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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for a Writ of Certiorari
- **Published:** January 1, 1947
- **Citation:** 331 U.S. 828

## Text

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

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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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386416_1102%3A1. Public record. Not legal advice.