Petition for a Writ of Certiorari — Texasteel Manufacturing Co. v. Seaboard Surety Co.

INDEX

Pages

Petition for Certiorari ....... 1

Basis for Jurisdiction .... 2

Questions Presented .......... 2-3

Statement of Facts and Proceedirgs Below. 4-7

Reasons for Granting Writ ........ 7-15

TRE osc 5snnnnnnnnnnennecveneccnnnnensersnnennnrecnecncenccneneonceen 17-26

Specification of Errors .............----- 18-19

Argument and Authorities -..... 19-25

First Point in Argument ...............--..----.-- 21-23

Second Point in Argument ........... 23-25

Third Point in Argument ..............-...- 25

Conclusion .... ... 25-26

Appendix B ......... 27

LIST OF AUTHORITIES

Agnew v. Hoague, 99 F. (2d) 349...

Am. Jur. Vol. 3, p. 192, Sec. 528

Berman v. U. S., 302 U. S. 211, 214

Berman v. Wreck-A-Pair Bldg. Co., 182 So. 54

C. J. Vol. 3, Sec. 1369, p. 1255

C. J. S., Vol. 4, Sec. 605-607, pp. 1089-1091

Central Trust Co. v. Manley (5 Cir.) 100 F. (2d) 993

Dickinson v. Rinke, 182 F. (2d) 884

Doehler Metal Furniture Co. v. Warren,

129 F. (2d) 438

Ensminger v. Powers, 108 U. S. 292

Ex Parte Travis, 123 Tex. 480; 73 S. W. (2d) 487

Eller v. Irvin, 265 S. W. 595

Erie v. Thompkins, 304 U. S. 64

First State Bank v. Wallace, 165 S. W. 595

ii

LIST OF AUTHORITIES—(Continued)

Goddard v. Ordway, 94 U. S. 672

Guaranty, Etc. Co. v. Singleton (Tex. Civ. App.)

85 S. W. (2d) 808 .....................

Guaranty Trust Co. v. York, 326 U. S. 99...............

Hastings v. Byers, 40 N. Y. S. 299 ...........................

Huddleston v. Dwyer, 322 U. 8S. 232

Heitmuller v. Stokes, 256 U. S. 359

In Re Kelly v. Springfield Tire Co., 10 F. Supp. 414

In Re Ware Metal Polish Co. ..........

In Re Allen, 115 F. (2d) 936 .-

Jackson v. Finance Corp., 41 F. (2d) 103

(Cert. Denied) .............

Ie TN I I si cttd ncreccceerasinaniicinsitinenepiibeeee

Keyser v. Farr, 105, U. S. 265 .

Lubbock Etc. Bank v. Alexander, 4 S. W. (2d) 298....

Miles Laboratoies v. Federal Trade Com.,

OS SS a eee

Midland Etc. Ry. v. Wariner, 294 F. 185 ...................

Rotchschild v. Martin, 51 F. (2d) 897 .......................-

Rules Sup. Ct. 38, Sec. 5, Subd. b ..............-......--..--++-

Sidwell v. First Nat. Bank, 233 Pac. 153, 154 ............

Smith v. Oberjohns, 93 Tex. 35; 53 S. W. 341............

Sinclair Ref. Co. v. Burris, 1383 F. (2d) 536................

Shaw v. Payne, 254 U. S. 609 .

St. L. & S. F. Ry. Co. v. Laughmiller, 193 F. 689......

Suncrest Lumber Co. v. North Carolina Park Com.,

| SS fee

Texas Statutes, Arts. 1986, 1987, 6251

U.S. C. A., Title 28, Sec. 347

U.S. C. A., Title 28, Sec. 400 ..

U. S. v. Radice, 40 F. (2d) 445

U. S. v. Southern Pacific Ry. Co., 20 F. (2d) 529........

U. S. Fidelity & Guaranty Co. v. Paulk,

Tex. Civ. App., 155 S. W. (2d) 100.

Victoria Etc. Bank v. Skidmore, 30 S. W. 564............

Wood v. Canfield Paper Co., 117 Tex. 399....................

8,9

8

13,24

13

11,12,24

No.———

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1946

GEORGE W. ARMSTRONG, SR., ET AL,

Petitioners,

vs.

SEABOARD SURETY COMPANY,

Respondent.

