Brown v. Fletcher

235 U.S. 589, 35 S. Ct. 154, 59 L. Ed. 374, 1915 U.S. LEXIS 1846

• Court: Supreme Court of the United States
• Decided: January 5, 1915
• Docket: Nos. 454 and 455
• Status: Published

Opinion

Mr., Justice Lamar,

after making the foregoing state- . ment, delivered the opinion of the court.

The appellants brought suit in the United States District Court for the Southern District of New York for the purpose of recovering from the Trustee an interest in a trust estate which had been sold, transferred and assigned by Conrad Morris Braker, the beneficiary. The complainants were citizens and residents of Pennsylvania. Both defendants were citizens and residents of New York. Notwithstanding the diversity of citizenship, the court dismissed the bill on the. ground that, as the assignor Braker, a citizen of New York, could not in the United States District Court, have sued Fletcher, Trustee and citizen of the same State, neither could the Complainants, his assignees, sue therein, even though they were residents of the State of Pennsylvania.

The appeal from that decision involves a construction of § 24 of the'Judicial Code, which limits the jurisdiction of the United- States District Court when suit is brought therein . . . “to recover upon any promissory note or other chose in action in favor of any assignee. . . .” 1

This section of the Judicial Code is the last expression of a ‘policy intended to prevent certain assignees from proceeding in the United States courts.

The restriction was imposed not only to prevent fraúdulent 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. United States Bank v. Planters' Bank, 8 Wheat. 904, 909.

, Except for a short time when the act of March 3, 1875, c. 137, 18 Stat. 470, restricted suits “founded on.a contract in favor of an assignee,” the several statutes on the subject, in forcé prior to the adoption of § 24, made this limitation on the jurisdiction of United States courts apply to “any suit to recover the contents of any promissory note or other chose in action in favor of any assignee” (Act of September 24, 1789, c. 20, 1 Stat. 73, 78, § 11; Rev. Stat., § 629; Act of March 3, 1887, c. 373, 24 Stat. 552; Act of August 13, 1888, c. 866, 25 Stat. 433, 434). 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 one sense all rights of action.” Dundas v. Bowler, 3 McLean, 204, 208. 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, £hat 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.

Ón 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, 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 ruing, though criticized in Bushnell v. Kennedy, 9 Wall. 387, 393, was constantly followed (Sheldon v. Sill, 8 How. 441; Shoecraft v. Bloxham, 124 U. S. 730), 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 a contract . , . but . . . not to suits to recover the specific thing or damages for its wrongful caption or detention.”’ Bushnell v. Kennedy, 9 Wall. 387, 390, 391. Ibid. 392. Neither did it apply to suits for damages for neglect of duty. Deshler v. Dodge, 16 How. 622, 631; Ambler v. Eppinger, 137 U. S. 480.

Such is still the law under .§24; for, according to the statutory rule for construing the Judicial Code 1 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 as 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 fifteenth item, and the $120,000, proceeds of the residuum of the estate referred to in the sixteenth 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 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. 76, 83. 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. 730, 735.

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 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 Massachusetts, 292; Herrick v. Snow, 94 Maine, 310. See also Edwards v. Bates, 7 Man. & G. 590; Nelson v. Howard, 5 Maryland, 327.

The beneficiary here had an interest in and to the property that was more than ¿ 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. 257, 270; Stringer v. Young, Trustee, 191 N. Y. 157; Lawrence v. Bayard, 7 Paige, 70; Woodward v. Woodward, 16 N. J. (Eq.) 83, 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. The equity jurisdiction of such courts extends to suits by heirs against executors and administrators (Security Co. v. Black River Bank, 187 U. S. 211, 228) and to suits against Trustees for the recovery of an interest in the trust property by the beneficiary or his assignee.

The conclusion that § 24 of the Judicial Code did not deprive the District Court of jurisdiction, to enforce complainants’ interest under the assignments executed by the cestui que trust, was foreshadowed in Ingersoll v. Coram, 211 U. S. 335, 361. That was a proceeding by an. assignee to enforce an equitable lien on an heir’s interest in an estate. In that case it was claimed that because the assignor could not have sued in the United States court, neither could the. assignee maintain his Bill therein. The case was disposed of on another ground but the court said that "it is certainly very disputable if an interest in a distributive share of an estate is within the statute.”

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, 305, 306), 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 Court for the Southern District of New York has jurisdiction- to hear and determine between these residents and citizens of different States.

Decrees reversed.

1 “. . . No district court shall have cognizance of any suit (except upon foreign bills of exchange) to recover upon any promissory note or other chose in action in favor of any assignee, of of any subsequent holder if such instrument be payable to bearer and be not made by any corporation, unless such suit might have been prosecuted in such coúrt to recover Upon said note or other chose in action if no assignment had been made.” 36 Stat. 1091.

1 “Sec. 294. The provisions of this act, so fa)r as they' are substantially the same as existing statutes, shall be construed as continuations thereof, and not as new enactments, and there shall be no implication of a change of intent by reason of a change of words in such statute, unless such change 'of intent shall be clearly manifest.” 36 Stat. 1167.