MacDonald v. Kneeland

5 Minn. 352

• Court: Supreme Court of Minnesota
• Decided: July 15, 1861
• Status: Published

Opinion

By the Oowrt.

Atwatee, J.

This was an an . action by Kneeland and Ludington (Plaintiffs below) to set aside a judgment recovered in the District Court of Bamsey County, in favor of the Defendants, MacDonald and Graham, against the Defendant, E. M. S. Pease, garnishee of the Minneapolis & Cedar Yalley B. B. Company. The Defendants MacDonald and Graham had recovered a judgment against said company, for some $38,000, for work done in grading the road, and garnisheed the Defendant Pease, who was indebted to the Bail Boad Company for 43 Minnesota State B. B. bonds; which indebtedness was to be discharged by returning the bonds, or paying their market value in currency. This indebtedness was evidenced by a written contract, which the Plaintiffs claimed to have purchased of the Company, previous to the service of the garnishee process on Pease, and they allege that the judgment of MacDonald and Graham against Pease, was a cloud upon their title to the said contract, and that Pease on account thereof, refused to settle and account with them. The Plaintiffs alleged the consideration for the assignment of this contract to them by the Bail Boad Company, was a loan to said .Company by the Plaintiffs of $5,000 and IV Minnesota State seven per cent, bonds, which amount of money and bonds, the Plaintiffs allege were to be returned to them within thirty days from the 21st day of September, 1859; and that in default thereof, the Plaintiffs were authorized to sell the right and interest of the Company in the contract with Pease, and the bonds therein mentioned. The Defendants, MacDonald and Graham, answered, denying the allegations of the Plaintiffs as to their purchase and ownership of the contract, and alleged that if any such sale was made, it was made by Benjamin Pringle, without authority in fraud of the rights of the Defendants, and in collusion with the Plaintiffs.

The case was referred to James Gilfillan, Esq., who reported in favor of the Plaintiffs, and that the judgment in favor of MacDonald and Graham, be set aside as far as the rights of the Plaintiffs were concerned. The Defendants on a case made, appeal to this Court.

It appears from the report of the referee, that prior to May 5th, 1859, there bad existed at St. Paul, a banking firm of Pease, Chalfant & Co., composed of the Defendants, Roger M. S. Pease, Richard H,*’ Pease, Charles Hunt, Platt A. Paine, and one Jacob M. Chalfant. That prior to said day Roger M. S. Pease had made a contract with the Minneapolis and Cedar Yalley Rail Road Company, in pursuance of which the Company had deposited with said firm, 43 Minnesota Rail Road bonds, and said Company was to have from said firm in relation to said bonds, the same contract after-wards made by R. M. S. Pease. The death of Jacob M. Chalfant, prior to May 5th, 1859, dissolved the firm, and prevented the execution of the contract. On the 5th day of May, 1859, it was agreed between R. M. S. Pease and the Rail Road Company, that the said Pease should execute the contract originally proposed between the firm aforesaid and the Company, and that it should be guaranteed by all the surviving members of the firm. A contract was accordingly drawn and executed by R. M. S. Pease, and guaranteed by R. M. S. Pease and Charles Hunt (being the only two members of the firm then in St. Paul,) and delivered to the Comp any It was at the same time agreed, that a duplicate of the contract should be drawn and signed by the members of the firm then present, and forwarded East for the signatures of R. PI. Pease and Platt A. Paine, and that upon the delivery to tho Company of the contract guaranteed by all the surviving_members of the firm, the contract then delivered guaranteed by the two, should be given up and cancelled. On the 5th of June following, said contract, guaranteed by the four members of the firm, was delivered to the Company, “but said Conq^any, through the inadvertence of its officers, neglected to redeliver to said Roger M. S. Pease, the said contract and guaranty delivered to it on the 5th day of May aforesaid.” On the 21st of September following, the Company assigned this contract, (guaranteed by the two members of the firm,) to the Plaintiff's, as security for the money and bonds advanced by the Plaintiffs to the Company. The garnishee summons was served on Pease several days subsequent to this assignment.

