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SMITH MIDDLINGS PURIFIER CO. V. MCGROARTY, 136 U. S. 237 (1890)
U.S. Supreme Court
Smith Middlings Purifier Co. v. McGroarty, 136 U.S. 237 (1890)
Smith Middlings Purifier Company v. McGroarty
Argued April 15-16, 1889
Decided May 19, 1890
136 U.S. 237
Au appeal from a decree of the circuit court of the United States dismissing a bill filed by creditors to set aside a mortgage by their debtor is within the jurisdiction of this Court as to those creditors only whose debts severally exceed $5,000.
The filing of a voluntary assignment for the benefit of creditors and of the assignee's hood in a probate court under the statutes of Ohio, does not prevent a creditor who is a citizen of another state and has not become a party to the proceedings in the state court from suing in equity in the circuit court of the United States to set aside a mortgage made by the debtor contemporaneously with the assignment.
In Ohio, a mortgage by an insolvent trading corporation to prefer some of its creditors, having been held by the supreme court of the state to be invalid, under its constitution and laws, against general creditors such a mortgage must be held invalid in the courts of the United States.
This was a bill in equity filed November 4, 1885, by a corporation of Michigan against the Simpson and Gault Manufacturing Company, a corporation of Ohio, Sayler, a citizen of Ohio and assignee of that company, under the laws of Ohio, McGroarty, Simpson, Gault and Fitch, also citizens of Ohio, and Charles, a citizen of New York.
The bill alleged that the defendant company, on May 25, 1885, by a deed of assignment filed in the Probate Court of Hamilton County in the State of Ohio, granted and assigned all its property, real and personal, to Sayler, in trust to sell and dispose of it, and to apply the proceeds, after paying the
expenses of executing the trust, to the payment of all its creditors; that Sayler accepted the trust, and gave bond as required by the laws of Ohio, and entered on his duties as assignee under that deed, and sold all the property, and was about to distribute the proceeds; that the company then and still was indebted to the plaintiff in the sum of $1,461.72 and interest from February 3, 1885; that on May 23, 1885, the company, being deeply insolvent and contemplating and intending to make a general assignment of all its property to Sayler as aforesaid, and as part of one and the same transaction with that assignment, and by the procurement of Simpson, who was President of the defendant company, and of one O'Hara, its treasurer, executed and delivered mortgages of all its property to the five individual defendants, Simpson, McGroarty, Gault, Fitch and Charles, severally, in fraud of the plaintiff and other creditors of the company, and with a fraudulent intent to prefer the mortgagees as creditors of the company, contrary to the provisions of the statutes of Ohio regulating assignments for the benefit of creditors, and that the company, and Sayler as its assignee, had been requested by the plaintiff, and had refused, to take proceedings to have the mortgages set aside.
The bill prayed that the mortgages might be declared to enure to the benefit of the plaintiff and all other general creditors of the company, and that Sayler might be ordered to distribute the fund in his hands accordingly, and be restrained from applying it to the payment of the debts secured by the mortgages, and for further relief.
No service was made upon Charles, and, upon the plaintiff's motion, the bill was dismissed as to him and was amended by joining as plaintiffs three citizens of the State of New York, partners under the name of W. & F. Livingston, and by alleging that they had recovered judgment against the defendant company in November, 1885, for the sum of $10,822.89, which remained unreversed and upon which execution had been issued and returned unsatisfied.
Sayler, Simpson, McGroarty, Fitch and Gault demurred to the bill for want of equity and because the matters stated in
the bill, and all questions touching the validity of the mortgages and the distribution of the proceeds of the sale of the property, were within the exclusive jurisdiction of the Probate Court of Hamilton County. The court sustained the demurrers and dismissed the bill, and the plaintiffs appealed to this Court.
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