1. The assignee of a bond and mortgage who by the terms of the
assignment holds it as collateral security for the payment of
another debt may, under the 111th and 113th sections of the New
York Code of Procedure sue, without making his assignor a party to
the suit.
2. And if on such a suit the debtor seek to recoup a certain
amount from the mortgage debt, and judgment goes accordingly for
less than the amount of the same, the original assignor cannot
bring suit for any balance. He is concluded by the former
proceeding.
The Code of Procedure of the State of New York enacts by its
111th section that:
"Every action must be prosecuted in the name of the real party
in interest, except as otherwise provided in section 113."
The exception of this 113th section is that:
"An executor or administrator,
a trustee of an express
trust, or a person expressly authorized by statute may sue
without joining with him the person for whose benefit the action is
prosecuted."
And by the same section:
"A trustee of an express trust within the meaning of this
Page 80 U. S. 498
section, shall be construed to include a person with whom or in
whose name a contract is made for the benefit of another."
Other sections of the code make provisions which may be referred
to. Thus, the 117th enacts that:
"All persons having an interest in the subject matter of the
controversy, may be joined as plaintiffs."
The 118th that:
"Any person may be a defendant who has or claims an interest in
the controversy adverse to the plaintiff, or who is a necessary
party to a complete determination or settlement of the question
involved therein."
The 119th enacts that:
"Of the parties to the action, those who are united in interest
must join as plaintiffs or defendants, but if the consent of anyone
who should have joined as plaintiff cannot be obtained, he may be
made a defendant."
This Code of Procedure being the law of New York, a certain
Walker sold to one Chew a farm in New Jersey, taking Chew's bond
for $3,500 and a mortgage on the farm sold.
Soon after the bond was given, Walker, the obligee, assigned the
bond and mortgage to one Wood as collateral security for the
payment of $1,700, and afterwards by another instrument of writing
declared that the assignee held them as collateral security for the
payment of $200 more. Wood, having thus become the assignee,
brought suit on the bond in the supreme court of New York in 1853
against Chew, the obligor, and joined Walker as a defendant, he
having refused to join as plaintiff, but process was not served
upon Walker, nor did he appear. After his death, which occurred
before the trial, on affidavit of his administratrix that he had
died, the court ordered that the action should be continued against
her as administratrix, but it did not appear that the order was
ever served upon her. Chew, however, pleaded fraud in the sale of
the farm, and claimed to recoup the damages he had sustained in
consequence of the fraud,
Page 80 U. S. 499
and the case went to trial upon the issue tendered by this plea.
On the trial, the jury found for Wood the sum of $2,091, for which
judgment was given, and which Chew immediately paid.
Pending the suit, however, Wood assigned the bond and mortgage
to one Braisted, and, two days after the judgment which had been
recovered was paid, Braisted and Walker's administratrix joined in
assigning them to a certain Brumagen. A bill was then filed in
chancery in New Jersey, at the suit of Brumagen, seeking to
foreclose the mortgage, and Chew's administratrix set up in defense
the suit in the supreme court of New York, the judgment therein and
the payment of the judgment, asserting that the debt which the
mortgage was given to secure was thereby satisfied, and
consequently that the mortgage, which was only a security for the
debt, had also been satisfied. But it was decided by the chancellor
that the judgment in the supreme court of New York was no defense
to the bill beyond the amount actually recovered by Wood and paid
to him; that inasmuch as neither Walker nor his administratrix was
served with process in that suit or appeared therein, the assignee
was not concluded by the judgment, and the ruling of the chancellor
was affirmed in the court of errors and appeals. From that decree
the case was brought here.
Page 80 U. S. 501
MR. JUSTICE STRONG delivered the opinion of the Court.
Confessedly the judgment must have the same effect given to it
in the courts of New Jersey as it has in the State of
Page 80 U. S. 502
New York, by the laws of that state, and either of the parties
to it has, under the Constitution of the United States, a right to
insist that such shall be its operation.
The question therefore is what was its effect in the State of
New York?
If, by the assignment to him, Wood, the assignee of the bond and
mortgage, was clothed with the legal interest therein, and if when
he sued, Walker, the assignor, was not a necessary party to the
suit, it is plain the judgment in the suit determined finally the
amount of the debt for which the bond was given, and neither Walker
nor his administratrix, nor any subsequent assignee of either of
them can maintain that the bond was not wholly extinguished in the
judgment. They were all represented by Wood, and they can claim
only through him. On the other hand, if Walker was a necessary
party to the suit, neither he nor those claiming under him by
subsequent right can be concluded by the judgment.
By the 111th section of the Code of Procedure in New York, it
was enacted that "Every action must be prosecuted in the name of
the real party in interest, except as otherwise provided in section
113." The 113th section enacted thus:
"An executor or administrator, a trustee of an express trust, or
a person expressly authorized by statute, may sue without joining
with him the person for whose benefit the action is prosecuted. A
trustee of an express trust within the meaning of this section
shall be construed to include a person with whom or in whose name a
contract is made for the benefit of another."
Doubtless the object of these provisions was to change the
common law rule that an action must be brought in the name of the
party two has the legal right, and to substitute for it the rule in
equity, but with considerable enlargement. This is manifest not
only in the language of the statute, but in the construction which
has been given to it by the courts of New York.
