Source: https://caselaw.findlaw.com/us-supreme-court/264/182.html
Timestamp: 2019-04-21 03:17:27+00:00

Document:
[264 U.S. 182, 185] Mr. Robert G. Dodge, of Boston, Mass., for respondents.
On May 16, 1919, the Nelson Blower & Furnace Company, a Massachusetts corporation, assigned to the petitioner for a valuable consideration indebtedness to the amount of $45,000 due or to become due to the Nelson Company from the Murray & Tregurtha Corporation, under a contract whereby the Nelson Company was to construct certain engines for the latter. July 15, 1919, [264 U.S. 182, 188] the Nelson Company for a valid consideration assigned to the respondent Manufacturers' Finance Company the same indebtedness to the amount of $40, 000, and on September 20 made another assignment to the Finance Company of the same indebtedness to the amount of $10,000. Later, about the lastmentioned date, the Finance Company notified the debtor of its assignment. Up to that time it had made no inquiry of the debtor as to its indebtedness to the Nelson Company, and neither it nor the debtor had any knowledge of the prior assignment to the petitioner. September 26, 1919, the United States District Court in a suit in equity appointed a receiver of the Nelson Company. About that time each assignee learned of the assignment to the other. October 6, 1919, petitioner and respondent Finance Company agreed that the Nelson Company, acting by its receiver, should finish the work being done for the debtor, and that the net proceeds, which amounted to $7,963.36, a sum less than the amount of the claim of either assignee, should be deposited with the respondent International Trust Company, a Massachusetts corporation, in a special account in the name of the Finance Company as trustee for the one or the other of such assignees thereafter to be agreed by them, or found by some court of competent jurisdiction to be entitled thereto. They failed to agree, and petitioner brought a bill in equity in the state court against the respondents to establish its right to the amount so on deposit, and to have the same paid to it. For the removal of the suit to the District Court of the United States, the Finance Company filed its petition, stating that the International Trust Company is not a necessary party to the suit, but is a mere nominal party, being only a stakeholder and without any interest whatever in the result, and that the controversy in the suit is entirely between citizens of different states, Salem Trust Company, a Massachusetts corporation, and the Manufacturers' Finance [264 U.S. 182, 189] Company, a Delaware corporation. Other proper steps were taken, and the case was removed from the state to the federal court. Petitioner moved to remand, asserting that the International Trust Company is a necessary party to the suit, and that the case was improperly removed, because the plaintiff and one of the defendants are citizens of the same state. The motion was denied. The case was tried in the District Court, and dismissed on final decree, which was affirmed by the Circuit Court of Appeals.
The District Courts have original jurisdiction of controversies between citizens of different states (Constitution, art. 3, 2; Judicial Code, 24 [Comp. St. 991]); and when in any suit brought in a state court, there is a controversy, which is wholly between citizens of different states, and which can be fully determined as between them, a defendant interested in such controversy may remove the suit to the proper District Court of the United States. (Judicial Code, 28 [Comp. St. 1010]). District Courts have jurisdiction if all the parties on the one side are of citizenship diverse to those on the other side. 1 Jurisdiction cannot be defeated by joining formal or unnecessary parties. 2 The right of removal depends upon the case disclosed by the pleadings when the petition therefore is filed (Barney v. Latham, [264 U.S. 182, 190] 103 U.S. 205 , 215; Ex parte Nebraska, 209 U.S. 436, 444 , 28 S. Sup. Ct. 581), and is not affected by the fact that one of the defendants is a citizen of the same state as the plaintiff, if that defendant is not an indispensable party to the controversy between plaintiff and defendant who are citizens of different states (Barney v. Latham, supra, 213). The facts set forth in the present bill are substantially those already stated. This suit involves a controversy between the petitioner, a citizen of Massachusetts, and the respondent the Finance Company, a citizen of Delaware, which can be determined without affecting any interest of the other respondent, the International Trust Company, a citizen of Massachusetts. The latter is not an indispensable party. See Niles-Bement Co. v. Iron Moulders Union, 254 U.S. 77, 80 , 41 S. Sup. Ct. 39. It has no interest in the controversy between the petitioner and the other respondent. Its only obligation is to pay over the amount deposited with it when it is ascertained which of the other parties is entitled to it. On the question of jurisdiction, an unnecessary and dispensable party, will not be considered. Walden v. Skinner, 101 U.S. 577 , 589; Bacon v. Rives, 106 U.S. 99, 104 , 1 S. Sup. Ct. 3; Ex parte Nebraska, supra. The cases of Wilson v. Oswego Township, 151 U.S. 56 , 14 Sup. Ct. 259, and Construction Co. v. Cane Creek, 155 U.S. 283 , 15 Sup. Ct. 91, do not support the contention that this case was not properly removed to the federal court. These cases hold that where the object of the suit is to recover possession of personal property the one in possession is a necessary and indispensable, and not a formal, party. Here no cause of action exists against the International Trust Company, because it has not been determined which of the other parties is entitled to payment. The District Court had jurisdiction. The motion to remand was rightly denied.