PETITION FOR WRIT OF CERTIORARI AND

BRIEF IN SUPPORT THEREOF

TO THE HONORABLE CHIEF JUSTICE AND AS-

SOCIATE JUSTICE OF THE SUPREME COURT

OF THE UNITED STATES:

George W. Armstrong, Sr., Mary C. Armstrong,

Allen J. Armstrong and George W. Armstrong, Jr.,

petitioners, pray that a writ of certorari issue to re-

view the decree of the Court of Civil Appeals for the

5th Circuit entered on December 6, 1946, rehearing

overruled January 13, 1947, affirming the decree of

the District Court of the United States for the North-

ern District of Texas entered on January 12, 1946, in

a suit styled Seaboard Surety Company, plaintiff v.

George W. Armstrong, Sr., et al, Defendants, No. 748

CIVIL.

—

_ i

OPINION BELOW

The opinion of the court below filed December 6,

1946, has not been reported but is a part of the Record

page 140.

BASIS OF JURISDICTION

Jurisdiction is invoked under Sec. 240(a) of the

Judicial Code as amended by the Acts of February 13,

1925, 43 Stat. 398 (28 U. S. C. A. Sec. 347) and under

Supreme Court Rule No. 38, Sec. 5, Sub. Div. b. The

grounds for jurisdiction which will be hereinafter

more fully stated under that head is based upon the

claim that the Circuit Court of Appeals, as well as the

District Court, failed to apply the applicable federal

rules and the applicable state law and that the decision

herein as applied to the facts is in conflict with

numerous federal cases and state decisions herein-

after more specifically set forth under the heading

referred to.

QUESTIONS PRESENTED

The controlling questions presented in this petition

are:

1. Whether, after the entry of a declaratory judg-

ment in favor of the plaintiff in the District Court,

that court erred in entering a further judgment in the

same case granting coercive relief to the plaintiff by

rendering judgment on certain note, the validity of

which was involved in said suit for declaratory judg-

=

ment after appeal was perfected and while the same

was pending, and based solely on said declaratory

judgment contrary to the ordinary rule that where

an appeal is pending from a judgment of a trial

court, that court is without jurisdiction to proceed

further in said cause until said appeal has been de-

termined.

9. Whether the trial court erred in rendering judg-

ment against petitioners, guarantors of the debts of

the Texasteel Manufacturing Company, a corporation,

which debt was represented by notes sued upon with-

out having previously or at the same time rendering

judgment against said corporation the principal deb-

tor without either pleading or proof that said cor-

poration was insolvent or beyond the jurisdiction of

the court.

9 Whether the Circuit Court of Appeals erred in

holding that the petitioners were primary obligors

on said notes and, therefore suable as principal with-

out the joinder of said corporation the principal debtor.

4. Whether the trial court erred in rendering judg-

ment against petitioners on said notes pending the

proceeding for reorganization of said Texasteel Manvu-

facturing Company filed by Respondent and without

pleading or proof that a claim had been filed by re-

spondent for said indebtedness in said reorganiza-

tion proceedings.

ee

witileees

STATEMENT OF FACTS AND

PROCEEDINGS BELOW

The appeal in this case is from a judgment in the

companion case in which application for certiorari

has been filed and which were argued together and

one opinion rendered for both by the Circuit Court

of Appeals. The companion case being No. 11,499,

Texasteel Manufacturing Company, et al, Appellants,

v. Seaboard Surety Company, Appellee. The appeal

in the instant case in the Circuit Court of Appeals

was No. 11,603 styled George W. Armstrong, Sr., et

al, Appellants v. Seaboard Surety Company, Appellee.

After the judgment of May 2, 1945, in Cause No.

11,499 in the Circuit Court of Appeals and while the

appeal, from the judgment in said cause which was

styled in the lower court Seaboard Surety Company

v. Goerge W. Armstrong, et al, No. 748 CIVIL, was

pending in the Circuit Court of Appeals respondent

filed a petition in the same cause praying for a judg-

ment against petitioners for the principal, interest and

attorney fees on certain notes as follows:

A note payable to Continental National Bank, dated

December 8, 1943, for the sum of $350,000.00, with

interest from date at the rate of five per cent per

annum, and providing for attorney fees of ten per

cent of the principal and interest due, and signed by

Texasteel Manufacturing Company by Allen J. Arm-

strong, President, with a written guarantee on the

back thereof signed by George W. Armstrong, George

W. Armstrong, Jr., and Allen J. Armstrong.

i

A second note for the sum of $100,000.00, dated

March 1, 1944, payable to said bank and signed by

George W. Armstrong, Jr., with a written guarantee

on the back thereof signed by George W. Armstrong.

A third note for the sum of 100,000.00, dated March

1, 1944, payable to said bank and signed by Allen J.

Armstrong with a written guarantee on the back

thereof signed by George W. Armstrong.

