Court Opinion

ID: 7892628
Source: CourtListenerOpinion
Date Created: 2022-09-08 21:50:33.666441+00
Date Added: 2024-06-11T16:31:57.785546
License: Public Domain

Greene, J.
(dissenting) : I cannot agree with the opinion of the court. The conclusion reached is against the great weight of adjudicated cases and the opinions of code writers, as well as a former decision of this court, and, in my judgment, it is based upon a misconception of the code and the purpose intended to be acomplished by its adoption. If the majority opinion be correct, the code has not only changed the equity rule of pleading in actions on contracts and other choses in action, but has also changed the law of commercial paper, for the reasoning applies with equal force to actions on negotiable promissory notes.
At common law, promissory notes and other, negotiable instruments were assignable, and the holder and indorsee thereof could prosecute an action thereon in his own name, not because of any rule of pleading, but because of the law of commercial paper, and in such ’actions the makers, acceptors or indorsers could not question his title in any manner short of impeaching its good faith. Not so with personal contracts and other choses in action; these were not assignable so as to give the assignee a right of action at law in his own name ; he was required to sue in the name of the assignor, or, if he were dead,1 in the name of his personal representative. This rule was based upon the doctrine that there was no mutuality or reciprocity of contract between the original promisor and the assignee. At all times, however, the person holding the legal title to a chose1 in action might prosecute the action in equity in his! own name without joining with him the original *202obligee or any of the persons to whom such original obligee had assigned the contract. What the code intended to do by the provision in question was to abolish the common-law rule of pleading in actions on contracts and other choses in actions, and adopt the equity rule as to parties.
This rule is clearly stated by Mr. Pomeroy in his work on Code Remedies (3d ed.), section 249 : ,
“The fundamental principle may be stated as follows : The plaintiff who institutes an equitable action must bring before the court all those persons who have such relations to the subject-matter of the controversy that, in order to prevent further litigation by them, they must be included in and bound by the present decree ; in other words, all those persons who are so related to the controversy and its subject-matter that, unless thus concluded by the decree, they might set up some future claim, and commence some future litigation growing out of or connected with the same subject-matter, against the defendant who is prosecuted in the present suit, and from whom the relief therein is actually obtained.”
In Walker v. Mauro, 18 Mo. 564, Chief Justice Gamble said:
“The effect of our new code of practice, in abolishing the distinction between law and equity, is to allow the assignee of a chose in action to bring suit in his own name, in cases where, by the common law, no assignment would be recognized. In this respect, the rules of equity are to prevail, and the assignee may sue in his own name.”
In view of this rule, as stated by Mr. Pomeroy, and its purpose', as stated by Chief Justice Gamble, it is difficult to understand why one holding by written assignment a verified itemized account may' not sue in his own name. Does not such person represent all persons who are related to the controversy and its *203subject-matter? "Would not a decree settle all futurej controversies growing out of, or connected with, the] same subject-matter ? If these questions are answered j in the affirmative, it will have to be conceded that the j plaintiff is within the rule stated, and may, therefore,1 maintain this action. Could the assignor in this in-¡ stance, after having appeared in court and assistingi the assignee in the litigation by testifying that the( assignment was regular and the defendant therein did1, not owe her anything, be heard to set up this claim as a cause of action against the defendant, after the entry and satisfaction of a judgment ? ■ This provision intended to adopt the equity rule, which permits the assignee holding the legal title to a chose in action to bring suit in his own name, instead of that of the original promisee or his personal representative, and without joining with him such original promisee. It cannot be said that this provision was adopted for the purpose of preventing persons who had no interest in a litigation from instituting suits. In the first place, no general complaint Of that kind has been made, and second, lawsuits carry with them sufficient penalties for such a practice ever to become obnoxious. The certainty of defeat is a sufficient preventive of any continued wrongs of this kind.