Tqe Appellants claim that the Plaintiffs took nothing by the assignment of this contract, inasmuch as it was then of no force and effect — that it bad discharged its office and was null and void. So far as the contract itself is concerned, I think this position is correct. The permanent contract which was agreed upon between the parties, was to have four guarantors, and the referee finds that the contract with two guarantors, “was then and there delivered by said Pease and Hunt to said Company, with the express'"understanding and agreement, that when the guaranty upon the duplicate sent East as aforesaid, should be signed by said other members of said late firm, and said duplicate delivered to said Company, the one delivered to said Company on the said 5th day of May, should be delivered by said company to said Pease, the one so delivered to said Company to be kept by it only until the said duplicate with said signatures should be delivered to it.” In the face of this express agreement between the parties I do not see how it can be claimed with any show of reason, that the contract first delivered to the Company, had any force or effect, after the delivery of the second or 'substitute. The Company had no right to make any use of it whatever, and were violating their agreement in even retaining possession of it. Nor is it any answer to say that the guaranty is no part of the contract, and that the contract is the same whether guaranteed by two or four. It is enough to say that the parties themselves have a right to provide what the contract shall be, both in form and substance, and they have declared that the permanent contract with reference to these bonds, should have four guarantors, and that the temporary one with two, should be delivered to the obligors. As the Company therefore had no right by virtue of, or under this contract, they could convey none by an assignment of the same.

But the Company had rights in the bonds mentioned in the contract, and I think the language of the assignment is broad enough to convey the interest of the Company in those bonds to the Plaintiffs. The assignment is, first of a certain contract in writing (describing it) “ together with all the interest of the said Company in the bonds mentioned in the contract or agreement, and the bonds therein mentioned” — and then goes on to assign the interest of the Company in twenty-five other State bonds, with which the contract had nothing to do. It will thus be seen that the assignment purported to convey other interests beside the contract, and the intent of the Company to convey the bonds (or the interest of the Company in them,) is as clear as it is to convey their interest in other bonds not referred to in the contract. An assignment inter alia conveying a void contract evidencing a debt, would not vitiate or render nugatory that part of the instrument conveying the debt itself in apt and sufficient terms, and although the Plaintiffs conld not acquire title to the bonds by virtue of the contract assigned, I see no reason why the interest of the Company in these bonds did not pass by reason of the assignment. In an action by the Company against Pease for these bonds or the avails thereof, on the contract held by it, this assignment of its interest would constitute a good defence.

It is .claimed by the Appellants that the assignment to the Plaintiffs gave to them no lights of any hind, and was in no way binding upon the Railroad Company, for the reason that Benjamin Pringle, who transacted the business in the name and on behalf of the Company, had no valid authority to act, it not being in the power of the Directors of the Company to confer such authority upon him. Upon a careful examination of the pleadings I do not find that any such issue was made in the action, nor from the report of the referee or proceedings in the case does the point appear to have been made in the Court below. The answer, after denying the making of the promissory note by the Company, alleges that “ if any such note was executed, it was made by Pringle,1*the President of said Railroad Company, but without the knowledge or authority of the Company, and without consideration, and to be used for the purpose of defrauding these Defendants,” &c. Substantially the same averments are made with reference to the assignment of the contract by the Company to the Plaintiffs, from which it is apparent that the point now here raised was not litigated below. The issues of fact upon these allegations went to the merits of the action, and having been found against the Appellants, it would scarcely be in furtherance of justice to permit a technical objection of this kind to be here raised for. the first time, even if well founded. Without intending distinctly to decide the point, I am strongly inclined to think that the Directors of the Company had power to authorize Pringle to do the acts alleged in the complaint.

R. M. S. Pease, having become insolvent, made an assignment to Lorenzo Allis, (the date of which does not appear,) and on the 28th of September, 1859, a garnishee summons, in favor of MacDonald and Graham, was served upon Pease and Allis. Before disclosure by them, Allis was verbally notified by Luddington that the Railroad Company had assigned to him all their right, title and interest in the contract between Pease and the Company. This fact, however, did not appear in the disclosure, and judgment was rendered against the garnishees for the forty-three bonds or their value. The question is thus presented as to which party has the better title to the bonds.

That an assignment of a debt or chose in action is valid and binding as between the assignor and assignee, without notice to the debtor, seems to be generally conceded. But the authorities are somewhat in conflict as to whether such an assignment will have preference over an attaching creditor without notice of the assignment. But the rule laid down in Muir vs. Schenck, 3 Hill, p. 228,1 think best supported by reason and authority, which is, that “ as between different assignees of a chose in action, by express assignment from the same person, the one prior in point of time will be protected, though he have given no notice to either the subsequent assignee or the debtor.” And the decision in that case seems to be based upon the rule laid down by Lord Thurlow in Davis vs. Austin, 1 Ves. Jun. 247, that “ a purchaser of a chose in action must always abide by the case of the person from whom he buys. That I take to be an universal rule.” In Robinson vs. Weeks, 6 How. R. 161, the Court say — “ the assignment carried the whole title to the subject matter of the action, and of course the judgment when perfected. As between the parties to the assignment, clearly the whole right passed to the assignee — nor was any notice to the Defendant necessary except for the purpose of protecting the assignee against the acts of the assignor.” And in the case of Muir vs. Schenck, it was held that “this question between a previous assignee and a subsequent attaching creditor, was considered the same in principle as that between conflicting assignees.” And to the same effect is Wood vs. Partrigde, 11 Mass. 488. So fax-, therefore, as these cases are authority, the case at bar falls within the rule.