All of said notes were indorsed without recourse

by the Continental National Bank to Respondent.

(R. 61, 62, 63, 64, 65, 66).

Respondent’s sole claim for judgment for the amount

of said notes, principal, interest and attorney’s fee

was based on said declaratory judgment. (R. 2, 4, 5

and 14).

Petitioners moved to dismiss said petition on the

ground that the court was without jurisdiction, in

that an appeal was pending from said declaratory

judgment and that the trial court was without juris-

diction to enforce it while said appeal was pending;

further pleaded that petitioners were sureties on said

note and not liable otherwise, and that it would be

inequitable and unjust to enter judgment against them

with award of an execution during the pendency of

reorganization proceedings filed by respondent in

which a trustee for the property of the said corpora-

tion had been appointed and was then engaged in

managing the affairs and administering the proper-

ties of said company; that said company was a go-

7

_ oI

ing concern and its assets exceeded the total amount of

its indebtedness. (R. 24, 25). Subject to said motion

petitioner pleaded that pendency of the appeal from

the declaratory judgment and that as to the obliga-

tions sued upon, petitioners were accommodation sur-

eties. (R. 26, 27). The trial court overruled the mo-

tion to dismiss and held that the declaratory judgment

was res adjudicata and that respondents were entitled

to the relief prayed for based upon the declaratory

judgment of May 2, 1945, and rendered judgment

against the petitioners last hereinabove named for the

principal, interest and attorney fees of said note. The

decree against George W. Armstrong, Allen J. Arm-

strong and George W. Armstrong, Jr., was for the

sum of $397,031.25, with interest on said note of

$350,000.00, and against George W. Armstrong and

Allen J. Armstrong for the sum of $113,437.50 with

interest, and against George W. Armstrong and

George W. Armstrong, Jr., for an additional sum of

$113,437.50, with interest. (R. 110, 111). It was stip-

ulated that an appeal was pending from said declara-

tory judgment of May 2, 1945, at the time of the said

decree (R. 37). The judgment on January 12, 1946,

was rendered solely on said declaratory judgment. The

court filed conclusions of fact and law in which it

found that the judgment rendered on May 2, 1945, and

on appeal in said Cause No. 11,499, was res adjudicata

and that the judgment so entered on January 12, 1946,

was based solely on said judgment. (R. 122, 123). The

sole ground for said monetary judgment claimed by

respondent was that it was entitled to enforce the

declaratory decree entered on May 2, 1945. (R. 2).

_

The prayer of the petitioner for coercive relief and for

a show cause order was based wholly on said declara-

tory judgment. (R. 14). Respondents offered in evi-

dence the application signed by petitioner for a surety

bond dated December 8, 1943, and this instrument

was an application by Texasteel Manufacturing Com-

pany, of Fort Worth, Texas, for a bond in the sum

of $350,000.00 to date from December 3, 1943. The

nature and character of bond is described as loan

guarantee and paragraph two, thereof, recites that the

' “yndersigned will at all times indemnify and keep

indemnified the surety and save it harmless by rea-

son of having executed the said bond referred to,”

and this application is signed by Texasteel Manufac-

turing Company, Allen J. Armstrong, indemnitor, and

then George W. Armstrong and George W. Armstrong,

Jr. (R. 68, 69, 70 and 71). Similar applications for

two other bonds, each in the sum of $100,000.00.

REASONS FOR GRANTING THIS WRIT

The holding of the Circuit Court of Appeals that

the granting of the money judgment in the case after

the rendition of declaratory judgment was not error

is in conflict with numerous decisions of other cir-

cuits and of this court, declaring the rule to be that

an appeal from the final judgment vested in the ap-

pellate court jurisdiction in the case and divested the

trial court of all other jurisdiction with reference to

the judgment rendered, so long as appeal is pending.

The rule as stated is taken from the opinion Jn Re

Allen, 115 F. 2d 936. It was held in U. S. v. Southern

ne

——

_

Pacific Ry. Co. 20 F. 2d 529 that the above rule has

been uniformly followed and applied to judgments of

Federal Court. in Civil Cases.

In U. S. v. Radice, 40 F. 2d 445, the rule stated:

“But we are not at liberty to consider the merits

of the District Court’s ruling because the record

discloses that the court was without jurisdiction

to allow intervention at the time the order was

entered on November 18, 1929. The decree of

forfeiture was made June 24, 1929, and on the

same day an appeal was allowed to the lessee.

