Source: https://supreme.justia.com/cases/federal/us/264/182/
Timestamp: 2019-04-23 06:52:27+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 264 › Salem Trust Co. v. Manufacturers' Finance Co.
1. In a suit between citizens of different states to determine which of them is entitled to a fund which by their agreement has been collected by one and deposited to his special account, as trustee, to be paid to himself or the other as the issue between them shall be determined, the depositary is not a necessary party, and its joinder as defendant in the state court will not prevent removal to the federal court. P. 264 U. S. 189.
2. In the absence of any local statute or usage, the question whether prior notice to the debtor of the later of two assignments of an account receivable subordinates the rights of the earlier to those of the later assignee is a question of general law, in deciding which the federal court is not bound by the decisions of the highest court of the state. P. 264 U. S. 191.
3. While there are contingencies which entitle the second of two successive assignees of the same chose in action to prevail over the first, mere priority of notice to the debtor by a second assignee who lent money to the assignor in consideration of his assignment, without making any inquiry of the debtor, is not sufficient to subordinate the first assignment to the second. Pp. 264 U. S. 194, 264 U. S. 197.
Certiorari to a decree of the circuit court of appeals affirming a decree of the district court which dismissed a suit brought by the above named petitioner against the above named respondent, and its corespondent, International Trust Company, to determine the rights of the first two, as assignees, to a fund deposited with the third.
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.
There are two questions for decision: did the district court have jurisdiction? Which of the parties is entitled to the fund?
103 U. S. 205, 103 U. S. 215; Ex parte Nebraska, 209 U. S. 436, 209 U. S. 444), 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, 103 U. S. 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, 254 U. S. 80. 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, 101 U. S. 589; Bacon v. Rives, 106 U. S. 99, 106 U. S. 104; Ex parte Nebraska, supra. The cases of Wilson v. Oswego Township, 151 U. S. 56, and Construction Co. v. Cane Creek, 155 U. S. 283, 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?
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, [Footnote 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 decisions, and followed what they understood the rule to be, as applied by this and other federal courts, [Footnote 4] and in a number of the states, [Footnote 5] and decided that the later assignee, the first to give notice to the debtor, is entitled to the money.
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, 41 U. S. 18; Boyce v. Tabb, 18 Wall. 546; Railroad Co. v. National Bank, 102 U. S. 14, 102 U. S. 28; Presidio County v. Noel-Young Bond Co., 212 U. S. 58, 212 U. S. 73; Methven v. Staten Island Light, Heat & Power Co., 66 F. 113; In re Leterman, Becher & Co., 260 F. 543, 547.
The precise question now before us was not involved, and therefore was not decided, in any of the decisions of this Court cited by the circuit court of appeals.
In Judson v. Corcoran, 17 How. 612, one Williams had a claim against Mexico for the illegal confiscation of a cargo. Under a treaty with Mexico (9 Stat. 922), such claims were to be adjusted by the United States upon allowance by a board of commissioners created by an act of Congress. 9 Stat. 393. Judson obtained from Williams an assignment of an interest in the claim. Later, Corcoran obtained assignments covering the whole claim. The board found that Corcoran owned the whole claim, and made an award in his favor. Judson set up no pretensions to the claim until after the award, some six years from the time he obtained the assignment. This Court (p. 58 U. S. 614) pointed out that the assignor, having parted with his interest by the first assignment, the second assignee could take nothing by the later assignment; that the purchaser is entitled only to the remedies of the seller, and hence has arisen the maxim that "he who is first in time is best in right." The second assignee had drawn to his equity a legal title to the fund (the award of the board of commissioners), and it was said that, assuming that no negligence could be imputed to the earlier assignee and that the case was one where an equity in the same chose in action was successively assigned to two innocent persons whose equities are equal, there must be applied the rule that "the equities being equal, the law must prevail."
"There may be cases in which a purchaser, by sustaining the character of a bona fide assignee, will be in a better situation than the person was of whom he bought -- as, for instance, where the purchaser, who alone had made inquiry and given notice to the debtor, or to a trustee holding the fund (as in this instance), would be preferred over the prior purchaser, who neglected to give notice of his assignment, and warn others not to buy."
Judson took his assignment in 1845 and first produced it in 1851. In the meantime, Corcoran got his assignment, gave notice, and prosecuted it to final award. It was held that he was entitled to the fund. Clearly that case does not hold that mere priority of notice by a later assignee will subordinate the rights of the first purchaser.
the other assignees had heard of Spain's claim against the fund.
"But, in order to perfect his title against the debtor, it is indispensable that the assignee should immediately give notice of the assignment to the debtor, for otherwise a priority of right may be obtained by a subsequent assignee or the debt may be discharged by a payment to the assignee [assignor] before such notice."
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, 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, 165 U. S. 643; Florence Mining Co. v. Brown, 124 U. S. 385, 124 U. S. 391.
