Jackson & Sharp Co. v. Pearson

Decision Date31 May 1892
Citation60 F. 113
CourtUnited States Circuit Court, District of Kentucky
PartiesJACKSON & SHARP CO. v. PEARSON. PEARSON v. LOUISILLE SOUTHERN R. CO.

Richards Weissinger & Baskin, for Jackson & Sharp Co.

Stone &amp Sudduth and J. C. Bell, for Pearson.

Humphrey & Davie, for Mercer County.

BARR District Judge.

The first-named case is submitted on demurrer to the petition and the second on motion to remand to the state court. Both the demurrer and motion to remand raise the question of the jurisdiction of this court over the same matter, and will be disposed of together.

It appears from the petition in the first case, which was filed in this court October 31, 1891, that Mercer county subscribed $125,000 to the capital stock of the Louisville Southern Railroad Company, and was to pay for it by 5 per cent. coupon bonds of the county. This subscription was made upon certain named conditions, and the bonds were signed and sealed by the proper authority of the county, and deposited with a trustee to be held by him until the conditions were complied with by the railroad company. Subsequently, the trustee considered the conditions had been sufficiently complied with to allow of the delivery of $105,000 of the bonds of the county. This was done by the trustee, with the assent of the county authorities, but $20,000 of the bonds were retained to secure a compliance with certain other conditions of the subscription. The petition alleges that the railroad company, prior to August, 1889, had fully complied with all of the conditions of the subscription, and had offered to deliver to said county the remaining stock subscribed for by said county, but the said trustee refused to deliver said bonds. The petition further alleges that said railroad company, on the ___ day of ___, 1887, assigned and transferred, for a valuable consideration, all of its right, title, and interest in and to said bonds to the Southern Contract Company, which is a Kentucky corporation, and that said contract company, for a valuable consideration,--it being at the time the owner of said $20,000 of bonds,--assigned and transferred to the Jackson & Sharp Company all of its right, title, and interest in said bonds; that said Jackson & Sharp Company is a corporation organized under the laws of the state of Delaware, and thus a citizen thereof. The petition further states that the defendant Pearson holds said bonds wrongfully, and has refused to deliver the same upon demand, and that he is a citizen and resident of the state of Kentucky; and prays for the recovery of said bonds, with the coupons attached, maturing after August, 1889, and for damages for the detention. The demurrer raises the question whether the plaintiff, as an assignee of the Southern Contract Company, a Kentucky corporation, can maintain this action in this court.

The third section of the act under which these bonds were issued by Mercer county provides that, if the county judge shall determine that a majority of the legal votes at the election were cast in favor of the subscription of stock to the Southern Railroad Company he should enter an order subscribing for the county to the capital stock of the railroad company in accordance with the terms of the proposition voted on, 'and he shall therefore cause to be prepared and execute the negotiable bonds of such county * * * which shall be signed by him as county judge, and attested by the county clerk with his official seal affixed thereto.' The fourth section of the act provided that 'the county judge of such county shall order that such bonds shall be deposited with a trustee or trust company, to be held in escrow, and delivered to the said railroad company when it shall become entitled to the same by the construction of its roads through such county,' etc. The submission to the vote of the voters of Mercer county had additional conditions to those prescribed by the act, and we understand from the exhibit filed with the petition that the subscription was made upon the conditions prescribed by the order of submission, and that the defendant Pearson holds these bonds in escrow until these conditions are performed. The theory of the Jackson & Sharp Company action is that, when the conditions upon which the stock was subscribed were fully performed by the railroad company, the bonds in the hands of Pearson became the legal and valid bonds of the county of Mercer, and that its right of action arose from Pearson's wrongful detention of these bonds, the title of which has vested in it by reason of the performance of the conditions of the subscription. It may be assumed, on this demurrer, that the railroad company has, as alleged, complied with all of the conditions of the county's subscription to its capital stock, and that this compliance was prior to the assignment by the contract company to plaintiff of the right to these bonds, and that plaintiff is willing and able to deliver to the county of Mercer the $20,000 of the railroad stock. But is it not equally true that these bonds have never been issued by the county of Mercer, so as to become the binding and existing obligations of the county? If these bonds have never been delivered, and are not existing obligations to pay the money therein according to their tenor and terms, must not plaintiff's rights, whatever they may be, exist by and through the original subscription to the capital stock of the railroad company, which the contract company has assigned to the plaintiff? If these bonds had been delivered, and were subsisting obligations of the county of Mercer, then, under the case of Deshler v. Dodge, 16 How. 622, the citizenship of the contract company would not affect the jurisdiction of this court. In that case the supreme court sustained the jurisdiction of the circuit court, upon the ground of diverse citizenship, where a bank in Ohio transferred to a citizen of New York bank notes which had been distrained for taxes due the state of Ohio, and which were in the possession of a citizen and officer of Ohio. This decision was by a divided court, and was under the eleventh section of the act of 1789, which declared:

'Nor shall any district or circuit court have cognizance of any suit to recover the contents of any promissory note or other chose in action in favor of an assignee, unless a suit might have been prosecuted in such court to recover the said contents if no assignment had been made, except in cases of foreign bills of exchange.'

The court say (page 631):

'It is admitted the assignors in this case could not have maintained the suit in the federal courts. We are of the opinion that this clause of the statute has no application to the case of a suit by the assignee of a chose in action to recover possession of the thing in specie, or damages for the wrongful caption or detention, and that it applies only to cases in which the suit is brought to recover the contents, or to enforce the contract contained in the instrument assigned.'

The theory of plaintiff's suit is that he is suing for the thing in specie (the coupon bonds), and for damages for their wrongful detention; but as these bonds, as a chose in action, have no legal existence, can the suit be maintained, under the decision? It is evident that these bonds, though regularly signed and sealed, and delivered in escrow to the trustee, are not the valid and binding bonds of the county until the conditions of the subscription have been complied with, and then delivered by the trustee to the railroad company, or those claiming under said company. When delivered, they do not date back to the day of signing, but to the time of the execution of the conditions upon which the subscription was made. The railroad company, or those claiming under it, may have a perfect legal right to have these bonds delivered, because of a full compliance with the conditions upon which the subscription was made; but, unless and until these bonds are delivered, they are not the valid, negotiable bonds of the county of Mercer, which may be bought and sold or transferred without regard to, and disconnected from, the original contract of subscription. It is not an existing bond of the county of Mercer which has been transferred to the plaintiff, but a contractual right to have such bonds issued and delivered to the plaintiff. This right, whatever it may be, comes from the terms of the original subscription of stock by the county of Mercer; and, whatever may be the form of this remedy sought, the right itself comes from and through that original contract between said county and the Louisville Southern Railroad Company. The contract company took its right from the railroad company, and the plaintiff derives its right from the contract company; and the right of both must rest upon the enforcement of the terms of the subscription of stock by the county of Mercer, and its contract with the railroad company, and not otherwise. While it is true the plaintiff is seeking to recover the possession of these bonds, and not the principal or interest thereof, it is nevertheless true that it is seeking, and must seek, to enforce the contract made between the railroad company and the county of Mercer, by which these bonds were put in escrow to await the performance of certain conditions of the subscription of the county to the capital stock of the railroad company. If plaintiff's right to have these bonds delivered to it is assignable under the Kentucky statutes, it must sue as the assignee of the contractual rights of the railroad company, and for the enforcement of those rights. The language of the act of August, 1888, follows that of the act of 1789 upon this subject. It declares that:

'Nor shall any circuit or district court have cognizance of any suit, except upon foreign
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