Christmas v. Russell (81 U.S. 69)

APPEAL from the Circuit Court for the Southern District of Mississippi; the case being thus:

Richard Christmas, of Kentucky, on 30th November, 1859, sold to one Lyons, of Mississippi, an estate there, and received in consideration therefor his promissory notes, each for $16,666, payable to him the said Richard or bearer, with interest, with a mortgage on the estate.

These notes subsequently (May, 1866) passed into the hands of H. H. Christmas, also of Kentucky, the son of Richard by his first wife, who, in the following June, had a settlement and compromise with Lyons, who paid a certain sum in cash, and for the remainder executed his two promissory notes in favor of said H. H. Christmas, for $8339.90 each; one payable December 1st, 1866, and the other February 1st, 1868. These notes were to be secured by the mortgage aforementioned.

The said H. H. Christmas being indebted to Payne, Huntington & Co., of New Orleans, pledged to them, in February, 1867, the first of these notes. Neither note being paid, two suits were instituted on them in the Circuit Court of the United States for the Southern District of Mississippi; one in the name of H. H. Christmas, for the use of Payne, Huntington & Co., on the pledge above stated, and the other in his own name and for his own use.

A bill was also filed to foreclose the mortgage on the notes, on which these respective rights were asserted.

On the 1st May, 1868, H. H. Christmas entered into a written obligation with Mrs. Mary Christmas, the second wife of said Richard (and like her husband, of Kentucky); in which, in consideration of her assuming to pay the debt due to Payne, Huntington & Co., he transferred to her the note of Lyons, left in pledge with them. She having paid the note by a sale of her separate estate, made by Richard, under a power of attorney executed by his wife, and by a deed executed by him, as trustee for her, in June, 1868, the bill to foreclose the mortgage was amended, by showing this transfer and the payment of the amount due to P., H. & Co., and application was made to substitute her name for that of P., H. & Co., on the action at law. On the second of these notes a judgment was rendered on 13th November, 1868, for $8868. The other one remained in suit.

So far as to this part of the case. And now the subject-matter changes. It is thus:

On the 25th of May, 1860, one Russell, also of Kentucky, for himself and other persons there, for whom he sued, obtained a judgment for about $12,000 against the father, Richard Christmas, already named. The judgment was brought by writ of error to this court, and execution stayed by a supersedeas bond executed by the said Richard and one Yerger, and a certain Anderson, as his sureties. To induce Yerger and Anderson thus to become his sureties, Christmas had promised them a counter security of some sort, and he had in fact given them such security-the note of one Martin-which, however, to promote in some way his convenience, they had surrendered to him. The matter stood thus until the war of the rebellion closed, A.D. 1865. Christmas had during the war gone to Texas, and thence went to Havana, and thence to Europe. On reaching Liverpool he wrote, October 23d, 1865, a letter to Yerger, thus:

'I feel great uneasiness about your liability on the bond in suit of Russell against me. I have ever held the Lyons note as ''sacred for the payment of this debt, and have it now in New York endeavoring to sell it with the mortgage to pay this debt. I expect to hear from it daily. If not sold I will send it to you as soon as I return''.'

On the 14th of February, 1866, he wrote again, stating that he had countermanded the sale of the Lyons note, and that he would make a liberal arrangement with him, and adds:

'I could not safely send you Lyons's note by mail, as it is payable to me or bearer; hence, if lost, might put me to much trouble.'

On the 20th of February, 1866, he wrote again to Yerger, stating that he had written on the 17th, proposing that if Lyons would take up Russell's debt he would allow it as a credit, dollar for dollar, on the note; but reflecting that the judgment might not be affirmed in the Supreme Court of the United States, and that the note was well secured, he requests that no further action be had until he can be better informed, suggesting that the rents of the land subject to the mortgage would pay the amount for which Yerger was surety, and then adds:

'I will hold this note-$16,666, and many years' interest always subject to this debt, provided the judgment is affirmed, until which time let the matter rest where it is. When a compromise is made it must be through you as surety. I am sorry you told Lyons of our understanding, as he will be apt to let Russell know, and prevent an advantageous compromise.'

On the 21st of February, 1866, he wrote again from Liverpool, saying, 'I wrote you on the 17th and 20th,' suggesting that he had written to Burwell to compromise the Russell debt, and adds:

'You may rest assured I will protect you with the Lyons note. . . . This fact should not be known, to enable me to make a good compromise.'