But the cases on this subject are reviewed in a very able and elaborate opinion by Denio, Justice, in a late case in the Court of Appeals of the State of New Tort, that of Bush vs. Lathrop, 22 N. Y. 535, in which Muir vs. Schenck, above cited, is approved of, as well as the rule laid down in 1 Vesey, 247, “ that a purchaser of a chose in action must always abide by the case of the person from whom he buys.” “ The rule as thus stated,” say the Court, “is the only logical one. In the transmission of property, of any hind, from one person to another, the former owner can, in reason, only transfer what he himself has to part with, and the other can only take what is thus transferred to him. The cases in which, from motives of policy, to promote the currency of certain securities, to prevent fraud, or to aid the vigilant against the careless, the party to whom the transfer is made is allowed to claim a greater interest than was possessed by the other, are exceptional ; and it is for a party claiming the protection of an exception to show that it exists in the particular case.” Our Statute has made an exception to the rule in the case of transfers of real estate by instruments entitled to record, but I am not aware of any other which it has created.

The same doctrine as that held in the cases above cited is asserted in Dix vs. Cobb and Whitney, 4 Mass. 508, in which Parsons, C. J., says—“ Although the trustee m this case had no notice of the assignment until after he was sued as trustee, yet immediately on the assignment the equitable interest in the debt, as between the parties to it, immediately passed to the assignee. And if the assignor had afterward received the debt, he would be obliged to pay over to the assignee. But an attaching creditor cannot stand on a better footing than his debtor, (if the assignment be not fraudulent as to creditors,) and if he attaches any property of the debtor, it must be attached subject to all lawfully existing liens created by his debtor; and consequently if the debtor have no equitable interest in a cbose in action, the creditor cannot acquire any by bis attachment. Therefore the want of notice in the trustee will not defeat the assignee’s interest in this debt in favor of an attaching creditor. Other cases might be eited} supporting the same doctrine, but many of them are quoted and commented on in the cases above referred to.

The other Massachusetts authorities, cited by the counsel for the Appellants, we do not understand hold a different doctrine from this, but were decided on points not here in issu^. In Foster vs. Sinkler, et al, 4 Mass. 450, Thompson, the maker of two non-negotiable promissory notes, was held as trustee of the payee, on the ground that there was no sufficient evidence'of a Iona fide assignment of the notes. In Comstock vs. Farnum, et al, 2 Mass. 96, the only point decided was, that “evidence collateral to the answer of a trustee, under the Statute of February 28,1795, respecting absconding debtors, is not to be admitted.” Hull vs. Blake, 13 Mass. 153, was assumpsit by the endorsee against the maker of two promissory notes, both made in Georgia, and Defendant pleaded a judgment rendered against him as garnishee of Billings, the payee of the notes, by a Court of competent jurisdiction in the State of Georgia. The plea was held good, the Court saying that,. “ if by the laws of the State of Georgia, in force when these notes were given, they might be discharged by a payment to the original promisee after they were endorsed, and such a payment had been actually made, proof of these facts would secure the Defendant from a second payment,” &c.; though the Court say, “such a provision would be extraordinary, and contrary to the effect generally given to negotiable securities in any mercantile community.” If that case can be considered as having any bearing on the rights of an assignee of a chose in action, it is only on account of a Statute giving an extraordinary privilege to the creditor.

In Wood vs. Partridge, 11 Mass. 488, the debtor was held as trustee of the assignor. But it was on the ground that the debtor had not been furnished with sufficient evidence to constitute legal proof that the debt had been assigned, and not on the ground that an assignment without notice is invalid. Where a garnishee has been held on his disclosure, it ought to constitute a good bar to another recovery for the same cause of action against him, so long as the judgment stands. And were the Plaintiffs here seeking a judgment against Pease simply, without setting aside that of the Appellants against him, that judgment would have constituted a good plea in bar. The 13th Illinois, 486, holds that an assignee of a chose in action takes it subject to all the equities between the orignal parties. An examination of the case of Holmes vs. Remsen, 4 John. Ch. 460, will show that no question there decided is applicable to the case at bar. And in Milliken vs. Loring, 37 Maine, 408, it was held that if one summoned as trustee is notified that the debt by him owing has been assigned to a third person, and neglects to disclose such assignment, the trustee judgment and payment of it on‘a legal demand, furnish to him no protection against the claims of the assignee.