"The language thus used by the Chief Baron is somewhat remarkable. It would seem, if correctly reported, to indicate the view that a second encumbrancer would only obtain priority over an earlier one if he had used due caution, and had in fact made such inquiry as a prudent man would of each of the trustees. This view is in direct conflict with the decision of this House two years later in Foster v. Cockerell, in which Lord Lyndhurst himself delivered the leading opinion."
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.
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; Rabinowitz v. People's National Bank, 235 Mass. 102. [Footnote 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.
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.
debtor, is not sufficient to subordinate the first assignment to the second. The petitioner is entitled to the fund.
MR. JUSTICE HOLMES and MR. JUSTICE BRANDEIS concur on the ground that the rights of the parties are governed by the law of Massachusetts.
Raphael v. Trask, 194 U. S. 272, 194 U. S. 277; Gage v. Carraher, 154 U.S. 656; Ayres v. Wiswall, 112 U. S. 187, 112 U. S. 192; Removal cases, 100 U. S. 457, 100 U. S. 468-469; Strawbridge v. Curtiss, 3 Cranch 267; Chipman v. West United Verde Copper Co., 271 F. 91; Danks v. Gordon, 272 F. 821, 824.
Wormley v. Wormley, 8 Wheat. 421, 21 U. S. 451; Wood v. Davis, 18 How. 467, 59 U. S. 469; Walden v. Skinner, 101 U. S. 577, 101 U. S. 589; Wilson v. Oswego Township, 151 U. S. 56, 151 U. S. 64; Geer v. Mathieson Alkali Works, 190 U. S. 428, 190 U. S. 435; Wallin v. Reagan, 171 F. 758, 763; Jackson v. Jackson, 175 F. 710, 716; Atchison, T. & S.F. Ry. Co. v. Phillips, 176 F. 663, 666.
Putnam v. Story, 132 Mass. 205, 211; Tingle v. Fisher, 20 W.Va. 497, 506, 510; Meier v. Hess, 23 Or. 599, 603; Columbia Finance & Trust Co. v. First National Bank, 116 Ky. 364, 375; Fortunato v. Patten, 147 N.Y. 277, 283; Hawk v. Ament, 28 Ill.App. 390, 394; Harris Co. v. Campbell, 68 Tex. 22, 29; 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; Rabinowitz v. People's National Bank, 235 Mass. 102; MacDonald v. Kneeland, 5 Minn. 352, 361, 365; Bellingham Bay Boom Co. v. Brisbois, 14 Wash. 173, 176; Bank v. Krause, 22 Ohio C.C. (N.S.) 216; Houser v. Richardson, 90 Mo.App. 134, 139.
Judson v. Corcoran, 17 How. 612; Spain v. Hamilton's Administrator, 1 Wall. 604; Laclede Bank v. Schuler, 120 U. S. 511; Farmers' & Merchants' Bank v. Farwell, 58 F. 633; Methven v. Staten Island Light, Heat & Power Co., 66 F. 113; In re Leterman, Becher & Co., 260 F. 543.
Graham Paper Co. v. Pembroke, 124 Cal. 117; Lambert v. Morgan, 110 Md. 1, 26; Jenkinson v. New York Finance Co., 79 N.J.Eq. 247, 257; Jack v. National Bank, 17 Okl. 430, 435; Phillips' Estate, 205 Pa. 515, 521; Vanbuskirk v. Hartford Fire Insurance Co., 14 Conn. 141, 144; Dillingham v. Insurance Co., 120 Tenn. 302, 309; 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; Lumber Co. v. Newcomb, 79 Miss. 462, 466; Perkins v. Butler County, 44 Neb. 110, 116.
"The general principle applicable to all equitable titles is, I think, well expressed by Lord Cairns in Shropshire Union Railways & Canal Co. v. The Queen, L.R. 7 E. & I. at 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 preexisting 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 preexisting 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."
"Whatever view may be entertained as to the English doctrine which prefers the assignee who first gives notice, the second assignee is in several contingencies clearly entitled to supplant the first assignee. E.g.: (1) if, acting in good faith, he obtains payment of the claim assigned; Judson v. Corcoran, 17 How. 612; Bridge v. Conn. Company, 152 Mass. 343; Bentley v. Root, 5 Paige 632, 640; or (2) if he reduces his claim to a judgment in his own name; Judson v. Corcoran, 17 How. 612; Mercantile Co. v. Corcoran, 1 Gray, 75; or (3) if he effects a novation with the obligor whereby the obligation in favor of the assignor is superseded by a new one running to himself, N.Y. Company v. Schuyler, 34 N.Y. 30, 80; Strange v. Houston Company, 53 Tex. 162; or (4) if he obtains the document, containing the obligation, when the latter is in the form of a specialty. Re Gillespie, 15 F. 734; Bridge v. Conn. Company, 152 Mass. 343; Fisher v. Knox, 13 Pa. 622. In all these cases, having obtained a legal right in good faith and for value, the prior assignee cannot properly deprive him of this legal right."

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