In Daniel on Negotiable Instruments, volume 2, section 1181, it is said : “Any holder of a bill or note who can trace a clear legal title to it is entitled to sue upon it in his own name, whether he possesses the beneficial interest in its contents or not.” Mr. Pomeroy, after treating of the rights of an assignee of a promissory note to maintain an action thereon, says : ■
“Analogous to the subject discussed in the preceding paragraph is the question whether an assignee, to whom a thing in action has been transferred by an assignment which is absolute in its terms, so as to vest *204in him the entire legal title, but which, by means ,of a contemporaneous and collateral agreement, is, in fact, rendered conditional or partial, is the real party in interest. It is now settled by a great preponderance of authority, although there is some conflict, that if the assignment, whether written or verbal, of anything in action is absolute in its terms, so that by virtue, thereof the entire apparent legal title vests in the assignee, any contemporaneous collateral agreement by virtue of which he is to receive a part only of the proceeds, ‘and is to account to the assignor or other person for the residue, or even is to thus account for the whole proceeds, or by virtue of which the absolute transfer is made conditional upon the fact of recovery, or by which his title is in any other similar manner partial or conditional/ does not render him any the less the real party in interest; he is entitled to sue in his own name, whatever collateral arrangements have been made between him and the assignor respecting the proceeds. The debtor is completely protected by the assignment, and cannot be exposed to a second action brought by any of the parties, either the assignor or other, to whom the assignee is bound to account. This is the settled doctrine in most of the states.” (Code Rem. § 132.)
This rule, as stated by the most scientific code writer America has produced, is well understood by courts, and, with two exceptions, has been followed.
The case of City Bank of New Haven v. Perkins, 29 N. Y. 554, 568, 86 Am. Dec. 332, was an action on two bills of exchange for $10,000 each, indorsed by the defendant, and two other bills of exchange for $5000 each, accepted by him. The defendant denied the indebtedness, and also denied that- the plaintiffs were the legal holders and owners of said bills, and alleged that said bills belonged to the Bank of Akron, Ohio. It appeared upon the trial that the defendant owed the amount of the bills in suit, and the only *205question was whether the plaintiffs were the legitimate holders. The court said :
“But as I understand the rule, nothing short of actual malafides, or notice thereof, will enable a maker or indorser of such paper to defeat an action brought upon it by one who is apparently a regular indorser or holder ; especially where there is no defense as to the indebtedness. . . . This rule is founded in the most obvious dictates of reason and sound policy, and should be inflexibly maintained. As to anything beyond the bona fieles of the holder, the defendant who owes the debt has no interest.”
The case of Eaton et al. v. Alger et al., 47 N. Y. 345, 349, cited in the majority opinion, was before the court of appeals on appeal from that decision, and was overruled. In the opinion the court said :
“The evidence substantially established that the payee of the note (Clark) delivered it to the plaintiff upon his undertaking to collect it at his own expense, and to pay to Clark, upon its collection, $600, which was the original amount of the note prior to its renewal. . . . The note is transferred and delivered to the plaintiff under that contract; and in fulfilment of that contract he proceeds to its collection. The plaintiff is thus made the party in interest, within the meaning of the code, so as to enable him to maintain this action.”
In the case of Hays v. Hathorn et al., 74 N. Y. 486, the court reviewed all the decisions of the courts of New York upon this question, and summarized its conclusions as follows :
“To entitle a party to maintain an action upon a promissory note, he must be the legal owner and have the right of possession of the instrument; such ownership must be sufficient to protect the defendant, upon a recovery against Mm, from a subsequent action thereon.”
*206In Cottle v. Cole & Cole, 20 Iowa, 481, 485, the defendants pleaded that plaintiff was not the real party-in interest, and that they were not indebted to plaintiff in any manner, in the sum of $100 or any other sum. The court, on demurrer, held this answer sufficient. On appeal, Judge Dillon said :
“The course of decision in this state establishes this rule, viz. : That the party holding the legal title of a note or instrument may sue on it though he be an agent or trustee, and liable to account to another for the proceeds of the recovery, but he is open in such case to any defense which exists against the party beneficially interested. . . . Holding, as the plaintiff did, the legal title to the judgment, by assignment, he could sue upon it, and his right to recover could not be defeated by simply showing that Cluff was the party beneficially interested in the action. This alone would not constitute a defense.”
