The prohibition against the federal court's entertaining
jurisdiction of actions brought by assignees to recover upon a
promissory note or other chose in action, as now embodied in § 24,
Judicial Code, does not apply to a suit to recover a specific thing
or damages for its wrongful detention or caption.
Page 235 U. S. 590
Under § 294, Judicial Code, which is the statutory rule for
construing that Code, the slight changes between the wording of the
Act of 1887 and that of § 24, Judicial Code, in regard to
jurisdicion of the federal court of suits by assignees was not
intended to bring about any change in the law, but merely the
continuation of the existing statute. 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.
Section 24, Judicial Code, does not deprive the district court
of jurisdiction to enforce an interest under an assignment by the
cestui que trust of an interest in the estate to which the
latter has a fixed right in the future. Such an assignment is not a
chose in action payable to the assignee within the prohibition of §
24, but an evidence of the assignee's right, title, and estate in
the property.
Conrad Braker, Jr., of New York, died testate July 21, 1890. The
15th item of his will provided that the sum of $50,000 should be
held in trust and securely invested for the use of his son, Conrad
Morris Braker, who was to receive the income until he attained the
age of fifty-five, when the "principal should be paid to him and
belong to him absolutely." If he failed to reach that age, the
property was to be held for the benefit of his wife for life with
remainder to Henry Braker.
The sixteenth item directed that "one-half of all the rest,
residue, and remainder, both real and personal," of his estate
should be held in trust for the use and benefit of Conrad Morris
Braker, who was to receive the interest derived from said trust,
until he attained the age of fifty-five, when "the whole amount,
less $25,000, shall be paid and belong to him absolutely." If he
failed to reach that age, then the property was to pass to another
son.
The amount realized from the residuum, described in the
sixteenth item, aggregated $120,000, and with the $50,000 described
in the 15th item of the will, was invested in property (not
described) which is now held by Austin B. Fletcher, the duly
appointed testamentary trustee.
On April 18, 1901, Conrad Morris Braker assigned to
Page 235 U. S. 591
Frank L. Rabe "seven-tenths of all the estate, right, title and
interest which he had in and to the principal sum of $50,000
described in the fifteenth item of the will." Thereafter, Rabe
transferred and assigned this interest to the New York Finance
Company.
On February 25, 1902, Conrad Morris Braker executed an
instrument in which, subject to the assignment of $35,000 above
referred to, he
"granted, bargained, sold, assigned, transferred, and set over
to the New York Finance Company all of his estate, right, title and
interest of any kind, form or description whatsoever to the amount
or extent of $35,000 in and to the legacy of $50,000, and also in
and to a legacy of the part or share of the residuary estate to
which he was entitled under and by virtue of the fifteenth and
sixteenth paragraphs of the will of Conrad Braker, Jr.,
deceased."
By virtue of these two transfers, the New York Finance Company
claimed to be the owner of such interest in the fund or estates
created under the fifteenth and sixteenth items of the will.
The Finance Company thereafter made a note for $15,000, payable
to William Brewster Wood, and secured the same by a transfer of its
interests under the sixteenth item. It also made another note for
$10,000 to Brown and Schermerhorn, trustees for Clara Schermerhorn,
and secured the same by a transfer of its interest under the
fifteenth item.
These notes were not paid when they fell due, and the New York
Finance Company's equity of redemption was acquired by the
respective holders of the two notes. In February, 1913, when Conrad
Morris Braker attained the age of fifty-five, the respective
holders of the notes and assignments demanded that the trustee
should pay over to them that to which they were entitled by virtue
of the instruments aforesaid. The trustee refused to comply, and
thereupon the executors of Wood and the
Page 235 U. S. 592
trustees of Clara Schermerhorn (all of whom were citizens and
residents of Pennsylvania) brought suit in the United States
District Court for the Southern District of New York against
Fletcher, trustee, and Conrad Morris Braker, beneficiary, both
being citizens and residents of New York.
The two bills were each prepared by the same counsel, and were
identical except that the trustees of Schermerhorn sued for what
had been assigned them under the fifteenth item. The executors of
Wood sued for the interest assigned them in the money or property
mentioned in the fifteenth and sixteenth items of the will. In both
suits, it was alleged that the complainants had acquired title by
virtue of the sale, transfer, and assignment executed by Conrad
Morris Braker, and subsequent mesne conveyance. It was alleged that
complainants had been informed that he claimed the transfers signed
by him to be void because made to secure usurious debts. Both bills
prayed that Braker should be enjoined from litigating the question
of title in any other court; that the complainants' right under the
assignments should be established by final decree, and that
Fletcher, the testamentary trustee, should be ordered to pay over
to the complainants what was due them by virtue of the respective
assignments from Braker.
The court dismissed both bills, and in each case gave a
certificate that the order was based "solely on the ground that no
jurisdiction of the district court existed."
From that order, the complainants appealed to this Court.
Page 235 U. S. 594
MR. JUSTICE LAMAR, after making the foregoing statement,
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
Page 235 U. S. 595
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. . . ." [
Footnote 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 fraudulent
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.
Bank of United States v.
Planters' Bank, 9 Wheat. 909.
Except for a short time, when the Act of 1875, 18 Stat. 470, c.
137, restricted suits "founded on a contract in favor of an
assignee," the several statutes on the subject, in force prior to
the adoption of § 24, made this limitation on the jurisdiction of
United States courts apply to "suits to recover the contents of any
promissory note or other chose in action in favor of any assignee"
(Act of 1789, 1 Stat. 78, § 11, c. 20; Rev.Stat. § 629; Act of
1887, 24 Stat. 553, c. 373). 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
Page 235 U. S. 596
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, that 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.
On 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 ruling, though criticized in
Bushnell v.
Kennedy, 9 Wall. 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
contract," but not to suits "to recover possession of the specific
thing, or damages for its wrongful caption or detention."
Bushnell v.
Kennedy, 9 Wall. 390-392. Neither did it apply to
suit
Page 235 U. S. 597
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, [
Footnote 2] 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 was 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,
Page 235 U. S. 598
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. 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.
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
Page 235 U. S. 599
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 Mass.
292;
Herrick v. Snow, 94 Me. 310.
See also Edwards v.
Bates, 7 Mann. & G. 590;
Nelson v. Howard, 5 Md.
327.
The beneficiary here had an interest in and to the property that
was more than a 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. 270;
Stringer v. Young, 191 N.Y. 157;
Lawrence v.
Bayard, 7 Paige, 70;
Woodward v. Woodward, 16 N.J.Eq.
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.
228), and to suits against
Page 235 U. S. 600
trustees for the recovery of 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. 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 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
Page 235 U. S. 601
Court for the Southern District of New York has jurisdiction to
hear and determine between these residents and citizens of
different states.
Decrees reversed.
[
Footnote 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,
or 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 court to recover upon said note or
other chose in action if no assignment had been made."
[
Footnote 2]
"SEC. 294. The provisions of this act, so far 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."
