1. An assignee of a chose in action, or any other
cestui que
trust, cannot, merely on the ground that his interest is an
equitable one, proceed in a court of equity to recover his demand.
Hayward v. Andrews, 106 U. S. 672,
cited upon this point and approved.
2. The courts of the United States especially, in view of the
act of Congress declaring that suits in equity shall not be
sustained where there is a plain, adequate, and complete remedy at
law, should enforce this rule.
3. Certain parties holding bonds secured by a mortgage filed
their bill to recover moneys alleged to be due on a contract which
the City of Memphis made with the mortgagor, and which was assigned
in the mortgage as part of the security for the bonds.
Held that the bill will not lie, the demand against the
city being cognizable at law in the name of the mortgagor, and no
special circumstances shown for a resort to equity.
The case is stated in the opinion of the Court.
Page 107 U. S. 206
MR. JUSTICE BRADLEY delivered the opinion of the Court.
This case was commenced by a bill in equity filed by the New
York Guaranty and Indemnity Company and others, holders of bonds of
the Memphis Water Company, against said water company, the City of
Memphis, the trustees of a mortgage given to secure said bonds, and
certain others of the bondholders and persons interested. The
principal object of the bill was to have declared valid a certain
contract made between the city and the water company and to compel
the city to comply with its terms, in order that the moneys alleged
to be due thereon from the city might be applied to the payment of
the bonds held by the complainants and others, the said contract
being included in the mortgage. There was also a prayer for a sale
of all the property and privileges of the water company under the
mortgage, and an alternative prayer that the said contract might be
cancelled if the court should hold it to be void, and that then the
city might be compelled to pay up a subscription it had made to the
stock of the water company, or else that the stock might be
cancelled. The circumstances of the case on which the bill was
founded may be briefly stated as follows:
The charter of the City of Memphis, among other things,
conferred upon its corporate authorities the power of supplying the
city with water for all purposes. But on the 28th of February,
1870, an act was passed chartering the Memphis Water Company, and
giving to it the exclusive privilege of laying down water pipes and
extending aqueducts and conductors through all or any of the
streets, lanes, and alleys of the city, and of supplying to the
inhabitants water by public works. Under this charter the company
commenced operations for laying pipes and erecting works without
the acquiescence of the city authorities. The city undertook to
carry out a counter-scheme, which had been under consideration for
several years. A litigation ensued which resulted in June, 1871, in
a judgment of the Supreme Court of Tennessee confirming the water
company's exclusive right, and enjoining the city from interfering
therewith, the court holding in substance that the exclusive right
given to the water company suspended that of the city for the
period named in the former's charter. Thereupon,
Page 107 U. S. 207
on the 18th of January, 1872, the city and the water company
entered into a contract whereby, among other things, the water
company agreed to erect waterworks in the city, including a certain
number of street hydrants of a peculiar construction, which the
city agreed to hire for the purpose of extinguishing fires, and to
pay therefor a certain annual rent, and it was mutually agreed that
the city should receive one-half of the company's capital stock,
amounting to $100,000.
Immediately after this contract was executed, the water company
took measures to raise money by an issue of bonds to the amount of
$600,000. For this purpose, they executed a deed of trust in the
nature of a mortgage to F. S. Davis, T. R. Farnsworth of Memphis,
and J. L. Worth of New York, whereby they conveyed all their
franchises, lands, wells, pumps, machinery, pipes, and other
property then held and thereafter to be acquired, and all the
income which they might thereafter
"receive, acquire, or become entitled to, including all sums of
money which the party of the first part may become entitled to
receive from the City of Memphis under and by virtue of a contract
made and entered into between the said City of Memphis and the said
party of the first part hereto, on the eighteenth day of January,
A.D. 1872."
This deed was declared to be given for the purpose of securing
the payment of six hundred bonds of $1,000 each, payable to bearer,
with interest at seven percent per annum semiannually. In case
default should be made in payment of principal or interest, power
was given to the trustees to take possession of the property and
books of the company, and to collect all moneys due to it,
including all sums due or coming due from the City of Memphis under
the said contract, and to apply the same to the payment of unpaid
interest on the bonds, and if two successive installments of
interest should be unpaid, the principal to become due, and at the
request of a majority in interest of the bondholders, the trustees
should take possession, given notice, and sell the entire property,
for cash, and apply the same to the payment of principal and
interest on the bonds.
The bonds provided for by this mortgage were duly issued and
disposed of, and the complainants represent themselves as
Page 107 U. S. 208
holding nearly all of them, those supposed to hold the remainder
being made defendants.