The case of Cassidy v. Woodward, 77 Iowa, 357, 42 N. W. 319, 320, was an action involving the title and ownership of eighty acres of land. The objection was that the plaintiff was not the real party in interest. In passing upon this question the court said :
“It has uniformly been held by this court that, under this provision of the code, the party holding the legal title to a cause of action, though he be a mere agent or trustee, with no beneficial interest therein, may sue thereon, in his own name.” (Cottle v. Cole, 20 Iowa, 481; Rice v. Savery, 22 Iowa, 470; Vimont v. Railway Co., 64 Iowa, 514, 17 N. W. 31, 21 N. W. 9.)
In Minnesota Thresher Mfg. Co. v. Heipler, 49 Minn. 395, 396, 52 N. W. 33, it was said :
“By the terms of the order or draft sued on, the drawer directed the defendant to pay the plaintiff a certain sum. The defendant accepted the draft, expressly agreeing to pay the plaintiff the sum named. Clearly the plaintiff held the legal title to the demand, *207and was the real party in interest. It did not concern the defendant that there was an agreement between the drawer and the plaintiff that the latter took the order only for collection ; the proceeds, when collected, to be applied on the indebtedness of the former to the latter. No exceptions were taken on the trial of the cause which raised any other question.”
The case of Abell N. B. & B. Co. v. Hurd, 85 Iowa, 559, 52 N. W. 488, was an action upon a promissory note assigned to plaintiff for collection merely. The only question submitted was whether the plaintiff was the real party in interest. The court said :
“That the party holding the legal title of a note or instrument may sue on it though he be an agent or trustee, and liable to account to another for the proceeds of the recovery, but he is open, in such case, to any defense which exists against the party beneficially interested.”
In First Nat. Bank v. Hummell, 14 Colo. 275, 23 Pac. 991, an action on a chose in action, the court said :
‘ ‘ The meaning of the language of the first section cited has been frequently construed by the courts. The ‘ real party in interest5 is held to mean the person in whom the legal title to the claim in suit is vested.”
The case of Young v. Hudson, 99 Mo. 102, 106, 12 S. W. 632, 633, was an action upon three promissory notes and an account for merchandise, all alleged to have been regularly transferred to plaintiff. The defense was that the assignment of the account to plaintiff was without consideration, and was a mere pretense and sham; that the assignors, being the owners, and entitled to whatever sum might be collected on it, were the real parties in interest. Speaking on this question, the court said:
“The assignment was regular and formal. There *208was evidence of defendant’s admission of the original indebtedness it exhibited. But no consideration for its transfer to plaintiff appeared. The account was evidently assigned to him to collect for the use of the assignors. That did not preclude a recovery. An assignee of a chose in action, arising out of contract, may sue upon it in his own name, though the title was passed to him only for the purpose Of collection.”
In McPherson v. Weston, 64 Cal. 275, 281, 30 Pac. 842, 845, the defense was that the plaintiff was not the owner of the note, and, therefore, not the real party in interest. It was ruled:
“It makes no difference that the plaintiff paid nothing for the note. Forbes had the right to indorse it to him whenever the note became his property. He held it with the same right as any other owner had.” In the syllabus the court says : “The transfer to plaintiff was without consideration and merely for the purpose of collection. Pleld, that the transfer to plaintiff was valid and that he was entitled to judgment against Robinson as an indorser.”
In McCallum and Greeley v. Driggs, 35 Fla. 277, 278, 17 South. 407, 408, it was held :
“If a note be indorsed in blank, the courts never inquire into the rights of the plaintiff whether he sues in his own right or as trustee, nor into the right of possession, unless a plea be made of mala fides in the plaintiff’s possession.”
