Source: https://www.law.cornell.edu/supremecourt/text/264/182
Timestamp: 2017-05-01 02:39:33
Document Index: 709896935

Matched Legal Cases: ['art. 3', '§ 2', '§ 24', '§ 991', '§ 28', '§ 1010', '§ 1057']

SALEM TRUST CO. v. MANUFACTURERS' FINANCE CO. et al. | US Law | LII / Legal Information Institute
Supreme Court aboutsearch liibulletin subscribe previews SALEM TRUST CO. v. MANUFACTURERS' FINANCE CO. et al.
264 U.S. 182 (44 S.Ct. 266, 68 L.Ed. 628)
Argued: Oct. 14, 1923.
[HTML] Mr. Alexander Whiteside, of Boston, Mass., for petitioner.
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.
Jurisdiction cannot be defeated by joining formal or unnecessary parties.
The right of removal depends upon the case disclosed by the pleadings when the petition therefore is filed (Barney v. Latham, 103 U. S. 205, 215, 26 L. Ed. 514; Ex parte Nebraska, 209 U. S. 436, 444, 28 Sup. Ct. 581, 52 L. Ed. 876), 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 Sup. Ct. 39, 65 L. Ed. 145. 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, 25 L. Ed. 963; Bacon v. Rives, 106 U. S. 99, 104, 1 Sup. Ct. 3, 27 L. Ed. 69; Ex parte Nebraska, supra. The cases of Wilson v. Oswego Township, 151 U. S. 56, 14 Sup. Ct. 259, 38 L. Ed. 70, and Construction Co. v. Cane Creek, 155 U. S. 283, 15 Sup. Ct. 91, 39 L. Ed. 152, 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,
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,
and in a number of the states,
and decided that the later assignee, the first to give notice to the debtor, is entitled to the money.
In Judson v. Corcoran, 17 How. 612, 15 L. Ed. 231, 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 (17 How. 614, 15 L. Ed. 231) 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.' The court said (17 How. 615, 15 L. Ed. 231):
'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.'
The doctrine that mere priority of notice to trustee or debtor gives priority of right to a later assignee over an earlier assignee of a chose in action is generally referred to Dearle v. Hall and Loveridge v. Cooper, 3 Russell, 1, decided at the same time and upon the same principle. The leading case is Dearle v. Hall. In that case, there was much more in favor of the second assignee than mere priority of notice. Brown, cestui que trust under his father's will, made three assignments of income payable to him during his life by the executors. The two earlier assignments were made to Dearle and Sherring, respectively. Each was for a part of the annual income. By the terms of the assignments the assignor was permitted to continue to collect, and for years he did collect the income assigned. No notice of the earlier assignments was given to the executors Before he purchased, Hall, the latest assignee, diligently inquired of the trustees as to Brown's title and the amount of income paid him. The trustees knew of no assignments, and without any suspicion of prior incumbrance, Hall in good faith purchased the entire claim. He gave immediate notice of his assignment to the trustees and received assurance that the income would be paid to him. When it became due, an instalment was paid to him. Thereafter, the earlier assignees gave notice and demanded payment under their respective assignments. The trustees withheld all payments. Suit was brought by Dearle and Sherring against Hall to establish priority of their assignments over his. In the lower court, Sir Thomas Plumer, M. R., gave judgment in favor of Hall, and it was affirmed by Lord Lyndhurst, L. C. Two grounds of the decision may be gathered from the opinions: (1) That the negligence of the prior assignees in failing to give notice to the trustees resulted in Hall being induced to purchase without knowledge of the prior assignments. (2) That notice to the trustees was necessary to perfect titleas, 'the act of giving the trustee notice is in a certain degree taking possession of the fund.' See Ward v. Duncombe, L. R. 3 A. C. (1893) 369, 387. These cases did not decide that notice by a subsequent assignee after his purchase, without any inquiry in advance of his purchase, will subordinate the title of the prior assignor to that of the later. No such questions were involved. But later, in the case of Foster v. Cockerell, in the House of Lords, 3 Cl. & F. 456, that question was decided in favor of the subsequent assignee, and it appears to have become the settled rule in England. However, it has been the subject of much discussion and explanation by the English courts. See Wilmot v. Pike, 5 Hare, 14; Ward v. Duncombe, supra. It appears that in 1814 in Cooper v. Fynmore, 3 Russell, 60 Sir Thomas Plumer, v. C., himself decided that mere neglect of notice was not sufficient to postpone the first assignee, and held (page 64): 'In order to deprive him of his priority, it was necessary that there should be such laches, as in a court of equity amounted to fraud.' In 1827, Dearle v. Hall and Loveridge v. Cooper were decided. In 1833, Lord Lyndhurst, then Chief Baron, in Smyth v. Smith, 2 Cr. & M. 231, in the Court of Exchequer, held that the second assignee in order to obtain priority must show that he exercised proper caution in taking the assignment, and that he had applied to the trustees to know if any previous assignment had been made, and that, unless he so applied to each of the trustees, he would not have exercised due caution or done all that he ought to have done. Lord Herschell, in Ward v. Duncombe, supra, said (page 380):
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, 15 L. Ed. 231. 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, 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 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.
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.
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,
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 debtor, is not sufficient to subordinate the first assignment to the second. The petitioner is entitled to the fund.