Kolze v. Hoadley/Opinion of the Court

The sole question presented by the record in this case is whether this is a suit to recover the contents of a chose in action in favor of an assignee, which could not have been prosecuted if no assignment or transfer had been made.

By § 1 of the act of August 13, 1888 [25 Stat. at L. 434, chap. 866, U.S.C.omp. Stat. 1901, p. 508], it is provided that no circuit nor district court shall 'have cognizance of any suit. . . to recover the contents of any promissory note or other chose in action in favor of any assignee, or of any subsequent holder,. . . unless such suit might have been prosecuted in such court to recover the said contents if no assignment of transfer had been made.' This language is taken from the original judiciary act of 1789 [1 Stat. at L. 73, chap. 20, § 11, U.S.C.omp. Stat. 1901, p. 508], and has been in force, except for a few years, since the foundation of the government.

In construing this clause the decisions of this court have settled the following propositions:

1. That a suit to recover the contents of a promissory note or other chose in action is a suit to recover the amount due upon such note, or the amount claimed to be due upon an account, personal contract, or other chose in action. Sere v. Pitot, 6 Cranch, 332, 3 L. ed. 240; Deshler v. Dodge, 16 How. 622, 631, 14 L. ed. 1084, 1088; Bushnell v. Kennedy, 9 Wall. 387, 19 L. ed. 736; Shoecraft v. Bloxham, 124 U.S. 730, 31 L. ed. 574, 8 Sup. Ct. Rep. 686.

In Corbin v. Black Hawk County, 105 U.S. 659, 26 L. ed. 1136, a suit to compel the specific performance of a contract was held to be within the statute, Mr. Justice Blatchford observing (page 665, L. ed. 1138): 'The contents of a contract, as a chose in action, in the sense of § 629 (U.S.C.omp, Stat, 1901, p. 503), are the rights created by it in favor of a party in whose behalf stipulations are made in it which he has a right to enforce in a suit founded on the contract; and a suit to enforce such stipulations is a suit to recover such contents.'

2. That a suit to foreclose a mortgage is within the inhibition of the act, and can only be maintained where the assignor was competent to file the bill. Sheldon v. Sill, 8 How. 441, 12 L. ed. 1147; Blacklock v. Small, 127 U.S. 96, 32 L. ed. 70, 8 Sup. Ct. Rep. 1096.

3. That the bill or other pleading must contain an averment showing that the suit could have been maintained by the assignor if no assignment had been made. Turner v. Bank of North America, 4 Dall, 8, 1 L. ed. 718; Mollan v. Torrance, 9 Wheat. 537, 6 L. ed. 154; Bradley v. Rhines (Bradley v. Hunt) 8 Wall. 393, 19 L. ed. 467; Anderson v. Watt, 138 U.S. 694, 702, 34 L. ed. 1078, 1081, 11 Sup. Ct. Rep. 449; Robertson v. Cease, 97 U.S. 649, 24 L. ed. 1057; Brock v. Northwestern Fuel Co. 130 U.S. 341, 32 L. ed. 905, 9 Sup. Ct. Rep. 552.

4. That a suit may be maintained between the immediate parties to a promissory note as indorser and indorsee, provided the requisite diversity of citizenship appears as between them, or upon a new contract arising subsequently to the execution of the original, notwithstanding a suit could not have been maintained upon the original contract. In such case the original contract may be considered to ascertain the amount of the damages. Young v. Bryan, 6 Wheat. 146, 5 L. ed. 228; Bank of United States v. Moss, 6 How. 31, 12 L. ed. 331; Superior v. Ripley, 138 U.S. 93, 34 L. ed. 914, 11 Sup. Ct. Rep. 288; Mollan v. Torrance, 9 Wheat. 537, 6 L. ed. 154; ''Marine & River Phosphate Min. & Mfg. Co. v. Bradley'', 105 U.S. 175, 26 L. ed. 1034.

This is primarily a suit to foreclose certain mortgages. Instead of setting up the mortgages, their maturity and nonpayment, and their assignment to plaintiff, leaving to the defendants to plead the release by Stade of October, 1898, as an extinguishment of the mortgages, she has chosen to set forth the entire facts, to attack the release as fraudulent as against her, and to insist that the original notes and trust deeds are valid in her hands, and to pray for a foreclosure of the same.

The gravamen of the suit and the object to be obtained are unaffected by the form of her bill. The suit is still, in substance, a suit to foreclose the trust deeds, and to remove the release as a cloud upon her title to them.

