening petition of the plaintiffs in error Blake and Rogers, Brown & Co. alleges 'that they are residents of the state of Ohio, and were at the times and dates hereinafter named engaged in business in said state, their residences, offices, and places of business being at the city of Cincinnati.' The decree of the court of chancery appeals adjudges 'that all of the creditors of said company who resided in the state of Tennessee are entitled to priority of payment, out of all of the assets of the company of every kind, over all of the creditors of said company who do not reside in the state of Tennessee.' And the decree of the supreme court of the state is in substantially the same language, adjudging 'that all of the creditors of the Embreeville Freehold Land, Iron and Railway Company, Limited, who resided in the state of Tennessee, are entitled to priority of payment out of all of the assets of said company, both real and personal, over all of the other creditors of said company who do not reside in the state of Tennessee, whether they be residents of other states of the United States or of the kingdom of Great Britain.' So that neither the statute, the pleadings, nor the decree raise any question of citizenship, or give any priority of right to citizens of Tennessee over citizens of other states, but only discriminate between residents, and give residents of the state a priority. I think it improper to go outside of a case to find a question which is not in the record simply because it may be discussed by counsel for one party, who apparently decline to recognize any difference between residence and citizenship. For all this record discloses, the plaintiffs in error other than the corporation may have been citizens of the state of Tennessee, temporarily residing and doing business in Ohio, and the controversy one simply between citizens of the same state. It is not necessary in this court to refer to the difference between residence and citizenship. Neither is synonymous with the other, and neither includes the other. A British subject or a citizen of Ohio may be a resident of Tennessee, and entitled to the benefit of this statute. A citizen of Tennessee may, like these plaintiffs in error, be a resident of and doing business in Ohio, and not entitled to its benefit. It will be time enough to consider the question discussed in the opinion when it appears that a state has attempted to discriminate between its own citizens and citizens of other states, and the courts of the state have affirmed the validity of such discrimination.

Taking the statute as it reads, and assuming that the legislature of Tennessee meant that which it said, the question is whether a state, permitting a foreign corporation which is not engaged in interstate commerce to come into its territory, and there do business, has the power to protect all persons residing within its limits who may have dealings with such foreign corporation by requiring it to give them a prior security on its assets within the state. The principle underlying this statute is that a state, which can have no jurisdiction beyond its territorial limits, has the power, in reference to foreign corporations permitted to do business therein, to protect all persons within those limits, whether citizens or not, in respect to claims upon the property thereof also within those limits. That a state may keep such a corporation out of its territory is conceded; and that, in permitting it to enter, the state may impose such conditions as it sees fit, is, as a general proposition, also admitted. In Crutcher v. Kentucky, 141 U.S. 47, 59, 11 Sup. Ct. 854, it was said:

'The insurance business, for example, cannot be carried on in a state by a foreign corporation without complying with all the conditions imposed by the legislation of that state. So with regard to manufacturing corporations, and all other corporations whose business is of a local and domestic nature, which would include express companies whose business is confined to points and places wholly within the state. The cases to this effect are numerous. Bank v. Earle, 13 Pet. 519; Paul v. Virginia, 8 Wall. 168; Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566; Manufacturing Co. v. Ferguson, 113 U.S. 727, 5 Sup. Ct. 739; Philadelphia Fire Ass'n v. New York, 119 U.S. 110, 7 Sup. Ct. 108.'

Every one dealing with a foreign corporation is bound to take notice of the statutes of the state imposing conditions upon that corporation in respect to the transaction of its business within the state, just as he must take notice of any mortgage or other incumbrance placed by the corporation upon its property there situated. A state may, and often does, provide that persons furnishing supplies to and doing work for a corporation shall have a lien upon the property of that corporation prior to any mortgage. The validity of such legislation has always been sustained, and they who loan their money to the corporation do so with notice of the limitation, and have no constitutional right of complaint if their mortgage is thereafter postponed to simple contract obligations. If, voluntarily, the corporation placed a mortgage upon all its assets within the state to secure a debt to a single creditor residing within the state, and such mortgage was duly recorded, no one would have the hardihood to say that a resident or citizen of another state could challenge its validity or its priority over his unsecured debt, simply because he was a citizen of another state, or did not, in fact, know of its existence. And that which is true in case of a mortgage to a single creditor would be equally true in case such foreign corporation placed a mortgage upon its assets to secure every creditor within the state. The number of creditors secured does not change the validity of the security, or affect the matter of notice, or relieve the foreign creditor from the consequences of notice. If the corporation may voluntarily place a mortgage upon all its assets within the state to secure its creditors within the state, why may not the legislature require, as a condition of its doing business, that it give such a mortgage? Is the corporation more powerful than the state? Is a voluntarily executed mortgage more valid than a statute? If, in fact, in pursuance of such a statute, a mortgage to each separate creditor was given and recorded as fast as the corporation came under obligation to him, could a nonresident creditor question the validity of the mortgage or the priority given thereby? And is the effect of the statute in controversy anything other than the imposition upon the assets of the corporation within the state of a single mortgage in favor of home creditors? If written out and recorded, who could question its validity or its priority? The statute, in its spirit and effect, does nothing more. That it is prospective in its operation is immaterial; statutes generally are. The validity of an after-acquired property clause in a mortgage has become settled; none the less valid is it in a statute.

It is conceded, in the opinion of the court, that a foreign insurance corporation might be required to make a special deposit with the state treasurer to secure local policy holders; but if it is within the constitutional power of the state to require such special deposit, and, when made, it becomes in fact a security to the home policy holders, I am unable to appreciate why the state may not require a general mortgage on all the assets within the state as like security. Looking at it simply as a question of power on the part of the state, what difference can there be between a pledge of a special fund and a mortgage of the entire fund within the state? And that which is true in respect to an insurance corporation must also be true of any other corporation not engaged in interstate commerce business.