On the 12th of May, 1866-after the transfer of the notes to his son, H. H. Christmas, which he says he had been compelled to make-he adds:

'In this I hope I have not lost sight of my purpose to protect you,' &c.

In this state of things-and Richard Christmas being now wholly insolvent-Russell and the others, for whom he had recovered the judgment, filed a bill in the same, the Circuit Court for the Southern District of Mississippi, against Lyons, still of Mississippi, and all three of the Christmases, father, wife, and son-these last three, like himself, as already mentioned, being citizens of Kentucky-setting forth the facts above stated, including the citizenship; and seeking to enjoin Lyons from paying his notes to either Mrs. Christmas or to the son, H. H. Cristmas, and seeking to cause the payment (when payment was to be made), to be made to them, on the ground of their already-mentioned judgment against the father, Richard Christmas (for the payment of which Yerger and Anderson, his sureties, had, by the affirmance of the judgment, in this court, become equally liable with him), and on the further ground that the said Richard had made an equitable assignment of the fund to them, and that they were in equity entitled to enforce the security.

The court below decreed for the complainants, 'it appearing,' as it said, 'that the said Richard, with intent to provide for the payment of the judgment, in case the same should be affirmed, and to induce the said Yerger and the said Anderson to become his sureties aforesaid, did agree to provide special indemnity to them; and with such intent, and to the end that said judgment should be paid, and his said sureties saved harmless, did assign to them, his said sureties, the debt mentioned in the complainants' bill, as due from the defendant, Lyons, to him, the said Richard;' 'and did so assign and set apart the said debt to the sureties aforesaid, as to give them a lien upon the said debt, which in equity they are entitled to enforce for the purpose of paying the said judgment, and that their lien attaches to and binds the debt due from Lyons, and not converted by said Harry and Richard, and which debt is evidenced by the judgments recovered in this court in favor of H. H. Christmas, and of H. H. Christmas for the use of Mary E. Christmas, and by a decree in this court against Lyons in favor of said H. H. Christmas and Mary E. Christmas, foreclosing the mortgage, executed by said Lyons, to secure the payment of said debt due by him as aforesaid.'

The court accordingly decreed payment to the complainants of the fund in court, which had been paid by Lyons, $7873, and that the said Lyons pay to them $8192, with interest from the 21st May, 1869.

From this decree the present appeal was taken. The errors assigned being—

First. That under the Constitution, which declares that the judicial power shall extend to 'controversies between citizens of different States,' the court below had no jurisdiction over the defendants, Richard, H. H., and Mary Christmas, who were stated in the bill to be citizens of Kentucky.

Second. That if this was not so, and if the court below had jurisdiction, the evidence did not authorize the conclusion that there had been an equitable assignment.

Mr. P. Phillips, for the appellants:

As to jurisdiction. The complainants are citizens of Kentucky, and Richard, H. H., and Mary Christmas, the only real defendants, are citizens of the same State. The controversy between these parties arises out of the question, whether Richard had made to the complainants, or to others for their benefit, an equitable assignment of the three original notes given by Lyons to Richard on the purchase of certain real estate. That controversy is for the first time brought to the notice of the court by the bill filed in this case. The court, therefore, by the language of the Constitution, had no jurisdiction of the controversy, unless the bill was a bill not original; that is to say, unless it was ancillary to a case of which it had jurisdiction. Then, indeed, as of a matter but ancillary to the former case, it would have jurisdiction, though it would not have it as of an original proceeding. This is all hornbook law.

Now, the bill here was an original bill, for it related to matters not before litigated in the court by the same persons, standing in the same interest.

The matter of this equitable assignment was never litigated before in the court, nor was the bill an addition to, or a continuance of, an original suit. It is therefore an original bill. Cases on the subject in this court are, Logan v. Patrick, Sims v. Guthrie, Dunn v. Clark, Clark v. Mathewson, and lately, Jones v. Andrews. In all these cases the suit was sustained irrespectively of citizenship; but in each the suit was but a continuation of a former controversy and between the same parties. The same is true of Dunlap v. Stetson, a circuit case. The absence of jurisdiction being thus clear, the decree must on that ground be reversed and the bill dismissed. This being so, the court cannot properly pass upon the other point. Any decision of it would be extrajudicial.