It is alleged and not denied that on or prior to the 1st of
April, 1873, the waterworks were completed and in operation, and
the hydrants stipulated for in the contract of January, 1872, were
used by the city. But, the city refusing to pay the rent therefor,
a suit was brought by the water company against the city to recover
the first installment of rent due. After the pleadings were filed,
the writ and declaration were amended by consent so as to be in the
name of the water company to the use of Davis, Farnsworth, and
Worth, trustees of the mortgage. The cause was tried in April,
1874, and a verdict was given and judgment rendered for the
plaintiffs. The Supreme Court of Tennessee, on a writ of error,
reversed this judgment in December, 1876, and awarded a new trial,
the court holding that the contract between the city and the water
company was
ultra vires of the city and absolutely
void.
In the meantime, in May, 1875, while the writ of error was
pending at the request of the requisite number of bondholders, the
trustees of the mortgage took possession of the property of the
water company and proceeded to advertise the same for sale.
Thereupon one T. W. Yardley, a holder of some of the bonds, filed a
bill in equity in the Chancery Court of Shelby County, Tennessee,
alleging that the New York Guaranty and Indemnity Company had
obtained the bonds held by it for an usurious and corrupt
consideration, which made it inequitable for that company to hold
the said bonds, or at least for the full amount thereof, and that
said company was urging the trustees to make said sale, which would
at that time be at a sacrifice of the property, and he prayed for
an injunction to prevent the sale, and for an investigation of the
true amount due, if anything, to said New York Guaranty and
Indemnity Company. All the bondholders, as well as the water
company itself, were made parties to the suit. A temporary
injunction was granted. On the 25th of May, 1875, a decree was
made, by consent of all parties, that the property should be
exposed for sale by the trustees on sixty days' notice, whenever
the court, in its discretion, should so order, on the demand of the
requisite number of bondholders, and that the mutual rights of the
parties
Page 107 U. S. 209
to a distribution of the proceeds should be ascertained by the
further litigation in the cause, the trustees in the meantime to
keep possession of the property and account for all receipts and
expenditures. An amendment to the bill was afterwards filed which
prayed an account to be taken of the amount justly due to all
parties, and for a foreclosure and sale of the mortgaged premises.
Answers and cross-bills were filed, nearly all the bondholders
appearing to assert their respective interests. In January, 1876,
the cause was removed to the circuit court of the United States,
and further proceedings took place in that court. On the 15th of
May, 1876, the trustees, at their own request and with the assent
of all parties, were by decree discharged from the custody of the
waterworks, and the president and secretary of the water company
were placed in charge, but it was stated in the decree that the
property was not thereby restored to the company itself, but to be
operated in the interest of the bondholders, and at all times
subject to the supervision and control of the court. In March,
1877, a few days after the filing of the bill in the present case,
a decree was made dismissing Yardley's bill and the several
cross-bills. An appeal was taken to this Court, but was dismissed
for want of prosecution. On the 2d of June, 1879 (after the final
decree was made in the present case), the circuit court, on the
application of the New York Guaranty and Indemnity Company and
others holding a majority of the bonds, made a decree in the
Yardley suit in pursuance of the consent decrees of May 28, 1875,
and May 15, 1876, ordering a sale, by a commissioner appointed for
that purpose, of all the franchises, rights, privileges, and
property conveyed by the deed of mortgage and authorizing the
commissioner to receive the bonds and coupons secured by the
mortgage as cash in payment of the property, and foreclosing the
equity of redemption. In answer to an application of the appellants
here, it is now shown by the appellees that the said decree for
sale was carried into effect in 1880, and the purchase money paid,
and that in June of that year, pending this appeal, the circuit
court made a decree confirming said sale.
In the present case, the principal defense set up by the City of
Memphis, by answer and demurrer, was the alleged illegality
Page 107 U. S. 210
of the contract as adjudged by the Supreme Court of Tennessee.
It was also insisted that there was a complete and adequate remedy
at law; that if there was any cause of action or complaint, it was
vested in the water company and the trustees of the mortgage, all
of whom reside in Tennessee, and that the complainants, if they
have any claim, acquired it through the assignment of the water
company, which itself could not maintain a suit in the United
States court. The circuit court concurred in the view taken by the
supreme court of the state, and held that the contract on the part
of the city was
ultra vires and void, and dismissed the
bill by a final decree rendered May 27, 1879. From this decree the
present appeal was taken.
The main object of the bill was to enforce the performance of
the contract made between the City of Memphis and the water
company; to have it declared binding, and to compel the city to pay
the rents due under it in order that they might be applied in
satisfaction of the bonds held by the complainants and others.