Indeed, aside from the demand made by the statutes of certain states of deposits by foreign corporations to secure home creditors, there are frequent illustrations of discrimination based upon the matter of residence. Often nonresident plaintiffs are required to give security for costs when none is demanded of resident suitors. Attachments will lie in the beginning of an action, authorizing the seizure of property upon the ground that the defendant is a nonresident, when no such seizure is permitted in case of resident defendants. These and many similar illustrations, which might be suggested, only disclose that it has been accepted as a general truth that a state may discriminate on the ground of residence, and that such discrimination is not to be condemned as one between citizens; and yet, if the doctrine of the opinion of the court in this case be correct, I cannot see how those statutes can be sustained, for surely they discriminate between nonresident and resident suitors in the matter of fundamental rights, to wit, the right of equal entrance into the courts, and equal security in the possession of property. It may not be uninteresting to notice the case of Fritts v. Palmer, 132 U.S. 282, 10 Sup. Ct. 93. That case came from Colorado. The statutes of that state, as quoted in the opinion of the court, provided, among other things:

'Sec. 260. Foreign corporations shall, before they are authorized or permitted to do any business in this state, make and file a certificate signed by the president and secretary of such corporation, duly acknowledged, with the secretary of state, * * * and no corporation doing business in the state, incorporated under the laws of any other state, shall be permitted to mortgage, pledge or otherwise encumber its real or personal property situated in this state, to the injury or exclusion of any citizen, citizens or corporations of this state who are creditors of such foreign corporation, and no mortgage by any foreign corporation, except railroad and telegraph companies, given to secure any debt created in any other state, shall take effect as against any citizen or corporation of this state until all its liabilities due to any person or corporation in this state at the time of recording such mortgage have been paid and extinguished.'

Commenting upon this section, and others, this court said (page 288, 132 U.S., and page 94, 10 Sup. Ct.):

'No question is made in this case-indeed, there can be no doubt-as to the validity of these constitutional and statutory provisions, so far, at least, as they do not directly affect foreign or interstate commerce. In Manufacturing Co. v. Ferguson, 113 U.S. 727, 732, 5 Sup. Ct. 739, this court said that 'the right of the people of a state to prescribe generally by its constitution and laws the terms upon which a foreign corporation shall be allowed to carry on its business in the state has been settled by this court."

It will be perceived that the statute of Colorado restrained a foreign corporation from mortgaging, pledging, or otherwise incumbering its property situate in the state to the injury or exclusion of any citizen of the state, creditor of such corporation, and further provided that no mortgage given by such foreign corporation to secure a debt created in another state should take effect against any citizen of the state until all liabilities due to any person or corporation in the state had been paid and extinguished. But this court said, and I think correctly, that there could be no doubt of the validity of these statutory provisions. It may be said, and said truthfully, that the attention of the court was not specially directed to this particular portion of the statute, and hence that the decision cannot be taken as authority. Yet the section was spread before the court, it is quoted in its opinion, and it was so obviously constitutional that neither counsel nor court had any doubt thereof. I note this case in order to suggest the objectionable evolution of the thought that a state may not protect those persons who are within its jurisdiction in respect to property also within its jurisdiction, or impose conditions on foreign corporations doing business therein, which amount to such protection. Ten years ago a statute of Colorado guarantying priority to citizens of the state over all other creditors, even those by mortgage, was by all parties, by counsel, and by court conceded to be free from objection, while to-day a statute of Tennessee, in no way discriminating between citizens, but only between residents and in respect to foreign corporations, is declared to be so plainly at variance with the constitution of the United States that it must be adjudged void.

The doctrine of this opinion is that a state has no power to secure protection to persons within its jurisdiction, citizens or non-citizens, in respect to property also within its jurisdiction, because, forsooth, such protection may in some cases work to the disadvantage of one who is not only a nonresident, but also not a citizen, of the state. It seems to me that the practical working out of this doctrine will be, not that the state may not discriminate in favor of its own residents as against nonresidents, but that the state must discriminate in favor of nonresidents and against its own residents. Take this illustration: A corporation organized and having its home office in New York comes into California to do business. The state of California attempts to require that its assets within the state shall be kept as a primary security for home creditors. This court declares that such requisition is unconstitutional. The solvency or insolvency of that New York corporation will be known in New York by those who are nearer to its home office sooner than by people in California. Insolvency is impending. The creditors in New York, near the home office, and familiar, therefore, with its exact condition, ascertaining its approaching insolvency, send to California, where there are assets, and, availing themselves of the ordinary statutory provisions of that state, seize by attachment all the assets there situated. The insolvency is thereafter made public, and the California creditors find that all the assets of the corporation within their state have been seized by creditors outside the state, and they are driven to the state of New York, where the corporation was organized, where its home office and home assets are, to see what share in the unappropriated assets they can obtain, while the New York creditors, by reason of their early information, secure full payment. Practically, the effect is to compel the state to discriminate in favor of the New York against the home creditors. The suggestion that, after the New York creditors have perfected their liens upon the assets in California, the courts of that state will stay proceedings until they see that the New York courts have given full protection to the California creditors in the assets in New York, is visionary and impracticable. There may be assets in twenty states, and there is no control by the courts of one state over proceedings in the courts of other states. Of course, if the California courts can wait till the New York courts have acted, the converse is also true, and so a game of seesaw may be established between the courts of the two states. For these, among other, reasons, I am constrained to dissent from this opinion and judgment.

I am authorized to state that the Chief Justice concurs in this dissent.