Case Name: PHILLIPS v. PERUE et al.
Court: Supreme Court of Texas
Jurisdiction: Texas
Decision Date: 1921-04-06
Citations: 229 S.W. 849
Docket Number: No. 3334
Parties: PHILLIPS v. PERUE et al.
Judges: 
Reporter: South Western Reporter
Volume: 229
Pages: 849–852

Head Matter:
PHILLIPS v. PERUE et al.
(No. 3334.)
(Supreme Court of Texas.
April 6, 1921.)
1. Insurance <&wkey;21 — State may require deposit from foreign casualty company doing business therein.
It was fully within the power of the state to prescribe the conditions on which a foreign corporation might pursue its business within the state, and it could1 require a special deposit from casualty company as a trust fund to protect its obligations arising under policies issued within the state.
2. Corporation's <&wkey;>638 — Foreign corporation, voluntarily subjecting itself to a state’s laws, binds shareholders and creditors.
A law of the state to which a foreign corporation had voluntarily subjected itself would necessarily be binding on its shareholders and other creditors, and any one standing in the stead of the corporation.
3. Courts <&wkey;8 — State’s 'holding fund deposited as against liquidator of foreign corporation not a violation of full faith and credit clause.
Laws of the state are not subordinate to the laws of another state touching property lawfully within its jurisdiction, and the enforcement of its laws against the deposit of a foreign corporation, and refusal to give up the deposit to the authorities of another state, would not violate the full faith and credit clause of the federal Constitution.
4. Insurance &wkey;j2l— Right of Texas creditors of withdrawing casualty company to its deposit with state treasurer held superior to right of its liquidator in another state.
Under Rev. St. 1911, art. 4930, providing that a foreign fidelity or guaranty company shall make a deposit with the state treasurer for the benefit of holders of its obligations, to remain with him in trust to answer any default of the company as surety upon its bonds, established by final judgment upon which execution may lawfully be issued against it, and article 4935, declaring the character of .claims which may be satisfied by the state treasurer out of such deposit as only those established by final'judgment as a loss of the company “incurred in this state,” and article 4932, presenting the conditions under which the deposit may be withdrawn upon the company’s surrendering its right to do business in the state, one of which is the filing with the state treasurer of a bond payable to the state in a sum-equal to the whole amount of its liability “in this state” under its contracts, conditioned for the performance of its outstanding obligations, where the corporation withdrew from the state without putting up such a bond, the deposit constituted a special trust fund for the protection of its policy obligations issued in the transaction of its business in Texas, and the right of the holders of such obligations to the fund was superior to that of its liquidatpr under the laws of another state.
5. Insurance <í&wkey;21— District court may appoint, a receiver for deposit fund in the hands of state treasurer, to disburse it among corporation’s creditors.
Where a foreign casualty insurance corporation had withdrawn from the state without giving a bond, but leaving money on deposit with the state treasurer, it was proper, at the instance of its creditors, for the district court, to appoint a receiver to handle such fund and disburse it as directed by the court, rather than to handle it through the state treasurer.
Certified Questions from Court of Civil' Appeals of First Supreme Judicial District.
Suit by Sarah Perue to subject a deposit with the State Treasurer by the Casualty Company of America to the payment of claims against such company, in which others intervened as plaintiffs. Jesse S. Phillips, Superintendent of Insurance of the State of New York, as liquidator of the said Casualty Company of America, also intervened. Judgment against the company, the receiver appointed in the proceeding, and the liquidator, in favor of the plaintiff and other intervening creditors. Question certified to the Supreme Court. Answered.
Dean, Humphrey & Powell, of Huntsville, Clarence C. Fowler, of New York City (Albert Reese, of New York City, of counsel), for appellant
Hill & Hill, of Houston, for appellee Perue. A. T. McKinney, Jr., of Huntsville, for ap-pellee Jones.
Geo. T. Burgess and J. J. Eekford, both of Dallas, for appellee Balesteri.

Opinion:
PHILLIPS, O. J.
The facts upon which are predicated the questions certified are, in brief, these:
The Casualty Company of America, a New York fidelity, guaranty and insurance corporation, for the purpose of pursuing its business in Texas, in 1914 complied with Article 4930 by depositing with the State Treasurer $50,000.00 in securities. It surrendered its right to do business and withdrew from the State in 1916, leaving the deposit in the hands of the State Treasurer, and making no effort to comply with Article 4932 by giving the bond there required of such a company for the protection of its outstanding contracts, upon withdrawing from the State.
