Southern Bank & Trust Co. v. Folsom

LURTON, Circuit Judge, having made the foregoing statement of facts, delivered the opinion of the court. 1. The effect of the levy of the attachment issuing from the state chancery court, and the return of the writ into court, under the Tennessee statutes and decisions, was to place the attached laud within the control and possession of the state court. It was an actual seizure of the res, and thereby passed into the exclusive possession of the court', as fully as if a receiver had been appointed. Cooper v. Reynolds, 30 Wall. 308, 317. However defective the proceeding under which the attachment issued, it would not follow that the state court was without jurisdiction. The object of the bill was to subject the land attached as the property of the Magnatite Iron Company to the satisfaction of its debts. For this purpose the land itself was seized, and thus drawn within the jurisdiction of the court by this assertion of control and power over it. The validity of that act of power and authority could not be questioned by another court so long as the state court retained the possession thus acquired. The subsequent appointment of receivers by the federal court, and the direction that they should take possession of this land already within the possession of an independent court of co-ordinate jurisdiction, was without authority or warrant of law. While the proceedings in the state court were pending, it was wholly unjustifiable to seek to dispossess that court through the instrumentality of a proceeding in another court, intended to draw into question the validity or regularity of the proceeding in the state court. Shields v. Coleman, 157 U. S. 168, 15 Sup. Ct. 570. 2. The injunction restraining the execution of the decree of the state court was equally unwarranted, and was in violation of the provisions of section 720 of the Revised Statutes of the United States. That the land ordered to be sold was property of the suitor invoking the injunctive process of the United States court is no justification. The binding force of that very wise and conservative statute does not depend upon the real or ultimate rights of the respective claimants [932] of the property involved, or the regularity of the proceedings sought to be stayed. The statute prohibits any injunctive restraint upon the proceedings of a state court, and jurisdiction is not conferred by vigorous allegations touching the injustice or invalidity of the objectionable proceedings. Freeman v. Howe, 24 How. 450; Covell v. Heyman, 111 U. S. 176, 4 Sup. Ct. 355; Buck v. Colbath, 3 Wall. 334; Association v. Hurst, 16 U. S. App. 325, 7 C. C. A. 598, and 59 Fed. 1. In the latter case this court had occasion to consider and construe this statute and the cases cited above, and, touching them, said: “The principle is that, in order to preserve the dignity and protect the effectiveness of the process of courts of concurrent jurisdiction, and to avoid unseemly conflicts between them, and between their respective executive officers, no remedy of an injrmetive or dispossessory character will be afforded by one court against the acts of the executive officers of the other court, when done under color of an order or process issuing from such other court, because it would have the inconvenient and anomalous effect to stay the proceedings in one court to allow another court to investigate the validity of acts done under such proceedings.1” 3. But assuming the appointment of receivers and the awarding of injunctive process to have been unwarranted, and that neither had the effect of dispossessing the state court of the possession' of the res, it does not follow that the question of the superiority of the lien thus acquired by Folsom over the rights of the mortgagee in the same land might not be drawn within the jurisdiction of the federal court by an ancillary proceeding, such as that now in question. The mortgagees were not parties to the state proceeding, and therefore not concluded by it, so far as their rights as mortgagees were affected thereby. If we assume that the decree of the state court was valid, and conclusive upon the Magnatite Iron Company and its vendee, the East Tennessee Mining Company, both of whom were parties to that decree, a mortgagee claiming under a mortgage made prior to that suit would not be concluded, so far as a priority over the mortgage was asserted, by virtue thereof. The mortgagee might have intervened in the chancery court suit, but was not obliged to do so. Whenever the property passed out of the control and possession of the state court, the mortgagee might contest the priority of the lien or title dependent upon the state proceeding. This might be done by proper ancillary proceedings in the pending foreclosure suit, wherein it was sought to sell the property mortgaged free from all liens and charges. Hassall v. Wilcox, 130 U. S. 493, 9 Sup. Ct. 590; Trust Co. v. Condon, 31 U. S. App. 387, 14 C. C. A. 314, and 67 Fed. 84; Compton v. Railroad Co., 31 U. S. App. 486, 15 C. C. A. 397, and 68 Fed. 263. The defect in the jurisdiction, as a consequence of the possession of the attached property by the state court, must be regarded as obviated by the subslitution of a bond for that property. This substitution was not objected to below, and is not a subject of complaint here. The record before