Holshouser v. . Copper Co. , 138 N.C. 248 ( 1905 )

In this appeal the question is presented whether the State of New Jersey is entitled to priority or preference over the other creditors, and especially over the lien creditors, in the payment of the debts of the Copper Company out of its assets which are now in the hands of the receiver. When it was provided by the State of New Jersey that the "annual license fee or franchise tax" should be a preferred debt in case of insolvency, it was evidently the purpose that the words should apply only to such proceedings in insolvency as should be instituted in that State, for we must presume that the Legislature did not intend that the statute should have any force beyond the territorial limits of the State, its operation being restricted to those limits, except in so far as it may be given effect in another State by the law of comity. McLean v. Hardin, 56 N.C. 294. We find upon examination of the laws of New Jersey that there is a statute there substantially like the act of 1901 (chapter 2, section 73), and strikingly similar in phraseology. It must be conceded that the State of New Jersey had no power to provide how the assets of a corporation situated in this State shall be distributed, or, by force of its statute, to confer any right of priority upon one of her own citizens or upon herself in respect to those assets. They are here, and always have been here, and are subject to the operation of the laws of the State, the lex loci rei sitae, or the law of the forum in which they have been sequestered for the benefit of the creditors of the corporation. Hunt v. Gilbert, 54 Ill. (255) App., 491; Kruger v. Bank, 123 N.C. 16. It has been established by the great weight of authority, as a part of the settled jurisprudence of this country, that personal property, as against creditors, has locality, and the lex loci rei sitae prevails over the law of the domicile, with regard to the rule of preferences in the case of insolvent estates.

The laws of other governments have no force beyond their territorial limits, and if permitted to operate in other States, it is upon a principle of comity, and only when neither the State nor its citizens would suffer any inconvenience from the application of the foreign law. Dunlap v.Rogers, 47 N. H., 281; Harrison v. Sterry, 5 Cranch., 298; Ogden v.Saunders, 12 Wheat., 214.

The general rule is, beyond question, that one State cannot prescribe a rule of action for another, but each must exercise its sovereign power within its own sphere and without exerting any influence upon the course of procedure or the administration of the law in any other jurisdiction. When the courts of a State give effect to a foreign law, it is by courtesy, or, what we call in the law, comity, and such effect of the law results solely from the exercise of this act of favor, and not from any intrinsic extraterritorial force of the law itself, but because by comity we make it our law. Alvany v. Powell, 55 N.C. at p. 59. Discussing this question, Story in his Conflict of Laws (8 Ed.), sec. 414, says: "If there is in such cases a conflict between our own laws and foreign laws as to the rights of our citizens, and one of them must give way, our own laws ought to prevail. The most convenient and practical rule is that statutable assignments, as to creditors, shall operate intraterritorially only. If our citizens conduct themselves according to our laws in regard to the property of their debtors found within our jurisdiction, it is reasonable that they should reap the fruits of their diligence, and not be sent to a foreign country to receive such a dividend of their debtors' effects as the foreign laws allow. If each government (256) in cases of insolvency should sequester and distribute the funds within its own jurisdiction, the general result would be favorable to the interest of creditors and to the harmony of nations. This is the rule adopted in all cases of administration of the property of deceased persons; and there is no real difference between the principle of those cases and of cases of bankruptcy."