The company becoming insolvent, Jesse S. Phillips, Superintendent of Insurance of the State of New York, on May 4, 1917, in virtue of the insurance laws of the State of New York and of an order of the Supreme Court of New York County, was appointed liquidator of the company and vested with title to all of its property.
Later, in 1917, the appellee Sarah Perue, as a creditor of the company under one of its policies, filed this suit against it in the District Court of Walker County for the sum of. $1,800.00, seeking to subject the deposit in the hands of the State Treasurer to the payment of her claim, alleging the company's insolvency and the appointment in New York of a receiver of its affairs, and asking for the appointment of a receiver in Texas for the deposit pending the determination of her suit. On the same date, on this petition, the District Court of Walker County appointed W. C. Jones as such receiver, directing him to take possession of all the company's assets within the State of Texas and hold them subject to the court's orders. Jones at once qualified under this appointment.
Afterwards various parties intervened in the cause, asserting claims against the Casualty Company on bonds and policies issued by it and seeking their payment out of the deposit in the State Treasurer's hands.
In September, 19Í7, the District Court of Walker County entered an order directing that all interventions against the company be filed in the suit by March 1, 1918. "This order was later extended. Forty-two creditors of the company other than the plaintiff filed such interventions on claims arising from bonds and policies issued by the company, seeking to have their claims satisfied out of the deposit with the State Treasurer.
In April, 1918, the State Treasurer also intervened in the cause, setting up the custody of the deposit; the withdrawal of the company from the State without having given the bond required by Article 4932; alleging that' the statutes provided no way for the execution of the trust Imposed upon him by Article 4930, and tendering the deposit in his hands into the court for such disposition as it might determine.
This intervention was considered by the court, and judgment rendered that as there was no provision of the statutes under which the State Treasurer was authorized to convert the securities into money or distribute such funds under the company's situation, or providing any method by which those entitled could obtain satisfaction of their claims out of such deposit, it was necessary that it be delivered into the hands of the court's receiver, and directing that it be so delivered, and adjudging that thereupon the State Treasurer be relieved of the trust imposed upon him by the statutes in its relation. Pursuant to this judgment the State Treasurer delivered the deposit to the court's receiver.
Jesse S. Phillips, as liquidator of the company under the appointment of the New York court, also intervened in the cause, asserting his right to the fund and asking that it be turned over to him for administration in the New York court.
Judgment was rendered in the cause, April 18, 1918, against the company, the receiver, and also against Jesse S. Phillips denying his claim — in favor of Sarah Perue and the other intervening creditors, establishing their respective claims and ordering their satisfaction out of the securities constituting the deposit, which the receiver was directed to convert into cash for that purpose.
The questions certified are:
1. Whether the deposit with the State Treasurer constituted a trust fund to which the Texas creditors of the company had a claim superior to the right of Jesse S. Phillips, as liquidator of the company under the laws of the State of New York.
2. Whether the District Court of Walker County had the authority to appoint a receiver for the deposit. And if so, whether it was empowered to order, as directed in its judgment, the disbursement of the fund through the receiver, rather than through the State Treasurer.
The decision of the first question depends entirely upon the effect of our statutes governing the deposit. It was fully within the power of the State to prescribe the conditions on which the foreign corporation might pursue its business within its borders. It therefore had the right to require of the corporation, if deemed necessary, the special deposit as a trust fund for the protection of its obligations arising under its policies so issued within the State. Pierce Oil Corporation v. Weinert, Secretary of State, 106 Tex. 435, 167 S. W. 808; Blake v. McClung, 172 U. S. 239, 19 Sup. Ct. 165, 43 L. Ed. 432; People v. Granite State Provident Association, 161 N. Y. 492, 55 N. E. 1053; Lewis v. American Savings & Loan Association, 98 Wis. 203, 73 N. W. 793, 39 L. R. A. 559.
This was a matter for the Legislature. There can be no question as to its power.