Had there been nothing more than the requirement of the 111th
section that every action must be brought in the name of the real
party in interest, it might be that the precise
Page 80 U. S. 503
rule in equity as to parties might have been intended. But this
cannot be, in view of the other sections. Thus the 117th enacts
that all persons having an interest in the subject matter
may be joined as plaintiffs. The 118th enacts that any
person
may be a defendant who has or claims an interest in
the controversy adverse to the plaintiffs or who is a necessary
party to a complete determination and settlement of the questions
involved therein. The 119th section enacts that those
united in
interest must be joined as plaintiffs or defendants unless the
consent of one who should have been joined as plaintiff cannot be
obtained, when he may be made a defendant. The 113th section we
have already quoted. That, as we have seen, enables a trustee of an
express trust to sue in his own name without joining those who have
a beneficial interest. It makes him the representative of the
holders of mere equities. Who, then, is a trustee of an express
trust within the meaning of the statute? It is plain that the law
intended to class among such trustees others than those who, in
equity, are regarded as technical trustees. It expressly declares
that included among them shall be persons with whom or in whose
name a contract is made for the benefit of another.
And the judicial decisions of New York have given a liberal
interpretation to the description, "trustee of an express trust,"
in accordance with the apparent intention of the legislature. Thus,
in
Cummings v. Morris, [
Footnote 1] where notes had been assigned to the plaintiff
upon his agreement to give to the assignor when the notes should be
collected the amount thereof in stock, it was held that the
assignee might sue alone, and this though the whole beneficial
interest was in the assignor. In
Considerant v. Brisbane,
[
Footnote 2] where a promissory
note had been given to the plaintiff as executive agent of a firm,
it was ruled that he might sue in his own name because he was a
trustee of an express trust. In
St. John v. American Life
Insurance Company, [
Footnote
3] the plaintiff was the assignee of two policies of insurance
under an agreement
Page 80 U. S. 504
that if one of the policies was paid, he would pay to the wife
of the assignor part of the proceeds thereof, and pay her all he
recovered on the other policy. It was held that he could sue alone.
Lewis v. Graham [
Footnote
4] was a case where an assignment of property had been made by
a debtor in trust for certain creditors, and the assignee was
empowered to pay them, returning the balance to the assignor, and
it was held that the assignee might bring a suit in his own name
without joining the
cestui que trusts. In
Slocum v.
Barry, [
Footnote 5] which
was an action brought by persons appointed to receive subscriptions
for the Troy University against one who had signed a general
subscription agreement, it was ruled they were trustees of an
express trust, and it was said
"no formal or written agreement is necessary to create a trust
in money or personal estate. Any declaration, however informal,
which evinces the intention of the party with sufficient clearness
will have that effect. [
Footnote
6]"
A factor or other mercantile agent, who contracts in his own
name in behalf of his principal is a trustee of an express trust
within the meaning of the statute.
These and other cases which might he cited show how liberally
the term "trustee of an express trust" has been construed in order
to preserve measurably the common law rule that he who has the
legal right is the proper plaintiff.
If now we turn to the case in hand, it will be found not easy to
see why, if Wood was not the real party in interest when he sued
upon the bond, he was not at least a trustee of an express trust.
The assignment of Walker to him, though expressly stated to be for
a collateral security, gave him the entire legal interest. It
enabled him to employ the entire bond, if necessary, for the
payment of the assignor's debt to him. Had the assignment been
without reference to the purpose for which it was made, it is not
doubted that the assignee would have been the real party in
interest, and
Page 80 U. S. 505
as such entitled to sue without joining the assignor, and this
though in fact made as a collateral security. The legal effect of
the transfer cannot be different because the purpose of it was
expressed. It is to be observed that Walker's assignment was not of
part of the bond, making Wood and Walker joint owners, as was the
case in
Lewando v. Dunham, [
Footnote 7] where the agreement was that the assignor
should have half the judgment. Walker's rights were not concurrent
with those of his assignee. They were subordinate. He had nothing
to get until Wood's claim was entirely satisfied. By his assignment
he substituted Wood in his place to demand and receive payment of
the bond, and agreed to look to Wood for what remained after his
notes were satisfied. Surely after the assignment he had no right
to demand anything from Chew. How then had he any real interest in
the bond? He had an interest in what Wood might collect by virtue
of the bond, but that is a different thing from an interest in the
bond itself. And Wood, by taking the assignment expressly as a
collateral security, undertook to account to his assignor for the
property assigned. He became the holder of the legal right under an
express trust to hold the beneficial interest or the money
collected primarily for himself, and secondarily for his assignor.
If faithless to his trust, if he colluded with the obligor in the
bond, he was responsible to his
cestui que trust.
If then, as we think, Wood by the assignment became the trustee
of an express trust, neither Walker nor his personal representative
was a necessary party to the suit which was brought upon the bond.
They were represented by the trustee, and the judgment which he
recovered settled finally against them, and all claiming under them
as well as against Wood, the amount recoverable. Such, in our
opinion, was the legal effect of the judgment in the State of New
York. And the plaintiff in error has a constitutional right to have
the same effect given to it in the State of New Jersey. The learned
court therefore erred in decreeing a foreclosure of
Page 80 U. S. 506
the mortgage. The complainant's bill should have been
dismissed.
Decree reversed and the cause remitted with directions to
proceed in accordance with this opinion.
[
Footnote 1]
25 N.Y. 625.
[
Footnote 2]
22
id. 389.
[
Footnote 3]
13
id. 31.
[
Footnote 4]
4 Abbott 106.
[
Footnote 5]
34 Howard's Practice 320.
[
Footnote 6]
Cummins v. Barkalow, 4 Keyes 514;
Reed v.
Harris, 7 Robertson 151;
Burbank v. Beach, 15 Barbour
326;
Brown v. Cherry, 38 How. 352.
[
Footnote 7]
1 Hilton 114.
