Source: https://caselaw.findlaw.com/us-supreme-court/235/589.html
Timestamp: 2019-04-22 11:05:51+00:00

Document:
[235 U.S. 589, 590] Conrad Braker, Jr., of New York, died testate July 21, 1890. The 15th item of his will provided that the sum of $50,000 should be held in trust and securely invested for the use of his son, Conrad Morris Braker, who was to receive the income until he attained the age of fifty-five, when the 'principal should be paid to him and belong to him absolutely.' If he failed to reach that age the property was to be held for the benefit of his wife for life with remainder to Henry Braker.
The 16th item directed that 'one half of all the rest, residue and remainder, both real and personal,' of his estate should be held in trust for the use and benefit of Conrad Morris Braker, who was to receive the interest derived from said trust, until he attained the age of fifty-five, when 'the whole amount, less $25,000, shall be paid and belong to him absolutely.' If he failed to reach that age, then the property was to pass to another son.
The amount realized from the residuum, described in the 16th item, aggregated $120,000, and with the $50,000 described in the 15th item of the will, was invested in property (not described) which is now held by Austin B. Fletcher, the duly appointed testamentary trustee.
On April 18, 1901, Conrad Morris Braker assigned to [235 U.S. 589, 591] Frank L. Rabe 'seven tenths of all the estate, right, title and interest which he had in and to the principal sum of $50,000 described in the 15th item of the will.' Thereafter Rabe transferred and assigned this interest to the New York Finance Company.
By virtue of these two transfers the New York Finance Company claimed to be the owner of such interest in the fund or estates created under the 15th and 16th items of the will.
The Finance Company thereafter made a note for $15,000, payable to William Brewster Wood, and secured the same by a transfer of its interests under the 16th item. It also made another note for $10,000 to Brown and Schermerhorn, trustees for Clara Schermerhorn, and secured the same by a transfer of its interest under the 15th item.
These notes were not paid when they fell due, and the New York Finance Company's equity of redemption was acquired by the respective holders of the two notes. In February, 1913, when Conrad Morris Braker attained the age of fifty-five, the respective holders of the notes and assignments demanded that the trustee should pay over to them that to which they were entitled by virtue of the instruments aforesaid. The trustee refused to comply, and thereupon the executors of Wood and the [235 U.S. 589, 592] trustees of Clara Schermerhorn (all of whom were citizens and residents of Pennsylvania) brought suit in the United States district court for the southern district of New York against Fletcher, trustee, and Conrad Morris Braker, beneficiary, both being citizens and residents of New York.
The two bills were each prepared by the same counsel, and were identical, except that the trustees of Schermerhorn sued for what had been assigned them under the 15th item. The executors of Wood sued for the interest assigned them in the money or property mentioned in the 15th and 16th items of the will. In both suits it was alleged that the complainants had acquired title by virtue of the sale, transfer, and assignment executed by Conrad Morris Braker, and subsequent mesne conveyance. It was alleged that complainants had been informed that he claimed the transfers signed by him to be void because made to secure usurious debts. Both bills prayed that Braker should be enjoined from litigating the question of title in any other court; that the complainants' right under the assignments should be established by final decree, and that Fletcher, the testamentary trustee, should be ordered to pay over to the complainants what was due them by virtue of the respective assignments from Braker.
From that order the complainants appealed to this court.
Messrs. Charles H. Burr, Frederick W. Frost, Perry D. Trafford, and H. Gordon McCouch for appellants. [235 U.S. 589, 593] Messrs. William P. S. Melvin and Safford A. Crummey for appellees.
The restriction was imposed not only to prevent fraudulent transfers, made for the purpose of conferring jurisdiction, but in apprehension that promissory notes and like papers might be transferred in good faith by the citizens of one state to those of another, and thus render the maker liable to suit in the Federal court. Bank of United States v. Planters' Bank, 9 Wheat. 909, 6 L. ed. 245.