There was added, it is true, a prayer for the foreclosure and sale
of the mortgaged property and the application of the proceeds to
the payment of the debts received. But this latter relief was
already provided for by the consent decrees entered in the Yardley
suit, which, as we are now informed, have been carried into effect
at the instance of the appellants themselves, pending this appeal.
The important question to be considered is whether the principal
relief prayed for can be granted in this suit.
The contract sought to be enforced was not made with the
complainants; nor has it ever been assigned to them. It was made
with the water company, and its interest therein was assigned to
the trustees of the mortgage, as part of the security for the
payment of the bonds held by the complainants. Whatever interest
the complainants have therein they derive as beneficiaries under
the mortgage, through the assignment which it contained. They stand
in no better plight for the maintenance of the suit than the
trustees would if they had brought it. There seems to be no reason,
indeed, why the suit was not brought by the trustees. No allegation
is made that they were even unwilling to bring it. The legal
interest of the mortgage
Page 107 U. S. 211
was in them, and they were the proper representatives of all the
bondholders, and the most proper persons to protect the trust in
their hands. Indeed, they did bring a suit to enforce the contract.
The action at law brought in the name of the water company against
the city for the recovery of the first installment of rent was
prosecuted for the use of the trustees, and this was really the
proper mode of proceeding. Had the judgment in that case been a
final one, the questions raised in this cause would have been
res judicata; but a new trial being ordered, it failed to
have this effect. Thereupon, shortly after the decision of the
supreme court was rendered, the principal bondholders, without, so
far as appears, making any effort to have that suit further
prosecuted, brought this suit in the federal court in their own
names as complainants, and seek in this indirect way to accomplish
the same purpose which was attempted to be obtained by the direct
proceeding in the state court. It is a manifest attempt to evade
the decision of the case by that court, which had full and adequate
jurisdiction of the subject.
It was objected
in limine, by the demurrer to the bill,
that as the complainants claim under the assignment of the contract
made to the trustees, the circuit court had no jurisdiction,
because the water company, with which the contract was made, and
which made the assignment, is a citizen of Tennessee. This
objection is insisted on here, and would seem to be conclusive, if
the citizenship of the parties were the only ground of jurisdiction
of the circuit court. The Act of March 3, 1875, declares that no
circuit or district court shall have cognizance of any suit founded
on contract in favor of an assignee, unless a suit might have been
prosecuted in such court to recover thereon if no assignment had
been made. This suit is founded on the contract between the city
and the water company. The whole claim of the bondholders to any
benefit therefrom depends upon the assignment thereof contained in
the mortgage deed, and although the trustees of the mortgage are
the real assignees, the bondholders, as
cestuis que
trustent claim under them and stand on no higher plane as
regards the right to sue than the trustees themselves. The
complainants, however, insist that this suit is cognizable by
the
Page 107 U. S. 212
circuit court by reason of that court's having judicial
possession and control of the mortgaged property in the Yardley
suit. The bill and cross-bills in that suit, it has been seen, were
dismissed, but the parties regarded the consent decrees entered
therein as giving the court authority to keep the property under
its control and to cause it to be sold. Therefore, so far as
relates to the waterworks themselves and all the property comprised
in the mortgage which is susceptible of actual possession, the
position of the appellants may be correct. But the claim against
the city does not lie in possession, but in contract alone. The
contract itself may be subject to sale as part of the mortgage
assets; but the proceeds of the contract, the money alleged to be
due from the city to the water company under it, has never been
reduced to possession, and the City of Memphis denies its liability
to pay it. In order to reduce to possession the money claimed to be
due and subject it to the control of the court, the ordinary mode
of enforcing the contract must be resorted to. It may be that the
circuit court had the power to direct such a proceeding to be had
as ancillary to its administration of the mortgage fund; but it
must be a proper proceeding, adapted to the nature of the demand.