As between successive assignees of the same account receivable, does prior notice to the debtor of the later assignment, without more, subordinate the rights of the earlier to those of the later assignee? [264 U.S. 182, 191] There is a conflict of authority on the question. Under decisions of the Supreme Judicial Court of Massachusetts, which are in harmony with the decisions of the highest courts in a number of the states,3 the earlier assignee would prevail. The court below held the question to be one of general jurisprudence, declined to be bound by the Massachusetts chusetts decisions, and followed what they understood the rule to be, as applied by this and other federal courts,4 and in a number of the states,5 and decided that the later assignee, the first to give notice to the debtor, is entitled to the money.
The question is one of general law, not based on any legislation of the state or local law or usage, and the [264 U.S. 182, 192] lower court rightly decided that it was not bound by the rule applied in the decisions of the highest court of Massachusetts. Swift v. Tyson, 16 Pet. 1, 18; Boyce v. Tabb, 18 Wall. 546; Railroad Co. v. National Bank, 102 U.S. 14 , 28; Presidio County v. Noel-Young Bond Co., 212 U.S. 58, 73 , 29 S. Sup. Ct. 237; Methven v. Staten Island Light, Heat & Power Co., 66 Fed. 113, 13 C. C. A. 362; In re Leterman, Becher & Co., 260 Fed. 543, 547, 171 C. C. A. 327.
In Spain v. Hamilton's Administrator, 1 Wall. 604, the fund was onetenth of the amount to be received from the United States on account of bonds of the Republic of Texas, after payment of a debt owed by a bank to one Wetmore, which the bonds were pledged to secure. Wetmore was trustee to make collection. The bank gave Hamilton an order on him for the fund. Hamilton made the following assignments: February 12, 1850, to Spain in general terms, without limit as to amount and not identifying the fund; August 30, 1850, to Wetmore for $2,500; September 21, 1850, to Corcoran & Riggs for $30,000, which was presented to and accepted by Wetmore; April 30, 1851, to Robb, the whole fund, subject to Wetmore's claim and that of Corcoran & Riggs. Robb gave notice immediately and later obtained judgment and made seizure of the residuary fund. Hill succeeded to the rights of Robb. The one-tenth covered by the order of the bank in favor of Hamilton was left in the treasury, subject to the assignments. May 10, 1856, Spain brought suit, claiming the fund under the document of February 12, 1850. Up to this time, neither Wetmore nor any of [264 U.S. 182, 194] the other assignees had heard of Spain's claim against the fund.
If a debtor pays, or becomes bound to pay, a later assignee, he is not liable to an earlier assignee who failed to give him notice of his assignment. And if, without notice of any assignment, he pays the assignor he cannot be held by the assignee. To safeguard against such things, it is necessary for an assignee to give the debtor notice of his assignment. But it does not follow that mere priority of notice of the later assignee, who took nothing by his assignment, will subordinate the rights of an earlier assignee. That case does not establish or apply the rule contended for by respondent.
In Laclede Bank v. Schuler, 120 U.S. 511 , 7 Sup. Ct. 644, it was held that a bank is not liable to a holder of a check which was not presented for payment until after the drawer had made a general assignment for the benefit of creditors, and directed the bank to hold the fund subject to the order of the assignee. This case does not support the rule applied by the Circuit Court of Appeals. A check in usual form does not constitute an assignment. It is an order which may be countermanded at any time before it is cashed. Fourth Street Bank v. Yardley, 165 U.S. 635, 643 , 17 S. Sup. Ct. 439; Florence Mining Co. v. Brown, 124 U.S. 385, 391 , 8 S. Sup. Ct. 531.
Undoubtedly the first application of [264 U.S. 182, 197] the rule that mere priority of notice gives priority of right was in Foster v. Cockerell, but it is always referred to Dearle v. Hall and Loveridge v. Cooper. In Ward v. Duncombe, the earlier decisions by which the rule was established were discussed by Lord Herschell and Lord McNaghton. The opinions leave the impression that the rule itself was not deemed to be wholly satisfactory, and that it is not very clear upon what principle it rests. Ward v. Duncombe, supra, 391.