Citation on appeal issued September 5th, the rec-

ord was filed in this court October 20th, and the

appeal was argued November 6th. The perfect-

ing of that appeal transferred all jurisdiction of

this court, and thereafter, during pendency of

that appeal, the court below was without power

to vacate or modify its decree of forfeiture.” )

In 4 C.J.S. 605, 606, 607, pages 1089-1091, the rule

is stated as shown above and numerous cases of this

court and other Circuit Courts of Appeal are cited

which are listed in the margin:

3 Am. Jur., p. 192, section 528;

3 C. J., section 1369, p. 1255;

Berman v. U. S., 302 U. S. 211, 214; 82 L. Ed.

204;

Midland, etc. Ry. Co. v. Warinner, 294 F. 185;

Heitmuller v. Stokes, 256 U.S. 359, 65 L. Ed. 990;

Keyser v. Farr, 105 U. S. 265, 26 L. Ed. 1025;

Rothschild v. Marshall, 51 F. 2d 897;

Ex Parte Travis (Tex. Sup.) 123 Tex. 480, 73 S.

W. 2d 487;

whens

Doehler Metal Furniture Co. v. Warren, 129 F.

2d 43;

St. L. & S. F. Ry. Co. v. Loughmiller, 193 F. 689;

Ensminger v. Powers, 108 U. S. 292, 27 L. Ed.

732;

Jackson v. Finance Corporation, 41 F. 2d 103

(cert. denied, 75 L. Ed. 754) ;

Suncrest Lumber Co. v. North Carolina Park

Commission, 30 F. 2d 121;

Goddard v. Ordway, 94 U. S. 672, 24 L. Ed. 287;

Dickinson v. Rinke, 132 F. 2d 884;

Shaw v. Payne, 254 U.S. 609, 65 L. Ed. 436;

U. S. v. Radice, 40 F. 2d 445;

Berman v. Wreck-A-Pair Bldg. Co., 182 Sou. 54

(Ala.).

The fact that the judgment appealed from was not

superseded does not affect the application of the rule.

The matter of supersedeas becomes material only when

the point considered is the enforcement of the judg-

ment according to its term. A judgment may be

enforced according to its terms when not superseded.

If the court had awarded any kind of writ for the

enforcement of the declaratory judgment, an appeal

by cost bond only would have prompted the issuance

and service of such writs and the enforcement of the

judgment as provided for in the decree. This is

beside the point. In this case, the decree was a dec-

laratory judgment only, no coercive relief was asked

or granted and the instant proceeding was for the

sole purpose of obtaining a judgment based on the

declaratory judgment of May 2, 1945, while the ap-

ac ehiaiaiicnsinliiateiel

SE eae |

a

peal was pending. The monetary judgment rendered

was entered in the same cause and by a pleading

which was in effect a motion for coercive relief, and

upon the pleading being presented to the court had

issued a show cause order. The point is not whether

the judgment appealed from is superseded but the

question is the power of the court to exercise juris-

diction in the same case after a final judgment ren-

dered by him while an appeal from such judgment

is pending and undecided.

Unless a rule exists concerning declaratory judg-

ment, which differs from the ordinary rule with re-

spect to judgments of Federal Courts in civil cases

generally, the trial court was without jurisdiction to

entertain the petition and render the judgment of

January 12, 1946.

No case has been cited by respondent and none

was referred to in the per curim opinion of the Circuit

Court of Appeals deciding this question in favor of

the action of the Court below. In Sinclair Ref. Co. v.

Burris, 133 F. 2d 536, it was said that a declaratory

judgment only fixes the rights of the parties, which

rights may be enforced in a separate suit. In Bor-

chards “Declaratory Judgments,” page 255, it is furth-

er stated that the ordinary rules apply to an appeal

from a declaratory judgment.

In numerous cases it has been stated that Section

400, Title 28, U.S.C.A. does not add to the jurisdic-

tion of the Federal Courts nor does it change the essen-

tial requisites of the jurisdiction of Federal Courts.

= a

—

Agnew v. Hoague, 99 F. 2d 349; Miles Laboratories

y. Federal Trade Commission, 140 F. 2d 683. It is

submitted that the question has never been decided

in favor of the action of the trial court, and that

it is of such importance that the holding of the Cir-

cuit Court of Appeals, contrary to the general rule,

should be reviewed.

The holding of the Circuit Court of Appeals that

petitioners were primarily liable on the obligation,

for which recovery was allowed, is contrary to the

decisions of the Supreme Court of Texas in the case

of Wood v. Canfield Paper Co., 117 Tex. 399; and

the applicable Texas Statutes being Arts. 1986, 1 987

and 6251 Revised Statutes, which Statutes are shown

in Appendix B to supporting brief.