us is an abbreviated one, and we assume that this substitution was by consent. The legal effect was to place the circuit court in complete and rightful possession of the property theretofore in the rightful control and possession of the state court, and worked an abandonment by Folsom of any right to proceed further in the execution of the state decree. [933] 4. This brings us to the consideration of the only material question in respect of the priority of Folsom’s lien. The ground upon which Ms right to subject the property involved to the satisfaction of his debt was that the conveyance by his debtor to the East Tennessee Mining Company had been improperly and illegally admitted to registration, and was therefore inoperative, under the Tennessee registration statutes, as to creditors of the vendor. No question is made as to the illegality of the acknowledgment of that deed, and its illegal registration is admitted. ’The contention of counsel for appellant is that Folsom’s debt was created after he had actual notice of the sale and conveyance, and that the deed, though unregistered, was operative as between the parties, and as to any creditor who extended credit with actual knowledge of the unregistered deed. The Tennessee statute on the subject of registration, so far as here involved, is found in sections 2887, 2890, Mill. & V. Code Term. By section 2887 it is declared that: “All of said instruments símil Have effect between the parties to the same su’d their heirs and representatives without registration, but as to other persons not having actual notice of them, only from the noting thereof for registration on the books of the register, unless otherwise expressly provided.” And by section 2890 it is provided that: “Any of said instruments not so proved or acknowledged and registered, or noted for registration, shall be null and void as to existing or subsequent creditors or bona fide purchasers from the makers without notice; and in the case of marriage contracts, shall bo void as to existing or subsequent creditors of the husband, or purchasers from him without notice.” These sections are carried into the Code from the Tennessee act of 1841-42, c. 12, § 2. We learn from the Tennessee derisions that the registration acts have been several times amended, and the occasion of much litigation. In one particular the various acts have had a uniform construction, and that is that while a purchaser has not been protected against an unregistered conveyance unless he was a bona fule purchaser without notice, a creditor of the grantor is not affected by such unregistered instrument, even though he had notice of its existence. Washington v. Trousdale, Mart. & Y. 388; Douglas v. Morford. 8 Yerg. 373; Williams v. Walton, Id. 387; Lillard v. Ruckers, 9 Yerg. 73; Copeland v. Bennet, 10 Yerg. 355-358; Green v. Goodall, 1 Cold. 413. In Lillard v. Rucker, cited above, the court said that, under the earlier registration acts of 1784 and 1801, it had been decided by judicial construction that the— “Deed took effect without registration, as between ilio parties to the deed, But it has hoen as clearly settled that if a creditor have notice of such parol gift, or such unregistered deed, he is not affected by it. Tlie same point is ruled in Virginia, in Gay v. Moseley, 2 Munf. 545.” Tn Copeland v. Bennet the question was one of priority between a mortgage and a bill of sale, the mortgagee having notice at the time he registered his instrument of the prior, unregistered bill of sale. Touching the effect of such notice, Turley, J., for the court, said: “But it is said that the complainants, at the time they registered their mortgage, had notice of Bennett’s bill of sale, and that they are therefore bound by it. This is not the law. The complainants were not subsequent purchasers, and this principle applies to none other. If Bennett's bill of sale had been [934] registered first, and he had had notice of the existence of the complainants’ mortgage, he would have been bound thereby, as a subsequent purchaser. For the statute above referred to provides that any deed of conveyance, bill of sale, or other instrument, which shall be last executed, but first registered, shall have preference, unless it is proven in a court of equity that such subsequent purchaser had full notice of the previous conveyance.” The distinction between the effect of an unregistered conveyance upon a purchaser or creditor affected with notice, which was recognized and maintained under the various registration acts preceding the one now involved, is a distinction preserved most distinctly by section 2890, cited above. By the very unambiguous language of that section, unregistered instruments are expressly declared to be “null and void as to existing or subsequent creditors, or bona fide purchasers from the maker.without notice.” “Without notice’’ qualifies bona fide purchasers, and is not grammatically a qualification of the words preceding. The effect of a non-registration of a conveyance under the statutes of Mississippi came before the supreme court of Tennessee in Lally v. Holland, 1 Swan, 396-403. The Mississippi statute provided that conveyances recorded should be valid, “as to all subsequent purchasers for valuable consideration without notice, and as to all creditors,” only from the time they were proved or acknowledged, and delivered