Chew v. Brumagen

ERROR to the Supreme Court of New Jersey; the case being thus:

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 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 any one 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 $3500, 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 $1700, 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, and the case went to trial upon the issue tendered by this plea. On the trial, the jury found for Wood the sum of $2091, 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 defence 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 defence to the bill, beyond the amount actually recovered by Wood and paid to him; that inasmuch as neither Walker nor his administratrix were 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.

Mr. J. H. Reynolds, for the plaintiff in error:

The courts below held that the judgment in New York, between Wood and Chew, was inconclusive, because neither Walker nor his legal representative was in fact a party, and because under the law of New York, in order to conclude the rights of Walker or his estate by the judgment, he or his representative should have been brought in as a party. This was error. The expression 'real party in interest,' as used in the code, had long been well known and understood in equity courts, both in England and America, and it meant and intended the party in whom the entire title, whether legal or equitable, was vested, as contradistinguished from a nominal party.

Assuming then, that the judgment in Wood v. Chew, was conclusive and binding upon the personal representative of Walker, and his assigns, it merged the entire bond and the mortgage as collateral to it in the judgment, and the payment of the judgment has extinguished the debt. The suit was to recover the entire sum, principal and interest.

Chew, the defendant, set up a defence which as he asserted authorized him to recoup damages by reason of the fraud in the inception of the bond to its entire amount. Upon these issues the case was tried.

By the judgment he was permitted to recoup to an amount less than the whole, and the plaintiff took judgment for the remainder.

Mr. E. T. Green, contra:

The whole effect of the judgment in New York on the bond secured by the mortgage, was simply the reduction, pro tanto, of the amount due upon the bond, and Chew's estate has the right to look to the security for the balance.

It is a settled principle that to make a judgment binding and effective, the court must have jurisdiction over both the cause and all the necessary parties thereto, over the parties and things to be affected.

Who were, then, the necessary parties to this suit in New York upon the bond, so that a judgment obtained there should be binding and conclusive? Wood was interested in the bond to the extent of $1900, it having been assigned to him as collateral security for that amount. Walker was interested in the same bond to the extent of $1600, that being the amount due to him after the satisfaction of the debt for which it was held by Wood as collateral, and Chew was interested in the bond to the extent of $3500, for that was the amount which he had bound himself to pay to Walker. It is apparent, therefore, that Wood, Walker, and Chew were the real parties in interest.

Now, the Code of Procedure of the State of New York requires that all parties in interest must be before the court to perfect an adjudication. But if the person holding the legal title is the only real party in interest under the 111th section-which is in fact the argument of the other side-it was not necessary to enact that 'an executor or administrator, or a trustee of an express trust,' might sue, without joining those beneficially interested. A 'trustee of an express trust,' without doubt, has the legal title to a chose in action, held for his cestui que trust. If so, construing the section as the plaintiff does, he can sue in his own name as the real party in interest, and the 113th section becomes a nullity. So, too, with executors; they have the legal title, but not the beneficial interest. If they could maintain an action in their own name under the 111th section as the 'real parties in interest,' why enact the 113th section? It would have no other purpose than to confer on them a right and power which they already possessed. To give this construction to the term 'real party in interest,' must necessarily be violated a plain rule of statutory construction, by depriving an express exception of all meaning and purpose whatever. In fact, the effect of this construction would be to exclude from the operation of the 111th section those who had the 'beneficial interest,' and to include those only who held the 'legal title.' And this is absurd.

What, then, was the design contemplated by the 111th section? Evidently to establish a procedure, theretofore unknown to courts of common law, and to assimilate the practice in courts of law with respect to parties, with that which governed in courts of equity.

It would be strange, if one holding a bond as collateral security for one-half its amount, could bring suit upon it in the absence and without the knowledge of the pledgor, and by negligence or collusion, permit a defence to one-half the amount to prevail, on recovering the amount necessary to pay his own claim.

Mr. Justice STRONG delivered the opinion of the court.