Except for a short time, when the act of 1875 (18 Stat. at L. 470, chap. 137, Comp. Stat. 1913, 991 [235 U.S. 589, 1] ), restricted suits 'founded on a contract in favor of an assignee,' the several statutes on the subject, in force prior to the adoption of 24, made this limitation on the jurisdiction of United States courts apply to 'suits to recover the contents of any promissory note or other chose in action in favor of any assignee' (act of 1789, 1 Stat. at L. 78, 11, chap. 20; Rev. Stat. 629; act of 1887, 24 Stat. at L. 553, chap. 373, Comp. Stat. 1913, 991 [235 U.S. 589, 1] ). These were technical terms of variable meaning. They might have been given a literal construction, in which case the act would not have wholly remedied the evil intended to be corrected. They were also susceptible of a construction so broad as to include subjects far beyond the congressional policy. For a 'chose in action embraces in [235 U.S. 589, 596] one sense all rights of action.' Dundas v. Bowler, 3 McLean, 208, Fed. Cas. No. 4,140. So that if the words of the statute had been given their most comprehensive meaning, every assignee or vendee would have been prevented from suing in the United States court unless the assignor could have maintained the action. It is evident, however, that there was no intent to prevent assignees and purchasers of property from maintaining an action in the Federal court to recover such property, even though the purchaser was an assignee, and the deed might, in a sense, be called a chose in action.
On the other hand, to construe the statute so as to only prohibit suits in such courts by the assignees of notes, drafts, and written promises to pay, would have left open a wide field and enabled assignees of accounts and of claims arising out of breaches of contracts to proceed in the Federal courts, although the parties to the original agreement could not have there sued.
While, therefore, it was admitted in Sere v. Pitot, 6 Cranch, 332, 3 L. ed. 240, that suits to recover the 'contents of a chose in action' referred to 'assignable paper,' yet, in view of the general policy of the act, these words were given a construction so broad as to include suits on accounts and on claims other than those containing written promises to pay.
That ruling, though criticized in Bushnell v. Kennedy, 9 Wall. 393, 19 L. ed. 739, was constantly followed (Sheldon v. Sill, 8 How. 441, 12 L. ed. 1147; Shoecraft v. Bloxham, 124 U.S. 730 , 31 L. ed. 574, 8 Sup. Ct. Rep. 686), and it has been settled that the prohibition applied not only to suits on instruments which might be said to have 'contents,' but also to suits for the recovery of 'all debts, and all claims for damages for breach of contract, or for torts connected with contract,' but not to suits 'to recover possession of the specific thing, or damages for its wrongful caption or detention.' Bushnell v. Kennedy, 9 Wall. 390-392, 19 L. ed. 738, 739. Neither did it apply to suit [235 U.S. 589, 597] for damages for neglect of duty. Deshler v. Dodge, 16 How. 622, 631, 14 L. ed. 1085, 1088; Ambler v. Eppinger, 137 U.S. 480 , 34 L. ed. 765, 11 Sup. Ct. Rep. 173.
Such is still the law under 24; for, according to the statutory rule for construing the Judicial Code,2 it may be assumed that the slight difference in language between the act of 1887 (contents of a chose in action in favor of the assignee) and 24 (suits upon a chose in action in favor of an assignee) was not intended to bring about any change in the law, but merely was a continuation of the existing statute. In continuing the statute Congress also carried forward the construction that the restriction on jurisdiction applied to suits for damages for breach of contract, but did not apply to suits for a breach of duty nor for a recovery of things. It therefore becomes necessary to determine whether these proceedings by bill in equity are suits by assignees on a chose in action; or suits for the recovery of an interest in property by the transferee or assignee.
From the allegations of the two bills it appears that the $50,000, mentioned in the 15th item, and the $120,000, proceeds of the residuum of the estate referred to in the 16th item, had each been invested by the trustee, but whether in real estate, tangible personal property, stocks or bonds is not stated.
If the trust estate consisted of land, it would not be claimed that a deed conveying seven-tenths interest therein was a chose in action within the meaning of 24 of the Judicial Code. If the funds had been invested in tangible personal property, there is, as pointed out in the Bushnell Case, nothing in 24 to prevent the holder, [235 U.S. 589, 598] by virtue of a bill of sale, from suing for the 'recovery of the specific thing, or damages for its wrongful caption or detention.' And if the funds had been converted into cash, it was still so far property-in fact instead of in action-that the owner, so long as the money retained its earmarks, could recover it or the property into which it can be traced, from those having notice of the trust. In either case, and whatever its form, trust property was held by the trustee, not in opposition to the cestui que trust, so as to give him a chose in action, but in possession for his benefit, in accordance with the terms of the testator's will.