Having the authority to require the deposit and to give it the character of a trust fund for the benefit of such special creditors, if the Legislature has so provided by law, neither the corporation, having availed itself of the benefits of the law, nor any one succeeding to its rights, can complain of an enforcement of the law. A law to which the corporation had voluntarily subjected itself would necessarily be binding upon its shareholders and other creditprs and any one standing in the stead of the corporation.
Nor would an enforcement of the law violate the Federal Constitution as a refusal to give full faith and credit to the laws of another State purporting to vest title to the fund in the liquidator of the corporation in that State. The laws of this State are not subordinate to the laws of another State touching property lawfully within the jurisdiction of tins State. It would be a novel proposition to say that valid laws of this State dealing with property here must yield to the laws of another State, which, of course, have no extra-territorial effect.
Article 4930 provides that a foreign fidelity or guaranty corporation doing business in this State shall have on deposit not less than $100,000 in good securities with a State officer of one of the States of the United States, held by such officer for the benefit of "the holders of its obligations," and also that it shall have on deposit with the State Treasurer of this State not less than $50,000 in good securities, held for the benefit of "the holders of the obligations" of such company, to remain with him in trust to answer any default of the company as a surety upon any of its fidelity or surety bonds, etc., established by final judgment upon which execution may lawfully be issued against it.
The deposit in controversy here was made in compliance with this article.
Except for the stipulation that the deposit shall be answerable only for judgments on which execution may lawfully issue in this State, which judgments would ordinarily be rendered only in favor of Texas creditors, there is nothing in this article expressly indicating that the deposit shall constitute a trust fund for the benefit primarily of such creditors.
Other articles of the statutes in immediate context, however, make it reasonably clear that such was the intended purpose. Article 4935 declares the character of claims which may be satisfied by the State Treasurer out of the deposit. They are only those established by final judgment as a loss of the company "incurred in this State." Losses of the company "incurred in this State" could not well be other than those arising because of fidelity, guaranty or insurance obligations issued by it in this State in the pursuit of its business here. These would be its Texas obligations. If under the law only obligations of this character may be satisfied out of the fund, it is plain that the fund is primarily for their benefit.
Article 4932 presents the conditions under which the deposit may be withdrawn upon the company's surrendering its right to do business in the State. One of them is that the company shall file with the State Treasurer a bond payable to the State in a sum "equal to the whole amount of its liability in this State, under its contracts, conditioned for the faithful performance and fulfilment of all its outstanding obligations." Such a bond would inure only for the benefit of the company's Texas obligations. It could hardly have been intended that this substitute for the deposit could be availed of only for the satisfaction of such obligations, unless the deposit, itself, was primarily for their benefit.
The Act reviewed in Morrell v. Colonial Security Co., 101 Tex. 309, 107 S. W. 524, contained no such provisions as these. That decision, therefore, does not govern the ease.
The only reasonable inference to be drawn from these articles of the statutes is that the Legislature intended the deposit of such a company to constitute a special trust fund for the protection of its policy obligations issued in the transaction of its business within this State. The right of the holders of such obligations to the fund would therefore in our opinion be superior to any right of the liquidator of the company under the New York laws.
We think it clear that the District Court of Walker County, under the circumstances shown, had the power to appoint a receiver of the fund, and also to disburse it through its receiver rather than through the State Treasurer. The law makes no provision for the Treasurer's converting the deposit into money, or for its distribution in the case of numerous claimants. To make an equitable distribution under such conditions was peculiarly within the province of a court of equity. The appointment of the receiver was but in aid of the efficient exercise of its powers. The court had the authority to appoint a receiver of its .own selection, and we can see no objection to its ordering the disbursement of the fund by him, rather than through the Treasurer. Having the power to appoint the receiver in the first place, that would be a proper function for the receiver to perform. There is nothing in the law that under the circumstances here present would require the court to disburse the fund through the Treasurer to the exclusion of its receiver.
The Treasurer appeared in the case and asked to be relieved of the trust. No question arises, therefore, as to his being improperly ousted.
It is urged in the appellant's brief that no sufficient notice was required by the court for the intervention of proper claimants; and upon this ground the court's jurisdiction to adjudge a distribution of the fund is attacked. There is nothing in the certificate of the Court of Civil Appeals showing that proper notice was not given. This question, in our opinion, is not presented by the certificate.
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