But if the court thinks that the jurisdiction exists, the case is clear on merits. As far back as Lord Hardwicke's time, and in Ridgway's Cases, in a suit where A. filed a bill against B., and one of his debtors, praying that the court would stay the money in the debtor's hands, and not suffer it to be paid to B., for fear of his misapplying it, B. having promised to pay the complainant's demand out of such specific debt, Lord Hardwicke refused to hear any argument on the question. He dismissed the bill, saying:

'If a debtor promises to pay his creditor out of the money to be recovered in a certain suit, and on the faith of this promise the creditor forbears to sue him, this creates no specific lien on the money recovered.'

And this same doctrine, declared frequently since, is thus presented with emphasis of late times in the Leading Cases in Equity:

'It is necessary, moreover, in order to constitute an assignment, either in law or in equity, that there should be such an actual or constructive appropriation of the subject-matter assigned as to confer a complete and present right on the assignee, even when the circumstances do not admit of its immediate exercise. A covenant on the part of a debtor, to apply a particular fund in payment of the debt as soon as he receives it, will not operate as an assignment, for it does not give the covenantee a right to the funds, save through the covenantor, and looks to a future act on his part as the means of rendering it effectual.'

Speaking of this extract, the Supreme Court of Ohio says:

'This rule seems to be well sustained and settled by the cases cited in its support.'

Mr. Hubley Ashton, contra:

Of course, if there is no jurisdiction the case is at an end, and no question of merits arises. But there is jurisdiction, for a bill of the character of the one filed in this case, to enjoin proceedings pending in the Circuit Court, and to prevent a wrongful use of the proceedings, is not regarded as an original suit; and non-resident plaintiffs in the proceedings sought to be enjoined, or as to which relief is sought, being in court as parties, may be made such by the bill. This court, in Freeman v. Howe, correct the case of Dunn v. Clark, relied on by Mr. Phillips. Referring to the opinion given in that case, they say:

'It would seem, from a remark in the opinion, that the power of the court upon the bill was limited to a case between the original parties to the suit. This was probably not intended, as any party may file a bill whose interests are affected by the suit at law.'

The jurisdiction exists then, and question of merits does arise.

From the best authorities on the subject of equitable assignments, the following propositions may be extracted: 1. Anything which shows an intention to assign on the one hand, and from which an assent to receive on the other may be inferred, will operate as an assignment if sustained by a sufficient consideration.

2. No writing or particular form of words is necessary if the consideration be proved, and the meaning of the parties apparent.

3. The obligation to indemnify sureties is a continuing obligation, and a sufficient consideration for a transfer or conveyance.

The object of the parties here is apparent. It was to place Yerger and Anderson in the position of sureties with specific indemnity. Christmas being under an express obligation to do so, and having obtained the surrender of the first indemnity on an understanding that he was to replace it by something equivalent, Yerger accepted it, and notified Lyons of the understanding with Christmas. It was a power of attorney coupled with an interest, a designation of the fund as one to be used by the surety with power to use it, and notice to the debtor of that power and its object.

There can be no doubt as to the effect of this pledge as between the parties. A court of chancery could enforce it against Christmas, and against any party occupying the position of H. H. Christmas, who took the note long after it was due, and for a pre-existing debt and not as actual payment. A party taking securities after maturity takes the title of the vendor subject to all equities by which it is affected. Then, as to Mrs. Christmas, the whole matter was conducted by Richard Christmas, who had, as her agent, full notice.

The right and justice of the claim of the sureties to have this debt applied to their relief is clear. The opposing title of the son and wife of Richard Christmas looks like a fabricated title. No fair-minded person can read the letter of October 23d, 1865, in which the elder Christmas declares that he has ever held the note 'sacred for the payment of this debt,' that he 'has it now in New York endeavoring to sell it in order to pay this debt,' and if not sold 'will send it to Russell,' and not feel a disposition to sustain the decree below, unless the claims of Mrs. Christmas and the son are clear, which they are not.

Reply: The language cited from Freeman v. Howe et al. was extra-judicial; dictum merely. It is unsupported by the two cases to which it refers, to wit: Pennock v. Coe, and Guy v. Tide-water Canal. The question now under consideration did not directly arise, nor is it even remotely referred to in the argument.

Mr. Justice SWAYNE delivered the opinion of the court.