It is said, however, that this case does not relate to the sale of land, or of things, or even to a transfer of a definite fund, but to two assignments of $35,000,-to be made out of money or property in the hands of a trustee. It is claimed that this was an assignment of a chose in action within the meaning of 24 of the Judicial Code. Giving the words of the statute the most extensive construction authorized by previous decisions, they can only refer to a chose in action based on contract. Kolze v. Hoadley, 200 U.S. 83 , 50 L. ed. 380, 26 Sup. Ct. Rep. 220. The restriction on jurisdiction is limited to cases where A is indebted to B on an express or implied promise to pay; B assigns this debt or claim to C, and C, as assignee of such debt, sues A thereon or to foreclose the security. Or where A has contracted with B, and B assigns the contract to C, who sues to enforce his rights, by bill for specific performance, or by an action for damages for breach of the contract. Shoecraft v. Bloxham, 124 U.S. 735 , 31 L. ed. 576, 8 Sup. Ct. Rep. 686.
But here there was no contract, and this is not a suit for a breach of a contract. For whatever may have been the earlier view of the subject ( Holmes, Common Law, 407, 409), the modern cases do not treat the relation between trustee and cestui que trust as contractual. The rights of the beneficiary here depended not upon an agreement [235 U.S. 589, 599] between him and Braker, but upon the terms of the will creating the trust and the duty which the law imposed upon the trustee because of his fiduciary position. And a proceeding by the beneficiary or his assignee for the enforcement of rights in and to the property, held-not in opposition to but-for the benefit of the beneficiary, could not be treated as a suit on a contract, or as a suit for the recovery of the contents of a chose in action, or as a suit on a chose in action. Upham v. Draper, 157 Mass. 292, 32 N. E. 2; Herrick v. Snow, 94 Me. 310, 47 Atl. 540. See also Edwards v. Bates, 7 Mann. & G. 590, 2 Dowl. & L. 299, 8 Scott, N. R. 406, 13 L. J. C. P. N. S. 156, 8 Jur. 539; Nelson v. Howard, 5 Md. 327.
The beneficiary here had an interest in and to the property that was more than a bare right and much more than a chose in action. For he had an admitted and recognized fixed right to the present enjoyment of the estate, with a right to the corpus itself when he reached the age of fifty-five. His estate in the property thus in the possession of the trustee, for his benefit, though defeasible, was alienable to the same extent as though in his own possession and passed by deed. Ham v. Van Orden, 84 N. Y. 270; Stringer v. Young, 191 N. Y. 157, 83 N. E. 690; Lawrence v. Bayard, 7 Paige, 70; Woodward v. Woodward, 16 N. J. Eq. 84. The instrument by virtue of which that alienation was evidenced-whether called a deed, a bill of sale, or an assignment-was not a chose in action payable to the assignee, but an evidence of the assignee's right, title, and estate in and to property. Assuming that the transfer was not colorable or fraudulent, the Federal statutes have always permitted the vendee or assignee to sue in the United States courts to recover property or an interest in property when the requisite value and diversity of citizenship existed. Barney v. Baltimore, 6 Wall. 280, 18 L. ed. 825. The equity jurisdiction of such courts extends to suits by heirs against executors and administrators ( Security Trust Co. v. Black River Nat. Bank, 187 U.S. 228 , 47 L. ed. 155, 23 Sup. Ct. Rep. 52), and to suits against [235 U.S. 589, 600] trustees for the recovery of of an interest in the trust property by the beneficiary or his assignee.
That language was used in reference to a suit for the recovery of part of a fund in the hands of an executor, who held primarily for the payment of the testator's debts. There the legatees, distributees, and assignees had no such vested interest in specific property as is the case here, where all of the property in the hands of the trustee was held for the purpose of paying the income to Braker until he reached the age of fifty-five, when the corpus was to be delivered to him [or to his assignees] in fee. That interest was transferable, and the purchaser was not precluded by 24 from suing in the United States court for the interest so transferred.
This view of the record makes it unnecessary to discuss the question as to whether the executors of Wood could in any event be treated as assignees of the character referred to in 24 (Chappedelaine v. Dechenaux, 4 Cranch, 306, 2 L. ed. 629), since their title was cast upon them by operation of law. The nature of the case is also such that we cannot consider the effect of an assignment of $35,000 out of the $50,000, if it shall appear that the trust estate in the hands of the trustee consists of property, and not of money. These are questions which the United States district [235 U.S. 589, 601] court for the southern district of New York has jurisdiction to hear and determine between these residents and citizens of different states.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.