The opinion recognizes the rule declared by said

statutes, which provides, in substance, that no judg-

ment should be rendered against a party not pri-

marily liable on a note or other contract, unless

judgment be also rendered against the principal ob-

ligor, except where the principal obligor can not

be reached, by the ordinary process of law, or his

residence unknown, and can not be ascertained by

the use of reasonable diligence, or is actually or

notoriously insolvent. The error in the holding of

the Circuit Court of Appeals is in the fact that peti-

tiners were primarily liable. The grounds for this

holding are not stated. The contract evidencing the

liability of George W. Armstrong was written on

the back of each of the three notes above referred

. eee |

=

to, and by this recital, all the liability therein im-

posed was strictly that of a guarantor. Guaranty

Etc. v. Singleton, (Tex. Civ. App.), 85 S. W. 2d

803; Wood v. Canfield Paper Co., 117 Tex. 399. The:

contention of respondent in the Circuit Court was

that because the notes contained a recitation that

all signers and indorsers thereof are to be regarded

as principals (R. 61), and because petitioners signed

the application for surety bonds above referred to,

that this constituted them indemnitors and, there-

fore, primarily liable. The contract signed by George

W. Armstrong was a separate contract and not

part of the note itself. Eller v. Irvin, 265 S. W. 595.

The undertaking was to guarantee the payment of

the within instrument at maturity, and waive pro-

test and notice of sale. This was a contract of

guaranty. Guaranty Etc. v. Singleton, 85 S. W. 2d

803 did not render said Armstrong liable as an in-

dorser. Wood v. Canfield Paper Co., 117 Tex. 399;

Central Trust Co. v. Manley (5 cir.) 100 F. 2d 993.

The suit of respondent, and on which judgment was

rendered in its favor, was not on an indemnity con-

tract, and the said application referred to above re-

lated not to the notes, but to a bond which respondents

executed as sureties for Texasteel Manufacturing

Company. The judgment against petitioners was

for the principal, interest and attorney fees stipu-

lated in the notes, and by respondents as the owner

of such notes. The judgment could not have been

rendered under the proof on an indemnity contract.

In such a case recovery would only have been allowed

—=

ii

for the amount of attorneys fees actually paid or

contracted to be paid. First State Bank v. Wallace,

165 S. W. 595; U. S. Fidelity & Guaranty Co. v.

Paulk, 155 S. W. 2d 100. There was neither plead-

ing nor proof that the corporation was insolvent.

Insolvency under said articles of Texas Statutes above

referred to, means that the principal debtor has no

assets of a substantial amount which may be used

even as a part payment on such debt. Smith v. Ober-

johns, 98 Tex. 35; 53 S. W. 341. In fact the proof

in the record, was only that said corporation had

assets exceeding its debt, and that said corporation

had a net worth of $570,000.00. (R. 105, 106).

No presumption of insolvency can be indulged from

the filing and approval of the reorganization peti-

tion, because if a corporation is absolutely insolvent,

the petition for reorganization would not be ap-

proved. In Re Ware Metal Polish Co., 42 F. Supp.

538.

It has been frequently declared by Texas decisions,

that where payee in a note knows that one of the

signers of a note is the surety for another, the

creditor must have due regard for his rights as a

surety, even though the suretyship does not appear

on the face of the instrument. Lubbock First Natl.

Bank v. Alexander, 4 8S. W. 2298; Victoria ete. Bank

v. Skidmore, 30 S. W. 564.

a

So

WHEREFORE petitioners tender herewith a rec-

ord of the proceedings in the trial Court and in the

Circuit Court of Appeals as required by the Supreme

Court Rule 38, and respectfully pray that a writ of

certiorari issue out of and under the seal of this

Honorable Court, directed to the 5th Circuit Court

of Appeals, commanding that court to certify and

send to this Court for its review and determination

a full and complete transcript of the record, and of

the proceedings of said United States Circuit Court

of Appeals, 5th Circuit, and in the case numbered

on its docket as No. 11,603, styled George W. Arm-

strong Sr., et al, Appellants v. Seaboard Surety Com-

pany appellee, to the end that the judgment in said

case may be reviewed and determined by this court,

and as provided for by the Statutes of the United

States and the rules of this court, and that the said

judgment of the United States Circuit Court of Ap-

peals, 5th Circuit, in the cause referred to be reversed

—-1]5—

with appropriate direction of this court, and for such

further relief as to this court may seem proper.

Dated at Fort Worth, Texas, this the —— day of

March, A. D., 1947.

GEORGE W. ARMSTRONG

MARY C. ARMSTRONG

ALLEN J. ARMSTRONG

GEORGE W. ARMSTRONG JR.,

Petitioners.