to the clerk of the proper court to be reeprded. The defendant claimed a part of the proceeds of" the property which had been conveyed by an unregistered instrument as a bona fide purchaser without notice, and the remainder as an attaching creditor. It was insisted that he was protected as an innocent purchaser to the extent only of the balance due him upon the mortgage, and that, as to the surplus over and above his mortgage debt, the complainants were entitled to a decree. The court, after saying that the principle appealed to would be effective “but for the different rule introduced by the registry act of Mississippi, as well as of this state and most • of the other American states,” added: “By the positive enactment of the statute of Mississippi before referred to, registration is as indispensable in order to give effect and validity to the instrument as respects ‘all creditors’ as it is in respect to ‘all subsequent purchasers for valuable consideration without notice.’ As to both classes of persons, the conveyance is a nullity till properly registered. Until then the property remains in the conveyor, as to his creditors, and may be proceeded against as such by them. And creditors have this vantage ground, which subsequent purchasers cannot occupy, — that the former are not affected by actual notice of a prior conveyance, if unregistered, or not properly registered. It follows, therefore, that the complainants are repelled, upon this ground, by precisely the same reason which repels them upon the other ground.” In Lyle v. Longley, 6 Baxt. 286, a creditor of one William Lyle filed a bill in the chancery court, charging an indebtedness, and stating grounds for an attachment. Under that bill a tract of land was attached as the property of the debtor, Lyle. It turned out that Lyle had sold the property theretofore, and executed a title bond, which had not been registered. It was insisted that a creditor attempting to reach an equitable right of his debtor is restricted to the equities of that debtor, and could obtain no higher right, and that the attachment must be subject to the equitable [935] rights of a purchaser of the property, who had bought and paid for the land. To this, McFarland, J., for the court, said: “A creditor seeking to reach an equitable right of his debtor is restricted, of course, to these equities, and can obtain no higher right; but under the registration laws the sale by Lylo to Simmerly was void, as to Lyle’s creditors, for want of registration. The result of this is that Lyle’s creditors could treat the land as Lyle’s, as if there had been no such sale, and in a ease of this character a creditor can obtain a higher right than ids debtor would have had. Even if Koehler & Co. had notice of the sate, which does not appear, they were not affected by it, although a subsequent purchaser would be.. A creditor is not affected by notice. Section 2075 of the Code; [Stanley v. Nelson] 4 Humph. 484.” To the same effect is the case of Coward v. Culver, 12 Heisk. 540. The question is one of Tennessee law, aud involves the construction of a Tennessee statute. The construction of the statutes of other states is of no consequence. If the highest court of Tennessee has construed this statute, it is the duty of this court to follow that construction. Under section 2890 of the Tennessee Code, every such conveyance, not duly registered, is null and void, as to creditors of tile grantor, irrespective of actual notice. As to a creditor, existing or subsequent, the property remains the property of the grantor, and is subject to levy of execution or attachment. The subsequent conveyance of the property by the vendee holding under such an unregistered deed does not affect the creditors of the original grantor. As to them the property continues to be the property of their debtor, until his conveyance shall he duly registered. The “creditor” referred to in section 2890 is not alone one who is such by judgment. The lien of an attachment has the same effect, both at law and in equity, as judgment and execution liens; and a creditor without judgment, who obtains an attachment and levies it upon the land of his debtor, claimed by another under an unregistered deed, secures thereby a lien, which he may ripen into a title by subsequent decree, or sale under execution. This has been expressly so ruled by the Tennessee supreme court. Parker v. Freeman, 2 Tenn. Ch. 612-614; Lyle v. Longley, 6 Baxt. 286. There is no evidence whatever of any collusion, fraudulent or otherwise, between Folsom & St. John and the Magna tite Iron Company. It is true that the legal services which were rendered by the former to the latter were rendered after the conveyance to the East Tennessee Mining Company, and after knowledge thereof. That credit was extended with any view of defeating the conveyances, or for any other fraudulent purpose, is not supported by any circumstance. The contention that the statute should be so construed as to make an unregistered deed null and void only as to creditors who become such in ignorance of the unregistered deed would be to do violence to the plain meaning of the positive terms of the statute, and impose a construction upon that section not warranted by the long line of Tennessee decisions which have held a creditor to be unaffected by notice* The decree must be affirmed, with costs.