It may be that an action for fraud might have lain against the parties implicated, regardless of the citizenship of the parties from whom the plaintiff traced her title, or possibly a bill in equity to cancel the release deed of Stade and remove a cloud from the title. But where a bill is filed to foreclose a mortgage, and it appears by the bill itself that the mortgage has been fraudulently released to the mortgagor by a deed of which plaintiff had no notice, and the fraud is a mere incident, the bill is still one to recover the contents of a mortgage, within the meaning of the act, and will not lie in a Federal court unless the plaintiff's assignor might have maintained the bill if no assignment or transfer had been made. It would advantage the plaintiff nothing to obtain a cancelation of the release without also foreclosing the mortgage in the same or a subsequent suit, while a right to foreclose the mortgage could not be established without incidentally avoiding the release.

In this aspect of the case it would seem to me immaterial whether the plaintiff derived her title directly from Stade, to whom she had advanced money and afterwards purchased the notes and trust deeds, as alleged in the bill, or through William P. Smith, who had obtained the notes and trust deeds from Stade, his debtor, since both Stade and Smith were citizens of the state of Illinois, and the inhibition of the statute would apply in either case.

The case of Blacklock v. Small, 127 U.S. 97, 32 L. ed. 70, 8 Sup. Ct. Rep. 1096, is similar, and, we think, practically decisive of the one under consideration. A suit was brought in the circuit court for South Carolina by two daughters of John F. Blacklock, who were citizens of Georgia, against certain defendants, who were citizens of South Carolina. It seems that Blacklock had sold a house and lot in Charleston to the defendant Small, who had given back a bond and mortgage to secure a portion of the purchase money; that Blacklock subsequently assigned the bond to Alexander Robinson in trust, for his (Blacklock's) children; that Small pretended to pay the bond by making payment to Robinson in Confederate treasury notes; that upon receipt thereof, Robinson satisfied the mortgage and delivered up the bond to Small; that Robinson, in receiving such payment, violated his duty, and was guilty of a breach of trust; that Small, in attempting to pay the debt in illegal currency, with full notice of the trust, had not paid the debt; that the satisfaction of the mortgage was void; that its lien was still subsisting, and that Small was still liable for the amount due upon the bond. It was held that, as the suit was one against Small, founded upon contract, namely, his bond and mortgage in favor of plaintiffs, who claimed only under the assignment made by their father, John F. Blacklock, to the defendant Robinson, such suit would not lie, inasmuch as plaintiffs' assignor, John F. Blacklock, was a citizen of South Carolina and of the same state as Small. In answer to this it was insisted that the suit should not be considered as one founded upon the contract of Small, but as one for the delivery of the bond and mortgage by Small to the plaintiffs, founded on their wrongful detention, and that the foreclosure and sale of the premises prayed for was merely ancillary and incidental. The contention was held to be unsound, Mr. Justice Blatchford saying that the bill was clearly one for a decree for the amount of the bond and a sale of the mortgaged premises. In other words, the foreclosure and sale were treated as the main objects of the bill, and the breach of trust of Small as a mere incident. The cases of Deshler v. Dodge, 16 How. 622, 14 L. ed. 1084, and Bushnell v. Kennedy, 9 Wall. 387, 19 L. ed. 736, were cited and distinguished.

By analogy to Blacklock v. Small, we think the gravamen of this case must be treated as the foreclosure of the trust deeds in question, and the prayer for a cancelation of the release given by Stade to Friederich Kolze as a mere clearing of the way to a decree establishing the title of the plaintiff to the notes and trust deeds. As the plaintiff is thus compelled to trace her title through Stade or Smith, who are both citizens of Illinois, and neither of whom could have prosecuted this suit, she is affected by the same incompetency.

The case of Holmes v. Goldsmith, 147 U.S. 150, 37 L. ed. 118, 13 Sup. Ct. Rep. 288, on which the plaintiff relies, is not in point. That was an action by a nonresident against the maker of a note, who had signed it entirely for the benefit of the payee, who was really the party for whose use it was made. The maker and payee were citizens of the same state. The plaintiff, a bona fide holder, had paid full value for it to the payee, who had indorsed it to him. It was held the court had jurisdiction; that evidence showing the real relation of the parties was admissible, and that the jurisdiction of the circuit court 'was properly put by the court below upon the proposition that the true meaning of the restriction in question was not disturbed by permitting the plaintiffs to show that, notwithstanding the terms of the note, the payee was really a maker or original promisor, and did not, by his indorsement, assign or transfer any right of action held by him against the accommodation makers.'

The decree of the Circuit Court is therefore reversed, and the case remanded to that court, with instructions to dismiss the bill.