It is true that it is stated in Brahe on Attachments sec., 607, that if a debtor be summoned as garnishee of his creditor, and have received no notice of an assignment of his debt, a judgment rendered against him will protect him from subsequent liability to an assignee. But that the application of this rule is intended to be carried only so far as may be necessary to protect the debtor, is I think manifest, since in the section next subsequent to that above quoted, the rule is stated, that “an assignment of a debt will protect the rights of the assignee from a subsequent attachment against the assignor, though notice may have been given to the debtor before the attachment, if it be given in time to enable him to take advantage of it before judgment against him as garnishee.” In a note to this text, the author cites among other authorities, 4 Mass. 508, and 3 Hill 228, and observes: “that the doctrine stated in the text, is correct, cannot I think be reasonably doubted, but in Connecticut and Yernaont it is held, that an attachment of a debt made before notice of its assignment, will prevail against the"assignment, though notice be given to the debtor before judgment against him as garnishee;” — -citing on the same, 5 Day 534 ; 10 Conn. 444; 14 Conn. 141; 25 Vermont 593 ; also cited by Appellant’s counsel. The author here admits the doctrine stated in Muir vs. Schenck to be correct, but that the Courts of Connecticut and Vermont, have, to some extent at least, adopted a different rule. I have not had access to all these authorities and do not deem it necessary t© examine then! at length, as if they hold that an attaching creditor, by virtue of his attachment, obtains a better title to a debt or chose in action, than a previous assignee without notice to the debtor, 1 do not think, the doctrine supported by sound reason' or the weight of authority.

Ve hold then the correct rule to be, that a party making an absolute assignment of a chose in action, parts with all his interest in the same, and a subsequent. attaching creditor or assignee, can acquire no interest therein. That if the debtor pays to the assignor, without notice of the assignment, the latter will be held to have received the same • as trustee for the assignee, and that even a judgment obtained against the debtor as garnishee (before payment) will not defeat the rights of the assignee, at least where the facts proved in an action brought to set aside the judgment, disclose superior equities in the assignee. The facts here found show that the Plaintiffs loaned their money on the faith of this specific property, whilé the appellants were only general creditors of the Company, and their debt was contracted and position fixed, without any reference to, or at least, any claim upon the bonds now sought to be obtained. It would scarcely comport with equity and good conscience, for the Court to postpone the prior equitable and specific lien of the Plaintiffs, to the subsequently acquired rights of the appellants to this property.

The counsel for the respondents urges that this assignment vested the legal estate of the subject matter assigned, in the assignees, and that this fact leaves no question as to their rights, however they might have stood under the old practice. We think this position is not tenable. The code has very wisely dispensed with the absurdity of requiring the assignee to use the name of the assignor in bringing suit, but it does not therefore, follow that the legal estate in the thing assigned passes to the assignee; on the contrary, the only object of this provision of the Code, seems to have been to assimilate the .practico in Courts of Law to that which always prevails in Courts of Equity in permitting the real party in interest to sue in his own name. The interest or right acquired under the assignment is an equitable one, and governed by the same principles which Courts of Equity have always been wont to apply in like cases.

It is further urged by the Appellants, that there has been no valid sale of the indebtedness from Pease to the Rail Road Company under the assignment to Plaintiffs. That assignment provided that on default in payment of the note given to Plaintiffs, or in the delivery of the eleven State bonds, “then it shall be lawful for said Rneeland and Ludington, and they are hereby authorized and empowered to sell the property and interests hereby assigned or intended so to be, at public or private sale, at the city of Milwaukee, on giving to the President of said Company ten days notice of the time and place of such sale.” It appears that this notice was the only condition imposed upon the Plaintiffs with reference to the sale, and it also appears in evidence that this notice was given.

We are cited to Newbould vs. Wheeler 16 N. Y. 392, as an authority showing the invalidity of this sale. That case holds that “the pledge of commercial paper as security for a loan of money, does not, in the absence of a special power for that purpose, authorize the pledgee upon the non-payment of the debt, and upon notice to the pledgor, to sell the securities either at public or private sale, but he is bound to hold ' and collect the same, as they become due, and apply the money to the payment of the loan.” Erom this statement from the syllabus, it will be remarked that a wide difference exists between that case and the one at bar. The debt here assigned, was not in the form of commercial paper,. and there was an express agreement on the part of the Company, that the assignees might sell the same either at public or private sale, and the only notice required was one of ten days to the President of the Company. But in the view taken by the Court of the rights of the Plaintiffs under this assignment, an irregularity in the sale would not divest their equitable lien upon the property, and at most, the Court would only order a re-sale, where it clearly appeared that such course would be in furtherance of justice, and in conformity with the relief demanded. But the Appellants do not ask such relief, nor claim that their rights have been prejudiced by reason of any ■ irregularities connected with the sale, and consequently are not in a position to urge the objection that the Plaintiffs took nothing under the sale.

The order of the Court below denying a new trial is affirmed.