A case very much like ours was presented in Willitts v. Waite,25 N. Y., 577: "The acceptance of the charter," says the Court in that case, "with this provision for a distribution of its effects upon the happening of insolvency, cannot operate to give to the transfer the effect of a voluntary conveyance of the assets. The title of the trustees is a statutory title, and must defer to the lien acquired by the creditors attaching the property in this State. Creditors within this State, having acquired a lien under our laws upon property within the State, will not be deprived of their lien and sent to a foreign State to seek such portion of the insolvent estate as the laws of that State will, upon distribution, give them. The State will do justice to its own citizens so far as it can be done, by administering upon property within its jurisdiction, and will yield to comity in giving effect to foreign statutory assignments only so far as may be done without impairing the remedies or lessening the securities which our laws have provided for our own citizens." Many authorities could be cited in support of the principle thus stated. A few only will suffice. Smith's Eq. Rem. of Creditors, sec. 241; Jones on Liens (2 Ed.), sec. 111; 2 Thomp. Corp., sec. 7064, where the cases are collected in the notes. A good statement of the doctrine will be found in Minor's Conflict of Laws, p. 12, sec. 7. "It is natural," he says, "and not at all to be reprobated that the courts of the forum should result in injustice to their own people. The object of the enforcement (257) of a foreign law in any case is to mete out as far as possible exact justice to all concerned, as well as to give due effect to the laws of other States. But the first and most important of these objects fails altogether when the enforcement of the `proper law' would result in injustice and loss to innocent citizens of the forum. As between the latter and strangers, it is not remarkable that the courts should elect in a close case to decide the matter in accordance with the lex fori, thus giving their fellow-citizens the advantages conferred upon them by the law under which they live and ordinarily transact their business. The observance of comity towards other States cannot reasonably be expected at the expense of injustice to residents of the forum, for whose benefit the courts and law are primarily instituted. The existence of this exception to the enforcement of the `proper law' is beyond dispute, though its limits are not yet precisely defined." In Hornthal v. Burwell, 109 N.C. 10;Shepherd, J., thus states the principle: "The authority of such laws, however, is admitted in other states, not ex proprio vigore, but excomitate, and hence it is now very generally held that when they clash with and interfere with the rights of the citizens of the countries where the parties to the contract seek to enforce it, as one or the other of them must give way, those prevailing where the relief is sought must have the preference." The learned judge then discusses the matter at length, and shows what are the proper limitations of this law of comity in its practical application to the question there involved. The true principle was well expressed and illustrated in the case of Olivier v. Townes, 7 Martin (La.), 50;S. c., 2 La. Term (N.S.), 93. "The municipal laws of a country," says the Court, "have no force beyond its territorial limits, and when another government permits these to be carried into effect within her jurisdiction, she does so upon a principle of comity. In doing so, care must be taken that no injury is inflicted on her own citizens; otherwise, justice would be sacrificed to courtesy; nor can the (258) foreigner or stranger complain of this. If he sends his property within a jurisdiction different from that where he resides, he impliedly submits it to the rules and regulations in force in the country where he places it. What the law protects it has the right to regulate." So it is in this case. When the Copper Company was chartered and permitted to migrate from its domicile and conduct its business in this State, where it has acquired property under the protection and operation of the local laws, its assets should in all fairness be held subject to the provisions of those laws in favor of persons who have dealt with it here as a domestic corporation, which is virtually its true character, though in law it is considered as a corporation of New Jersey. Goodwin v. Claytor, 137 N.C. 224.

This Court said by Shepherd, J., in Armstrong v. Best, 112 N.C. 62, quoting from Bank of Augusta v. Earle, 13 Peters, 519: "The comity thus extended to other nations is no impeachment of sovereignty. It is the voluntary act of the nation by which it is offered, and is inadmissible when contrary to its policy or prejudicial to its interests." The same principle applies as between the States, as is shown in Armstrong v. Best.

The law of comity in its different phases was considered in the following cases: McNeil v. Colquhoon, 3 N.C. 24; Moye v. May, 43 N.C. 131;Alvany v. Powell, 55 N.C. 51; Carson v. Oates, 64 N.C. 115;Findley v. Gidney, 75 N.C. 395; Hyman v. Gaskins, 27 N.C. 267; Stampsv. Moore, 47 N.C. 80, and the early case of Leake v. Gilchrist, 13 N.C. at p. 85. They all lead us to the conclusion that a foreign creditor cannot, by the operation of any law of his own State, acquire any preference over resident creditors in the administration of assets which are situated here. The property now in the custody of the court has never been in the State of New Jersey, and her laws cannot in any way affect its status or prejudice the rights of resident creditors of the corporation in respect to any liens thereon which they (259) may have acquired. McNeil v. Colquhoon, supra.

There is nothing in the sovereignty of New Jersey as a State which entitles her to any special favor in the consideration of the claim she now presents, or which modifies the general rule of comity so as to confer upon her any greater right or privilege than is possessed by the ordinary suitor in our courts. We will extend to her all possible courtesy in the prosecution of her claim, but we cannot be expected to contravene the settled policy of the State or to sacrifice the interests of our citizens in doing so. Their rights are fixed by the law, which we could not change if we would.

The ruling of the court in this appeal also was correct.

No error.

Cited: Blackwell v. Life Assn., 141 N.C. 122; Hall v. R. R.,146 N.C. 352; Edwards v. Supply Co., 150 N.C. 172; Powell v. Lumber Co.,153 N.C. 56; Silk Co. v. Spinning Co., 154 N.C. 426, 429; Kelly v. McLamb,182 N.C. 163.