By: Alfred McKnight,

Attorney for Petitioners

1500 SINCLAIR BLDG.

FORT WORTH, Texas

CANTEY, HANGER, McMAHON,

McKNIGHT & JOHNSON

1500 SINCLAIR BLDG.

FORT WORTH, TEXAS

WILLIAM PANNILL

CENTURY BLDG.

FORT WORTH, TEXAS

Of Counsel

-_— a

No.

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1946

GEORGE W. ARMSTRONG, SR., ET AL,

Petitioners,

vs. —

SEABOARD SURETY COMPANY,

Respondent.

BRIEF IN SUPPORT OF PETITION FOR WRIT

OF CERTIORARI

I.

OPINION OF THE COURT BELOW

The opinion of the United States Circuit Court of

Appeals for the 5th Circuit, in said cause styled

George W. Armstrong, Sr., et al, appellants v. Sea-

board Surety Company, appellee, No. 11,603, is not

yet reported in the Federal Reports but may be found

in the records filed in this suit R. 140.

Il.

JURISDICTION

This has been stated under “Basis of Jurisdiction”

and “Reasons for Granting the Writ” in the preceed-

ing petition for writ of certiorari to which reference

is here made and, therefore, will not be repeated here.

ae

=

Ill.

STATEMENT OF THE CASE

The case has already been stated in the preceeding

petition for writ of certiorari on page 4 which

statement is hereby adopted and made a part of this

brief.

IV.

SPECIFICATION OF ERRORS

1. The Circuit Court of Appeals erred in holding

that the rendition of monetary judgment awarding exe-

cution against petitioner for the amount of the prin-

cipal, interest and attorney fees of said notes sued on

and said judgment being wholly based on the declara-

tory judgment and entered while an appeal from said

declaratory judgment was pending was not in error.

2. The Circuit Court of Appeals erred in affirm-

ing the judgment of the trial court entered after the

rendition of the declaratory judgment and in the same

case while an appeal from said declaratory judgment

was then pending.

3. The Trial Court was without jurisdiction to

proceed further in the case in which said declaratory

judgment was rendered while an appeal from said

declaratory judgment was pending.

4. The Court of Civil Appeals erred in holding

that petitioners were primarily liable on the notes for

which judgment was rendered against them, and that

a

it was not error for the trial court to render judgment

against petitioners for tue full amount of said notes

without having previously, or at the same time, ren-

dered judgment against Texasteel Manufacturing

Company, the principal debtor, without either allega-

tion or proof that said corporation was insolvent, or

beyond the jurisdiction of the court.

5. The Circuit Court of Appeals erred in affirming

the judgment of the trial court against the petitioners

on the obligation sued on, pending the proceedings

for reorganization of Texasteel Manufacturing Com-

pany, in which said corporation was involved; said

proceedings being filed by respondent, without ex-

hausting the assets of the principal debtor before ren-

dering judgment against petitioners.

V.

ARGUMENT AND AUTHORITIES

Three points are presented’ by the foregoing assign-

ment:

1. The first is that the trial court was without juris-

diction to render judgment against petitioners on the

notes sued on and based solely on said declaratory

judgment while an appeal from said declaratory judg-

ment was pending:

2. And the Second point is the error of the trial

court in rendering judgment against petitioners who

were guarantors of said notes without having previ-

FF

—

ously, or at the same time, rendered judgment against

the principal debtor, said corporation, without either

pleading or proof that said corporation was either

insolvent or beyond the jurisdiction of the court.

3. That the jurisdiction of the bankruptcy court

is exclusive.

The first and third points are governed by the

Federal decisions, and the second point is a question

of State Law. There is no dispute in the facts. The

declaratory judgment was rendered as shown above

on May 2, 1945, and an appeal taken therefrom, and

while said appeal was pending a petition, or motion,

was filed in the same cause by respondents, and based

solely on said declaratory judgment, for a judgment

and execution on the notes sued on, the validity of

which was involved in said proceedings for a declara-

tory judgment. The judgment against the petitioners

on such notes was based upon the assignment of said

notes, without recourse to respondent, by the Conti-

nental National Bank and the liability of George W.

Armstrong, Sr., for the amount of said notes is based

upon a written guaranty on the back of each of said

notes; and the liability of Allen J. Armstrong, for

the note signed by George W. Armstrong, Sr., is based

upon a similar guaranty; and the liability of George

W. Armstrong, Jr., for the note signed by Allen J.

Armstrong is based upon a like guaranty. (R. 61-64).