There is no decision of this court which sustains the contention that, as between sucessive assignees of the same chose in action, mere priority of notice gives priority of right. It seems to us that the better reasons are against such a rule. By the first assignment, the rights of the assignor pass to the assignee. The creditor has a right to dispose of his own property as he chooses and to require the debt to be paid as he directs without the assent of the debtor. See Story, Equity Jurisprudence ( 11th Ed.) 1057. Notice of the assignment to the debtor adds nothing to the right or title transferred. A subsequent assignee takes nothing by his assignment, because the assignor has nothing to give. See Judson v. Corcoran, supra, 17 How. 614. If, after assignment, the assignor receives payment from the debtor, he is liable to the assignee. Failure of the first assignee to give notice does not divest him of any title or right or vest any claim in a subsequent purchaser. It cannot injuriously affect an intending purchaser who makes no inquiry of the debtor concerning the assignor's title. The debtor is not bound to answer inquiries concerning the assignor's title, and there can be no assurance that an intending purchaser can ascertain the incumbrance by inquiry of the debtor having notice of the earlier assignment. Low v. Bouverie, [264 U.S. 182, 1891] L. R. 3 Ch. 82, 99. Compare Ward v. Duncombe, supra, 393. It is impossible to eliminate all risk from such a transaction. If the second assignee elects to rely on the [264 U.S. 182, 198] representations of the vendor as to his title, and is deceived, he cannot shift his loss to the first assignee, unless some act or omission of the latter was proximate to the deception.
Facts and circumstances may create an equitable estoppel against the first assignee. Herman v. Mutual Life Insurance Co., 218 Mass. 181, 105 N. E. 450, Ann. Cas. 1916A, 822; Rabinowitz v. People's National Bank, 235 Mass. 102, 126 N. E. 289.6 It would be unconscionable to permit him to prevail over a later assignee whom he had misled or deceived in respect of the assignor's title at the time of purchase by the latter. But, assuming a duty on the first purchaser to protect a subsequent assignee against deception and fraud by the assignor, there is no ground for subordinating his claim, unless his failure was an element in or contributed to the deception. In the absence of inquiry by the subsequent purchaser, the failure of the first to give notice is immaterial.
In a case where, as here, the later assignee has made no inquiry of the debtor in advance of taking his assignment, there is no analogy between the giving of notice by the [264 U.S. 182, 199] first assignee to the debtor and the taking of possession of tangible personal property by a purchaser. It is impossible in any real sense to transfer possession of accounts receivable or the like, and, as to them, an assignee does not become clothed with the indicia of ownership as does one taking possession of tangible things. It is not accurate to say that notice is necessary to perfect title in the assignee of a chose in action. While failure to give notice may become an important element in a situation from which equitable estoppel may arise against the first assignee, it cannot be said to be necessary to or an element in acquisition of title.
The result will be the same if it be assumed that each bona fide purchaser takes merely an equity in the chose in action assigned. If equities are equal, the first in time is best in right. Otherwise the stronger equity will prevail. While there are contingencies which entitle the second to prevail over the first assignee,7 we hold that mere priority of notice to the debtor by a second assignee, who lent his money to the assignor without making any inquiry of the [264 U.S. 182, 200] debtor, is not sufficient to subordinate the first assignment to the second. The petitioner is entitled to the fund.
[ Footnote 1 ] Raphael v. Trask, 194 U.S. 272, 277 , 24 S. Sup. Ct. 647; Gage v. Carraher, 154 U.S. 656 , 14 Sup. Ct. 1190; Ayres v. Wiswall, 112 U.S. 187, 192 , 5 S. Sup. Ct. 90; Removal Cases, 100 U.S. 457 , 468-469; Strawbridge v. Curtiss, 3 Cranch, 267; Chipman v. West United Verde Copper Co. (D. C.) 271 Fed. 91; Danks v. Gordon (C. C. A.) 272 Fed. 821, 824.
[ Footnote 2 ] Wormley v. Wormley, 8 Wheat. 421, 451; Wood v. Davis, 18 How. 467, 469; Walden v. Skinner, 101 U.S. 577 , 589; Wilson v. Oswego Township, 151 U.S. 56, 64 , 14 S. Sup. Ct. 259; Geer v. Mathieson Alkali Works, 190 U.S. 428, 435 , 23 S. Sup. Ct. 807; Wallin v. Reagan (C. C.) 171 Fed. 758, 763; Jackson v. Jackson, 175 Fed. 710, 716, 99 C. C. A. 286; Atchison, T. & S. F. Ry. Co. v. Phillips, 176 Fed. 663, 666, 100 C. C. A. 215.