If a promissory note were included in the mortgage fund and the
parties liable upon it should refuse to pay it, the circuit court
might probably order the trustees of the mortgage to bring an
action on the note; but a bill in equity would hardly be considered
a proper proceeding for enforcing its collection. The view we have
taken with regard to the propriety of the proceeding in this case
for enforcing the contract against the city renders it unnecessary
to determine the question raised on the assignment of it by a
citizen of Tennessee. Whether the contract is or is not a valid
one, and, if valid, what are the obligations of the city under it,
and the damages for the breach thereof, are pure questions of law
which the city cannot, under ordinary circumstances, be compelled
to litigate with any other party than the water company or its
legal assigns. If the parties having the legal interest refuse to
sue, those having the beneficial interest will be authorized to use
their names on giving them proper indemnity against costs. The city
has a right to be confronted with those who
Page 107 U. S. 213
have the legal interest in the contract, unless they absolutely
refuse the use of their names or special circumstances exist which
would prevent or greatly embarrass the prosecution of the suit. It
does not lose its right to a trial at law by any pledges or
assignments which the water company may make of its interest in the
contract. Such pledges or assignments may create equitable rights
in regard to that interest, as between the water company and the
assignees; but the contract, so far as the city is concerned,
remains a matter of legal cognizance. If a merchant should pledge
his bills receivable as security for a loan, any equitable rights
which arise between him and his pledgees may be adjudged in equity;
but the makers and acceptors of the bills must be sued thereon at
law. And so here, while the equities between the water company as
mortgagor and the mortgagees, or those claiming under them (such as
the right of redemption, etc.), may be determined by a court of
equity, the legal demand against the city on the contract is
cognizable at law, and should be prosecuted in the ordinary courts
of law, as was done in the action brought in the name of the water
company against the city. Every question arising on the contract in
this suit is determinable in an action at law, and was determined
in the action referred to.
Recurring for a moment to the leading facts, how does the case
really stand? The trustees of the mortgage, on default of the water
company in payment of interest, took possession of its works and
carried them on. In performing this duty, they found, or supposed
they had found, that certain rents had accrued and were accruing
from the city for the use of the hydrants, under the contract in
question, which rents the city refused to pay. To establish the
contract and recover these rents, their remedy was clear and
adequate by an action at law in the name of the water company. They
brought such an action and failed by the adverse decision of the
Supreme Court of Tennessee. Then the bondholders, dissatisfied with
this result, brought this suit in equity in the federal court for
the purpose of raising the same questions anew. It is difficult to
see how they acquired any right to transfer the controversy from a
court of law to a court of equity. The fact that
Page 107 U. S. 214
they have only a beneficial interest is not of itself
sufficient. Whether the legal interest in the contract remained in
the water company or became vested in the trustees, an action at
law could have been brought in the name of the party having it.
There is no allegation in the bill that either of these parties
were applied to or that they refused to allow such an action to be
brought in their names.
We have lately decided, after full consideration of the
authorities, that an assignee of a chose in action on which a
complete and adequate remedy exists at law cannot, merely because
as such assignee his interest is an inequitable one, bring a suit
in equity for the recovery of the demand.
Hayward v.
Andrews, 106 U. S. 672. He
must bring an action at law in the name of the assignor to his own
use. This is true of all legal demands standing in the name of the
trustee and held for the benefit of
cestuis que trustent.
Besides the authorities cited in
Hayward v. Andrews,
reference may be made to Mitford on Pleading 123, 125; Willis'
Equity Plead. 435, note
g;
Adair v. Winchester, 7
Gill & Johns. 114;
Moseley v. Boush, 4 Rand. (Va.)
392;
Doggett v. Hart, 5 Fla. 215;
Smiley v. Bell,
Mart. & Y. (Tenn.) 378, and English and American Notes to
Ryall v. Bolles, 2 White and Tudor's Leading Cases in
Equity, pp. 1567, 1670 (ed. 1877).
In view of the early enactment by Congress in the sixteenth
section of the Judiciary Act (Rev.Stat. sec. 723), declaring "that
suits in equity shall not be sustained in either of the courts of
the United States in any case where plain, adequate, and complete
remedy may be had at law," the rule laid down in
Hayward v.
Andrews is entitled to special consideration from the courts
of the United States. This enactment certainly means something, and
if only declaratory of what was always the law, it must at least
have been intended to emphasize the rule and to impress it upon the
attention of the courts.
We think that the present case clearly falls within the rule.
The bill alleges no special circumstances which can properly take
it out of its operation. The fact that there are many beneficiaries
entitled to a distribution of the fund is not sufficient for that
purpose. All the property covered by the mortgage
Page 107 U. S. 215
deed constitutes one fund, and is to be brought together and
administered as such by first discharging the expenses of the
trust, and distributing the residue among the bondholders
pro
rata. There is no such division and separation of interests
into distinct parcels as existed in the case of
Field v. Mayor
of New York, reported in 6 N.Y. 179. The whole beneficiary
interest is a unit, and is represented by the trustees of the
mortgage, and the case presents no difficulty or embarrassment in
the way of an action at law.
We think, therefore, that the bill could have been properly
dismissed on this ground alone, and this renders it unnecessary for
us to consider the other questions in the case.
Decree affirmed.