The record shows that said corporation was involved

in reorganization proceedings still pending. (R. 123).

oilitin

The opinion of the Circuit Court of Appeals decided

all points adversely to petitioners. The opinion of

the Circuit Court of Appeals is contrary to, and def-

initely in conflict with, the prevailing rule in the

Federal Court, on the first and third points and con-

trary to, and definitely in conflict with, the Acts of

the Texas Legislature as shown by Appendix “B” to

this brief, and the decisions of the state courts constru-

ing and applying said Statutes.

FIRST POINT IN ARGUMENT: The rule as to the

lack of jurisdiction by a District Court to proceed

further in a case after judgment, and while an appeal

therefrom is pending, is well established and the au-

thorities collated on page 8 of the preceeding peti-

tion for certiorari. As shown in the preceeding peti-

tion for writ, the established rule is that an appeal

from a final judgment vests in the appellate court

jurisdiction of the case, and divests the trial court of

all other jurisdiction with reference to the judgment

rendered, so long as the appeal is pending. The deci-

sions of this court and numerous Circuit Courts of

Appeal have applied this rule to many different or-

ders entered in cases after judgment and while ap-

peal is pending therefrom. There is no decision in-

consistent with the rule as stated.

Respondents argued in the Circuit Court of Appeals

that the rule was not applicable because the Federal

Courts hold that a judgment though appealed from is

res adjudicata between the parties until reversed. This

argument begs the question. The point is not that

a

— =

the judgment is res adjudicaita between the parties

until reversed, but the point is the power of the court

to render another judgment in the same case while ap-

peal from a final judgment is pending.

The second judgment was in effect a proceeding

whereby an execution was awarded on a cause of

action determined in the first judgment and which

execution was not awarded as a part of the first

judgment. The case of Sinclair Refining Co. v. Bur-

ris, 133 F. 2d 536, is the only case, so far as peti-

tioners are advised, in which the specific question

has been even remotely discussed. In that case it

was stated that a declaratory judgment only fixes

the rights of the parties, which rights may be en-

forced in a separate suit. The reasonable inference

from this holding is that the proceeding to enforce

the declaratory judgment must wait until that judg-

ment becomes final. It has been held that the ordi-

nary rule as to judgments will apply to an appeal

from a declaratory judgment. Borchard’s “Declara-

tory Judgments” page 255.

Numerous cases hold that Section 400, Title 28

U.S.C.A., did not add to the jurisdiction of the

Federal Courts, nor does it change the essential requis-

ites of Federal Jurisdiction. Agnew & Co. v. Hoague,

99 F. 2d 349; Miles Laboratories v. Fed. Trade Com-

mission, 140 F. 2d 683.

It is respectfully submitted that the trial court

was without jurisdiction to enter the judgment of

—

January 12, 1946, pending the appeal from said

declaratory judgment.

SECOND POINT IN ARGUMENT: Respondents

alleged that petitioners were guarantors. (R. 3). The

notes upon which judgment was rendered, disclosed

that petitioners liability for said notes was contained

in a guaranty contract written on the back of each

of said notes. (R. 61 to 66). The collateral agree-

ment executed at the same time, pledged the stock of

said corporation owned by petitioners, recites that

the notes are guaranteed by George W. Armstrong

Sr. (R. 67). The application for surety bonds does

not refer to said notes, but only to said bonds to

be executed by respondent as guarantor, and indem-

nifies respondent from losses by reason of having

signed said bonds. No contracts of indemnity to

respondents for the payment of said notes is any-

where shown. The record in the declaratory pro-

ceeding shows that all parties, understood the under-

taking of Geo. W. Armstrong to that of a Guarantor.

P. 20 accompanying Petition Texasteel Manufactur-

ing Co. The record conclusively shows that judg-

ment was rendered against petitioners by virtue of

their contract of guaranty, written on the back of

said notes. Petitioners were sureties for the Tex-

asteel Manufacturing Company to respondents. The

judgment against petitioners was not sought, nor ren-

dered against them, as indemnitors. If it had, the

judgment would have been confined to the amount

paid or incurred by respondent as surety for said

manufacturing company. First State Bank v. Wal-

lace, 165 S. W. 595; Eller v. Irving, 265 S. W. 595;

“7

—24—

U. S. Fidelity & Guaranty Co. v. Paulk, 155 S. W.

2d 100. As shown by the authorities cited in the pre-

ceeding petition, the contract of guaranty is a separate

and independent contract; that George W. Armstrong

Sr. was not a signer nor indorser of either of said notes,

therefore, the provision that indorser or signer shall be

liable is not applicable to him. This is also true as to

the liability of Allen J. Armstrong on the $100,000.00,

note signed by George W. Armstrong, and as to lia-

bility of George W. Armstrong for the $100,000.00

note, signed by Allen J. Armstrong; that said con-

tract was one of guaranty is decided in the follow-

ing cases: Guaranty Etc. v. Singleton (Tex. Civ.