[ Footnote 3 ] Putnam v. Story, 132 Mass. 205, 211; Tingle v. Fisher, 20 W. Va. 497, 506, 510; Meier v. Hess, 23 Or. 599, 603, 32 Pac. 755; Columbia Finance & Trust Co. v. First National Bank, 116 Ky. 364, 375, 76 S. W. 156; Fortunato v. Patten, 147 N. Y. 277, 283, 41 N. E. 572; Hawk v. Ament, 28 Ill. App. 390, 394; Harris Co. v. Campbell, 68 Tex. 22, 29, 3 S. W. 243, 2 Am. St. Rep. 467; White v. Wiley, 14 Ind. 496; Maybin v. Kirby, 4 Rich Eq. ( S. C.) 105, 114. See also Thayer v. Daniels, 113 Mass. 129, 131; Herman v. Mutual Life Ins. Co., 218 Mass. 181, 186, 105 N. E. 450, Ann. Cas. 1916A, 822; Rabinowitz v. People's National Bank, 235 Mass. 102, 126 N. E. 289; MacDonald v. Kneeland, 5 Minn. 352, 361, 365 (Gil. 283); Bellingham Bay Boom Co. v. Brisbois, 14 Wash. 173, 176, 44 Pac. 153; 46 Pac. 238; Bank v. Krause, 22 Ohio Cir. Ct. R. (N. S.) 216; Houser v. Richardson, 90 Mo. App. 134, 139.
[ Footnote 4 ] Judson v. Corcoran, 17 How. 612; Spain v. Hamilton's Administrator, 1 Wall. 604; Laclede Bank v. Schuler, 120 U.S. 511 , 7 Sup. Ct. 644; Farmers' & Merchants' Bank v. Farwell, 58 Fed. 633, 7 C. C. A. 391; Methven v. Staten Island Light, Heat & Power Co., 66 Fed. 113, 13 C. C. A. 362; In re Leterman, Becher & Co., 260 Fed. 543, 171 C. C. A. 327.
[ Footnote 5 ] Graham Paper Co. v. Pembroke, 124 Cal. 117, 120, 56 Pac. 627, 44 L. R. A. 632, 71 Am. St. Rep. 26; Lambert v. Morgan, 110 Md. 1, 26, 72 Atl. 407, 132 Am. St. Rep. 412, 17 Ann. Cas. 439; Jenkinson v. New York Finance Co., 79 N. J. Eq. 247, 257, 82 Atl. 36; Jack v. National Bank, 17 Okl. 430, 435, 89 Pac. 219; Phillip's Estate, 205 Pa. 515, 521, 55 Atl. 213, 66 L. R. A. 760, 97 Am. St. Rep. 746; Vanbuskirk v. Hartford Fire Insurance Co., 14 Conn. 141, 144, 36 Am. Dec. 473; Dillingham v. Insurance Co., 120 Tenn. 302, 309, 108 S. W. 1148, 16 L. R. A. (N. S.) 220; Bank v. Insurance & Trust Co., 17 App. D. C. 122, 124; Ward & Co. v. Morrison, 25 Vt. 593, 599. See, also, Merchants' & Mechanics' Bank v. Hewitt, 3 Iowa, 93, 102, 66 Am. Dec. 49; Lumber Co. v. Newcomb, 79 Miss. 462, 466, 30 South. 608; Perkins v. Butler County, 44 Neb. 110, 116, 62 N. W. 308.
'The general principle applicable to all equitable titles is, I think, well expressed by Lord Cairns in Shropshire Union Railways & Canal Company v. The Queen, L. R. 7 E. & I. at page 506: 'A preexisting equitable title,' said Lord Cairns, 'may be defeated by a supervening legal title obtained by transfer.' He was there speaking of an equitable title to shares. Then he goes on: 'And I agree with what has been contended, that it may also be defeated by conduct, by representations, by misstatements of a character which would operate and enure to forfeit and to take away the pre-existing equitable title. But I conceive it to be clear and undoubted law, and law the enforcement of which is required for the safety of mankind, that in order to take away any pre-existing admitted equitable title, that which is relied upon for such a purpose must be shewn and proved by those upon whom the burden to shew and prove it lies, and that it must amount to something tangible and distinct, something which can have the grave and strong effect to accomplish the purpose for which it is said to have been produced."

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