In Caldwell et al. v. Lawrence, 84 Ill. 161, 162, one defense w“as that the plaintiff was not the owner of the note and therefore hot the real party in interest. The court says :
“The legal title to the note was still in plaintiff, and the facts'-averred simply showed the payee was equitably entitled to the proceeds ; but that is a question with which defendant need not concern himself. It is not alleged he had any defense to the note as *209against the payee, and in whom were the equities is a matter of no consequence. Had the plea set forth facts which constituted a defense to the note, either in whole or in part, a very different question would have been presented. The legal title of the note remaining in plaintiff, the fact that the payee may have been the equitable owner constitutes no sort of defense to the action. The suit was rightfully brought in the name of the party in whom was the legal title to the indebtedness, and it can make no difference to defendant who may have been the equitable owner of the note, if he had no defense on the merits.”
In Brown v. Chenoworth, 51 Tex. 470, the defendant pleaded that plaintiff, after the execution of the note, was adjudged a bankrupt, and that the note was transferred to his assignee in bankruptcy for the benefit of his creditors ; that after his discharge in bankruptcy the note belonged to the creditors who had not been paid. The court said that “plaintiff, the apparent owner of the note, might sue in his own name, and the mere fact that he was not the real owner would constitute no defense, either in bar or in abatement.” In Epting v. Jones, 47 Ga. 622, it was held that “it is no good plea to a suit upon a promissory ■note that the suit is brought by the true owner in a fictitious name, it not appearing by the plea that the defendant has any defense to the note.”
The question involved in this case has been before this court, and for fifteen years it has been the settled law of this state that one holding the legal title to a chose in action may maintain an action thereon in his name, and, in my judgment, it should have been left at rest. In Krapp v. Eldridge, 33 Kan. 106, 109, 5 Pac. 372, 373, Mr. Chief Justice Horton, speaking for the court, said:
“Finally, it is urged that the trial court committed *210error in 'not compelling Eldridge to answer, upon cross-examination, ‘what he paid for the account/ The amount he paid was immaterial. The account was transferred and assigned in writing to him, and to this writing Carroll had attached his signature. Where an account is assigned absolutely, so that theassignee becomes in fact the owner thereof, he is the real party in interest. As Carroll had transferred in writing this account to Eldridge, it was immaterial toKrapp whether he had given it to him or sold it to him. After such transfer and assignment, Eldridge was the only person entitled to maintain an action therefor. Of course, Eldridge, as assignee, had no rights which his assignor did not possess. Krapp was entitled to make all defenses against the account in Eldridge’s hands which he might have made if the action had been brought in the name of Carroll.”
An able and thoroughly sound opinion involving the principles of this case was written by Judge Garver in Linney v. Thompson, 3 Kan. App. 718, 45 Pac. 456.
If Stewart had paid Price the amount of this account after the assignment, and before the suit, does any one doubt that this would have been a complete satisfaction? Price had been authorized to receive the money, and the account had been assigned to him and placed in his hands. A receipt from him would have been sufficient to protect Stewart, and could have been successfully pleaded in payment to any action thereafter prosecuted by Mrs. Thompson on that account. Holding the legal title, as he did, with authority to collect and receipt in full, why may he not maintain an action in his own name?
The code did not intend to adopt a rule that changes the law of commercial paper, nor one that abolishes the equity rules as to parties to actions on contracts, but it intended to abrogate the common-law rule and *211adopt and apply the equity rule of pleadings so far, at least, as concerns the plaintiffs in actions on contracts and other choses in action.
The principle running through and controlling in, all of the foregoing decisions is that the person in' possession and holding the legal title to the evidence' of indebtedness sued on is the real party in interest,' within the meaning of the code, notwithstanding the' entire beneficial interest is in another-.
Johnston, Cunningham, JJ., concurring in the dissenting opinion of Greene, J.