App.) 85 S. W. 2d 803; Central Trust Company v.

Maniey (5th Cir.) 100 F. 2d 993; Woods v. Canfield

Paper Co., 117 Tex. 399; Sidwell v. First National

Bank of Colorado, 233 Pac. 153, 154.

The jurisdiction in this case, depends on diversity

of citizenship, and the Texas Statutes shown in the

appendix are applicable. Erie v. Tompkins, 304 U. S.

64; Huddleston v. Dwyer, 322 U. S. 232; Guaranty

Trust Co. v. York, 326 U.S. 99.

Prior to the decision in Woods v. Canfield Paper

Co., 117 Tex. 397, the Texas Court of Civil Appeals

had held that where the guaranty involved was un-

conditional, the above statutes did not apply. These

holdings were in fact overruled in Wood v. Canfield

Paper Company. This case has been consistently fol-

lowed and the law there declared had not been ques-

tioned since the rendition of that decision.

—25—

The Texas Statutes are applicable here. It is

shown by the records in the first suit, that petitioners

signed said note at the request of respondent, who

was in charge of the operations at Port Arthur, and

who desired these loans to be made in order to

finance said operations. (R. 98-99). Attention is

called to the decree in In Re Kelly Springfield Tire

Company, Tex. 10 Fed. Supp. 414, Hastings v. Byers,

40 N. Y. S. 2d 299; affirmed 57 N. N. E.

2d 733; Cert. denied 324 U. S. 860; that the ap-

proval of the petition of reorganization, and the ap-

pointment of Trustee, was not an adjudication of

insolvency as that term is used, ard has been defined,

by the Supreme Court of Texas. Smith v. Oberjohns,

93 Tex. 55.

THIRD POINT: This point has been argued under

specification of errors one and two in companion

appeal Texasteel Mfg. Co. v. Seaboard Surety Co.,

p. 21. Supporting Brief pp. 53-56.

CONCLUSION

Petitioner respectfully submits that the Circuit

Court of Appeals was in error in holding that the trial

court is justified to render judgment against peti-

tioner in the same case, after final judgment for

which an appeal is pending, and further erred in

7

Bs

—.26—

holding that petitioners were primary obligors on

the notes in question, and could be sued and judg-

ment rendered against them, without the presence

of the principal debtor, and without a showing of

want of jurisdiction of the principal debtor, or is

solvent, and that the Texas Statute shown in the

appendix was not applicable.

WHEREFORE petitioner prays that the judgment

of the Circuit Court of Appeals and the trial court

be reviewed for further proceeding in accordance with

the opinion of this court.

Respectfully submitted,

GEORGE W. ARMSTRONG, SR.

MARY C. ARMSTRONG

ALLEN J. ARMSTRONG,

GEORGE W. ARMSTRONG, JR.

Petitioners.

ALFRED McKNIGHT,

Attorney for Petitioners.

1500 SINCLAIR BLDG.

FORT WORTH, TEXAS

CANTEY, HANGER, McMAHON,

McKNIGHT & JOHNSON

1500 SINCLAIR BLDG.

FORT WORTH, TEXAS

WILLIAM PANNILL

CENTURY BLDG.

FORT WORTH, TEXAS

Of Counsel

—27—

APPENDIX B

ART. 1986

The acceptor of a bill of exchange, or a principal

obligor in a contract may be sued either alone or

jointly with any other party who may be liable there-

on; but no judgment shall be rendered against a

party not primarily liable on such bill or other con-

tract, unless judgment be also rendered against such

acceptor or other principal obligor, except where

the plaintiff may discontinue his suit against such

principal obligor as hereinafter provided.

ART. 1987

The assignor, indorser, guarantor and surety upon

a contract, and the drawer of a bill which has been

accepted, may be sued without suing the maker, ac-

ceptor or other principal obligor, when the principal

obligor resides beyond the limits of the State, or where

he cannot be reached by the ordinary process of law,

or when his residence is unknown and cannot be as-

certained by the use of reasonable diligence, or when

he is dead, or actually or notoriously insolvent.

ART. 6251

No surety shall be sued, unless his principal is

joined with him, or unless a judgment has previously

been rendered against his principal, except in the

cases otherwise provided for in the laws relating to

parties to suits.